4 Ways To Reduce the Required Minimum Capital in the Philippines

The general minimum paid up capital requirement for fully foreign-owned companies in the Philippines is US$ 200,000. However, the minimum capital requirement can be lower, depending on your business activities and the percentage of foreign ownership. Ways to lower the required minimum capital in the Philippines #1 Employ at least 50 locals One of the […]

The general minimum paid up capital requirement for fully foreign-owned companies in the Philippines is US$ 200,000. However, the minimum capital requirement can be lower, depending on your business activities and the percentage of foreign ownership.

Ways to lower the required minimum capital in the Philippines

#1 Employ at least 50 locals

One of the options for decreasing the initial capital input is to employ at least 50 citizens of the Philippines.

Providing jobs for at least 50 Filipinos will reduce the minimum capital requirement by half. That is, you can register a company with US$ 100,000.

#2 Use advanced technology

Another way to avoid the general minimum capital requirement is to apply advanced technology. However, it has to be approved by the Department of Science and Technology.

The government of the Philippines aims to encourage the technological development by allowing businesses that plan to use advanced technology to start with a smaller investment. In that case, you can set up a business by investing US$ 100,000 as minimum capital.

#3 Export most of your products/services

In contrast to the previously mentioned ways, foreign investors who wish to set up an export company in the Philippines can enjoy the advantage of a significantly smaller minimum capital requirement than other foreign-owned companies.

In fact, exporting at least 60% of your products or services to other countries will minimize the paid up capital requirement to almost nothing. You set up a company with as little as PHP 5,000 which is less than 100 US$. Also note that it is the smallest possible amount of minimum capital in the Philippines.

In addition to the exemption from the general minimum capital requirement for foreign companies, export businesses can also be 100% foreign-owned.

#4 At least 60% of your company is locally owned

If your company does not qualify for the above-mentioned criterion, you can also lower the minimum capital by setting up a locally owned company.

In the Philippines, a 60/40 joint venture is already considered as a local company. Thus, the minimum investment requirement will be a lot lower – you can start a 60/40 domestic corporation by investing only PHP 5,000 (less than 100 US$).

For this reason, many entrepreneurs choose to use nominee shareholders. However, this may also lead to a slippery slope unless you have a solid set of legal agreements that protects both your assets and the nominee.

The safest way would be to use a company such as Emerhub instead of an individual nominee. Your rights and assets will be protected through a set of legal agreements which will be drafted by lawyers.

However, also note that  P5,000 requirement does not apply if your business activity falls under certain categories where the required minimum paid up capital is higher. In that case, it will be set based on the industry.

Minimum capital requirements based on industry

In addition to foreign equity, minimum investment can also depend on the type of industry. It can vary from US$ 2,000 to US$ 20 million.

Here are minimum paid up capital requirement examples of some of the industries:

Industry

Minimum paid up capital in Philippine Pesos

Minimum paid up capital in US Dollars

Life insurance company

P 1,000,000,000

~US$ 19,5 million

Retail trade with foreign equity

Equivalent in Philippine Pesos

US$ 2,5 million

Health maintenance organization

P 10,000,000

~US$ 196,000

Mining company

P 6,250,000

~US$ 123,000

Freight forwarders

International P 2,000,000

Domestic P 250,000

~US$ 39,000

~US$ 4,900

Cargo consolidator

P 400,000

~US$ 7,800

Pawnshop

P 100,000

~US$ 1,900


Source:
SEC

FAQs about minimum capital in the Philippines

Does it all need to be paid up?

At the time of incorporation, you must state the authorized, subscribed and paid up capital.

Authorized capital is the maximum amount of allowed capital that a company can raise which is why it is not fully used to leave room for the future increase of capital.

Subscribed capital, or issued share capital, in other words, is a number of shares held by the shareholders and paid up capital is the amount that is received from the shareholders in exchange for company shares.

The rule is that at least 25% of the authorized capital must be subscribed capital and in turn, 25% of the subscribed capital must be paid up capital. Note that the minimal amount of paid up capital in the Philippines is PHP 5,000 (~US$ 98).

When do I have to inject the paid up capital?

Previously, the Securities and Exchange Commission required a bank certificate to prove the transfer of the paid up capital during incorporation. However, this requirement is no longer valid.

Currently, depending on your business activities, you may have to appoint a Treasurer-in-Trust who will be also stated in the Articles of Incorporation. The Treasurer will sign a Treasurer’s Affidavit which will ensure that the company complies with the authorized, subscribed, and paid up capital requirements.

However, after the incorporation, monthly reporting to the Bureau of Internal Revenue becomes mandatory and the Corporate Treasurer has to attest the accounting and bookkeeping operations as well.

Corporate Treasurer needs to be well aware of the local compliance requirements and for this reason, it is often outsourced to a professional service provider such as Emerhub.

Can it also be in the form of other assets?

Yes, your minimum capital does not necessarily have to be in the form of cash. Other valuable assets, such as property and equipment, can also be included in the paid up capital.

Can I use it for working capital later on?

Yes, you can use the paid up capital for paying salaries, for example.

Alternatives to incorporation

Use a nominee company instead

Foreign investors who cannot or do not wish to meet the stated requirements for setting up a corporation in the Philippines can also use a nominee company.

The concept of a nominee company is quite simple – you will authorize another entity such as Emerhub to hold and administer your company’s assets. However, you will still have full control over the company through a set of legal agreements which will be drafted by lawyers.

In addition, when using a nominee company service you will be able to start your business activities a lot sooner than when setting up a company since it takes approximately 5 weeks to get all the incorporation documents in order.

For more information regarding nominee companies in the Philippines, contact us via [email protected] or by filling in the form below.

Outsourced operations model

If incorporation or even using the nominee company option is out of the question for you, for example when you would like to test the market first before making the initial investment, there is also a third way to enter the Philippines.

Outsourced operations model is a market entry strategy that allows you to conduct business activities in the Philippines without establishing a legal entity.

Some of our services include:

minimum capital in the Philippines

 

Get in touch with our consultants via [email protected] or leave your details in the form below to discuss how you can enter the Philippines in the most optimal way.

Since 2011, Emerhub has helped over 500 companies of all sizes enter Southeast Asian markets.

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