Comprehensive Guide to Establishing a Company in the Philippines for Foreign Investors

This report provides a detailed overview of the legal structures, foreign ownership rules, and tax incentives for establishing various business operations in the Philippines, specifically focusing on the Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), IT-BPO, online/digital services, e-commerce, virtual assistance, and Regional Operating Headquarters (ROHQ) sectors.

I. Overview of Business Entities for Foreign Investors

The choice of legal entity is a critical first step, as it determines the capital requirements, liability, and regulatory compliance framework. For foreign investors, the primary options are establishing a domestic corporation (subsidiary) or an extension of the foreign parent company.

A. Domestic Corporations (Subsidiaries)

Entity Type	Description	Key Requirements & Notes
Foreign-Owned Domestic Corporation (FODC)	A separate legal entity incorporated in the Philippines, which can be 100% foreign-owned in most sectors not on the Foreign Investment Negative List (FINL) [1].	Generally requires a minimum paid-in capital of USD 200,000. This can be reduced to USD 100,000 if the company employs at least 50 Filipino workers or uses advanced technology [2].
One Person Corporation (OPC)	Allows a single shareholder (individual, trust, or estate) to form a corporation with limited liability, combining the flexibility of sole proprietorship with corporate protection [2].	Minimum capital typically starts at PHP 100,000 (approx. USD 1,750), but this varies based on the industry. This structure is ideal for small-scale ventures or startups [2].

B. Foreign Corporation Extensions

Entity Type	Description	Key Requirements & Notes
Branch Office	An extension of the foreign parent company that can conduct commercial activities and generate income in the Philippines [2].	Requires a minimum inward remittance of USD 200,000 to serve as starting capital. Profits can be repatriated to the parent company [2].
Representative Office	Focuses on non-income-generating activities such as liaison work, market research, and quality control [2].	Requires a minimum inward remittance of USD 30,000 for operating expenses. It is exempt from local income tax as it cannot earn income locally [2].
Regional Operating Headquarters (ROHQ)	Allows a multinational company to coordinate, support, and provide administrative or technical services to its regional affiliates, subsidiaries, or branches [3].	Requires a minimum inward remittance of USD 200,000. Its activities are strictly limited to intercompany services and cannot engage in commercial trade or provide services to third parties in the local market [3].

II. Specific Business Model Requirements and Considerations

A. BPO, KPO, and IT-BPO

The Philippines is a global leader in the IT-BPO sector, and these activities are highly encouraged.

• Foreign Ownership: BPO, KPO, and IT-BPO companies are generally classified as export-oriented services, allowing for 100% foreign ownership under the Foreign Investments Act (FIA) [1].

• KPO Distinction: While BPO focuses on routine, process-driven tasks, KPO (Knowledge Process Outsourcing) involves more complex, knowledge-based services (e.g., legal research, financial analysis). For registration and incentive purposes, KPO is typically treated under the same framework as IT-BPO [4].

• Recommended Entity: A Foreign-Owned Domestic Corporation (FODC) or a Branch Office is the most common structure.

B. Regional Operating Headquarters (ROHQ)

The ROHQ structure is specifically designed for multinational companies centralizing their regional management functions.

• Function: Permitted activities include general administration, business planning, corporate finance advisory, training, logistics, research and development, and technical support for affiliates [3].

• Tax Incentives: ROHQs enjoy a 10% preferential corporate income tax on qualifying income derived from services rendered to affiliates [3]. Furthermore, expatriate employees of an ROHQ benefit from a preferential tax rate of 15% on their gross income [3].

C. Online and Digital Services / E-commerce

The establishment of an e-commerce or digital services company depends heavily on whether the business involves the sale of goods (retail) or services.

• Retail E-commerce: If the business involves the sale of goods to the local market, it may fall under the Retail Trade Liberalization Act (RTLA). While 100% foreign ownership is now allowed for most retail, a minimum paid-up capital of USD 200,000 is generally required [1].

• Digital Services VAT: A critical tax consideration is the 12% Value-Added Tax (VAT) imposed on digital services consumed within the Philippines. Both resident and non-resident Digital Service Providers (DSPs) are required to register with the Bureau of Internal Revenue (BIR) and comply with this tax [5].

D. Virtual Assistance

Virtual Assistance (VA) can be structured as a small agency or an individual service provider.

• VA Agency (Mini-BPO): A One Person Corporation (OPC) offers a streamlined, limited-liability structure for a small, single-owner agency. A larger, foreign-owned agency would typically register as an FODC [2].

• Incentives: Small VA businesses generally do not qualify for major tax incentives unless they scale up to meet the export-oriented criteria (e.g., 60% of revenue from overseas sales) required for PEZA or BOI registration [4].

III. Tax Incentives and Regulatory Bodies

Foreign investors in the Philippines can avail of significant tax incentives by registering with either the Philippine Economic Zone Authority (PEZA) or the Board of Investments (BOI).

A. Philippine Economic Zone Authority (PEZA)

PEZA-registered enterprises, particularly those in the IT-BPO/KPO sector, are typically located within designated IT Parks or Centers.

Incentive Type	Details
Fiscal Incentives	Income Tax Holiday (ITH) of 4 to 7 years, followed by a Special Corporate Income Tax (SCIT) rate of 5% on gross income in lieu of all national and local taxes, or Enhanced Deductions (ED) for 10 years [4].
Non-Fiscal Incentives	Tax- and duty-free importation of capital equipment, VAT zero-rating on local purchases (including utilities like power and telecommunications), and the issuance of a special PEZA Visa for foreign nationals and their dependents [4].

B. Board of Investments (BOI)

The BOI administers incentives for strategic investment projects under the Strategic Investment Priority Plan (SIPP).

• Incentives: BOI-registered enterprises can also receive an Income Tax Holiday (ITH), duty-free importation of capital equipment, and other non-fiscal benefits [4].

• Remote Work Policy: A key distinction from PEZA is the policy on remote work. BOI-registered firms can continue to enjoy tax benefits provided that no more than 50% of their total workforce operates remotely [4]. This is a crucial factor for BPO/IT-BPO companies planning a hybrid work model.

IV. Summary of Recommended Structures

The table below summarizes the most suitable entity and incentive options for each of the user's requested business models.

Business Model	Recommended Entity Type	Foreign Ownership	Key Incentive/Tax Consideration
BPO / IT-BPO / KPO	Foreign-Owned Domestic Corporation (FODC) or Branch Office	100% Allowed	PEZA or BOI registration for ITH and 5% SCIT (PEZA) or Enhanced Deductions (BOI) [4].
Regional Office (ROHQ)	Regional Operating Headquarters (ROHQ)	N/A (Extension of Parent)	10% Preferential Corporate Income Tax on qualifying income [3]. Cannot generate local income.
E-commerce (Retail)	Foreign-Owned Domestic Corporation (FODC)	100% Allowed (with capital)	Minimum USD 200,000 capital required. Subject to 12% VAT on digital services consumed locally [5].
Online/Digital Services	Foreign-Owned Domestic Corporation (FODC) or OPC	100% Allowed	Subject to 12% VAT on digital services consumed locally [5]. May qualify for BOI/PEZA if export-oriented.
Virtual Assistance	One Person Corporation (OPC) or FODC (for agencies)	100% Allowed	Simpler registration (OPC) for small scale. Incentives only if meeting export-oriented criteria [2].

References

[1] Foreign Investment Negative List (FINL) and Foreign Investments Act (FIA) as amended by RA 11647.

[2] Guide to Setting Up a Company in the Philippines, Emerhub.

[3] Guide to Register an ROHQ in the Philippines, Emerhub.

[4] PEZA Incentives, Requirements, and Locations, Outsource Accelerator.[5] Philippines: Application of VAT on digital services, KPMG.