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Can a US citizen start a business in the Philippines?

Published in Foreign Business Philippines 5 mins read

Yes, a US citizen can indeed start a business in the Philippines. While the opportunity exists, the extent of foreign ownership and the specific requirements depend significantly on the type of business activity and industry sector.

Foreign Ownership Rules in the Philippines

The Philippines generally welcomes foreign investment, and in many sectors, foreign individuals and entities can have significant ownership. Specifically, foreigners are permitted to own up to 100% of certain types of businesses. These typically include enterprises that are export-oriented, those involving advanced technology, or businesses requiring high capitalization.

However, it's crucial to understand that not all industries allow full foreign ownership. Some sectors are subject to constitutional or legal restrictions, which may require a Filipino partner or limit foreign equity participation to a certain percentage, often 40%. These restrictions are primarily in place to protect national interests and local industries.

Industries with Restricted Foreign Ownership

Several sectors in the Philippines have limitations on foreign ownership, requiring either majority Filipino ownership or complete reservation for Filipino citizens. Examples of commonly restricted industries include:

  • Mass Media: Entirely reserved for Filipino citizens.
  • Retail Trade Enterprises: Foreign equity is generally limited unless the paid-up capital exceeds a certain threshold (e.g., US$2.5 million).
  • Advertising: Foreign equity is limited to 30%.
  • Public Utilities: Foreign ownership is capped at 40%.
  • Ownership of Land: Foreigners cannot directly own land, but they can own buildings and lease land for extended periods (e.g., 25 years, renewable for another 25 years).
  • Education: Foreign ownership in educational institutions is restricted.

Business Structures Available for Foreigners

US citizens looking to establish a presence in the Philippines can choose from several business structures, each with its own implications for ownership, liability, and operational scope.

Business Structure Description Foreign Ownership Limit
Domestic Corporation This is the most common form for businesses intending to operate and earn revenue within the Philippines. It is treated as a separate legal entity from its owners. While a minimum of two directors is required (up to 15), the number of foreign directors can be limited based on the foreign equity allowed in the specific industry. Varies by industry (e.g., 40% for restricted sectors, 100% for others)
Branch Office An extension of the foreign parent company, not a separate legal entity. The foreign company is fully liable for the branch's operations. This is suitable for businesses that intend to conduct the same business as their parent company in the Philippines. A branch office is generally allowed in industries that permit 100% foreign ownership. 100% in many allowed sectors
Representative Office A foreign company's liaison office in the Philippines. It does not generate income locally and is primarily involved in information dissemination, promotion, and overseeing quality control for the parent company's operations. This structure is often used for market research or establishing preliminary contacts. 100%
Regional Operating Headquarter (ROHQ) A foreign company's administrative branch primarily engaged in supervisory, communications, and coordinating functions for its affiliates, subsidiaries, or branches in the Asia-Pacific region. An ROHQ does not earn income from the Philippines but may charge its regional affiliates for services. This structure requires a minimum inward remittance of US$50,000 annually for operating expenses. 100%

Key Steps to Starting a Business

For a US citizen to start a business in the Philippines, the general process involves several key registration and compliance steps:

  1. Choose a Business Type and Structure: Determine the nature of your business activities and select the most appropriate legal structure (e.g., domestic corporation, branch office).
  2. Reserve and Register Your Business Name: Secure your desired business name with the appropriate government agency – the Securities and Exchange Commission (SEC) for corporations and partnerships, or the Department of Trade and Industry (DTI) for sole proprietorships.
  3. Register with the Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI): This is the primary registration for your business entity. For corporations, you'll need to submit articles of incorporation, bylaws, and other requirements.
  4. Obtain Local Permits and Licenses:
    • Barangay Clearance: A permit from the local village where your business is located.
    • Mayor's Business Permit (Business Permit and Licensing Office - BPLO): Issued by the city or municipal government, allowing you to operate your business.
  5. Register with the Bureau of Internal Revenue (BIR): Obtain a Taxpayer Identification Number (TIN) and register your books of accounts, official receipts, and invoices for tax purposes.
  6. Register with Social Security Agencies: For businesses with employees, registration with mandatory social welfare agencies is required:
    • Social Security System (SSS)
    • Philippine Health Insurance Corporation (PhilHealth)
    • Home Development Mutual Fund (Pag-IBIG Fund)

Practical Considerations and Insights

Starting a business in a foreign country requires careful planning and understanding of local nuances.

  • Due Diligence: Thoroughly research your chosen industry's specific foreign ownership rules and regulatory landscape.
  • Legal and Financial Counsel: Engaging a reputable local corporate lawyer and accountant is highly recommended. They can guide you through the complexities of Philippine business laws, corporate governance, and taxation.
  • Minimum Capital Requirements: Be aware that some business structures or industries have specific minimum capital requirements for foreign investors.
  • Economic Impact: Businesses that promise significant economic benefits, such as job creation, technology transfer, or substantial exports, may find the registration process smoother or be eligible for incentives from agencies like the Board of Investments (BOI).
  • Cultural Understanding: Developing a strong understanding of Philippine business culture and practices can greatly contribute to your venture's success.

By carefully navigating the legal framework and understanding the specific industry regulations, a US citizen can successfully establish and operate a business in the Philippines.