The Philippines’s booming economy has seen huge numbers of foreign firms enter the market. More often than not, they are looking for a low-cost manufacturing base to make their goods or a rapidly emerging consumer market in which to sell their goods, for both of which the Philippines ranks highly.

Starting a business in the Philippines, however, can be tricky. There can be a lot of red tape and requirements and working with certain authorities can be challenging. That said, firms and entrepreneurs can ease the stress and tension that comes with establishing a business in the Philippines by understanding the process and its nuances ahead of time.

Check foreign ownership limits

Foreign ownership limitations in the Philippines are primarily guided by the Foreign Investment Negative List (FINL), published regularly by the Philippine government. This list identifies industries where foreign investment is either completely restricted or limited.

Foreign ownership restrictions include industries categorised into two lists:

List A covers industries reserved partially or fully for Filipino nationals by the Constitution or specific laws. Examples include mass media (zero percent foreign ownership), retail trade enterprises with paid-up capital below US$2.5 million (restricted to Filipino nationals), public utilities (up to 40 percent foreign equity), real estate (up to 40 percent), and natural resource exploration (up to 40 percent).
List B includes industries restricted due to national security, defence, public health, and morals. Examples are defence-related businesses, certain educational institutions, and security agencies.

Foreigners generally must observe a 40 percent maximum foreign equity rule for most restricted sectors, meaning Filipino nationals must own at least 60 percent of the equity. If a sector isn’t explicitly restricted, it generally allows up to 100 percent foreign ownership.

However, exceptions exist, such as businesses investing a minimum of US$200,000 in capital (or reduced to US$100,000 if employing at least 50 Filipino workers or utilising advanced technology), or companies registered with special incentive programmes (e.g., PEZA or BOI), allowing higher foreign ownership or incentives.

Choose a business structure

Foreign investors starting a business in the Philippines have a few different business structures to choose from.

Corporation (domestic or one person corporation)

A domestic corporation is the most common structure for foreign investors in the Philippines. It has a separate legal identity from its owners, providing limited liability protection. Ownership is represented by shares, allowing foreign equity subject to restrictions in certain sectors.

A special type, the One Person Corporation (OPC), allows a single individual (including a foreigner) to establish a corporation. OPCs simplify incorporation, ideal for individual investors who prefer sole control without requiring Filipino partners, provided their industry permits full foreign ownership.

Partnership (with Filipino partner)

A partnership involves two or more people pooling resources under a single business. In industries where foreign ownership is limited to below 100 percent (often capped at 40 percent), a partnership with a Filipino national becomes necessary.

Partnerships can be either general (partners have unlimited liability) or limited (one or more partners have limited liability). This structure suits foreign investors looking to leverage local expertise and networks.

Branch office or representative office of a foreign corporation

A foreign corporation can establish either a branch office or representative office in the Philippines:

A branch office is an extension of the foreign company, allowed to engage in business activities and generate income locally. It requires registration with the SEC and meeting minimum capital requirements (usually at least US$200,000).
A representative office serves as a marketing or liaison office for the foreign parent company, cannot engage directly in income-generating activities, and primarily supports promotional activities and market research. It requires minimal capital investment (usually US$30,000 annually for operating expenses).

Foreign investors typically prefer corporations due to their clarity, liability protection, and potential for full foreign ownership in eligible sectors, but branch or representative offices are convenient for limited business objectives or initial market exploration.

Permits and licences

There are a number of different permits and licence a business will needed but this will largely depend on the type of business. That said, there are a few general permits and licences most business will need.

Barangay clearance

A barangay clearance is the initial permit issued by the smallest local government unit—the barangay. It confirms your business complies with local zoning regulations, has no negative community impacts, and meets basic safety and sanitation standards. You’ll need a barangay clearance before applying for the mayor’s business permit.

How to apply:

Visit the barangay hall where your business will operate.
Provide basic business information and submit required documents (business registration documents, proof of address, IDs, lease contracts).
Typically processed within one to two days.

Mayor’s business permit from local government unit (LGU)

The mayor’s business permit (or business licence) allows your business to legally operate within a particular city or municipality. Issued by the mayor’s office or city hall, it ensures compliance with local laws, safety standards, zoning rules, sanitation, and fire safety codes.

How to apply:

Submit barangay clearance, registration documents (SEC/DTI registration), proof of business location, lease contract, building safety inspections, and fire safety clearances.
Pay the necessary fees and taxes at your LGU.
Processing typically takes around five to ten working days.

Bureau of Internal Revenue (BIR) registration for Tax Identification Number (TIN)

Every business in the Philippines must register with the Bureau of Internal Revenue (BIR) and obtain a Tax Identification Number (TIN). Your TIN is required for paying taxes, issuing official receipts, and complying with Philippine tax regulations.

How to apply:

Complete BIR registration form (Form 1901 for sole proprietors; Form 1903 for corporations/partnerships).
Submit SEC or DTI registration, LGU permits, IDs, lease contracts, and other required documents to your local BIR office.
Attend a brief seminar on tax compliance if required.
Obtain Authority to Print (ATP) receipts/invoices.
Registration typically takes three to five working days.

Here’s a concise explanation of the key foreign investor-specific requirements in the Philippines:

Foreign investor-specific requirements

Notably, there are a few key requirements that are specific to foreign investors. These include:

Minimum capital requirements

Foreign-owned businesses typically must meet a minimum capitalisation requirement of US$200,000. However, exceptions apply, allowing reduced capitalisation if the business meets certain conditions:

The minimum is reduced to US$100,000 if the business employs at least 50 Filipino workers or involves advanced technology as certified by the Department of Science and Technology.
Certain industries or export-oriented businesses (earning at least 60 percent from exports) may have even lower capital requirements or may qualify for 100 percent foreign ownership with minimal capital.

Special investor incentives and economic zone benefits (PEZA, BOI registration)

Foreign investors in the Philippines may be able access special incentives by registering with investment promotion agencies such as:

Philippine Economic Zone Authority (PEZA):
Investors operating in designated economic zones (e.g., manufacturing, IT, export services) enjoy incentives like income tax holidays, duty-free imports, simplified customs procedures, exemption from local taxes, and streamlined registration processes.
Board of Investments (BOI):
Investors outside economic zones, particularly those in priority sectors defined by the Philippine Investment Priorities Plan (IPP), can receive benefits such as tax holidays, reduced tax rates, simplified import/export procedures, and easier hiring of foreign nationals.

Open a bank account

Foreign investors starting a business in the Philippines have a range of banks they can consider. These include but are not limited to:

BDO (Banco de Oro) – Largest local bank, wide branch network, comprehensive business banking services
BPI (Bank of the Philippine Islands) – Popular among foreign companies, strong digital banking platform
Metrobank (Metropolitan Bank & Trust Company) – Extensive international business services, good for trade finance
Citibank Philippines – Ideal for multinational companies due to global connectivity and corporate services
HSBC Philippines – Preferred by international businesses, seamless international transfers, specialised foreign account management

Required documents when opening a bank account in the Philippines

When opening a corporate bank account in the Philippines, banks typically require the following:

SEC registration documents (Certificate of Registration, Articles of Incorporation, By-laws)
Latest General Information Sheet (GIS) filed with the SEC
Mayor’s Business Permit and Barangay Clearance
BIR Certificate of Registration and Tax Identification Number (TIN)
Board resolution authorising account opening and appointing signatories
Valid IDs (passport, visa, or Alien Certificate of Registration) for authorised signatories
Proof of business address (lease agreement or utility bills)
Initial deposit (varies by bank, usually around PHP 25,000 – PHP 100,000 or US$500 – US$2,000)

Hiring employees in the Philippines

Here’s a clear summary of what’s required when hiring local and foreign employees in the Philippines, highlighting labour laws, mandatory employee benefits, and work permit/visa requirements:

Labour laws and mandatory employee benefits

When hiring employees in the Philippines, employers must comply with the Labour Code and provide mandatory employee benefits, including:

Social Security System (SSS): retirement, sickness, maternity, disability, and death benefits
PhilHealth: universal health insurance
Pag-IBIG Fund (Home Development Mutual Fund): housing and provident savings
13th-month pay: equivalent to one-twelfth of annual salary, payable annually
Minimum wage compliance: set by region and sector
Overtime, holiday, and leave entitlements: annual leave, sick leave, maternity/paternity leave, holiday pay
Employment contracts: clearly outlining terms, wages, working hours, and conditions

Adherence to these regulations is crucial to avoid penalties and employee disputes.

Work permits and visa requirements for foreign nationals

Employing foreign nationals in the Philippines requires:

Alien Employment Permit (AEP)
Issued by the Department of Labour and Employment (DOLE), the AEP authorises foreigners to work legally in the Philippines. Employers must prove no local candidate is available to fill the position.
9G (Pre-arranged Employment) Visa
Granted by the Bureau of Immigration, the 9G visa allows foreigners to legally reside and work in the Philippines. It requires prior approval of the AEP.

Typical application steps include:

Obtain DOLE approval for the AEP.
Apply for a 9G visa at the Bureau of Immigration, submitting required documents (employment contract, company registration, passport, health clearance, police clearance).
Secure Alien Certificate of Registration Identity Card (ACR I-Card).

The 9G visa can be issued initially for 1-3 years, renewable based on continued employment.

Taxation and accounting considerations

Here’s a concise explanation of taxation and accounting considerations for businesses operating in the Philippines, covering corporate taxes, withholding taxes, VAT, double taxation agreements, and compliance requirements:

Corporate income tax, withholding taxes, and VAT

Corporate income tax: The standard corporate income tax rate in the Philippines is 25 percent (reduced to 20 percent for SMEs with taxable income below PHP 5 million and total assets below PHP 100 million).
Withholding taxes: Companies must withhold taxes on payments made to employees (payroll withholding), suppliers, and contractors. Common withholding rates are:
- Employee compensation: Progressive tax rates (0–35 percent)
- Dividends: typically 10–25 percent
- Professional fees and services: 5–15 percent
- Interest income, royalties, and rent: usually 10–20 percent
Value Added Tax (VAT): VAT is set at 12 percent, applicable to most sales of goods and services. Companies must register for VAT once annual revenue exceeds PHP 3 million.

Double taxation agreements (DTAs)

The Philippines has DTAs with various countries (e.g., Australia, Canada, Japan, Singapore, UK, US) to avoid double taxation on income earned by foreign companies and individuals. DTAs typically reduce withholding tax rates on dividends, interest, and royalties, providing significant tax savings for eligible investors.

Businesses should confirm their eligibility and requirements under applicable DTAs.

Annual compliance and reporting requirements

Companies operating in the Philippines must meet annual compliance obligations, including:

Filing annual income tax returns and audited financial statements with the Bureau of Internal Revenue (BIR).
Submitting annual General Information Sheet (GIS) and audited financial statements to the Securities and Exchange Commission (SEC).
Quarterly and monthly tax filings for VAT and withholding taxes.
Maintaining accounting records according to the Philippine Financial Reporting Standards (PFRS), aligned with international standards (IFRS).

Complying with regulatory obligations

Foreign investors doing businesses in the Philippines must comply with a range of regulations. These include the Data Privacy Act and consumer protection laws, and possibly a number of industry-specific regulations.

Data Privacy Act

The Data Privacy Act of 2012 (Republic Act No. 10173) governs how businesses collect, store, and process personal data. Companies must:

Register with the National Privacy Commission (NPC) if handling sensitive or large volumes of personal data.
Obtain clear consent from individuals before processing personal information.
Implement robust data security measures to prevent unauthorised access or breaches.
Report data breaches to the NPC and affected individuals promptly.
Appoint a Data Protection Officer (DPO) to oversee compliance.

Non-compliance can result in heavy fines, reputational damage, or criminal penalties.

Consumer protection laws

Businesses must comply with the Consumer Act of the Philippines (Republic Act No. 7394), which protects consumers against unfair practices. Key compliance points include:

Transparent advertising and accurate product labelling.
Clear warranty and return policies.
Avoiding deceptive, misleading, or abusive practices.
Compliance with fair pricing and quality standards as regulated by the Department of Trade and Industry (DTI).

Failure to adhere may result in fines, penalties, or suspension of operations.

Industry-specific regulatory compliance

Depending on your business sector, additional regulatory obligations may apply. Examples include:

Food industry: Compliance with the Food and Drug Administration (FDA) requirements for hygiene, safety, packaging, and labelling.
Financial services: Regulation and licensing by the Bangko Sentral ng Pilipinas (BSP) or Securities and Exchange Commission (SEC).
Import/export businesses: Customs registration, compliance with Bureau of Customs (BOC) regulations.
Telecommunications/IT: Licensing and compliance with rules from the National Telecommunications Commission (NTC).
Construction/real estate: Securing permits from local authorities and compliance with zoning regulations, building codes, and environmental clearances.

Expanding into Southeast Asia

Vietnam

Starting a business in Vietnam can prove very lucrative and Vietnam’s booming economy in recent years has seen huge numbers of foreign firms enter the market. More often than not, they have come looking for a low-cost manufacturing base to make their goods or to make the most of a rapidly emerging consumer market in which to sell their goods, for both of which Vietnam ranks highly.

See: How to Start a Business in Vietnam

Indonesia

Indonesia is one of the fastest-growing economies in Southeast Asia and offers numerous opportunities for foreign firms looking to expand their operations. With a population of over 270 million, a booming digital economy, and increasing foreign direct investment (FDI) incentives, Indonesia is a strategic destination for global businesses. However, foreign firms must navigate investment regulations, industry restrictions, and legal compliance to successfully establish their operations.

See: How to Start a Business in Indonesia

What’s next?

There are a wide variety of professional services firms that cater to entrepreneurs and investors looking at starting a business in the Philippines.

That said, as an emerging market, the business environment in the Philippines can turn on a dime. With this in mind, firms doing business in the Philippines should make sure to keep up with the latest changes by subscribing to the-shiv.

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