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The last few years saw a dramatic increase in the amount of foreign direct investment (FDI) in the Philippines.
And even while those figures are a couple of hundred million dollars down as of Q1 of 2019, it’s still notably higher compared to the first half of this decade. Proof that more and more foreign investors are seeing the potential on the investment opportunities in the country.
What is Foreign Direct Investment?
Foreign Direct Investment (FDI) is defined as an investment made by an investor (can be a person, group, or firm) from another country. “Investment” in FDI does not automatically mean funding or liquid assets, however.
It can come in the form of establishing a business in a foreign country or taking control of foreign assets.
The level or amount of control is what differentiates it from a typical investment wherein someone simply buys equities (stock) of a foreign-based company.
If the ownership of foreign investment is less than 10%, that’s considered a stock portfolio, according to the International Monetary Fund.
With FDI, the investor plays a big role in the operation and management of the investment.
How does Foreign Direct Investment (FDI) Work?
Let’s keep things super-simple by using an example. Let’s say a US-based real-estate company sees the increasing demand for condominium units in the Philippines and decides to get in on the action.
They expand their operations here and start buying and developing land for building condominiums. The capital they used to fund their expansion and operation in our country is considered FDI.
Aside from the jobs that their business will create (hiring employees and construction firms), the business, of course, will need to pay tax to operate here, establishing another source of income for our government.
To make it more appealing to investors, some countries (including ours), offer tax incentives.
Foreign Direct Investment can be classified into 3 types:
|Horizontal||An investor expands their exact same business into another country. For example, a shoe manufacturing company based in the Philippines sets up shop in the US.|
|Vertical||An investor sets up a business in a foreign country that’s “related” with their existing one in their homeland. For example, a shoe company in the US establishes a leather production company in the Philippines to help their main business with the supply of leather.|
|Conglomerate||An investment that’s outside of the scope of business or expertise of the investor. For example, a shoe company based in the US sees the boom in coco juice demand in their country so it looks to partner with a Philippine-based Coco-farm.|
The majority of foreign direct investments received last year (2018) was funneled into the following industries:
- Real estate
- Financial and insurance
- Gas, steam, and air-conditioning supply activities
- Entertainment and recreation
Note this data (along with other FDI-related reports you’ll stumble upon) are mainly concerned with assets from partner countries who invested in the Philippines.
We’re talking about billions of dollars sent from one government to another, most of which will be spent towards building and developing the country on a nationwide level.
But what about individual/private investors?
Foreigners who see potential in investing in the country?
Where and how do they start?
Which businesses can they actually establish here, legally?
If a non-Filipino was to invest in the Philippines, which type of businesses are allowed by the government to be owned and managed 100% by foreigners? Which ones are off-limits?
This article aims to answer all of that and more. Our focus is on providing the most practical and useful data that anyone (even locals) can utilize to come up with potential investment endeavors for building wealth and growing their money.
Who knows? It might just spark a business idea or two in your head.
Pros and Cons of Investing in the Philippines
- Highly-skilled English-speaking workforce
- Rich in natural resources
- A sizeable domestic market with a high employment rate
- Successful in integrating BPO as an economic driving force
- High GDP rate
- Infrastructure needs improvement
- A significant portion of potential businesses are restricted from foreign investments
- Some level of corruption still present within various state agencies and departments
- Inequality when it comes to the development of its regions (security issues on Southern regions also exists)
- A huge portion of the population is still unbanked
List of Investment Opportunities for Foreign Direct Investors in the Philippines
Not all types of industries or businesses in the Philippines can be owned (or partially owned) by foreign investors.
In fact, there’s a long list of business opportunities that are strictly Filipino-based (no foreigner can have equity on it):
Zero Equity for Foreign Investors (industries and fields they are not allowed to invest or participate in)
- Small-scale mining
- Mass media (Internet business and recording are exempted)
- Detective, Security Guard, Surveillance Agencies
- Cockpit operation/management/ownership
- Firecracker and pyrotechnic devices manufacturing
- Nuclear weapon repair/stockpiling/distribution/manufacturing
- Biological, radiological, and chemical weapon repair/stockpiling/distribution/manufacturing
- Use of marine resources within Philippine territorial/archipelagic seas and waters and exclusive economic zone (including small-scale use of natural resources found in lakes, bays, lagoons, and rivers
- Retail trade business (paid-up capital of less than $2.5 million)
- Practice of profession (includes law, radiology and X-ray device operation, marine deck and marine engine officers)
Industries & Businesses that allow 40% Equity to Foreign Investors
- Private Land ownership
- Natural resource exploration, development, and utilization
- Public utility ownership (not including power generation and supply)
- Condominium ownership
- Deep-sea commercial fishing vessel exploration
- Contracting to government-owned and controlled companies and agencies for the following: commodities, goods, and materials (supply)
- Rice and corn production, culture, processing, milling, and trading. Does not include retailing (by trade or purchase)
- Establishment of educational institutions (except religious groups and mission boards)
Industries & Businesses that allow 100% Equity to Foreign Investors (Full ownership)
- Establishment and operation of Internet businesses
- Wellness Centers
- Lending, financing, investing, and adjustment companies
- Training centers for the development of high-level skills (short-term training) that are not part of the Philippine educational system
- Higher education teaching (as long as the subject is not professional, not part of the bar exam or government board)
Top Industries to Invest in the Philippines
Now that you know which businesses you can potentially invest in as a foreigner in the Philippines, the following list highlights which industries have been steadily growing in the past couple of years.
- Foreign investors are allowed 40% equity in private land ownership and natural land resource exploration.
- Foreign investors are allowed 40% equity in the production and manufacturing of various goods like industrial equipment, textile, food and beverage, and more. Note, however, that it applies to manufacturing and production only (retail trade business with paid-up capital of less than $2.5 million are not allowed for foreign investors)
- Real Estate
- Foreign investors are allowed 40% equity in private land and condominium ownership, and natural land resource exploration
- Contracting to government-owned and controlled companies and agencies for materials and equipment are allows a 40% stake to foreign investments
- IT, BPO, & Business Services
- Allows 100% ownership to foreign investors. The rise of the Philippines as the premier BPO destination in the last decade is proof of its FDI-friendly climate for this industry.
- Banking & Finance
- Allows 100% equity (internet business)
- Health care
- Allows 100% equity if established as an internet business (e.g, app for booking doctor appointments, etc.,)
- Rice and corn production, culture, processing, milling, and trading allows 40% equity
For a more in-depth guide on this topic, check out our coverage of the Top 12 Industries to Invest in the Philippines
Previously (prior to 2018), “Internet businesses” we’re hands-off from foreign investors.
After updating its Regular Foreign Investment Negative List, it now allows 100% equity, opening a wide range of industries classified as an online business.
If you want a primer on some of the best ways you can earn money online (via businesses or services), check out our comprehensive guide: 7-Figure Business Ideas: 6 Ways to Make Money Online which covers the following:
- Blogging & Content Publishing
- Create an Online Store: Ecommerce & Dropshipping
- Freelancing Business
- Affiliate Marketing
- Website Flipping
- Launch a Startup
Speaking of start-ups (#6 on the list), the last few years saw remarkable advancements in the development of the Philippines’ start-up scene, thanks to a growing number of Private Equity and Venture Capital Firms that support them.
These PE and VC firms invest in various start-ups who are looking for ways to improve the different industries in the country, like:
- Retail, E-commerce
- FinTech & Microfinance
- Food & Beverage
How to Register a Business in the Philippines
Setting up your own business in the Philippines as a foreigner is no different from registering it as a local.
Here are the main steps (some of these items can be skipped for online businesses):
1. Register your Busines Name
1. Sole proprietors can simply visit the Department of Trade and Industry’s (DTI) website and follow the steps for registering your business name. Here’s a quick summary of the actual steps at the time of this writing:
- Owner’s information
- Business Name & Scope Identification
- Business Details Identification
- TIN application
- Business Registration
Sidenote: The DTI website features a “Business Ideas” section that shows a long list of potential business ideas along with guides and how-tos for setting up each one.
2. Corporations and partnerships can register their business via the Security & Exchange Commission’s Company Registration System (CRS). The system allows anyone to perform the following:
- Verification of company name
- Appeal for disallowed proposed name
- Fill-out articles of incorporation and by-laws
- Uploading of required documents for review and processing
- Allows applicants to receive notifications if there are deficiencies in the requirements they submitted
- Filing fees assessment
- Fees payment
2. Obtain all necessary and legal documents
- Business name certificate from DTI (for sole partnerships)
- Certificate of Incorporation or Partnership from SEC (for Corporations and partnerships)
- Contract of Lease (if space will be rented)
- Land title or tax declaration (if the land is owned)
- Homeowners Association certificate (if the business is located within residential villages and subdivisions)
- Barangay Permit (items A to E above are requirements for obtaining your barangay permit)
- Mayor’s Permit (items H to O are requirements for obtaining the Mayor’s permit)
- Authorization letter of the business owner with ID
- Business location sketch
- Permit of occupancy
- Locational clearance
- Public liability insurance
- Community Tax Certificate
- Fire Permit
- Sanitary Permit
3. Obtain Certificate of Registration (COR) from the Bureau of Internal Revenue (BIR)
- Visit the Regional District Office (RDO) where you’ve set up your business
- Complete the BIR Form 1901 (for Sole Proprietors) or BIR Form 1903 (for Partnerships and Corporations)
- Submit it together with the following documents:
- BIR Form 0605
- BIR Form 2000
- SEC or DTI certification
- Mayor’s Permit
- Business Location Map
- Contract or Lease of Business (for rentals) or Land Title/Tax Declaration (if landowner)
The updated list of investment opportunities for foreign investors in the Philippines provides a more flexible selection of opportunities to foreign investors who want to start a business in the Philippines.
It can provide a win-win scenario to both the investors and the country for the mutual benefits that a successful business can bring.