Imagine forming a business in one of Southeast Asia’s most dynamic and growth-driven economies—the Philippines. Yes, as a foreigner, you can start and own a business here. You can tap into a market hungry for innovation and take advantage of its strategic location, growing consumer base, and increasing government support for foreign investments.
Ready to make your move? This article is your ultimate step-by-step guide on how to form a business in the Philippines as a foreigner. We’ve got you covered with everything you need to know—from the top sectors for foreign investment to the process of business registration and the ongoing compliance requirements.
Understanding Foreign Investments Act (FIA)
The Foreign Investments Act (FIA) of 1991 (R.A. 7042), along with its amendment by R.A. 8179, is the primary legislation that governs foreign investments in the Philippines. It covers almost all investment areas, except banking and other financial institutions, which are regulated by the Bangko Sentral ng Pilipinas (BSP). It promotes foreign investment to boost job opportunities, increase exports, improve farm products, and bring in foreign capital and technology.
An important provision of the FIA is the Foreign Investment Negative List (FINL), which lists sectors where foreign investment is limited or restricted, such as mass media, public utilities, and small-scale retail. But many industries are open to full foreign ownership, as long as you meet the legal requirements, like obtaining the necessary licenses and permits.
Complementing the FIA, the Philippine government also offers incentives like tax holidays and exemptions through agencies like the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA) to attract foreign investors like you. Plus, with the Ease of Doing Business Act (R.A. 11032), setting up your business has become easier than ever.
How to Form a Business in the Philippines as a Foreigner (Step-By-Step Process)
To form a business in the Philippines as a foreigner, you need to follow a series of steps to make sure you are fully compliant with local laws and regulations.
1. Identify the Sector or Industry You Want to Venture Into.
First, you need to consider the sector or industry you want to enter. The country offers numerous high-potential sectors you can explore for profitable business opportunities.
IT and BPO Services. If you plan to form a business in the IT and BPO sector, the Philippines offers opportunities as a global leader in outsourcing services. With high demand for IT solutions and customer support, this industry presents significant growth potential for foreign investors like you.
Real Estate and Construction. Forming a business in real estate and construction in the Philippines can be highly profitable for you, as it is driven by demand for residential, commercial, and industrial properties, along with the fast-growing population and urbanization.
Manufacturing. You can also tap into the thriving manufacturing sector, which expands in areas like electronics, automotive, textiles, and food processing. Also, the Philippine government offers incentives, such as tax holidays, to encourage foreign investment in the sector.
Retail and E-Commerce. With a growing middle class and a young, tech-savvy population, retail and e-commerce are also booming in the Philippines. As a foreign investor, you can benefit from the continuously expanding online market and the demand for consumer goods and services.
Renewable Energy. There are also significant strides in renewable energy, particularly solar, wind, and hydropower in the country. As a foreign investor, you can contribute to and profit from this transition while enjoying government support for sustainability.
Tourism and Hospitality. When you form a business in the tourism and hospitality sector, you will surely benefit from the country’s growing number of international visitors. There are significant opportunities in hotels, resorts, and travel services as the demand for tourism-related offerings continues to rise.
Finance and FinTech. If you want to form a business in the finance and financial technology industry, the country’s growing demand for digital banking and mobile payments can provide you a profitable opportunity. The expanding financial landscape creates space for innovative services and a promising sector for foreign investment.
Healthcare and Pharmaceuticals. The healthcare and pharmaceutical sectors are both expanding due to the country’s growing population and increasing demand for medical services. Investing in healthcare facilities, pharmaceuticals, or medical technology will allow you to tap into this critical and profitable industry.
Agriculture and Agribusiness. The Philippine government is also encouraging investment in agriculture, particularly in agribusiness and sustainable farming practices. As a foreign investor, you can contribute to the country’s agricultural development while profiting from opportunities in food production and processing.
Education and Training. With a growing emphasis on education, there is increasing demand for international schools, vocational training centers, and e-learning platforms. You can also invest in this sector by establishing educational institutions or digital learning platforms that serve the needs of a growing student population.
2. Choose the Right Business Structure.
If you’re planning to form a business in the Philippines as a foreigner, choosing the right business structure is fundamental to navigating legal and regulatory compliance effectively.
Sole Proprietorship. If you are a foreigner, you can form a sole proprietorship business in the Philippines, but you must meet certain capital requirements. Additionally, your business should not be listed in the Foreign Investment Negative List (FINL) for this structure to be viable.
Partnership. You may also enter a partnership or joint venture with a Filipino business, but the percentage of foreign ownership will be subject to the regulations set by the FINL. Some sectors may have limitations on how much control you can have.
Corporation. As a foreigner, you can establish a domestic corporation in the Philippines, but keep in mind that foreign equity is restricted depending on the industry. In certain sectors, however, full foreign ownership is allowed.
Branch Office. Your branch office will serve as an extension of your foreign company in the Philippines. While it is considered part of your parent company, it must comply with local laws, corporate regulations, and taxation policies specific to the Philippines.
Representative Office. If you will set up a representative office, it cannot engage in profit-generating activities directly. Its role will primarily be to act as a liaison, conduct market research, promote your products or services, and provide information to your potential clients.
Regional Headquarters (RHQ). If you decide to establish a regional headquarters (RHQ), it will function as an administrative office overseeing and coordinating operations for your branch offices, affiliates, and subsidiaries within the region. However, it cannot directly generate income in the country.
Regional Operating Headquarters (ROHQ). Your regional operating headquarters (ROHQ) can be similar to an RHQ, but it can generate income. It centralizes key operational functions, such as logistics and supply chain management, and can also play a crucial role in business development across the region.
3. Understand Foreign Ownership Restrictions.
You must be aware of the foreign ownership restrictions in the Philippines. Yes, certain industries have limitations on the percentage of ownership you can hold. Make sure to check the FINL to determine which sectors are open to foreign investment and which ones have restrictions.
100% Foreign Ownership. As a foreign investor, you can own up to 100% of your business in the Philippines, except in sectors listed in the FINL. There are also no restrictions on the extent of foreign ownership of export enterprises.
Up to 40% Foreign Ownership. In some sectors, you are only allowed up to 40% foreign ownership. These include infrastructure projects, natural resource explorations, public utilities, educational institutions (with special conditions), and manufacturing of firearms, among others. Check the specific rules for each sector before investing.
Up to 30% Foreign Ownership. If you’re interested in investing in the advertising sector, you may hold up to 30% foreign equity. While there is room for your foreign participation, the majority ownership must remain with Filipino nationals.
Up to 25% Foreign Ownership. You can invest up to 25% in industries like private recruitment for local or overseas employment and contracts related to the construction of defense-related structures. These sectors have a lower cap on foreign ownership due to national interests.
O% Foreign Ownership. Lastly, there are sectors where your foreign ownership is completely prohibited. These include mass media, the practice of certain professions (with exceptions), retail trade with a paid-up capital of less than PHP 25,000,000, cooperatives, security agencies, small-scale mining, utilization of marine resources, and others.
4. Review the Legal Requirements to Form a Business as a Foreigner.
After taking consideration of the foreign investment restrictions, start familiarizing yourself with the necessary legal requirements to form your business. You must identify the required documentation, permits, and licenses, among others.
Visa and Residency Requirements. If you’re a foreigner looking to form a business in the Philippines, you must secure the appropriate visa. While ordinary business visas only allow short-term entries, there are special visas, like the Special Investor’s Resident Visa (SIRV), that can grant you residency in exchange for investments in specific sectors.
Labor Requirements. As a foreign business owner, you are also required to hire Filipinos for certain positions within your company. You may, however, hold technical, supervisory, or managerial roles by obtaining an Alien Employment Permit (AEP) from the Department of Labor and Employment (DOLE). If you need to hire other foreign nationals, then you must also apply for a 9G Work Visa (Pre-Arranged Employment).
Capital Requirements. To form a business in the Philippines, you must comply with the minimum capital requirements under the FIA. If your business has more than 40% foreign ownership, you will need a minimum paid-up capital of US$ 200,000. However, this can be reduced to US$ 100,000 if your business involves advanced technology or employs at least 50 Filipinos. Additionally, if your business qualifies as a company that exports at least 60% of its output, you can have 100% foreign ownership and a reduced paid-up capital of just US$ 100 (PHP 5,000).
Documentary Requirements. While it is mandatory to register your business with the government regulatory bodies, you must also prepare and submit documentary requirements which vary depending on the business structure. For a domestic corporation, you need to file your Articles of Incorporation (AOI), Bylaws, Treasurer’s Affidavit, bank certificate for paid-up capital, proof of address, and other clearances with the SEC. Additional documents will also be required for business permits and other licenses.
5. Secure the Necessary Work Visas and Permits.
As just explained, you will most likely be required to secure an Alien Employment Permit (AEP). It is a work permit issued by the DOLE to foreign nationals like you who want to work legally in the Philippines, regardless of the type or length of employment.
Additionally, if you’re a holder of a Special Investor’s Resident Visa (SIRV), Special Retiree’s Resident Visa (SRRV), Treaty Trader’s Visa, or Special Non-Immigrant Visa, you’ll also need to secure an AEP if you hold an executive, technical, or supervisory position in any company in the Philippines.
6. Pick a Business Location.
You need to pick the right location for your business, as it plays a pivotal role in your access to resources, markets, and clients. You might want to consider major business districts in the Philippines, such as the Bonifacio Global City (BGC), Makati, and Ortigas.
You can choose between a physical address for in-person operations or even a virtual office. Your physical address works best if you will need an actual space, although a virtual office will do for business registration purposes or if you can manage to have just a professional business address while saving on the overhead.
7. Register Your Business and Obtain the Necessary Permits and Licenses.
You’re almost there to forming your business! Get ready to register your business with the government. While the process can be complex with various regulations and paperwork, you might want to seek expert assistance from a reliable team to guide you through the entire business registration process and ensure everything goes smoothly.
Business Name Verification and Reservation. You’ll first need to verify and reserve your business or company name with the DTI (for a sole proprietorship) or SEC (for a partnership or corporation) and ensure that it is unique and available. Once verified, you can reserve it while completing the registration process.
SEC or DTI Registration. After verifying and reserving your business name, you must register with the SEC (for partnerships or corporations) or DTI (for sole proprietorships). Both agencies offer online registration systems, though some steps, like submitting hard copies of documents, may still require in-person visits.
Business Permits (Barangay and Mayor’s Permits). Once you have your registration certificate, secure the mandatory business permits—Barangay Business Permit and Mayor’s Permit—from the local government units (LGUs) where your business will operate. Both permits ensure your business complies with local health, safety, sanitation, and environmental regulations.
BIR Registration. Next, you must register with the Bureau of Internal Revenue (BIR) to obtain your BIR Certificate of Registration, which contains your Taxpayer Identification Number (TIN), VAT registration (if applicable), and other tax-related details. You will also need to register your books of accounts, print official receipts and invoices, and comply with other tax regulations.
Secondary Licenses (if applicable). If your business will operate in regulated sectors like banking, insurance, pharmaceuticals, or lending, you must obtain secondary licenses from relevant regulatory bodies, such as the Bangko Sentral ng Pilipinas (BSP), Insurance Commission (IC), and Food and Drug Administration (FDA).
Special Registrations and Accreditations. During the early stage of your business, you might want to explore government grants, tax exemptions, and other incentives that reduce your financial burden and provide valuable resources to support your growth. These include special registrations and accreditations with PEZA, BOI, BOC, PhilGEPS, etc.
Employer Registrations. Finally, you must register your business with key statutory agencies, such as the Social Security System (SSS), PhilHealth (PHIC), and Pag-IBIG Fund (HDMF), to ensure compliance with labor laws and provide your employees with social security, health insurance, and other benefits.
8. Open a Business Bank Account.
When you form a business, it is crucial to open a separate business or corporate bank account to keep your finances organized. Consider factors like internet banking, deposit requirements, transaction ease, monthly fees, and the institution’s reputation when choosing a bank. Additionally, you might want to check if the bank offers special facilities for BIR’s eFPS tax filing, remittance of statutory contributions, and payroll management.
9. Hire Employees and Enroll Them with Statutory Agencies.
You need to register new employees with SSS, PhilHealth, and Pag-IBIG, submitting the required forms (R1A, PMRF, and MCRF). For existing members, simply collect their details and submit the necessary forms within 30 days of hire.
Ongoing Compliance for Foreign-Owned Businesses
As a foreigner owning a business in the Philippines, you’ll need to stay on top of several ongoing compliance requirements to keep your business running smoothly and avoid penalties.
SEC Reportorial Requirements
If you’ve formed a corporation, partnership, or One Person Corporation (OPC), you must maintain proper corporate books, including financial statements and shareholder records, and submit your annual financial statements and General Information Sheet (GIS) to the SEC.
Foreign Investment Negative List (FINL) Compliance
You need to ensure that your business complies with the Foreign Investment Negative List (FINL), which restricts foreign ownership in certain sectors. You are required to regularly submit documentation, especially if your business operates under a critical sector.
Tax Filings and Other Related Compliance
You must file your quarterly and annual tax returns with the BIR that cover your income tax, VAT, and other applicable taxes, and ensure proper withholding of employee taxes. Additionally, you are responsible for maintaining proper books of accounts and complying with receipt and invoice issuance rules.
Business Permit Renewals
You must renew your business permits annually with the local government units (LGUs) and pay any local business taxes and fees to avoid penalties and business suspension.
Updating Business Information
You must update your business information with government agencies if there are any changes in ownership, structure, or other important details to stay compliant with local laws and regulations.
Labor Law Compliance
As an employer, you must comply with the Labor Code of the Philippines by meeting employee rights and compensation standards. You must enroll your employees with SSS, PhilHealth, and Pag-IBIG Fund and ensure their contributions are properly remitted.
Health and Safety Compliance
If your business involves physical workspaces, such as factories, offices, or retail, you’ll need to meet health and safety regulations. This includes fire safety, sanitation rules, and other health-related standards to protect both your employees and customers.
Other Industry-Specific Compliance
Depending on your industry, there may be additional specific compliance requirements. For example, food businesses must adhere to food safety standards, while manufacturing businesses might need environmental clearances or permits.
In the end, forming a business in the Philippines as a foreigner can be a rewarding venture, but of course, it requires careful planning and compliance with the local laws and regulations. With the right support and a clear understanding of the process, you can confidently form a business and build a strong presence in the dynamic market.
… and you might just need our assistance.
At FilePino, we simplify the process of registering your business, ensuring compliance with all legal requirements. Our team of experts provides end-to-end support — from company registration to regulatory compliance — so you can focus on your investments and growth strategies.
Ready to form a business in the Philippines? Set up a consultation with FilePino today! Call us at (02) 8478-5826 (landline) and 0917 892 2337 (mobile) or send an email to info@filepino.com.
