Philippines: Business Opportunities in the Heart of Asia
Explore the economic, fiscal and strategic potential of this fast-growing market
Main Features
- Population:115 559,009
- Capital:Manila
- Manila's Population:14 941,953
- Area:300,000 km2
- Official languages:Tagalog and English
- Religion:Christianity
- Currency:Philippine Peso (PHP) 1 PHP = ~€0,01637
- GDP per capita:US$ 4 148
Forms of Establishment
Representative Office/Regional Headquarters (“RHQ”)
Activities that can be performed– Representative Office
- a) Dissemination of information;
- b) Promotion and quality control of the parent company’s products.
Activities that may be performed – RHQ
- Supervision, communication and coordination of the parent company’s branches and subsidiaries in the Asia-Pacific region and other foreign markets.
Activities that may not be performed
- a) Engaging in any commercial activity;
- b) Signing commercial contracts on behalf of foreign companies or providing services for remuneration.
Requirements
- a) A minimum annual expenditure of USD 30,000 for the representative office and USD 50,000 for the RHQ;
- b) Being financed by funds from outside the Philippines.
- c) Resident agent: minimum of one.
Regional Operating Headquarters (“ROHQ”)
ROHQs may perform the following activities, but only for branches and subsidiaries of the parent company.
- a) General administration and planning;
- b) Business planning and coordination;
- c) Identifying sources of raw materials and components;
- d) Corporate finance advice;
- e) Marketing, sales and promotion control;
- f) Human resources training and administration;
- g) Logistics services;
- h) R&D and product development services;
- i) Technical support and maintenance;
- j) Data processing and communication;
- k) Business development.
Requirements
- a) Obtain a license;
- b) A minimum annual expenditure of USD 200,000;
- c) Be financed by funds from outside the Philippines.
Branch
- a) Entity without legal personality, dependent on the parent company.
- b) Minimum share capital: USD 200,000. This amount may be reduced to USD 100,000 if the activity involves advanced technology (as defined by the Department of Science and Technology of the Philippines) or if it hires at least 50 workers (hires certified by the Department of Labor and Employment). This capitalization is not required if the subsidiary exports more than 60% of its production.
- c) A deposit of PHP 500,000 is required with the Securities Exchange Commission.
- d) Liability: the parent company is responsible for the obligations of the branch.
- e) Resident agent: minimum of one and of any nationality.
Subsidiary
- a) Entity with legal personality under Philippine law.
- b) Minimum share capital: if the foreign entity’s shareholding does not exceed 40%, the minimum share capital is PHP 5,000, unless otherwise provided. If it exceeds this limit, the minimum share capital will be USD 200,000, which may be reduced to USD 100,000 in the aforementioned cases of advanced technology or hiring of 50 workers. This capitalization is not necessary if the subsidiary exports more than 60% of its production. However, with the amendment to the Foreign Investment Law approved in March 2022, companies under Philippine law and 100% foreign capital may be incorporated under the following conditions: a) micro or small enterprises; b) minimum share capital of USD 100,000; In addition, they must c.1) incorporate advanced technology, as defined by the Department of Science and Technology; or, c.2) obtain recognition as a startup company or startup facilitator, under the Innovative Startup Act); or, c.3) hire at least 15 philippine workers.
- c) Certain activities are completely prohibited to foreign capital and others partially.
- d) Minimum number of members: from one to fifteen initial subscribers, without residency requirements. Subscribers may, if applicable, subsequently transfer the shares to shareholders.
- e) Directors: minimum of one and without residency requirements.
- f) Chairman: must be a shareholder and director. Reports to the Board of Directors.
- g) Corporate Secretary: minimum of one resident secretary of Philippine nationality.
- h) Corporate Treasurer: minimum of one resident of the Philippines.
Taxes
Representative Office/Regional Office: Not applicable.
ROHQ: 25%.
Branch: 25% (in addition, a 15% withholding tax is applied for repatriation of profits).
Subsidiary: 20% for companies whose net tax base does not exceed PHP 5 million and whose total assets do not exceed PHP 100 million; 25% for the rest.
VAT: 12% (general rate); 0% (reduced rate)
Double Taxation Treaty
Portugal does not have a DTT with the Philippines. When there is no DTT, the withholding taxes applied to non-resident companies are:
Dividends (%) | Interest (%) | Royalties (%) |
15 to 25 | 20 | 25 |
Investment Incentives
Export-oriented companies and those engaged in strategic activities defined in the Strategic Investment Priority Plan (SIPP) benefit from the following incentives:
- Corporate Income Tax exemption from 4 to 7 years.
- During the 10 years following the end of the exemption period, exporting companies have the possibility to choose between:
a) 5% tax on gross revenue that replaces all national and local taxes; or
b) Additional deductions for Corporate Income Tax purposes. - Non-exporting companies will benefit from additional Corporate Income Tax deductions during the 5 years following the end of the exemption period.
- Tax and tariff-free import of capital goods, raw materials, spare parts or accessories.
- VAT exemption on imports and VAT exemption on local purchases of goods directly related to the activity, including telecommunications, electricity and water bills. In addition, there are organizations that offer investment incentives to companies that register with them. The main ones are the Philippine Economic Zone Authority (PEZA) and the Board of Investments (BOI). Each has its own requirements and offers special incentives depending on the company’s activity, whether it is engaged in exports or is located in certain economic areas, among other criteria.
Some of the benefits that PEZA offers are:
- Tax relief for domestic sales of up to 30% of total sales.
- Long-term land lease for up to 75 years.
- Visas for foreign employees.
Relevant Economic Sectors
ENERGY
As part of the Philippine Government’s “Build Better More” program, the Ministry of Energy has forecast an investment of USD 153 billion in the sector. Of this amount, USD 115.3 billion will be earmarked for the construction of renewable energy plants by 2040. The government thus aims to meet the target of 35% of the country’s energy coming from renewable sources by 2030 and 50% by 2040.
INFRASTRUCTURE
Mobility is one of the major challenges today, with traffic congestion accounting for a loss equivalent to 7% of the Philippine GDP. Therefore, the Ministry of Infrastructure and Transport proposed the implementation of the following projects:
- 11 bridges in the Manila metropolitan area (over 8km)
- 11 bridges connecting the main islands (over 80km)
- Expansion of the highway network from 510km to 1,816km
- Luzon Spine Expressway Network totaling 1,213km that will reduce travel time between Ilocos and Bicol from 20 to 9 hours
- New Manila International Airport (PHP 735.6 billion)
- Expansion of Clark International Airport (PHP 12.55 billion)
- Extension of LRT-1 Cavite (PHP 64.9 billion)
- MRT-7 (PHP 77.5 billion)
TOURISM
The number of tourists in 2023 reached a total of 5.4 million, the number of workers in the sector was 6.21 million (an increase of 6.4%), while the sector’s contribution to the Philippine GDP represented 8.6%. According to the National Tourism Development Plan 2023-2028, in this last year the number of visitors is expected to be 51.9 million and the number of workers in the sector will be 34.7 million.