The 60-40 equity rule was enacted by the Philippine government in order to regulate foreign investments and businesses in the country. The Foreign Investment Act (R.A. 7042, 1991, amended by R.A. 8179, 1996) states that at least 60% of the business should be owned by a Filipino citizen, while the rest can be owned by the foreign investor.
This Foreign Investment Act contains policies and rules that govern the registration of foreigners looking to do business in the Philippines. The Philippine government welcomes these kinds of foreign investments because it contributes to economic development.It generates jobs and allows Filipinos the opportunity to earn higher wages.
If you’re a foreign investor who’s looking to set up a sole proprietorship, partnership, or a corporation in the Philippines, here are a few important things you need to know about the 60-40 equity rule:
Be mindful of the Negative List
The Foreign Investment Negative List is a list of activities in the Philippines that foreigners are not allowed or are limited to own or invest in. The list is divided into two parts: List A and List B.
List A allows little to no foreign equity at all based on principles stated in the Philippine Constitution and other specific laws. The activities that don’t allow foreign equity are:
- Mass media
- Practice of pharmacy, radiologic, criminology, forestry, law professions
- Retail trade enterpriseswith less than USD$2.5M paid-in capital
- Cooperatives
- Private security agencies
- Small-scale mining
- Using marine resources and natural resources
- Owning and managing co*ckpits
- Manufacturing and distributing nuclear, biological, chemical, radiological weapons
- Manufacturing of pyrotechnic devices
Other items in List A allow up to a limited amount of equity for foreign investors. The activities are:
Up to 20% foreign equity
Up to 25% foreign equity
- Private recruitment
- Contracts for public works that are locally-funded
- Contracts for the construction of structures that are defense-related
Up to 30% foreign equity
Up to 40% foreign equity
- Exploration, development, and usage of natural resources
- Operation of public utilities
- Educational institutions aside from those put up by religious groups and mission boards
- Production and trading of rice and corn
- Contracts for the supply of materials, goods, and commodities to government-owned corporations
- Facility operator of an infrastructure
- Deep-sea fishing operations
- Adjustment companies
- Owning condominium units
List B also has a limited amount of foreign ownership, since it involves the security, defense, health, morals, and protection of Filipinos. The maximum number a foreigner can own is 40%.
Activities on this list are:
- Manufacturing, repairing, storing, and distribution of products that need the approval of the Philippine National Police clearance
- Manufacturing, repairing, storing, and distribution of products that need the approval of the Department of National Defenseclearance
- Manufacturing and distributing dangerous drugs
- Owning sauna and steam bathhouses
- Owning massage clinics
- All forms of gambling
- Domestic market enterprises with less than USD 200,000 paid-in equity capital
If the business you’re planning to set up is not on the Foreign Investment Negative List, the 60-40 equity rule may apply to you and your business, if the company does not meet the USD 200,000 paid capital requirement and most of your revenue will come from the Philippines
The minimum paid-in capital is USD 200,000
As a foreign investor, and if you want to fully own your business, or at least own the majority of the business, you must invest a minimum of USD 200,000. This requirement can be brought down to USD 100,000 as long as it meets the advance technology requirement of the Department of Science and Technology and if you have at least 50 direct employees.
An exception to this rule is if your company exports goods or services. The amount that you’re exporting should be around 60% of your gross sales. If that’s the case, your business now becomes a foreign-owned export enterprise in which the 60-40 equity rule does not apply.
For foreign investors who are seeking to set up a sole proprietorship, they must register with the Department of Trade and Industry (DTI). For the establishment of partnerships and corporations, investors must register with the Securities and Exchange Commission.
A Filipino partner must have at least 60% ownership
If the USD 200,000 is too steep, and the revenue of the company you wish to establish will mostly come from the Philippines, it’s time to find a Filipino partner. Note that your Filipino partner must own at least 60% of the business. Being a company majority owned by Filipinos, the USD 200,000 paid in capitalization requirement will no longer apply.
Learn more about owning a business in the Philippines
For more information, get in touch with Duran & Duran-Schulze Law at[emailprotected]or (+632) 478 5826.
FAQs
7042, 1991, amended by R.A. 8179, 1996) states that at least 60% of the business should be owned by a Filipino citizen, while the rest can be owned by the foreign investor. This Foreign Investment Act contains policies and rules that govern the registration of foreigners looking to do business in the Philippines.
Can a foreigner own 100% of a Philippines company? ›
100% foreign ownership is allowed for Philippine retail trade enterprises: (a) with paid-up capital of USD 2,500,000.00 or more provided that investments for establishing a store is not less than USD 830,000.00; or (b) specializing in high end or luxury products, provided that the paid-up capital per store is not less ...
Can a US citizen own a business in the Philippines? ›
Yes, foreigners possessing the 9G visa can start a business in the Philippines. Furthermore, foreign-owned enterprises can invest a small amount for conducting operations in the Philippines.
What is the Foreign Investment Act 2023 Philippines? ›
The amendments to Foreign Investment Act (FIA) eliminated restrictions of foreign ownership of export enterprises and opened up most areas except those subject to nationality requirements outlined in the Constitution and in the Philippines' Foreign Investment Negative List (FINL).
How much minimum percentage for a Filipino American to own a business in the Phils? ›
Foreign investments in the Philippines
Anyone, regardless of nationality, can invest in the Philippines with up to 100% equity. A business with 60% Filipino equity is considered a Philippine company, while one with more than 40% foreign equity is considered a foreign-owned domestic company.
What happens if you own 20% of a company? ›
If you own 20% of a corporation, you might expect that you will always own 20% of that company, unless you decide to sell your stock. However, the other shareholders might vote to issue additional stock to new owners, which can result in your ownership percentage going down.
Can a former Filipino citizen own a business in the Philippines? ›
Under Section 10 of Foreign Investments Act RA 7042, as amended by RA 8179, any natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private land up to a maximum area of 5000 square meters for urban land, or 3 hectare for rural land, for business and other purposes.
How long can you stay in the Philippines if you are a US citizen? ›
As a US citizen, you can stay in the Philippines for up to 30 days without needing a visa. However, if you wish to stay for more than 30 days, you will need to obtain a visa from a Philippine embassy or consulate in the USA before going to the Philippines.
Can dual citizenship own business in the Philippines? ›
Once you acquire dual citizenship, you have the following rights in the Philippines: Right to vote in Philippine national and local elections (provided you also qualify under the overseas voting law) Right to own land and property. Right to engage in business.
Can a US citizen invest in the Philippines? ›
A foreign national who meets a number of criteria and who has a minimum of $75,000 that he wishes to invest in the Philippines can apply for the SIRV. The application process is relatively straightforward and takes just a few months. What investments are not allowed under the SIRV?
Foreigners are prohibited from owning land in the Philippines, but can legally own a residence. The Philippine Condominium Act allows foreigners to own condo units, as long as 60% of the building is owned by Filipinos. If you want to buy a house, consider a long-term lease agreement with a Filipino landowner.
Can foreigners own land in the Philippines 2023? ›
A Filipino citizen can own land in the Philippines. A foreigner cannot own land unless he is a former Filipino citizen or he happened to inherit that land.
What are the 60% rules in business? ›
The rule is simple — in any conversation, as the person who is conceptualizing, developing, selling or optimizing an idea, you should listen at least 60% of the time; and talk no more than 40% of the time.
What are the capital stock requirements in the Philippines? ›
At least 25% of the authorized capital stock must be subscribed at the time of incorporation, and at least 25% of that subscribed stock must be paid-up. Where the capital stock consists of no-par value shares, the subscriptions must be paid in full. The minimum paid-up capital is P5,000.
What is the minimum share capital in the Philippines? ›
The Minimum Capital Requirements in the Philippines
In general, the minimum paid-up capital of a corporation in the Philippines must not be less than ₱5,000. Enterprises are required to pay, in full amount, at least 25% of the subscribed capital stock, an amount of which should not be less than ₱5,000.
How much capital is needed to put up the business in Philippines? ›
The total cost of starting a business in the Philippines will vary depending on the type of business you are starting, the location of your business, and the size of your workforce. However, you can expect to spend anywhere from PHP 100,000 to PHP 1 million to start a business in the Philippines.
