The Philippines is an archipelagic nation in Southeast Asia consisting of over 7,100 islands and with a total area of around 300,000 square kilometers. Its islands are divided into three island groups: Luzon, where the capital Manila is located; Visayas; and Mindanao. It has an estimated population of over 92 million, 61% of whom are aged between 15 and 64, and a literacy rate of 94.6%.
The World Bank ranked the Philippine economy as the 43rd-largest in the world with a gross domestic product of around $199.6 billion in 2010. It also ranked the Philippines as the 31st-largest economy in terms of purchasing power parity with a GDP (PPP) of around $367.4 billion. In contrast, Hong Kong was ranked 36th with a GDP (PPP) of around $326.2 billion, Singapore 40th with around $291.9 billion, and Vietnam 42nd with around $276.5 billion. Gross international reserves as of August 2011 reached a record high of around $75.9 billion.
Led by its business process outsourcing (BPO) sector, the Philippines' services sector accounts for about 55% of GDP. Its BPO sector is estimated to be the third-largest in the world with an estimated 15% of the global outsourcing market, and is expected to continue its growth over the next few years because of a skilled work force with good English language capabilities. Other sectors with growing economic and financial trends and/or positive outlook include agro-industry, electronics/semi-conductors, energy, logistics, mining, shipbuilding and tourism. Its main trading partners are the United States, Japan, European Union, China, Singapore, Taiwan and Hong Kong.
The Philippines' economy was reported to have expanded 6.4% in the first quarter of 2012, boosted by services such as tourism and business outsourcing, as well as consumer and government spending. Consumer spending was reported to have risen by 6.6%, government spending by almost 25%, and the services sector by around 8.5% to offset a slowdown in electronics export.
Business establishment
Foreign companies seeking to do business in the Philippines may choose from the following local business structures: corporation; partnership; representative office; regional or area headquarters; regional operating headquarters; branch; and contractual joint venture. Representative offices, regional or area headquarters, and regional operating headquarters are only allowed to perform limited undertakings.
A foreign company seeking to do business in the Philippines will have to incorporate a subsidiary, register a partnership or obtain a branch or other office licence from the Securities and Exchange Commission (SEC). It will also have to obtain a licence from the local government where it will operate. Certain industries are supervised by specific regulatory bodies from whom additional licences may be required. For example, the energy sector is regulated by the Department of Energy, banks by the Bangko Sentral ng Pilipinas, or BSP (the Philippines' Central Bank), and insurance companies by the Insurance Commission. Doing business in these sectors will require licences and permits from these agencies.
Foreigners (including foreign companies) may own up to 100% of a Philippine corporation unless that corporation will engage in an activity where foreign ownership is prohibited or limited by the Philippine Constitution, any existing law or the Foreign Investment Negative List (FINL) issued under Republic Act No. (RA) 7042. Activities where foreign participation is prohibited or limited include mass media, which is reserved for Filipinos (Philippine nationals) or corporations wholly-owned and managed by Filipinos; advertising, which is limited to Filipinos or corporations at least 70% owned by Filipinos; and certain defence-related activities and activities which have implications for public health or morals, which are limited to Filipinos or corporations at least 60% owned by Filipinos. FINL-A enumerates the activities that are reserved to Filipinos, while FINL-B lists the activities where foreign participation is limited to 40% of the corporation's capital and may be revised by the Philippine President every two years.
Generally, there is no minimum capital required to set up a corporation, but at least 25% of the authorised capital must be subscribed and at least 25% of the total subscription fully-paid upon incorporation. Minimum capital requirements may apply to companies wishing to engage in certain types of activities. For example, at incorporation, foreign companies engaging in retail trade are required to have a minimum paid-up capital of $2.5 million, while insurance companies must possess a paid-up capital stock of at least PhP5 million ($118,000).
Within 60 days from the issuance of its licence to do business (other than as a locally-incorporated corporation or local partnership), a foreign company is required to deposit with the SEC, for the benefit of present and future creditors, Philippine securities with an actual market value of at least PhP100,000, subject to the deposit of additional securities every six months after each fiscal year equivalent in market value to 2% of the amount by which its gross income in the Philippines for that fiscal year exceeds PhP5 million. The SEC may require further securities if the actual market value of the securities deposited has decreased by at least 10% of their actual market value at the time they were deposited.
A corporation may be voluntarily dissolved by application with the SEC or by the shortening of its corporate term. A corporation can also be involuntarily dissolved for violations of the Corporation Code, after notice and hearing in appropriate proceedings before the SEC. A stockholder can freely sell his shares in a Philippine corporation. The corporation itself may sell all its assets and ongoing business concerns.
Entering into joint ventures is common. Joint ventures are generally managed by the parties' agreement and the will of the majority.
Incentives
The Philippines extends many incentives to foreign investors. Enterprises meeting the criteria provided in the Omnibus Investments Code of 1987 and that are registered with the Board of Investments enjoy tax holidays for a fixed period of time, in addition to tax credits and/or exemption from taxes and duties for certain transactions. Regional or area headquarters and regional operating headquarters also enjoy certain tax concessions and exemptions. Furthermore, there are a number of special economic zones and export processing zones throughout the country, and those who locate in these zones also enjoy certain fiscal and non-fiscal privileges.
All articles manufactured in whole or in part of imported materials within bonded manufacturing warehouses, and intended for exportation are exempt from customs duties. Transfer of imported articles from bonded warehouses to bonded manufacturing warehouses to be processed into finished products for export is also exempt from duties. Multinational companies that establish a regional or area headquarters or a regional operating headquarters in the Philippines may also establish regional warehouses in eco-zones and enjoy certain tax incentives.
The Philippines is a signatory to the General Agreement on Tariffs and Trade. It is a member of a number of international economic organisations such as the World Trade Organisation and the Asia-Pacific Economic Cooperation. As a member of the Association of South East Asian Nations (Asean), the Philippines has entered into multiple agreements with other Asean members which have granted preferential tariffs for products and services to and from these members. The Philippines also has existing bilateral treaties with other countries which also grant preferential tariffs for certain products and services.
Operations and risks
Risk analysis and business practices in the Philippines are generally similar to those in the United States.
Corporations are managed by a board of directors. Certain corporate acts also require the affirmative vote of stockholders representing a majority or even at least two-thirds of the corporation's outstanding capital. Control of a corporation requires ownership or control over a majority of its outstanding capital, unless a higher voting threshold is established under its by-laws or a shareholder agreement. Unless provided in the by-laws or a shareholders' agreement, there is no compulsory process to force minority shareholders to sell out their shares.
Foreign investments and profits are easily repatriated. However, only foreign investments registered with the BSP may be repatriated using foreign currency sourced from Philippine banks. Unregistered investments may still be repatriated, but only with foreign currency sourced from outside the Philippine banking system.
The Philippines has laws on labour standards, labour relations and other employment matters that provide mandatory terms and benefits for rank-and-file employees, guarantee an employee's security of tenure upon regularisation of employment, and recognise the right of rank-and-file and supervisory employees to form separate unions (they cannot form a single union). Managerial and confidential employees are prohibited from forming unions. An employee can only be terminated for cause and after observance of due process.
The Philippines is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It has existing laws institutionalising the use of alternative dispute resolution, including international arbitration. Any local or foreign entity can enter into alternative dispute resolution and/or arbitration agreements. It is common for contracting parties to provide for arbitration abroad and under the auspices of an international organisation such as the International Chamber of Commerce where one of them is a foreign entity.
Other concerns
Only Filipinos or corporations at least 60% owned by Filipinos are allowed to own land in the Philippines, but foreigners are allowed to lease land for 50 to 75 years depending on the land's classification. Private corporations, whether local or foreign, can only lease up to 1,000 hectares of alienable public lands. There is no limitation regarding private lands.
The Philippine Constitution provides that the State must regulate or prohibit monopolies when public interest so requires. Criminal laws penalise the formation of monopolies and combinations in restraint of trade. Certain laws also contain antitrust provisions for specific industries. For example, cartelisation and predatory pricing is prohibited in the downstream oil industry, and laws relating to electric utilities contain provisions encouraging retail competition and de-monopolisation. A more comprehensive Competition Act meant to provide more teeth to these laws is pending in Congress.
The Philippines has a number of anti-corruption laws such as RA 3019 (Anti-Graft and Corrupt Practices Act), RA 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees), and Presidential Decree No. 46 (Act Punishing the Receiving and Giving of Gifts of Public Officials and Employees). President Benigno Aquino III took office in 2010 with a mandate to address perceived rampant government corruption.
Intellectual property rights are generally protected. Intellectual property registered with the Intellectual Property Office remains the property of the registered owner even upon dissolution, as long as the requisites provided under the Intellectual Property Code are met. Owners of intellectual property who are domiciled or have real and effective industrial establishments in a country which is a party to any convention, treaty or agreement relating to intellectual property rights or the repression of unfair competition to which the Philippines is also a party or extends reciprocal rights by law to Philippine nationals, are extended the same protections provided by the Intellectual Property Code.
Like other governments, generally, the Philippine government may not be sued without its consent. Such immunity extends to government officers, government-owned and -controlled corporations, and to unincorporated agencies which perform governmental functions. But there are exceptions: one is when the government expressly gives its consent to be sued, which may be embodied in legislation. A government officer who commits a tort in the performance of his duties is liable to suit in his personal capacity. Unincorporated agencies performing proprietary functions may be sued, unless these functions are incidental to their governmental functions. Incorporated agencies may be sued if they perform proprietary functions or are expressly made open to suit by their charters. There may also be an implied waiver of immunity by government when it enters into a contract in the pursuit of its proprietary functions or when it initiates a suit against a private party. Even if the government waives its immunity from suit, however, it does not necessarily follow that it also concedes liability or that it consents to the enforcement of judgment against it. Judgments against the government or its agencies and instrumentalities in cases where the government has consented to be sued, operate merely to liquidate and establish the plaintiff's claim; such judgments may not be enforced by writs of execution or garnishment and it is for the legislature to provide for their payment through the corresponding appropriation. This is because disbursement of public funds must be covered by the corresponding appropriation.
| Ben Dominic R Yap |
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Caguioa & Gatmaytan
Ben Dominic R Yap is a partner of Caguioa & Gatmaytan. He specialises in litigation and arbitration and has handled a broad range of cases before various Philippine courts and quasi-judicial bodies. He recently acted as counsel in an ICC arbitration involving a Philippine power generation company and two multinational oil companies, and is currently acting as counsel in another ICC arbitration involving a Philippine solar wafer slicing company and a Korean wafer company.
Yap's practice recently expanded to include work in the energy sector. He is assisting a leading Philippine generation conglomerate on the financing and construction of a 300-MW coal-fired plant and with the fuel supply requirements of another 600-MW coal-fired plant.
Yap co-authored several articles on doing business and dispute resolution published by the American Bar Association in 2005, 2006 and 2010. He was cited as a leading Philippine lawyer in the corporate/commercial field by a leading legal directory in its 2012 publication.
He obtained his degree in Legal Management from Ateneo de Manila University in 1993. He graduated with honours from its College of Law in 1997, ranked second and the recipient of the school's Evelio Javier Leadership Award. Yap was admitted to the Philippine Bar in 1998.
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| Jaime Renato B Gatmaytan |
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Caguioa & Gatmaytan
Jaime Renato B Gatmaytan is a partner of Caguioa & Gatmaytan. He advises on corporate and commercial transactions, including on equity investments, share and asset acquisitions, lending, security and other financing arrangements, real estate transactions, and construction and infrastructure projects.
Gatmaytan has significant experience in the energy sector, having represented various private power developers since the Philippines opened power generation to the private sector in the 1990s. More recently, he advised bidders participating in the privatisation of the generation assets of the former state-owned power generation and transmission monopoly, as well as parties seeking registration under the country's new renewable energy programme. He is assisting one of the Philippines' leading generation conglomerates in the documentation of its power sale agreements and other operating contracts, and on the financing and construction of a planned 300MW coal-fired power plant.
Gatmaytan was cited as a leading Philippine lawyer in the corporate/commercial field by a leading legal directory in its 2010, 2011 and 2012 publications.
He obtained his degree in Humanities from the University of the Philippines in 1985, and graduated with honours from its College of Law in 1990, ranked sixth in his class. Gatmaytan was admitted to the Philippine Bar in 1991.
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| Anthony Mark A Gutierrez
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Caguioa & Gatmaytan
Anthony Mark A Gutierrez is a partner of Caguioa & Gatmaytan, specialising in taxation and civil and commercial litigation. His experience in taxation includes representing clients in cases involving assessments and refunds of various taxes and government impositions in various forums, as well as tax consultancy. He has been cited as a leading Philippine lawyer in the tax field by a leading legal directory in 2010, 2011 and 2012.
Gutierrez has appeared and argued before various courts, quasi-judicial bodies and regulatory agencies for a broad range of cases involving taxes, regulatory disputes, restructuring and rehabilitation, contract disputes, intra-corporate controversies, medical malpractice claims, product liability and torts. He has also participated in arbitration proceedings conducted under the auspices of the International Chamber of Commerce, and has experience in criminal litigation both as private prosecutor and defence counsel.
Gutierrez obtained his degree in Business Administration and Accountancy from the University of the Philippines in 1996 and is a Certified Public Accountant. He graduated with honours from the College of Law of Ateneo de Manila University in 2001 as the salutatorian in his class. He was admitted to the Philippine Bar in 2001 after placing third in the 2001 Bar Examination.
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