Business Structures in the Philippines

Before starting a business in the Philippines, it is essential to understand the various business structures available and how each type differs in legal and tax procedures. Business structures in the Philippines are classified into two major categories: Foreign Corporations and Business Structures Under Philippine Laws.

Foreign Corporations

Foreign corporations provide avenues for multinational companies and foreign investors to establish a presence in the Philippines. Each type has its own rules and limitations:

Branch Office (BO)

A branch office is an extension of a foreign-owned corporation that operates in the Philippines. It implements the business activities of its parent company and is subject to both Philippine SEC regulations and the laws of its home country.

Regional Operating Headquarters (ROHQ)

An ROHQ is formed to provide services to the foreign-owned company’s affiliates, branches, or subsidiaries in the Philippines, the Asia-Pacific region, and beyond. Note that an ROHQ is not permitted to solicit or advertise goods and services on behalf of its parent company.

Regional Area Headquarters (RHQ)

An RHQ is established to manage a multinational company’s affiliates, branches, and subsidiaries in the Asia-Pacific region. It cannot generate revenue or transact business locally; its operational expenses are subsidized by the parent company through inward remittances.

Representative Office (RO)

A representative office is set up to enhance the corporate presence of a multinational company in the Philippines. It focuses on information dissemination, product marketing, quality control, and communication, but is prohibited from earning revenue locally. All costs and liabilities are borne by the head office.

Business Structures Under Philippine Laws

For businesses formed under Philippine law, several structures are available, each with distinct legal and tax implications:

Sole Proprietorship

A sole proprietorship is owned and managed by a single individual. It is subject to an eight percent tax on net income and must register with the Department of Trade and Industry (DTI).

One Person Corporation (OPC)

An OPC is a domestic corporation with only one stockholder who serves as both director and president. Unlike a sole proprietorship, the OPC’s liabilities are limited to the extent of its share capital, protecting personal assets. OPCs are regulated by the Securities and Exchange Commission (SEC).

Domestic Corporation

A domestic corporation is a separate legal entity from its stockholders, similar to a Limited Liability Company (LLC). Stockholders are liable only for their share capital. Registration and compliance are managed through the SEC.

Partnership

A partnership involves a minimum of two owners who share responsibilities and income. It typically has fewer legal requirements compared to corporations and is registered with the SEC.

Foreign Investment Limitations

In addition to the above structures, the Philippines imposes certain restrictions on foreign ownership. The foreign investment negative list is divided into two categories:

List A: Areas Where Foreign Ownership Is Not Allowed

Cooperatives (with few exceptions), mass media (except recording and internet business), and certain professional practices.
Retail trade enterprises with a paid-up capital of less than PHP25 million.
Small-scale mining and utilization of marine and natural resources in specific areas.

List B: Limited Foreign Ownership

Areas where up to 25% or 30% foreign equity is allowed (e.g., private recruitment and certain defense-related construction contracts).
Areas where up to 40% foreign equity is allowed (e.g., certain forms of gambling, manufacturing of sensitive products, and dangerous drugs).

Foreigners may also be permitted to fully own businesses in other industries. For detailed eligibility and to determine the best structure for your venture, please contact us for an initial consultation.