Investing in the Philippines

Q: What are the various types of business structures in the Philippines? 

A: The various types of business or organizational structures in the Philippines are sole proprietorship, partnership, corporation, branch office, representative office, regional headquarters and regional operating headquarters.


Q: How do these business structures differ from one another? 

A: A. Business enterprises organized under Philippine Laws are:

1. Sole proprietorship is a business structure owned by an individual who has full control/authority of his own and owns all the assets, personally owes and answers all liabilities or suffers all losses and enjoys all the profits to the exclusion of others. Must apply for a Business name with the Department of Trade and Industry.

2. Partnership is treated as a artificial being having a separate legal personality from that of it’s members. It may either be general or limited. depending on the liability of partners. It consists of two or more partners. A partnership must register with the Securities Exchange Commission (SEC) with a minimum capitalization of three thousand pesos (Php3,000.00).

3. Corporation is a juridical person established under the Corporation code and is regulated by the SEC with a personality separate and distinct form that of it’s stockholders. It consists of at least 5 to 15 incorporators each of whom must hold at least one share. It must be registered with the SEC. The minimum paid-up capital is five thousand pesos (Php5,000.00).

B. Business enterprises organized under Foreign Laws are:

1. Branch Office is an extension of a foreign enterprise and has no separate and independent legal personality. It can carry out the business activities of its head office and may derive income from the Philippines. It is required to inwardly remit US$ 200,000.00 to the Philippines as its assigned capital.

2. Representative Office is one which deals directly with the clients of its parent company in the Philippines, but may not derive income from the Philippines. It undertakes activities such as information dissemination, communication center, promotion of the company’s products as well as quality control. It is required to have an initial remittance of at least US$ 30,000.00 working capital into the Philippines.

3. Regional Headquarters/Regional Operating Headquarters (RHQs/ROHQs)

Any multinational company may establish an RHQ or ROHQ as long as they exist under laws other than the Philippines, with branches, affiliates and subsidiaries in the Asia Pacific Region and other foreign markets.

A regional headquarters is limited in its activities such as acting as supervisory, communication and coordinating centre for its subsidiaries, affiliates and branches in the Asia-Pacific region. It may not derive income and its operating costs must be covered by the foreign corporation. The required capital is US$50,000.00 annually to cover operating expenses.

A regional operating headquarters (ROHQ) is similar to a regional headquarters but is allowed to derive income from the Philippines, however numerous restrictions apply. The required capital is US$200,000.00 one time remittance.


Q: Where does one apply for registration of investments? 

 A: For Sole Proprietorship – submit an application together with the required documents at the  Department of Trade and Industry (DTI).

For Corporation, Partnership, Branch and Representative Offices – submit an applications together with the required documents at the Securities and Exchange Commission (SEC).


Q: Can a foreign investor be allowed to own a 100% of a business entity?

 A: Yes, one hundred percent (100%) foreign equity may be allowed in all areas of investments under the Foreign Investments Act (FIA) R. A. 7042 except those included in the Regular Foreign Investment Negative List (FINL).


Q: When can foreigners do business or invest in a domestic enterprise up to 100% of its capital?

 A: 1. Full entry of foreign investors is feasible if the proposed activity is not among those listed in the FINL;

2. When the paid-up capital for domestic market enterprise is at least US$200,000 which may be lowered to US$100,000 if the following conditions are met:

a) intoduction of advanced technology

b) employment of at least 50 direct employees.


Q: What is domestic market enterprise?

A: Domestic market enterprise shall mean an enterprise which produces goods for sale, or renders services to the domestic market entirely or if exporting a portion of its output fails to consistency export at least sixty percent (60%) thereof.


Who is a Probationary Employee

Employment-agreement_1Some understands the word “probationary” as experimental or trial while others used the term to describe a period. However in labor and employment, it is a combination of both the process and the period.


In a general sense, a probationary employee is one who, for a given period of time, is being observed and evaluated on to determine whether or not he is qualified for permanent employment.  (Escorpizo vs. University of Baguio Faculty Education Workers Union, G.R. No. 121962 (1999)

A probationary appointment affords the employer an opportunity to observe the skill, competence and attitude of a probationer. The word “probationary”, as used to describe the period of employment, implies the purpose of the term or period. While the employer observes the fitness, propriety and efficiency of a probationer to ascertain whether he is qualified for permanent employment, the probationer at the same time seeks to prove to the employer that he has the qualifications to meet the reasonable standards for permanent employment. (Escorpizo vs. University of Baguio Faculty Education Workers Union, G.R. No. 121962 (1999)

In a strict sense, the conditions on probationary employment are described under Article 281 of the Philippine Labor Code.

Article 281 described a probationary employee through the following characteristics:

  1. Employment shall not be more than six (6) months reckoned from his first day of work
  2. In case the employee is covered by an apprenticeship agreement, a longer period than six months of employment may be agreed upon.
  3. It is only for just cause like failure to meet the reasonable standards set by the employer to qualify as a regular employee that a probationary employee may be dismissed or terminated.
  4. If a probationary employee is still under the employ of the employer after the probationary period, he shall be deemed a regular employee.

Period of Probationary Employment

Probationary period shall not exceed six months from the date the employee started working except when there is a reason for a longer period than six (6) months. It is within this period that both the employer and the employee determine the propriety of a regular employment in favor of the probationer. As part of the employer’s right to select its employees, the employer will be given a chance to ascertain if the probationer is fit for a permanent employment. On the other hand, the probationer is given ample time to meet the standard qualifications set by the employer. Probationary period may be extended by the employer like when the employee was found out not to have met the standard for the position, in which case, certain benefits are waived.

Causes for Termination

It is true that a probationary employee does not have the right to security of tenure but their termination should be subject to labor regulations. A probationary employee can only be terminated for just cause or when the employee fails to qualify to the reasonable standards to attain regular employment.  Reasonable standards or measures for permanency must have been defined at the start of the employment or probationary period, otherwise, he can be deemed as a regular employee on the first day of his work.

There may be times that the termination is coupled with bad faith on the part of the employer or the termination is done to circumvent the law on regularization, so employees should be more mindful of their employment situation. If confronted with similar situation, you can seek a lawyer’s advice on the available remedies provided by law.