FDI regulations and setting up a subsidiary company in The Philippines

Foreign Direct Investment Regulations

Foreign Direct Investment (FDI) in the Philippines is arranged through the Foreign Investment Act of 1991 which stipulates a number of restrictions on FDI in the Philippines. The main mechanism employed by this law is the Foreign Investment Negative List. This list outlines different industries and other economic sectors and their corresponding investment restrictions. Although the Philippines is trying hard to attract foreign investments, there are a significant number of restrictions. Aquaculture, fisheries, trading and processing are all restricted to a maximum foreign investment of 40%. The percentage of foreign investment allowed in a company will need to be approved by the Securities and Exchange Committee (SEC). It has been rumoured that the new president is planning to ease the restrictions on foreign investment, however this most probably will not include investments in the seafood sector. A large number agencies regulates business registration in the Philippines. Sole proprietorships must register with the Bureau of Trade Regulation and Consumer Protection (BTRCP) in the Department of Trade and Industry (DTI), while corporations and partnerships should register themselves with the SEC. Other permits and licenses are issued by different agencies of which BFAR is most important with regards to the seafood sector.

Setting up a foreign owned company

Foreigners intending to set up their own company in the Philippines have different possibilities for doing so. A foreign investor, like any local investor, can choose from the following types of legal entities when establishing operations in the Philippines:
  1. A private enterprise (sole proprietorship)
  2. A general partnership or a limited liability partnership
  3. A corporation: stock or non-stock
Any of these entities can be fully foreign owned. A brief description of all three types of these legal entities are described below. 1. Sole proprietorship This is the most straight-forward type of company in the Philippines. A private enterprise is owned by an individual who is liable for all of its operations with his/her entire property. That is, he/she owns all the assets, personally owes and answers all liabilities. The owner enjoys all profits to the exclusion of others or suffers all losses. However foreign investors will mostly likely not make use of the sole proprietorship but prefer to set-up a corporation or partnership instead because of the high risk of full liability. A sole proprietorship must apply for a Business Name and be registered with the Department of Trade and Industry- National Capital Region (DTI-NCR). In the provinces, application may be filed with the extension offices of the Department of Trade and Industry (DTI). 2. Partnership A partnership enterprise has at least two partners who are co-owners of the company. Under the Civil Code of the Philippines, a partnership is treated as juridical person, having a separate legal personality from that of its members. Partnerships can be divided in two types: a general partnership or a limited liability partnership. At a general partnership, the partners have unlimited liability for the debts and obligation of the partnership. While at limited partnerships, one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. A partnership with more than 3,000.00 pesos capital must register with the Securities and Exchange Commission (SEC). 3. Corporation A corporation consists of at least five to fifteen incorporates each of whom must hold at least one share and must be registered with the Securities and Exchange Commission (SEC). Corporations are juridical persons established under the Corporation Code and regulated by the Securities and Exchange Commission (SEC) with a personality separate and distinct from that of its stockholders. The accountability of the shareholders of a corporation is limited to the amount of their share capital. The minimum paid up capital is 5,000.00 pesos. A corporation can either be a stock or non-stock company, regardless of nationality. If such company is at least 60% Filipino-owned (and 40% foreign-owned), it is considered a Filipino corporation. If more than 40% is foreign-owned, it is considered a foreign-owned corporation. Stock corporation A stock corporation is a corporation with capital stock divided into shares and authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held. Non-stock corporation A non-stock corporation is principally organized for public purposes such as charitable, educational, cultural or similar purposes. It does not issue shares of stock to its members.