The Philippines has managed to attract many large multinational corporations looking to lower their cost and take advantage of competitive domestic wages and a highly educated workplace.
A foreign corporation in the Philippines could either be a Resident Foreign Corporation (RFC) of a Non-Resident Foreign Corporation (NRFC). Foreign Corporations or entities could do business in the Philippines as a domestic corporation or as a resident foreign corporation. Domestic Corporation or Local Corporation registered with the Security and Exchange Commission (SEC) and other government agencies in the Philippines. While Resident Foreign Corporation is a foreign corporate entity brought to the Philippines and secure licensed to do business in the Philippines
The Philippines is an increasingly attractive target for foreign business.
A foreign corporation seeking to set up a Branch Office in the Philippines must obtain a “License to do Business” from the Securities and Exchange Commission (SEC). The foreign corporation’s head office must prove its legal existence in its country of origin, financial soundness, and authorization to set up a branch in the Philippines.
ROHQ is an extension of a foreign corporation allowed to derive income in the Philippines by performing qualifying services to its head office, affiliates, subsidiaries or branches in the APAC region and other and other foreign markets.
Regional Headquarters (RHQ) as any foreign business entity formed, organized, and existing under any laws other than those of the Philippines whose purpose is to supervise, coordinate and communicate center to its affiliates, subsidiaries, and branches in the APAC Region and other foreign marketing. RHQ is a non-income generating foreign corporation in the Philippines.
PRO is a business structure that acts as a local intermediary office for a foreign corporation that seeks to establish a corporate presence in the country without engaging in income-generating activities. A PRO may be established with only one (1) person who will act as the resident agent.
The foreign corporation is referred to as the parent company and its head office fully subsidizes the operating expenses and incurs all the liabilities of the representative office in the Philippines. Therefore, a representative office in the Philippines is actually an extension of a corporation’s foreign/head office.
Cultural Differences in the Philippines
Deciding to make the Philippines as your next entrepreneurial area?
It is a common misconception that foreigners cannot own their business in the Philippines. In many industries, foreign investment is actually encouraged and even promote fiscal and non-fiscal incentives. According to the Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA) outlines these incentives and their requirements for avail. That being said, there do remain some industries that place restrictions on foreign equity in terms of maximum capital investment, and all of them can be found in the Philippine Foreign Investment Negative List.
The Philippines is attracting a lot of interest from investors. As a foreigner, there are several restrictions on owning and starting a business in the Philippines. Some of the restrictions are as follows:
- Foreign ownership is limited to only 40 percent in selected industries such as the manufacturing of explosives and firearms, military hardware, and massage clinics.
- Foreign ownership is even lower in other sectors, such as private employee recruitment firms (25 percent), advertising (30 percent), private radio communications networks (20 percent), and construction of locally funded public works (25 percent).
- Mass media, small-scale mining, marine resources, private security, and manufacture of firecrackers and other pyrotechnic paraphernalia are strictly off-limits to foreign equity.
Cross-cultural differences in business culture and everyday living in the Philippines can cause many obstacles which international organizations may face when setting up or doing business in the Philippines. It is vital for businesses to understand that cultural differences can affect how they perform in the local markets they are targeting. Instead of looking at cultural differences as a weakness, accepting cultural differences provides a wide range of business expertise and give a novel business insight to overcome business-related problems.
Before coming to the Philippines, good preparation is essential.
- Get to know about the country and its culture, as well as the economic and political climate.
- Make good use of the knowledge and services available from private companies and government authorities.
- Talk to entrepreneurs with experience of doing business in the Philippines.
- Building and maintaining good relationships is essential for doing business in the Philippines. A reliable local partner can speed up the preparatory work considerably.
Understand Business Etiquette
Building a good relationship is central to doing business in the Philippines. Doing business takes place in a relaxed manner. Make sure to discuss general topics such as family life and show curiosity in the country and culture. Filipinos are very hospitable and may invite business partners to have dinner with their families. Humor plays an important role in relationship building but avoids topics on politics and religion.
- Prepare business cards, as they are important and widely used. Use both hands when presenting and receiving business cards. A handshake is the standard form of greeting for both men and women. It is common to shake hands with everyone present upon arrival and upon departure from the meeting.
- Despite the hot weather, men wear suits and ties when conducting business.
- Most Philippine companies have a hierarchical management style. This slows down the decision-making process as different levels of the hierarchy need to be passed until the final decision-maker is reached.
- Titles are important in the Philippines and should be used during business meetings (for example: address your partner as Engineer Abela or Doctor Camara) as a sign of respect.
- Filipinos are very sensitive about losing “face” and place a premium on their reputation. Avoid direct confrontation, criticism or actions which will cause offense or public embarrassment for the Filipino business person as this may prove counterproductive.
- In order to save face and to avoid disagreement, Filipinos will rarely say “no”. Foreigners should closely observe the subtle nuances in body language to discern the non-verbal message being relayed by the business person.
- Schedule meetings and reconfirm them one day before as confirmed appointments can be canceled or postponed at the last minute.
- Do follow-up immediately in writing any agreement you feel you may have reached. Yes, may not mean “yes”. It may mean “yes, I understand what you are saying’’.
Know Your Challenges
The Philippines has a lot to offer, but there are undoubtedly many challenges in doing business here.
- Understand where to expect challenges: culture and language, laws and regulations, intellectual property rights, trade barriers, logistics, personnel, and bureaucracy.
- Develop a solid business plan and do market research: set clear goals and ambitions, know your niche market and know about your competitors. Without this background knowledge, starting a successful business operation is most unlikely.
- Make sure you do due diligence prior to entering into contracts or other commercial arrangements and don’t underestimate the need for quality checks in the Philippines.
- Corruption can pose a serious barrier to doing business in the Philippines. The Embassy offers counseling to avoid corruption and reduce the risks of doing business in the Philippines.
Entrepreneurs willing to set up a business in the Philippines are unable to do so through the establishment of a limited liability company because such a business entity is not provided by local regulations. Business entities include organizations such as corporations, partnerships, charities, trusts, and other forms of organization. Business entities, just like individual persons, are subject to taxation and must file a tax return. After years of political and economic turmoil, the Philippines is now a flourishing economy in line with other industrialized Asian countries.