Company Formation in the Philippines: Paid-Up Capital Requirements and Foreign Investment Restrictions
Foreign enterprises seeking to start a business in the Philippines must be familiar with relevant paid-up capital requirements and the Foreign Investments Negative List to enjoy a seamless and hassle-free business registration process in the Philippines.
The Minimum Capital Requirements in the Philippines
The capital requirements for local and foreign entities looking to set up a business in the Philippines vary depending on the types of business activities they want to engage in and the percentage of foreign ownership they wish to secure in their enterprise.
In general, the minimum paid-up capital of a corporation in the Philippines must not be less than ₱5,000. Enterprises are required to pay, in full amount, at least 25% of the subscribed capital stock, an amount of which should not be less than ₱5,000. Under the law, the total capital stock subscribed at the time of incorporation must be at least 25% of the authorized capital stock of the corporation being formed.
The Securities and Exchange Commission (SEC) does not require a bank certificate to prove the transfer of the paid-up capital during the incorporation process. However, you may have to appoint a Treasurer-in-Trust who will certify through a Treasurer’s Affidavit that you have subscribed to 25% of the authorized capital stock and at least 25% of such have been fully paid in cash or property.
Minimum Capital Requirements for Corporations
To give you a more detailed insight, we have provided a collective list of the minimum capital requirements for the different kinds of corporation in the Philippines based on its industry.
Based on Industry (figures are in Philippine Peso)
|Break Bulk Agent||250,000|
|Financing Company-Main|| |
|Financing Company-Branch|| |
|Freight Forwarders || |
|Health Maintenance Organization||10,000,000|
|Non-Vessel Operating Common Carrier||4,000,000|
|Recruitment for Local Employment|
Recruitment for Overseas Employment
|Retail Trade with Foreign Equity||25,000,000|
|School (for stock corporations)|| |
|Securities Broker/ Dealer (New/SRO-Member)||100,000,000|
|Securities Broker/ Dealer (Existing/SRO-Member)||10,000,000|
|Securities Broker/ Dealer in Proprietary Shares (Non-SRO Member)||5,000,000|
|Special Purpose Vehicle||31,250,000|
|Special Purpose Corporation||5,000,000|
Based on Equity
|Domestic Corporations with more than 40% foreign equity|
|Foreign Branch Office|| |
|Partnership with foreign partner|| |
|Foreign Representative Office||US$ 30,000|
|Regional Area Headquarters (RHQ)||US$ 50,000|
|Regional Operating Headquarters (ROHQ)||US$ 200,000|
Php – Philippine Peso
US$ – US Dollar
Foreign Investment Negative List (FINL) in the Philippines
Although foreign entities are allowed to conduct business in the Philippines, they are restricted to participate in areas of investment that are wholly or partially reserved to Filipino citizens. Participation of foreign entities in restricted business activities is regulated under Republic Act No. 7042, as amended, otherwise known as the Foreign Investments Act of 1991 (FIA).
FIA prescribes the publication of the Foreign Investment Negative List (FINL), which is a government publication outlining a list of economic activities where foreign equity and participation are either prohibited or limited to a certain percentage.
Except for activities where restrictions on foreign equity are imposed under the Philippine Constitution or specific statutes, the President of the Philippines may amend the Negative List and such amendments should not be made more than once every two years.
FINL contains two component lists: List A and List B. List A contains areas of investment where foreign ownership is limited by mandate of the Philippine Constitution or by specific laws. List B contains areas of investment where foreign ownership is limited for reasons of security, defense, risk to health and morals, and protection of local small-and-medium enterprises (SMEs).
Here is a detailed list of industries that are restricted or limited to foreign ownership as provided by FINL:
Foreign Investments Negative List
List A: Foreign Ownership is Limited By Mandate of the Constitution and Specific Laws
No Foreign Equity
- Mass media, except recording and internet business
- Practice of professions, except in cases specifically allowed by the law following the prescribed conditions therein
- Professions where foreigners are not allowed to practice in the Philippines, except if the subject to reciprocity as provided in pertinent laws.
- Corporate practice of professions with foreign equity restrictions under pertinent laws.
- Retail trade enterprises with paid-up capital of less than ₱25,000,000.00
- Cooperatives, except investments of former natural-born citizens of the Philippines
- Organization and operation of private detective, watchmen or security guards agencies
- Small-scale mining
- Utilization of marine resources in archipelagic waters, territorial sea, and exclusive economic zone as well as small-scale utilization of natural resources in rivers, lakes, bays, and lagoons
- Ownership, operation, and management of cockpits
- Manufacture, repair, stockpiling, and/or distribution of nuclear weapons
- Manufacture, repair, stockpiling, and/or distribution of biological, chemical, and radiological weapons and anti-personnel mines
- Manufacture of firecrackers and other pyrotechnic devices
Up to 25% Foreign Equity
- Private recruitment, whether for local or overseas employment
- Contracts for the construction of defense-related structures
Up to 30% Foreign Equity
Up to 40% Foreign Equity
- Procurement of infrastructure projects in accordance with Section 22.214.171.124(b), (c), and (e) of the Implementing Rules and Regulations (IRR) of RA. 9184
- Exploration, development, and utilization of natural resources
- Ownership of private lands, except for a natural-born citizen who has lost his Philippine citizenship and has the legal capacity to enter into a contract under Philippine laws.
- Operation of public utilities
- Educational institutions other than those established by religious groups and mission boards, for foreign diplomatic personnel and their dependents and other foreign temporary residents, or for short-term high-level skills development that do not form part of the formal education system as defined in Section 20 of Batas Pambansa (BP) No. 232 (1982)
- Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof, subject to a period of divestment.
- Contracts for the supply of materials, goods, and commodities to Government-Owned and Controlled Corporation (GOCC), company, agency or municipal corporation
- Operation of deep-sea commercial fishing vessels
- Ownership of condominium units
- Private radio communications network
List B: Foreign Ownership is Limited for Reason of Security, Defense, Risk to Health and Morals, and Protection of Small and Medium Scale Enterprises
Up to 40% Foreign Equity
- Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:
- Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements used or intended to be used in the manufacture of firearms;
- Blasting supplies;
- Ingredients used in making explosives:
- Chlorates of potassium and sodium;
- Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium, and cuprite;
- Nitric acid;
- Perchlorates of ammonium, potassium, and sodium;
- Amorphous phosphorus;
- Hydrogen peroxide;
- Strontium nitrate powder;
- Toluene; and
- Telescopic sights, sniper scope, and other similar devices.
However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance (RA No. 7042 as amended by RA No. 8179).
- Manufacture and distribution of dangerous drugs
- Sauna and steam bathhouses, massage clinics, and other like activities regulated by law because of risks posed to public health and morals, except wellness centers
- All forms of gambling, except those covered by investment agreements with Philippine Amusement and Gaming Corporation (PAGCOR)
- Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
- Micro and small domestic markets that involves the following:
- Advance technology as determined by Department of Science and Technology (DOST)
- Endorsed as a start-up or start-up enablers by Department of Trade Industry, or DOST
- Employ at least fifty (50) direct employees with paid-in equity capital of less than the equivalent of US$100,000
Source: Securities and Exchange Commission (SEC)
Other Activities with Foreign Equity
Domestic Market Enterprise
An enterprise which provides services/produces goods for sale to the local Philippine market or exports less than sixty percent (60%) of its services/goods abroad.
Foreign nationals can own as much as 100% equity of a domestic enterprise if the business activities that the enterprise will engage in are not included in the FINL and the company’s paid-up capital is at least US$200,000. The paid-up capital may be lowered to US$100,000 if the enterprise will engage in advanced technology or directly employ at least 50 employees.
Export Market Enterprise
As a general rule, there are no restrictions to the extent of foreign ownership of an Export Enterprise as long as the enterprise exports at least 60% percent of its services/goods abroad.
Recently, the government recently passed Republic Act (RA) 11959 into law, which provided the amendments on the Retail Trade Liberalization Act (RTLA), providing foreign retailers an easier experience when doing business in the Philippines.
Under the RTLA, the minimum paid-up capital for foreign retail investments has been reduced to ₱25 million, from the previous US$2.5 million (₱125 million).
Along with the reduction of the paid-up capital requirement for foreign retailers in the Philippines, RA 11595 also revised and removed several restrictions and documentary requirements to further open investments in the Philippines.
The amendments made to the RTLA as amended by RA 11595 are as follows:
- The categories for prequalification were removed and the minimum paid-up capital for a foreign retailer is reduced to ₱25 million.
- The minimum investment per store requirement is reduced to ₱10 million per store, which shall include the gross assets, tangible, or intangible.
- The Department of Trade and Industry (DTI), the Securities and Exchange Commission (SEC), and the National Economic and Development Authority (NEDA) shall review the amount of required minimum paid-up capital of foreign retailers every three years.
- The requirement for the public offering of shares within eight years from the start of operations is removed.
- Foreign retailers must comply with the applicable provisions of the Labor Code in determining the non-availability of a competent, able, and willing Filipino citizen before employing the services of a foreign national.
- Foreign retailers are encouraged to have a stock inventory of products made in the Philippines.
- Penalties for violation of the provisions provided in the law were reduced. Violators shall be punishable by imprisonment of not less than four to six years and a fine of not less than ₱1 million but not more than ₱5 million.
Set Up Your Next Business in the Philippines
With its strategic location, quality labor force, and robust connections between Asia-Pacific neighbors and international unions, the Philippines is an ideal location for foreign investors to set up their business and penetrate the lucrative Asian markets.
Invest in the Philippine Market with Ease
Our fully equipped business registration and corporate compliance services can help you in securing the necessary requirements when setting up a business in the Philippines.