Domestic Corporations (subsidiary)

A registered company with at least 60% Filipino ownership is considered as having Philippine
nationality; if more than 40% foreign-owned, it is considered a foreign owned domestic
corporation.

More than 40% and up to 100% foreign ownership of a Domestic Market Enterprise is allowed
as long as the paid-in capital is a minimum of USD 200,000.00. Employing a minimum of 50
direct employees or using advanced technology may allow a paid-in capital of less than USD
100,000.00 (R.A. 7042 as amended by R.A. 8179).**

Export Businesses

An export enterprise is defined as a business who exports at least 60% of its output.
Export Business Enterprises may be 100% fully foreign owned and may file with the SEC for an
exemption of the paid-up capital requirement of USD 200,000.00.

KPO, BPO, Back Office, IT, Web Development and call centers are all considered Philippines
Export Enterprises.
** Unless otherwise indicated in the Philippine Foreign Investment Negative List

Business Enterprises
There are different types of company formation which a foreign investor may choose from in
setting up his business in the Philippines a branch, corporation, a representative office, or
regional headquarters. One important consideration to company formation is legal liability. A
domestic corporation limits potential legal liability of the parent company because it acquires a
juridical personality distinct and separate from that of its parent or shareholders. In contrast, a
branch merely becomes an extension of the parent company and for purposes of investment
law is considered fully foreign-owned.

Export Enterprise (Goods or Services)

If your future company in the Philippines is a domestic corporation (subsidiary) or branch office
exporting goods or services or generating revenue from abroad amounting to more than 60% of
its gross sales, it can be fully foreign-owned, as it is considered an Export Enterprise under the
Foreign Investments Act. Both branch and domestic corporation options can be registered with
as little as P5,000 paid-up capital. However, most banks require P25,000 P50,000 to open a
corporate bank account.
Most all foreign-owned cost centers such as call centers, contact centers, IT-BPOs, web
development, and web design are eligible for classification as Export Enterprises and full foreign
ownership. Some of these are even registered with PEZA to avail of tax and other incentives.

How to Setup a Call Center or BPO in the Philippines.

There are two legal entities which can be used to register a call center, BPO, KPO or outsourcing
company in the Philippines.

The choice is limited to a Branch Office or a Domestic Corporation. Both can be 100% foreign
owned as long as at least 60% of its services. A Representative Office cannot be used for BPO,
outsourcing or back office operations.

A Philippines corporation is the entity that resembles the most an LLC.

A Domestic Corporation is required to have a minimum of 5 directors. Each director must own
at least one share of the corporation. Three of the directors must be residents of the
Philippines.

A Branch Office must have a resident agent whose main responsibility is to receive legal
summons from the government. Liability lies with the Parent Company as the branch is only
an extension of its parent. Within 60 days of having receiving its license to transact business a
Branch Office is required to give the SEC a security deposit of PHP100,000.00.

Once the Certificate of Incorporation or the License to Transact Business has been issued its
time to apply for the for the local business permits. After which registration with the Social
Security System can be done.
The Philippines government offers various Income Tax Holidays for most outsourcing
businesses. PEZA and BOI are the agencies which grant Tax Incentives.

Advise when setting up a branch office:

All documents must be in English and authenticated by the Philippines Embassy/Consulate of

the home country.

* Minimum inward remittance of USD 200,000.00 as capital investment. Branches which use
advanced technology or employ a minimum of 50 direct employees may be allowed a reduced
paid-in capital of USD 100,000.00. Companies which export more than 60% of their products
or services may apply for an exemption.

The SEC requires that within sixty days from the issuance of the license to transact business in
the Philippines a foreign corporation (except foreign banking or Insurance Corporation) is
obligated to deposit with the SEC satisfactory securities with an actual market value of
P100,000 in order to secure present and future creditors of the licensee in the
Philippines. That within six (6) months after each fiscal year of the licensee, the Securities and
Exchange Commission shall require the licensee to deposit additional securities equivalent in
actual market value to two (2%) percent of the amount by which the licensees gross income for
that fiscal year exceeds five million (P5,000,000.00) pesos. (Corporation Code of the Philippines
Section 126)

We recommend that the inward remittance be registered with the Central Bank of the
Philippines, Bangko Sentral ng Pilipinas.

A foreign corporation transacting business in the Philippines without having been licensed by
the SEC does not have the right to file any action, suit or proceedings in Philippine courts of law.