It has been long misunderstood that foreigners cannot own their businesses in the Philippines. Indeed, in most industries in Philippines, foreign investments are restricted, but promoted by fiscal and non – fiscal incentives. The country’s Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA) states these incentives and their requirements for availment.
If your intended business falls into the industries outlined in the negative list, you are expected to follow the defined cap. And if your intended business does not fall within those restricted industries, there are also simple rules for foreign equity capital that you will still be expected to follow.
For domestic market enterprises (which are defined as companies deriving at least 40 percent of their revenue from sources within the Philippines), foreign equity is limited to 40 percent. It simply means that you cannot be company president. However, if your domestic market business has a minimum paid in capital of US$200,000 or more, the equity cap can be lifted and foreigners can fully own their businesses.
In addition, if your business will employ 50 people or more, or operate with advanced technology, the cap – related capital can be reduced to just US$100,000. While for export oriented enterprises (which are classified as companies deriving at least 60 percent of their revenue from sources outside the Philippines), they can do away with the capitalization requirement and go beyond the 40 percent cap on equity owned by foreigners.
Also note that Philippines have an Anti – Dummy Law, formally known as the Commonwealth Act No. 108, which classifies as offence any individual who violates the restrictions on foreign equity and those who evade laws on nationalization.
This Anti – Dummy Law also forbids the so – called “dummy arrangement” wherein foreign investors make plans for locals to buy a land in the Philippines and register the property under the local’s name. Note that both the locals and foreign nationals caught violating this law could be jailed for five to 15 years or asked to pay a hefty fine.
Although it has been a practice by foreign investors to use their marriage partner’s name or partner with a local to work around the restrictions, but this arrangement poses several risks as well.
7 Possible Industries to Invest in Philippines as a Foreigner
For a foreigner, it might be a challenging task to start a business in the Philippines as, legally; a foreigner cannot have a business license in their name. The total share of a foreigner in a firm can be 40 percent, while the remaining will be of a Filipino. Here are very viable industries you are allowed to invest in as a foreigner in the Philippines.
Table of Content
- 1. Real Estate
- 2. Retail
- 3. Manufacturing
- 4. IT, BPO, and Business Services
- 5. Healthcare
- 6. Travel and Tourism
- 7. Agriculture
- a. Strategic Location
- b. Filipinos are Confident Consumers
- c. Developing Infrastructure
- d. Unlimited Business Opportunities
- e. Strong and Quality Manpower Resources
- f. Openness to New Opportunities
- 1. Search the industry you are interested in
- 2. Choose and register a business name
- 3. Open a bank account and pay the minimum deposit
- 4. Apply and Secure the Needed Clearance and Business Permits
1. Real Estate
In the Philippines, Real estate is renowned as a flourishing industry even when it has already achieved so much in the last few years. As the country’s population keeps increasing there will always be a demand for property space and offices. It is a fairly sustainable market with attractive potential for high returns as investors can access a whole market for home seekers and travellers.
Note that amidst the currency inflation rate ravishing the country, overall spending and consumption among consumers are still high, thanks to the country’s high employment rate. Online shopping and delivery has been a driver of this rise, more Filipinos utilize mobile technology to fulfil their shopping needs.
Owing to the country’s low labour cost, the Philippines is a wonderful place to venture on manufacturing, covering the creation of products that include food and beverage, petroleum, transport, and industrial equipment, textile and others.
Accrington reports, the development in the Information Technology sector has led to a fast – paced and rapid expansion in Business Process Outsourcing, from the last decade, BPO’s emerged as the top contributors to the Filipino economy.
Experts have stated that this industry seems to be picking up steam as the country’s health expenditure grew significantly for the past few years. This is a wonderful indication that people prioritize a healthy lifestyle and a good industry to be looked on.
Note that the Philippines takes pride in its scenic beauty and lavish tourist destination, there is a huge demand for services, packages, offers, facilities, accommodations, trips, transport, food and beverage and other travel related services.
This country has been renowned as a tropical country that holds a massive agrarian land mass extending to 9.7 million hectares of fertile soil suitable for different crops like, coconut, rice, mango, sugarcane, corn, coffee, banana, pineapple and cacao. The country also produces poultry and livestock which support the basic needs of the region so it’s a good industry to venture on.
Why You Should Consider Investing in Philippines
Philippine is endowed with rich and abundant natural and mineral resources, beautiful tourist spots, and diverse culture, and it offers an ideal market to tap for both local and foreign entrepreneurs.
a. Strategic Location
Note that Philippines is in the heart of Asia, making it a strategic country that plays a very important role not only during the war era but even in terms of trade and commerce, and this has resulted in faster growth in its economy. The Philippines is situated within four hours flying time from major capitals of the region.
Sited at the crossroads of the eastern and western business, it is a well known entry point to over 500 million people in the ASEAN market and a gateway of international shipping and air planes suited for European and American businesses.
b. Filipinos are Confident Consumers
Filipinos are known to be very confident spenders in the world who put their hard – earned money on new clothes, vacations, investments and home improvements. Based on very reliable data, Philippines remains one of the top ranked spenders globally and on top of even the United States which placed fourth. The Philippines outranked neighbouring countries in Asia – Pacific such as India and Indonesia which placed second and third respectively.
c. Developing Infrastructure
Also note that Philippines is an archipelago that makes it quite hard to connect from every island, but the initiative of its government, a well – developed communication, transportation, business and economic infrastructure links the three major islands and distinguishes the Philippine economy. Very accessible by air, water and cyberspace, liberalization of inter – island shipping and domestic aviation further sparked improved facilities and services.
d. Unlimited Business Opportunities
Reports have it that Philippines has improved and primed up various areas for investors and offers a dynamic consumer market in line with a group of product choices created by a competitive domestic economy. The country also offers a good opportunity to new business ideas given its diverse culture backed up by confident buying power of its people, so see for yourself what opportunities this country offers.
e. Strong and Quality Manpower Resources
Have it in mind that Filipino workforce is one of the most compelling advantages the Philippines has over any other Asian country. With higher priority in its education, the literacy rate in the country is 99.08 percent of the highest in the region. English is taught in all schools aside from its native language, making the Philippines one the world’s largest English – speaking countries.
f. Openness to New Opportunities
Recent research has put Filipinos as very oriented people and quite receptive to changes and new ideas given its history from foreign colonizers. Note that challenges and problems are usually accepted and dealt regardless. They are also resilient even in the worst calamities that have hit the country over the past few years.
Step by Step Guide to Starting a Business in the Philippines
The process of starting a business in Philippines is quite straightforward as long as you abide with all the rules laid by the government. Here are the main steps you need comply with when starting a business in the Philippines.
1. Search the industry you are interested in
It’s very imperative you first identify the businesses that are not open to foreigners hence the need to visit government agencies responsible for registering businesses in the Philippines.
Then you will have to ensure you register the proposed business name in the different departments of states in the Philippines, and it is based on the type of business you want to register:
- For Sole Proprietorship you would have to visit the Department of Trade and Industry (DTI)
- For Corporation or Partnership company, you would have to visit the Securities and Exchange Commission
- For Cooperative business, you would have to visit the Cooperative Development Authority
3. Open a bank account and pay the minimum deposit
Note that part of the requirements of registering a new business in the Philippines is that the business owner must open a bank account and deposit a minimum amount of PHP 5,000 ($100), coupled with other additional requirements such as articles of incorporation and identification documents.
4. Apply and Secure the Needed Clearance and Business Permits
As a new business entity in the Philippines, you must secure all needed permits, licenses, tax requirements and clearances needed to start your business operations. You are advised to check with the local region where your business is located to know additional requirements needed aside from what was mentioned above.
- Mayor’s permit: The requirements for the mayor’s permit vary per municipality, but mainly, the list includes a contract of lease, barangay clearance, occupancy permit, sanitary permit, fire permit, and a community tax certificate.
- Secure a Certificate of Registration (COR) from the Bureau of Internal Revenue (BIR): you will need to handle the requirements of your employees. You need to ensure that they are registered with the Social Security System (SSS), PhilHealth, Home Development Mutual Fund (HMDF)/PAG – IBIG, and BIR.
- IP Registration: Applicants can process this online. Upon submission of requirements and payment of fees, the applicant will receive an email from the IPOPHL with the application number and filing date.
Despite the restrictions, starting a business in the Philippines can be an enticing given the booming start – up scene. Agreeably, the procedures can be daunting and time consuming, but you can hire a firm that can help you navigate the legal challenges of starting your own company. More importantly, a partner with thorough knowledge of the legal and business environment in the country can help you speed up the process.
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