Q: Why do business and invest in the Philippines?
Strategic geographic location
The Philippines lies in the heart of Asia, today’s fastest growing economic region.
Its strategic location makes it a potential gateway to more than 550 million peoples in the Southeast Asian market.
It is less than two hours to Hong Kong and within four hours flying time from Southeast Asian capital cities and most major cities in Asia.
It lies astride major international shipping and air lanes, making it suitable for European businesses.
Abundant mineral resources
The Philippines abounds in both metallic and non-metallic mineral resources. It is the biggest copper producer in Southeast Asia and among the top ten producers of gold in the world. Other metallic minerals found in the Philippines include cadmium, chromium, iron, manganese, mercury, molybdenum, nickel, silver, and zinc.
Non-metallic mineral resources consist of asbestos, asphalt, coal, guano, gypsum, limestone, marble, petroleum, phosphate rock, salt, silica, and sulphur.
Quality human resources
The Philippines has a highly skilled and educated workforce that speaks very good English. English is widely spoken throughout the archipelago and is the official business language.
It is the world’s third largest English-speaking country and produces close to 400,000 graduates a year, adding to an already large professional pool.
It has a literacy rate of 94.6%, which is among the highest in the region.
Its people are friendly and are familiar to the cultures of the East and the West, making the country an ideal second home to expatriates and providing a comfort level for most European business people.
The Philippines has a well-developed network of communications and transportation infrastructure that links the three largest islands of Luzon, Visayas and Mindanao. These islands are highly accessible by land, water and cyberspace.
Its specialized IT zones provide ready-to-occupy offices and production facilities, computer security and building monitoring systems, as well as complete office services.
Communications System and Facilities
The communications system provides international connectivity 24/7 with fiber optic cable as primary backbone network and satellite as backup.
Manila and other regional business centers have a modern and efficient telephone service that can directly connect to anywhere in the world.
There are several television stations providing local and international programming and hundreds of AM and FM stations, most of which use English as the medium of communications.
Cable TV is widely available throughout the country.
Newspaper dailies are generally in English. International newspapers and magazines are available in bookshops, hotels, and other establishments.
Airports and Ports
There are six (6) international airports: the Ninoy Aquino International Airport in Manila is the country’ main international gateway, serving more than 30 airlines, which fly to different cities around the world. The others include Laoag, Subic and Clark in Luzon, Cebu in the Visayas and Davao in Mindanao.
There is also a number of international port cities, including Manila, Batangas and Subic in Luzon; Cebu and Iloilo in the Visayas; and Davao in Mindanao.
Container terminals are suited to handle cargo traffic at the highest level of efficiency.
Hospitable and Affordable Luxurious Lifestyle
The Philippines is often voted as one of the most livable countries in Asia for expatriates.
It has increasingly become a favorite tourist destination, with its scenic spots, world-class business and recreation centers, and luxury holiday destinations at affordable prices.
It has a global outlook and tolerance for varied cultures.
Liberalized and Business-Friendly Economy
Government policy actively encourages foreign investments in practically all sectors of the economy and provides incentives to investment activities that encourage national development.
Foreign ownership is allowed in almost all sectors and the Build-Operate-Transfer (BOT) investment scheme is a major enabling mechanism for partnerships.
Incentive packages that include corporate income tax, reduced to its current 32% are provided, while companies operating in special economic zones are subject only to 5% overall tax rates.
There are many economic zones that offer a wide range of incentives and tax exemptions for companies locating their operations in these zones.
Multinationals with regional headquarters in the country are given incentives such as tax exemption and tax and duty-free importation of specific equipment and materials.
The banking, insurance, shipping, telecommunications and power industries have been deregulated and a number of government corporations are being privatized.
Economic reforms emphasize regional growth, converting remote areas into business centers.
Philippine Priority Sectors
The Philippines identifies the following sectors as priority for foreign investments under its Medium Term Development Plan:
a. Information and Communications Technology (ICT) services
e. Health care and wellness
h. Fashion garments
Q. What are the requirements before a foreign corporation can engage in business?
It must first secure the necessary licenses or registration certificates from the appropriate government agencies. Generally, the registration process starts with the Securities and Exchange Commission (SEC), the government agency responsible for the registration, licensing, regulation and supervision of all corporations licensed to engage in business or to establish a branch office in the Philippines.
If the proposed project or activity qualifies for incentives, the foreign corporation may file its application with the appropriate government agency depending on the project’s location, as follows:
1. Board of Investments (BOI). Website: www.boi.gov.ph. For projects outside the special economic zones
2. Philippine Economic Zone Authority (PEZA). Website: www.peza.gov.ph. For projects in any Special Economic Zone under PEZA
3. Subic Bay Metropolitan Authority (SBMA). Website: www.sbma.com. For projects in Subic Bay Freeport
4. Clark Development Authority (CDC). Website: www.clark.com.ph. For projects in Clark Special Economic Zone
5. John Jay Poro Point Development Corporation. For projects in John Jay Special Economic Zone, Poro Point Freeport and Special Economic Zone
6. Cagayan Economic Zone Authority. Website: www.cagayanfreeport.com. For projects in Cagayan Special Economic Zone
7. Zamboanga Economic Authority. Website: www.zambofreeport.com. For projects in Zamboanga City Special Economic Zone
Q. What areas are open to foreign investments and can a foreign investor own 100% equity?
Foreign investments in the Philippines have been liberalized with the enactment of the Foreign Investments Act of 1991. Almost all sectors of business is open to 100% foreign equity and investment except financial institutions and those included in the Foreign Investment Negative List (http://www.philembassy-uk.org/content/files/downloads/ForeignInvNegList.pdf) provided in the Foreign Investment Act of 1991 (http://www.philembassy-uk.org/content/files/downloads/ForeignInvAct1991.pdf)
Q. Is the mining industry open for foreign investments?
Yes. Under the Philippine Mining Act of 1995 (http://www.philembassy-uk.org/content/files/downloads/PhilMiningAct1995.pdf), foreign mining firms are now allowed to engage in mining activities in the Philippines and to register with the Bureau of Investments (BOI) for incentives. The Mining Act of 1995 also provides incentives to foreign enterprises engaged in mining in the Philippines.
Q. What is the rate of corporate income tax in the Philippines?
Foreign corporations are taxable on Philippine-sourced income at the same rate as domestic corporations at the rate of 35% starting 01 July 2005 but will be reduced to 30% with effect from 01 January 2009. A licensed foreign corporation will be treated as a resident foreign corporation; subject to the 35% tax on its net Philippine-sourced income. An unlicensed foreign corporation will be treated as a non-resident foreign corporation, subject to 35% tax on its gross Philippine-sourced income.
Branches of foreign corporations are subject to the same corporate tax rate. Branch profit remittances are subject to 15% tax, which can be reduced subject to tax treaty agreements.
Q. Can a foreigner engage in retail/trade in the Philippines?
Yes. Under the Philippine Retail Trade Liberalization Act (Republic Act No. 8762) (http://www.philembassy-uk.org/content/files/downloads/PhilRetailTradeLibAct2000.pdf) foreigners are allowed to engage in retail trade in the Philippines if their paid-up capital is US$2.5 million and above.
Q: What are the Hot Sectors for Foreign Investors
The Philippines is rich in mineral resources particularly in gold and copper. The Mining Act of 1995 liberalized the mining industry by allowing the entry of foreign mining firms and by granting a package of incentives to investors.
2. Renewable Energy Sources
The Philippines is aggressively pushing for the development of its indigenous renewable energy sources. Under the Philippine Energy Plan, the Government aims to exploit indigenous energy resources to reduce energy imports and eventually make the country self-sufficient in energy sources. Reforms are under way to encourage private sector participation and investments in the development of renewable energy. The passage of House Bill 1068, otherwise known as An Act to Promote the Development, Utilization, and Commercialization of Renewable Energy Sources; is expected to speed up the development of renewable energy resources by giving fiscal and non-fiscal incentives to renewable energy developers.
The Philippines has emerged as a favorite destination and hub in Asia for outsourcing of information and communication technology (ICT) and business process (BP) owing to its IT-trained, English-speaking, high quality and cost-effective workers, and modern ICT infrastructure.
The Philippine government grants incentives to outsourcing companies engaged in ICT. In addition, international connectivity, multi-media infrastructure and deregulated telecommunications industry are in place to promote the Philippines as a top destination for business process outsourcing.
4. Tourism Infrastructure and Facilities
The Philippine Government encourages foreign investment in tourism-related projects such as tourist accommodation facilities, tourism estates, historic-cultural heritage projects and tourist bus operations. Foreign investments on these projects are entitled to BOI incentives.
Q: How to Register Company in Clark, Pampanga, Philippines ?
Clark’s Freeport zone, formerly called “Clark Special Economic Zone” located in the Pampanga province, in Central Luzon, Philippines, is a tax and duty free zone. Medium and large sized companies, both domestic and foreign, have set up operations in Clark in order to take advantage of the tax incentives and infrastructure, which was largely developed by the United States during the time Clark was still one of it’s military air bases in the Philippines.
The development of the former US air base into a freeport zone was due to the Executive Order 619, signed by the former Philippine President, Gloria Macapagal Arroyo. This executive order provides incentives and tax holidays to companies located in the freeport or special economic zones.Such tax incentive is a 5% corporate income tax on a company’s gross income.
To incorporate a company in Clark, Philippines, you must obtain a business address located in the freeport zone. Our in-house corporate and tax lawyers can assist you in drafting your Articles of Incorporation and By-Laws, registering your company with the SEC, BIR, LGU and registering you as an employer with the SSS, Philhealth and HDMF (also known as Pagibig).
Q: How does the Philippines define foreign corporations?
Foreign Corporations has been defined as one, which owes its existence to the laws of another state, and generally, has no legal existence within another state. Section 123 of the Corporation Code as one formed, organized, and existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in the Philippines.
Q: What is the general policy of the government for foreign investments?
The government encourages foreign investments, which will provide significant employment opportunities relative to the amount of the capital being invested, improve productivity of resources, increase volume and value of exports, and provide a foundation for the future development of the economy.
The government recognizes the pivotal role of private sector investments and, thereby, commits to continuously enhance the business climate. Foreign investments are encouraged to fill in capital gaps, help provide employment, increase production, and provide a base for the overall development of the economy.
Investment-related rules have been liberalized to facilitate entry of foreign investments. This thrust is expected to continue.
Q: Can a foreign company invest in the Philippines?
Yes. The Foreign Investment Act (R.A. 7042, 1991, amended by R.A. 8179, 1996) liberalized the entry of foreign investment into the Philippines. Under the FIA, foreign investors are generally treated like their domestic counterparts and must register with the Securities and Exchange Commission (SEC) (in the case of a corporation or partnership) or with the Department of Trade and Industry’s Bureau of Trade Regulation and Consumer Protection (in the case of a sole proprietorship).
Q: What is the percentage of foreign equity allowed under the FIA?
With the liberalization of the foreign investment law, 100% foreign equity may be allowed in all areas of investment except for financial institutions and those reserved for Filipinos by mandate of the Philippine Constitution and existing laws.
Q: What are those businesses with foreign investment restrictions?
Within the 1991 Foreign Investment Act (FIA) there are two negative lists, also known as the “Foreign Investment Negative List”, which defines the foreign investments, which are limited or restricted by the Constitution and specific laws. Negative List A & Negative List B.
Q: What requirements must be complied with before a foreign corporation can do business in the Philippines?
A foreign corporation must first secure the necessary licenses or registrations from the appropriate government bodies. In the case of corporations or partnerships, the necessary incorporation papers from the SEC must first be obtained. In the case of single proprietorship, registration from the Bureau of Trade Regulation & Consumer Protection of the Department of Trade and Industry must be secured.
Q: What are the requisites for obtaining a license to do business in the Philippines?
A foreign corporation shall be granted a license to transact business by filing a verified application with the SEC setting forth specifically required data, including certified copies of its articles of incorporation and by-laws.
Q: Is there a need for the foreign corporation to appoint its local agent in the Philippines?
Among the things to be stated in the verified application are the name and address of the foreign corporation’s resident agent authorized to accept summons and process in all legal proceedings and, pending the establishment of a local office, all notices affecting the corporation.
Q: How will the foreign corporation appoint its Philippine local agent?
A written power of attorney must be filed by the foreign corporation with the SEC designating some person who must be a resident of the Philippines, on whom service of summons and other legal processes may be served in all actions or other legal proceedings against such corporation, and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home office.
Q: Is there a need for the foreign corporation to execute an agreement with the SEC regarding service of summons?
In consideration of its being granted a license to do business in the Philippines, the foreign corporation shall execute and file with the SEC an agreement or stipulation agreeing that if at any time said corporation shall cease to transact business in the Philippines or shall be without any resident agent in the Philippines on whom any summons or other legal processes may be served, then in any action or proceeding arising out of any transaction or business which occurred in the Philippines, service of any summons or other legal processes may be made upon the SEC and that such service shall have the same force and effect as if its is made upon the duly authorized officers of the foreign corporation at its home office.
Q: What is the effect of failure to appoint or maintain a local agent?
The failure to appoint or maintain a resident agent in the Philippines or failure, after change of its resident agent or his address, to submit to the SEC a statement of such change, are grounds for revocation of a license granted to a foreign corporation to do business.
Q: Is there any Reciprocity Compliance?
Attached to the application shall also be a duly executed certificate under oath by the authorized official or officials of the jurisdiction of incorporation of the foreign corporation, attesting to the fact that the laws of the country or state of the applicant allow Filipino citizens and corporation to do business therein.
Q: Is there a need to deposit Securities?
Within sixty (60) days from issuance of the license to do business, such foreign corporation shall deposit with the SEC, for the benefit of its present and future creditors, Philippine securities in the actual market value of at least Php100,000.00, subject to further deposit of additional securities every six months after each fiscal year equivalent in actual market value to two percent (2%) of the amount by which the foreign corporation’s gross income for that fiscal year exceeds Php5,000,000.00.
Q: What is the effect of being issued a license to do business?
When a foreign corporation is issued the license to do business in the Philippines, it may commence to transact its business in the Philippines and continue to do so for as long as it retain its authority to act as a corporation under the laws of the country or state of its incorporation, unless such license is sooner surrendered, revoked, suspended, or annulled.
Q: What are the consequences of not obtaining a license to do business?
A foreign corporation doing business in the Philippines without first obtaining the license to do business
(a) shall not be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines;
(b) but such foreign corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.