Wanting to start a business in an exotic tropical environment, either to supplement a part-time or full-time retirement, regardless of your age? Retirement is not a matter of age, it is a matter of money – having enough ongoing money coming in to give one the freedom of shedding a job. If this has been a hunger and passion of yours, having your own business, and especially a business located in Southeast Asia, then you are looking in the right place in the Philippines.
I have personally started six businesses in the Philippines over the past 20 years, and find it exciting each time. Over the years three of these businesses were sold or closed down, as I moved away from asset-based businesses towards distribution based businesses, both online and offline.
I have operated some of these as a proprietor, but I found the preferable way to operate from a tax, security and foreign ownership standpoint is to operate with a corporation.
What are the main points to consider?
1. A foreigner cannot form a solely owned business without a heavy investment (for a corporation, you are looking at USD$200,000).
2. A foreigner can have up to 40% ownership in a corporation – minimum capital to start a corporation is only Pesos 5,000 (approximately USD $1,000).
3. So essentially the only way to be in business is to be married to a Filipina who holds ownership of the proprietorship or form a corporation with a Filipina spouse with you owning 40% and she owned 60%.
4. Of course, you can always enter into a corporation with 40% ownership with a Filipina girlfriend or a Filipino friend – but consider the huge risk of having no control over your fellow majority stock owner(s).
5. Yet, depending on the purpose of the corporation (such as the purchase of a real estate – land or house), it might still make sense, in that when the property is sold you would be entitled to your share of the proceeds.
6. There is one exception whereby you CAN become a 100% owner of a corporation and that is if the corporation is formed to purchase land, your sole other shareholder is your spouse, and she dies. Under this arrangement, as the heir to your deceased spouse, you are able to retain 100% ownership of the property.
Now, assuming that either (i) you are married to a Filipina, or (ii) the business will be a real estate investment, the question then becomes what should be the form of ownership. The options are:
1. Sole proprietorship – this is a business structure owned by your spouse who has full authority in her own name and owns all the assets. However, she also will owe and answer personally to all liabilities or suffer all losses but enjoys all the profits. It is easy to form and simple to register with the government.
2. Partnership – this is a business structure owned by two or more partners. One with more than Pesos 3,000 capital has to register with the Securities and Exchange Commission. All the partners have unlimited personal liability for the affairs of the business. There is no benefit to you as a foreigner with this form of ownership by your spouse.
3. Corporation – this is my preferred form of ownership if the business is going to be anything larger than a small hobby type business. For a small business, you are best off just being in a sole proprietorship – due to the low cost and ease of formation, and its relative freedom from regulation by the government. However, for a business of any significance (a real estate ownership business, a franchise, a significant manufacturing or export business, etc), this is definitely the preferred form of ownership, and you as the foreigner can retain up to 40% ownership. Minimum paid up capital requirement is Pesos 5,000 and it is regulated by the Securities and Exchange Commission. The shareholders/owners liability is simply limited to their amount of the share capital. There must be at least five (5) incorporators, each of which must hold at least one share. So what you do, for example, is issue 56 shares to your spouse, 4 shares to her relatives, and 40 shares to yourself.