A Limited Liability Corporation in the Philippines is called a domestic corporation.

This corporate structure limits shareholder liability to the extent of the capital provided.

This type of business structure limits liability more than the other structures often used for Incorporation in the Philippines.

 

 

A domestic corporation has the following characteristics:

• Can have 100% foreign ownership subject to some industry restrictions
• Is a limited liability company in the Philippines
• Income taxes, Withholding Taxes, Expanded Withholding Taxes, and VAT are applicable
• Capitalization may be Php 5,000 if export-oriented and without capital requirements per the Negative List.
• May be eligible for Tax Incentives depending on the situation.

 

This article provides how to register a business in the Philippines for foreigners, focusing on just domestic corporation structure. (For other structures available, please see my post on Incorporation in the Philippines)

I thoroughly discuss 100% foreign ownership and restrictions, liability, capitalization, and taxes.

I also discuss the SEC process that is the first when when we register a business in the Philippines and provide links to full instructions on City Hall Business Permits, BIR RDO Registration and enrolling at SSS, Pagibig and Philhealth.

For an assessment of your particular situation and whether a limited liability company works for you, contact us so that we can put you in touch with one of our Philippine corporate lawyers.

 

When foreigners register a business in the Philippines, there are often questions about ownership, liability and capitalization.

Let’s tackle one of the first questions people have:

Is 100% foreign ownership possible when you register a business in the Philippines?

The answer is yes.

You can register a business in the Philippines with 100% foreign ownership however, there are some industries with foreign ownership restrictions.

These industries are listed in the Philippine Negative list.

This Philippine Negative list is updated every few years.

 

 

In addition to industry restrictions, there are a few main points regarding foreign ownership restrictions in the Philippines:

• 100% foreign ownership is possible when a company exports 70% of its production
• Small and Medium Industries must have USD 200,000 capitalization to have 100% foreign ownership
• Retail and restaurant enterprises must have a capitalization of Php 25,000,000 to start and Php 10,000,000 per store to have 100% foreign ownership in the Philippines.

• Chemical, biological, nuclear and radiological weapons; pyrotechnic devices; security agencies; mass media; professions; small-scale mining and exploitation of marine resources; cockpits are strictly no foreign ownership
• Private recruitment and contracts for defense-related structures have a 25% foreign ownership restriction while advertising has a 30% foreign ownership restriction
• Development of natural resources, deep sea commercial fishing, public utilities, private land, infrastructure projects, educational programs, rice and corn related businesses, supply of government control corporations, private radio communications networks, dangerous drugs, gambling and saunas have a 40% foreign ownership restriction

 

I go through this in detail in my post on foreign business ownership in the Philippines.

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In many cases, the majority of clients we’ve handled who wish to register a business in the Philippines tend to gravitate toward a few industries.

The industries usually desired are BPOs or tech-related industries with mostly foreign clients which can have 100% foreign ownership in the Philippines with a capitalization of Php 5,000.

However, clients who want to do retail and restaurants often have a difficult time due to the capitalization requirement of Php 25,000,000.

The same is true for the USD 200,000 (or USD 100,000 for government-endorsed tech startups that must hire 15 Filipinos) capitalization requirement for SMEs.

A Philippine entity is sometimes brought in in these cases as an equity partner in the Philippine limited liability company to reduce the capital needed.

A last major issue is the foreign ownership of land or property – foreigners simply cannot own land or property. This prohibition is quite absolute.

(There is really no way around that foreign ownership restriction on land, although many have tried.)

One of the foremost considerations of foreign business owners is liability.

A limited liability corporation abroad protects personal assets from business liabilities.

The equivalent local corporate structure is a domestic corporation, which is basically a Philippine LLC.

A domestic corporation – or a Philippine LLC – is the is the best structure to limit liability when you wish to register a business in the Philippines.

There are other structures that are often considered, but there are some disadvantages when compared to an LLC in the Philippines.

For example, a One Person Corporation has to prove that the corporation was adequately financed. If this cannot be proved, then the stockholder shall be liable for the company’s liabilities. (Sec 130 RA 11232)

So, a One Person Corporation is inadequate in terms of limited liability as personal assets may be at risk.

 

 

The other 4 structures are for foreign companies who set up extensions of their business in the Philippines.

These are called resident foreign corporations and are sometimes pursued instead of a Philippine limited liability company.

Each of these 4 structures – a Branch, Representative Office, Regional Headquarters, and Regional Operating Headquarters – all share liability with their foreign parent.

So, liability is not contained to the Philippine entity.

Generally, we always advise foreigner owners to just set up a domestic corporation because of how it minimizes risk for the owners – it truly is the Philippine equivalent of a Limited Liability Corporation.

After liability concerns are addressed, another common question is how much capital is needed to register a business in the Philippines.

For a domestic corporation (the equivalent of a limited liability corporation in the Philippines), capitalization can be done for as little as Php 5,000.

This is for a Phlippine LLC that is 100% foreign owned, in an industry not on the Negative List and which is primarily export oriented.

 

However, capitalization is Php 25,000,000 if the industry being entered is retail and you wish for 100% foreign ownership.

Capitalization could also be USD 200,000 for small and medium enterprises or USD 100,000 if it is a Philippine government agency-backed technology startup with 15 Filipino employees.

This capitalization level would allow you to have 100% foreign ownership.

So, capitalization costs can vary depending on what the company’s situation is, and a Philippine limited liability company can be formed for anywhere from Php 5,000 to USD 200,000.

 

Taxation of a Domestic Corporation (Limited Liability Company in the Philippines) is as follows:

• 25% (20% Income taxes on income, not Php 5M and total assets not more than Php 100M)
• 2% MCIT after the 4th year
• 0 to 35% withholding taxes on employee compensation
• 12% VAT on sales

Withholding taxes have differing rates depending on the type of transaction.

In general, these would be the types of taxes that you would be expected to face for an LLC in the Philippines.

 

 

The requirements for incorporation of a limited liability company in the Philippines at the Securities and Exchange (SEC) Commission are below.

The SEC is the first step for when you register a business in the Philippines.

After the SEC, you will still have to register at the Barangay, City Hall, BIR, SSS, Pag-ibig and Philhealth.

SEC Requirements to register a business in the Philippines:

• Articles of Incorporation and By-laws
• Notarized Board Resolution
• Treasurer’s Name and Details
• Corporate Address
• Names for the Corporation, provide several versions in case the name as already been reserved
• Special Power of Attorney
• SEC F-100, if foreign equity is more than 40%
• Clearance from other government agencies, if applicable
• Cover Sheet to be submitted with hardcopy documents

 

Just a few things to note.

These SEC requirements to register a business in the Philippines can trip people up – especially the corporate address.

It is possible to have a temporary address but it is really best to put in the actual corporate address.

The transfer of business address can take several months to years because transferring to a new corporate address may kick off a BIR audit.

Thus, it is best to have the actual corporate address.

A few things to also keep in mind are:

• Make sure that the building is properly zoned and up to date.
• Make sure it has an occupancy permit.
• Avoid residential or condo addresses – because it is likely that they are not allowed to host businesses. (And if that is the case, then you would have to go through the change of business address process.)

Another item is that you must have is a Treasurer.

A Treasurer cannot be the same person as your Corporate Secretary.

Make sure that you’ve identified who your treasurer is so that you can proceed.

 

Lastly, remember that if you are abroad the documents that you sign may need authentication.

Otherwise, they may need be accepted when you register a business in the Philippines at the SEC.

Authentication means that the documents go through apostille.

However, if your country is not a Hague Apostille Convention member, you may have to go a Philippine embassy just so that the documents are compliant.

The SEC process for incorporation in the Philippines is relatively simple – but remember that the SEC process is only one of the requirements to register a business in the Philippines.

(You will still need to go to the Barangay, City Hall, BIR, Pag-ibig, SSS, Philhealth to fully register.)

 

SEC Process for Domestic Corporation (Limited Liability Company in the Philippines):

• Upload in ESparc the above-listed SEC requirements
• Documents will be approved
• If there are no issues, you will be asked to pay registration fees for your Philippine LLC (or other desired company structure)
• After payment, you will submit submission of hardcopy documents at the SEC, with the Electronic Official Receipt and Electronic Certificate of Registration which is the ESPARC output
• SEC Certificate of Registration for your Philippine LLC will be released

It can take a lot of time if issues during the registration for your limited liability company are just figured out late.

 

In general, the SEC process to register a business in the Philippines can take 2 or 3 months.

(Yes, I know other people will tell you that a Philippine LLC can be done in less, but that is not correct.)

It may take longer if the SEC flags issues.

If any issues are raised, it would require that you discuss the concern with the SEC and rework some documents.

For further details on Philippine LLCs, contact one of our corporate lawyers for support.

The SEC is the first step when you register a business in the Philippines, however, the complete process also includes 6 other agencies:

• BIR to get your company’s TIN and will allow your accountants to report taxes
• City Hall to get your local business permit and is an important part of actually starting to operate
• SSS, Pag-ibig and Philhealth to complete the registration for the reporting of employee benefits.

These agencies all govern different aspects of the operation of an LLC in the Philippines.

The registration is not entirely complete without them and so should be continued.

 

There are a few things to expect:

• The process is largely manual
• Due to it being manual, expect several weeks
• Get an accountant to help set up the books

All of these are necessary for incorporation of a LLC in the Philippines (or any corporate entity for that matter).

Without this, your Philippine LLC will not have a Business Permit so that you can operate in the jurisdiction nor a TIN number so that it can open a bank account.

And without completing the steps at the SSS, Pag-ibig and Philhealth, you will not be able to comply with the mandatory employee contributions necessary.

For details, see my article on Barangay and City Hall Business Permit Registration

For details on mandatory benefit registration, please see this article on SSS, Pag-ibig and Philhealth.

 

1: Is there a limited liability company in the Philippines?

Yes, a domestic corporation is the equivalent of a limited liability company in other countries.

2: Can a limited liability company in the Philippines be 100% foreign owned?

Yes, a limited liability company in the Philippines can be 100% foreign owned , but there are certain restricted industries and requirements.

3. What are the advantages of a limited liability company versus other corporate structures such as a branch or representative office?

A limited liability company limits liability to just the Philippine entity. However, a branch or representative office’s liability can extend all the way to the foreign parent.

4. If I register a business in the Philippines as a One Person Corporation (OPC), would the liability be the same as a limited liability corporation?

In some instances, an OPC may allow liability to extend to the shareholder. Thus, we would always suggest a limited liability corporation over an OPC.

3. How long does it take to register a business in the Philippines?

A true estimate of time to register a business in the Philippines would be around 4 to 6 months at the minimum at the SEC, City Hall and the government agencies for employee statutory benefits.

4. What are the capitalization requirements to register a business in the Philippines?

Capitalization requirements to register a business in the Philippines can vary for as little as Php 5,000 to Php 25,000,000 depending on which industry the company is in as well as its particular situation.

5. What is the process to register a business in the Philippines?

To register a business in the Philippines, registration at the SEC, BIR, City Hall, SSS, Pag-ibig and Philhealth must be completed.

6. What is the SEC process to register a business in the Philippines?

The SEC process to register a business in the Philippines starts with gathering the documents required, submitting them through the SEC online portal and submitting hard copy documents personally. Any objections raised by the SEC should be addressed. When all objections are addressed, the SEC will then inform as to the releasing of the documents for the limited liability corporation in question.

 

7. What are the SEC requirements to register a limited liability company in the Philippines?

The SEC requirements for a limited liability company are the following: Articles of Incorporation and its Bylaws, a Notarized Board Resolution, your Treasurer’s name and details, your corporate address and possible corporate names. An SPA may also be needed.

 

8. What is the BIR process to register a business in the Philippines?

The BIR process to register a business in the Philippines is to fill up the BIR application form 1903 and submit this with your Mayor’s Permit, Contract of Lease, and other application document such as PEZA and pay the registration fee. When processed, the BIR will inform as to when to get the documents for the LLC in the Philippines. 

 

9. What is the BIR documentary requirements to register a limited liability company?

BIR Registration is needed to report your Philippine LLC’s taxes and provide you with receipts and a TIN. They differ for different company entities. For a limited liability company, these should include a BIR registration form, the SEC incorporation papers, the Articles of Incorporation, and printed BIR receipts.

 

10. Is it necessary to register a business in the Philippines with the government agencies for statutory benefits?

Any limited liability company with employees must pay government statutory benefits to comply with Philippine labor laws, which you can only do when you are registered.

 

11. What are other business structures can be considered if a limited liability company is not possible?

If you have decided that a limited liability company is not a good fit for you, a branch office or a representative office can also be considered. However, these structures allow liability to go all the way to the parent company instead of being contained in the Philippine limited liability company.