Company Formation in the Philippines: Paid-Up Capital Requirements and Foreign Investment Restrictions
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 in their enterprise.
The minimum paid-up capital of a corporation in the Philippines must not be less than Php 5,000.00. It is required to pay in full amount at least twenty-five percent (25%) of the subscribed capital stock, an amount of which should not be less than Php 5,000.00.
The law requires the total capital stock to be subscribed at the time of incorporation to be at least twenty-five percent (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.
Definition of Terms
Authorized Capital Stock – the amount fixed in the Articles of Incorporation to be subscribed and paid by the stockholders of the corporation
Paid-Up Capital – the portion of the authorized capital stock which has been subscribed and actually paid
Subscribed Capital – the portion of the authorized capital stock that is covered by subscription agreements whether fully paid or not
Outstanding Capital Stock – the total shares of stock issued to subscribers or stockholders, whether or not fully or partially paid except treasury shares so long as there is a binding subscription agreement
Capital – properties and assets of the corporation that are used for its business or operation
Minimum Capital Requirements for Corporations
Based on Industry (figures are in Philippine Peso)
|Break Bulk Agent||250,000.00|
|Financing Company-Main|| |
|Financing Company-Branch|| |
|Freight Forwarders || |
|Health Maintenance Organization||10,000,000.00|
|Non-Vessel Operating Common Carrier||4,000,000.00|
|Recruitment for Local Employment|
Recruitment for Overseas Employment
|Retail Trade with Foreign Equity||US$ 2,500,000.00|
|School (for stock corporations)|| |
|Securities Broker/ Dealer (New/SRO-Member)||100,000,000.00|
|Securities Broker/ Dealer (Existing/SRO-Member)||10,000,000.00|
|Securities Broker/ Dealer in Proprietary Shares (Non-SRO Member)||5,000,000.00|
|Special Purpose Vehicle||31,250,000.00|
|Special Purpose Corporation||5,000,000.00|
Based on Equity
|Domestic Corporations with more than 40% foreign equity|
|Foreign Branch Office|| |
|Partnership with foreign partner|
|Foreign Representative Office||US$ 30,000.00|
|Regional Area Headquarters (RHQ)||US$ 50,000.00|
|Regional Operating Headquarters (ROHQ)||US$ 200,000.00|
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).
The FIA prescribes the publication of the Foreign Investment Negative List (FINL) – a government publication which outlines 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 (2) years.
The 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).
No Foreign Equity
- Mass media, except recording
- Practice of Professions
- Radiologic and x-ray technology
- Retail trade enterprises with paid-up capital of less than US$ 2,500,00
- Private Security 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-personal mines (various treaties to which the Philippines is a signatory and conventions supported by the Philippines)
- Manufacture of firecrackers and other pyrotechnic devices
Up to Twenty Percent (20%) Foreign Equity
- Private radio communication network
Up to Twenty-Five Percent (25%) Foreign Equity
- Private recruitment, whether for local or overseas employment
- Contracts for the construction and repair of locally-funded public works, except:
- Infrastructure/development projects covered in RA 7718; and
- Projects which are foreign-funded or assisted and required to undergo international competitive bidding of contracts for construction of defense-related structure
Up to Thirty Percent (30%) Foreign Equity
Up to Forty Percent (40%) Foreign Equity
- Exploration, development, and utilization of natural resources
- Ownership of Private Lands
- Operation and management of public utilities
- Educational institutions other than those established by religious groups and mission boards
- 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
- Contracts for the supply of materials, goods, and commodities to a government-owned or controlled corporation, company, agency, or municipal corporation
- Facility operator of an infrastructure or a development facility requiring a public utility franchise
- Operation of deep-sea commercial fishing vessels
- Adjustment companies
- Ownership of condominium units
Up to Forty Percent (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 therefore, 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
- 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 foreign nationals; provided that a substantial percentage of output, as determined by the said agency, is exported and the extent of foreign equity ownership allowed shall be specified in the said authority/clearance.
- Manufacture, repair, storage, and/or distribution of products requiring Department of National Defense (DND) clearance;
- Guns and ammunition for warfare
- Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles)
- Gunnery, bombing, and fire control systems and components
- Guided missiles/missile systems and components
- Tactical aircraft (fixed and rotary-winged), parts and components thereof
- Space vehicles and component systems
- Combat vessels (air, land, and naval) and auxiliaries
- Weapons repair and maintenance equipment
- Military communications equipment
- Night vision equipment
- Stimulated coherent radiation devices, components, and accessories
- Armament training devices
- Others as may be determined by the Secretary of the DND
However, the manufacture or repair of these items may be authorized by the Secretary of National Defence to foreign nationals; provided that a substantial percentage of output, as determined by the said agency, is exported and the extent of foreign equity ownership allowed shall be specified in the said authority/clearance.
- 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
- All forms of gambling, except those covered by investment agreements with PAGCOR
- Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
- Domestic market enterprises which involve advanced technology or 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.
Can foreign nationals own 100% of a domestic enterprise?
-Foreign nationals can own as much as one hundred percent (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 fifty (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 sixty (60%) percent of its services/goods abroad.
-Under the Retail Trade Liberalization Law, a retail enterprise may be wholly foreign-owned provided that it meets the minimum paid-up capital of US$2.5 million. A paid-up capital less than the aforementioned amount is reserved for Filipino citizens.