SECTION 1: Market outlook
1.1 What is the outlook for US investment into your
jurisdiction over the next 12 months, given the new US
administration's protectionist focus?
The outlook for US investment in the Philippines over the
next 12 months is positive.
According to the Philippine Statistics Authority, the US was
among the top three investing countries in the Philippines in
the fourth quarter of 2016 (the two others were Netherlands and
Australia). The US pledged PHP20.1 billion ($403 million) or
16% of the total approved foreign investments.
Philippine President Rodrigo Duterte's shift to a
multilateral foreign policy and US President Donald Trump's
pull-out from the Trans Pacific Partnership (TPP) arrangement,
which excludes the Philippines, are expected to help boost
Philippine trade and investments, based on reports from Fitch
Ratings and BMI Research (cited in the BusinessWorld, January
28 2017). Although the TPP was believed to be promising for
regional integration and economic growth among participants,
Fitch said the arrangement was unlikely to be a 'game-changer'
inasmuch as the Philippines is among the least exposed to the
TPP fallout, and 'may actually find room to swoop in and take
the American deals previously limited to bloc members'.
On the other hand, BMI Research noted that President Trump's
anti-trade rhetoric 'could see US outward investment decline
over the coming quarters as his administration threatens to
slap tariffs on companies who refuse to put 'America first' and
bring jobs back to the US'. Nomura, in a report dated January
2017, also stated that the Philippines runs a merchandise trade
surplus with the US of 0.7% of gross domestic product (GDP).
1.2 Are there any industries in particular that you think
are more likely to be affected by the US's new economic
The business process outsourcing (BPO) sector and Filipino
workers' remittances will most likely be affected by the US's
new economic stance.
Based on a report by London-based research consultancy firm
Capital Economics (cited in the Manila Times, February 4 2017),
'[i]t has been estimated that around three-quarters of total
revenue from the [BPO] sector comes from servicing US
companies'. According to Nomura, Trump's commitment to bring
jobs back to the US may affect the BPO sector, which caters
mostly to US corporates. Nonetheless, the low cost of
production and labour in the Philippines makes it an attractive
investment location (Willis Towers Watson 2015-2016 Global 50
Remuneration Planning Report cited in the Philippine Daily
Inquirer (PDI), April 29 2016; Department of Finance interview
cited in PDI, February 4 2016).
Further, remittances from Filipinos working in the US may be
affected. Capital Economics noted that the 4 million or so
Filipinos currently based in the US send back remittances
equivalent to about 3% of the Philippines' GDP, which is the
highest of any major emerging market. If the US were to press
ahead with a tax on remittances, which it has already
threatened to do against Mexico, it could cause remittances
from Filipinos to slow down.
SECTION 2: Approving foreign investments
2.1 Explain the foreign investment approval process and
The Foreign Investment Act (FIA) liberalised the entry of
foreign investment into the Philippines. Pursuant to the FIA,
foreign investors are generally treated like their domestic
counterparts and required to register with the Securities and
Exchange Commission (SEC) (for corporations or partnerships) or
with the Department of Trade and Industry (DTI) (for sole
proprietorships). Generally, 100% foreign equity may be allowed
in all areas of investment except those reserved for Filipinos
under existing laws. Registration with the DTI takes one
working day, while registration with the SEC takes two to seven
After registration with the SEC or DTI, the entity must
register with the Bureau of Internal Revenue (BIR) for tax
purposes, and obtain permits and clearances from the local
government unit where it will do business. As an employer, the
corporation will also have to register with the Social Security
System (SSS), Pag-IBIG Fund and PhilHealth. Where necessary to
its operations, it must also accredit itself as an importer
with the Bureau of Customs. This entire post-registration
process may take two to three months.
If the proposed project or activity qualifies for
incentives, the foreign investor may file an application for
incentives with the appropriate investment promotion agency
(IPA). There are currently seven IPAs: the Board of Investments
(BOI); Philippine Economic Zone Authority (Peza); Subic Bay
Metropolitan Authority; Clark Development Corporation; John Hay
Poro Point Development Corporation; Cagayan Economic Zone
Authority; and Aurora Pacific Economic Zone and Freeport
The approval of the IPA usually takes one to two months from
the submission of complete documentary requirements, as it will
have to undergo a process of evaluation.
2.2 Are there any investment restrictions in specially
regulated sectors and is the government entitled to any special
rights in these sectors?
Foreign investment restrictions are embodied in the Foreign
Investment Negative List (FINL), which provides for two types
of restrictions: List A, where foreign ownership is limited by
the Philippine Constitution and specific laws; and List B,
where foreign ownership is limited for reasons of security,
defence, risk to health and morals and protection of small- and
List A provides a list of industries that foreigners may not
invest in, such as mass media and the practice of certain
professions, as well as industries where foreign equity is
allowed but limited, such as advertising (30% maximum foreign
equity), and the operation of public utilities, ownership of
private lands, and exploration, development and utilisation of
natural resources (40% maximum foreign equity).
List B provides a list of activities where foreign equity is
limited to 40%, such as domestic market enterprises with
paid-in equity capital of less than the equivalent of
The government enjoys special rights in particular sectors
based on law. For example, in the case of natural resources,
the government may directly undertake such activities or it may
enter into co-production, joint-venture, or production sharing
agreements with Filipino citizens or with corporations where at
least 60% of the capital is owned by Filipino citizens.
2.3 Which authority oversees competition clearance and give
a brief overview of the merger clearance process?
The Philippine Competition Commission (PCC) is the authority
that oversees competition clearance.
Generally, parties to a merger must notify the PCC in the
following situations: the aggregate annual gross revenues in,
into or from the Philippines, or value of the assets in the
Philippines of the ultimate parent entity of at least one of
the acquiring or acquired entities, including that of all
entities that the ultimate parent entity controls, directly or
indirectly, exceeds PHP1 billion; and the value of the
transaction exceeds PHP1 billion.
The PCC has 15 days from the parties' submission of all the
required information to determine whether relevant requirements
have been completed, and 30 days from commencing its phase I
review to determine if a phase II review (more detailed and
comprehensive analysis) is needed. If a phase II review is
needed, the PCC is given an additional period of 60 days from
the parties' receipt of the notice. The entire review process
is limited to 90 days from the submission of all the required
information for phase I review. When these periods expire
without the PCC having promulgated any decision, the merger is
2.4 Are there further approval requirements that foreign
investors should be aware of?
Registration with the Bangko Sentral ng Pilipinas (BSP) is
required if the foreign exchange requirement needed to service
the repatriation of capital and remittance of cash dividends,
profits or earnings accruing on foreign investments will be
sourced from authorised agent banks (AABs) or their affiliate
or subsidiary foreign exchange corporations (AAB-forex
SECTION 3: Investment techniques
3.1 What are the most common legal entities used for US
investment in your jurisdiction?
There most common legal entities for US investment include a
local subsidiary (through the establishment of a new
corporation), representative or liaison office, branch office,
regional or area headquarters, and regional operating
3.2 What are the key requirements for establishment and
operation of these legal entities?
In general, the key requirements for the establishment and
operation of all these legal entities are SEC approval,
clearances from the local government unit, registration with
the BIR, and registration with the SSS, Pag-IBIG Fund and
A foreign corporation seeking to establish a local
subsidiary must have at least five to 15 incorporators, each of
whom must hold at least one share. Generally, the minimum paid
up capital is PHP5,000, unless otherwise provided by law. As
for other legal entities, the capital requirements are as
(a) A representative office is required to have a minimum
inward remittance of $30,000 to cover operating expenses.
(b) A branch office is required to put up a minimum paid in
capital of $200,000, which can be reduced to $100,000 if the
activity involves advanced technology, or the company employs
at least 50 direct employees.
(c) A regional headquarters requires the inward remittance
of $50,000 annually to cover operating expenses.
(d) A regional operating headquarters requires the minimum
capital of $200,000 in the form of a one-time remittance.
For (c) and (d), the endorsement of the BOI is required
before the SEC acts upon the application for registration.
SECTION 4: Dispute resolution
4.1 How effective are local courts' enforcement and
dispute resolution proceedings, and what should US investors be
particularly aware of?
In a study published by the Institute of Developing
Economies (Dispute Resolution Systems in Asia (Philippines)) in
March 2002 (IED Study), it was found that even if statistics
show a high volume of controversies submitted for judicial
resolution in the Philippines, there is a growing
dissatisfaction in the use of courts for settling disputes. The
reasons for this dissatisfaction include: costly and slow
process of litigation; rigidity of procedural and technical
rules; the adversarial nature of the litigation system; and an
inadequacy of legal solutions for resolving complex issues
involved in commercial transactions.
The IED Study noted that one important consideration which
militates against litigation and favours out-of-court
settlement is the culture of the Filipinos that strongly values
the preservation of an amicable relationship between
Aware of these issues, the government is currently
implementing long-term reform strategies to improve judicial
efficiency, decongest court dockets and reduce court delays
(USAID Report dated March 24 2017).
4.2 Does your jurisdiction have a bilateral investment
protection treaty with the US and is that commonly used by
The Philippines currently does not have a bilateral
investment protection treaty with the US.
4.3 Do local courts respect foreign judgments and are
international arbitration awards enforceable?
Local courts respect foreign judgments and international
arbitration awards are enforceable.
As regards foreign judgments, the Philippine Rules of Civil
Procedure provide for the effects of a foreign judgment as
follows: in case of a judgment upon a specific thing, the
judgment is conclusive upon the title to the thing; and in case
of a judgment against a person, the judgment is presumptive
evidence of a right as between the parties and their successors
in interest by a subsequent title. In either case, the judgment
may be repelled by evidence of a want of jurisdiction, want of
notice to the party, collusion, fraud, or clear mistake of law
As for international arbitration awards, the Philippines has
signed and ratified the New York Convention, which provides for
the reciprocal recognition and enforcement of foreign arbitral
awards. Pursuant to the Special Rules on Alternative Dispute
Resolution, any party to a foreign arbitration may petition the
local court to recognise and enforce a foreign arbitral
SECTION 5: Forex controls and local operations
5.1 What foreign currency or exchange restrictions should
foreign investors be aware of?
The BSP allows Philippine residents and non-residents to
purchase foreign exchange from AABs and AAB-forex corps and
from non-bank entities operating as foreign exchange dealers
and/or money changers to fund legitimate foreign exchange
obligations, subject to the provision of information and/or
documents on the underlying obligations.
There is no mandatory foreign exchange surrender requirement
for residents' foreign exchange earnings, which may be sold for
pesos, retained in foreign currency, and/or deposited in
foreign currency accounts in the Philippines or abroad. The
registration of foreign investments either with the BSP or
custodian banks is optional, unless the foreign exchange which
will be used to service the repatriation of capital and/or the
remittance of related earnings will be sourced from AABs and
AAB-forex corps. Foreign exchange purchases from AABs and
AAB-forex corps for non-trade current account transactions
(such as travel, medical and educational expenses, royalties,
copyright, patent, franchise and licensing fees) of up to
$500,000 (for individuals) and $1 million (for corporates/other
entities), or its equivalent in other foreign currencies,
require only the submission of a BSP-prescribed application
form to the foreign exchange selling institution. Foreign
exchange in excess of the aforementioned thresholds requires
the submission of supporting documents evidencing the
SECTION 6: Tax implications
6.1 Are there tax structures and/or favourable intermediary
tax jurisdictions that are particularly useful for US investors
into the country?
There are tax structures useful for US investors.
Specifically, the government offers tax incentives to qualified
entities that are registered pursuant to investment laws (see
section 6.4). US investors can also avail of the benefits under
the income tax treaty between the US and the Philippines (see
6.2 Has your jurisdiction benefited from the recent trend
of US companies pursuing inversion structures? If yes, do you
believe this will be threatened under the new
6.3 What are the applicable rates of corporate tax and
withholding tax on dividends?
The applicable rate of corporate income tax for domestic
corporations is 30% on net income from all sources. Resident
foreign corporations, or corporations incorporated in a foreign
country and engaged in trade or business in the Philippines
through a branch office are taxed only for income derived
within the Philippines.
Representative offices and regional or area headquarters
that do not earn or derive income from the Philippines are not
subject to corporate income tax. Regional operating
headquarters are taxed at a rate of 10% on their taxable income
derived from within the Philippines. Non-resident foreign
corporations are taxed on gross income received from sources
within the Philippines at 30%, except for reinsurance premiums,
which are exempt.
Dividends received by Philippine and resident foreign
corporations from a domestic corporation are not taxable.
Dividends distributed by a Philippine company to a non-resident
foreign corporation are taxed at a rate of 15%, provided that
the country of the foreign recipient allows a tax credit of
15%; otherwise, dividends are taxed at a rate of 30%. The final
withholding tax may be reduced under an applicable treaty.
6.4 Does the government have any tax incentive schemes in
The government has tax incentive schemes in place for
qualified entities that are registered in accordance with
investment laws. For instance, the recently approved 2017
Investment Priorities Plan (IPP) provides a list of government
priority investments formulated by the BOI that may be eligible
for tax incentives. Priority investment areas include
manufacturing activities, agriculture, infrastructure and
energy projects. Tax incentives include income tax holiday for
a certain period, exemption from taxes and duties on imported
spare parts, exemption from wharfage dues and export tax, duty,
impost and fees, reduction of the rates of duty on capital
equipment, spare parts and accessories, tax exemption on
breeding stocks and genetic materials, tax credits and
additional deductions from taxable income.
Entities registered in economic zones (for example Peza) may
also be entitled to tax incentives such as income tax holiday
for a certain period and/or a five percent gross income tax
thereafter, tax and duty free importation, zero percent value
added tax on the purchase of goods and services, exemption from
withholding taxes on payments of local buyers from customs
territory, and exemption from payment of any and all local
government fees, imposes, licenses, or taxes.
6.5 Are there any reciprocal tax arrangements between your
jurisdiction and the US? If so, how can they aid
The Philippines has a tax treaty with the US with respect to
income taxes. The treaty provides tax benefits for US investors
by establishing maximum rates of withholding tax in the source
country on income payments flowing to residents of the other
6.6 Do you think that the introduction of new rules and
regulations in the US, such as the Bring Jobs Home Act, is
likely to have an impact on investment into your country?
The introduction of new rules and regulations in the US,
such as the Bring Jobs Home Act, is likely to have an impact on
US investment in the Philippines. The Bring Jobs Home Act
provides incentives for business taxpayers who relocate their
businesses from foreign countries to the US. Despite this, it
is still cost competitive to locate in the Philippines because
of the skilled workforce, and low cost of production and
labour. For instance, the Philippines has gained recognition as
a BPO location due to the availability of professionals with
the required language skills, cultural affinity with the US,
and strong customer service orientation (see Philippine
Development Plan 2011-2016 published by the National Economic
Managing owner, Gulapa Law
Partner, Gulapa & Baclay
New York, USA
T: +63 9602 845-47
F: +63 2857 2240
Aris Gulapa is the managing owner of Gulapa Law and
a partner at Gulapa & Baclay, the New York
affiliate of Gulapa Law. Before setting up Gulapa Law,
Gulapa was a partner at Gatmaytan Yap Patacsil
Gutierrez & Protacio from October 2011 to September
2015. He worked as an associate in SyCip Salazar
Hernandez & Gatmaitan (December 2003 to June 2006);
Kelvin Chia Partnership (Singapore and Vietnam offices,
July 2006 to June 2008); and Anderson Mori &
Tomotsune (Tokyo office, July 2008 to June 2010). He
was also research assistant to professor Harry First,
the former head of the Antitrust Bureau of the Office
of the Attorney General of New York, from September
2010 to May 2011.
Gulapa is ranked by Chambers & Partners Asia
Pacific/Global as a leading Philippine lawyer in the
Projects/Infrastructure and Corporate/M&A fields.
He is named a Leading Individual in real estate and
construction by Legal500. Gulapa is also one of Asian
Mena's 'Commended External Counsels' for 2017. He
graduated with a juris doctor degree from Ateneo Law
School in 2003 (with honours) and obtained his master
of laws in trade regulation (Vanderbilt scholar) from
New York University in 2011. In addition to his
admission to the Philippine bar in 2004, Gulapa was
also registered as a foreign attorney in Vietnam from
2006 to 2011 and was admitted to the New York bar in
Oliver Baclay, Jr.
Partner, Gulapa & Baclay
New York, USA
T: +1 917 5300 400
F: +1 212 7102 601
Oliver Baclay, Jr. heads the intellectual property
department and is a partner at Gulapa Law, as well as
at Gulapa & Baclay, the New York affiliate of
Gulapa Law. Prior to joining Gulapa Law, he was a
senior associate of the intellectual property
department at Cruz Marcelo and Tenefrancia (June 2013
to February 2015). He was also a senior associate of
the intellectual property department at Villaraza Cruz
Marcelo & Angangco (January 2013 to June 2013), and
an associate of the same firm (April 2009 to December
Baclay graduated with a juris doctor degree from
Ateneo Law School in 2008 (with honours) and obtained
his master of laws in intellectual property from New
York University in 2016 (Competition, Innovation and
Information Law Program). He also took a patent experts
course sponsored by the Japan Patent Office in 2012,
and an advance course on patents at the World
Intellectual Property Office eLearning Centre in 2014.
He ranked third in the 2008 Philippine bar examinations
and was admitted to the New York bar in 2015.
Marie Yasmin Sanchez
Senior associate, Gulapa Law
T: +63 9602 845-47
F: +63 2857 2240
Yas Sanchez is a senior associate at Gulapa Law.
Prior to joining Gulapa Law, she was a junior associate
at Gatmaytan Yap Patacsil Gutierrez & Protacio from
January 2013 to October 2015. Sanchez completed her
juris doctor degree at the Ateneo Law School in 2012,
where she graduated with honours and the Best Thesis
Award. She was admitted to the Philippine bar in