For foreigners planning to start a business in the Philippines, one of the most common concerns we hear about is the minimum capital requirement. Under the Foreign Investments Act of 1991 (amended by RA 11647), the minimum capital requirement for foreigners is USD 200,000.
This requirement exists to protect small Filipino-owned businesses from direct competition with large foreign players, while still allowing foreign capital to flow into the country.
However, there are legal pathways that can bring the minimum capital requirement down to as low as PHP 5,000 (~USD 80), depending on your ownership structure and revenue source.
1. Register as an Export Market Enterprise (EME)
If your clients are based outside the Philippines, you can register as an Export Market Enterprise (EME). Under the Foreign Investment Act (FIA), a company classified as an Export Market Enterprise is exempted from the USD 200,000 rule.
To be an EME, your company must export 60% (whether goods or services) to clients or customers outside the country. This reduces your minimum capital requirement to the general PHP 5,000 under the Revised Corporation Code. However, it is advisable to have at least PHP 25,000 to PHP 100,000 as initial deposit to open a business bank account and to fund operations.
Since authorities require you to provide proof, you can show this through contracts or invoice. The SEC and the Board of Investments (BOI) will ask for documentation to support this classification.
This is one of the most common pathways for foreign-owned IT companies, BPOs, and software development firms. Since most of their clients are based abroad, the bulk of their revenue comes from outside the Philippines and therefore considered as “export”.
Threshold maintenance: Under RA 7042 Section 6, If your export ratio drops below 60%, the BOI will notify the SEC. The Agency will then order your company to reduce domestic sales to no more than 40% of total production. If you fail to comply with that order without justifiable reason, your SEC registration can be cancelled, and you become exposed to the administrative penalties under Section 14. The paid-up capital requirement itself is set at incorporation and is not retroactively recalculated. However, losing your EME status puts your registration and any associated incentives at risk.
Emerhub can help you determine whether your business model qualifies as an EME and prepare the documentation the SEC and BOI require.
Registering your EME with PEZA
The Philippine Economic Zone Authority (PEZA) administers special economic zones across the country, including IT parks, manufacturing zones, and freeports. PEZA-registered enterprises are almost always classified as EMEs. This is because PEZA requires foreign-owned locators to export at least 70% of their production or services (50% if Filipino-owned).
Rather than applying a flat capital threshold, PEZA evaluates your project's financial capability. Your capital needs to be sufficient to cover your feasibility study's projected costs, including equipment, office setup, and at least several months of operating expenses.
For IT and BPO companies specifically, PEZA typically expects a minimum investment of around US$2,500 per seat for contact center or call center operations to qualify for the income tax holiday.
Example: A foreign-owned software development company based in Cebu builds applications exclusively for clients in Europe and the US in PEZA zones. Since 100% of its revenue comes from exports, it qualifies as an export market enterprise and is exempt from the US$200,000 minimum paid-up capital requirement.
2. Use Advanced Technology Certified by the DOST
If your business activity involves advanced technology, you can qualify for a reduced USD 100,000 capital, even if the company is 100% foreign-owned.
The Department of Science and Technology (DOST) evaluates whether the technology you're using is genuinely innovative and adds real value to your operations. This typically covers areas like software engineering, biotechnology, renewable energy, and other technical fields where the Philippines wants to attract knowledge transfer.
You'll need to apply for DOST certification and submit supporting technical documentation before the SEC will recognize the lower threshold.
Example: A foreign-owned agritech company developing proprietary sensor technology for crop monitoring secures DOST certification for its technology. As a result, it can register with US$100,000 in paid-up capital instead of US$200,000, even though it sells primarily to the local market.
3. Register as a Startup or Startup Enabler Under the Innovative Startup Act
Republic Act No. 11647 (amended the FIA in 2022), added another route to reduce capital requirements for companies in the Philippines. If your company is endorsed as a startup or startup enabler under the Innovative Startup Act (RA 11337), you can qualify for the lower threshold without needing DOST's advanced technology certification.
Here’s how both startup and startup enabler are defined:
- A startup, for this purpose, is a registered entity working on an innovative product, process, or business model.
- A startup enabler is a company that provides goods, services, or capital that's critical to supporting the growth of startups, such as incubators or venture capital firms.
The following agencies handle these endorsements:
- Department of Trade and Industry (DTI)
- Department of Science and Technology (DOST)
- Department of Information and Communications Technology (DICT)
The DOST’s role is startup endorser under RA 11337. This is a separate process from the advanced technology certification described in pathway 3 above.
This pathway is a faster alternative to the DOST certification route if your company fits the startup or startup enabler definition. That said, the endorsement process still requires documentation and a formal evaluation.
Example: A foreign-led fintech startup developing a new digital lending platform applies for endorsement under the Innovative Startup Act. Once endorsed, it can incorporate with US$100,000 in paid-up capital rather than the standard US$200,000.
4. Hire at least 15 Filipino employees, Making up the Majority of your Workforce
Before RA 11647, a foreign-owned domestic market enterprise needed to employ at least 50 direct employees to access the reduced US$100,000 capital requirement. With the 2022 amendments, you only need at least 15 direct Filipino employees to qualify for the same reduction.
This pathway is particularly useful for foreign investors planning a labor-intensive operation in the Philippines. For these companies meeting the employment threshold is easier than securing DOST certification or going through a startup endorsement process. Businesses that benefit from this lower capital threshold are also expected to run an understudy or skills development program to ensure genuine knowledge transfer to Filipino employees.
Example: A foreign-owned manufacturing company plans to set up a small production facility and hires 20 employees, 16 of whom are Filipino. This satisfies the "majority Filipino, at least 15 employees" condition, allowing the company to register with US$100,000 in paid-up capital instead of US$200,000.
Our team can help you structure your hiring plan and documentation to meet the RA 11647 employment conditions. Get in touch with Emerhub's Philippines team for guidance.
5. Keep Foreign Equity at 40% or Below
If your company is owned by at least 60% or more by Filipino citizens, your business is considered as locally-owned. With this setup, your minimum paid-up capital drops to PHP 5,000.
This pathway works well for foreign investors who share equity with a trusted local partner in a company. Keep in mind that the 60% Filipino ownership has to be real and verifiable.
The Anti-Dummy Law penalizes arrangements where a Filipino partner holds shares only on paper while a foreigner retains actual control. The Securities and Exchange Commission (SEC) looks at both legal and beneficial ownership, so nominee setups can carry serious legal risk.
Example: A US entrepreneur wants to start a digital marketing agency in Manila. If they have a trusted local partner to hold 60% of the shares, they can lower down their paid-up capital to PHP 5,000. This partnership must be legitimate to avoid infringing Anti-Dummy Laws.
Starting a Business in the Philippines with Emerhub
Leveraging our deep knowledge of Philippine regulations and market expertise, we can help you assess the best pathway for your business to minimize required capital. Whether it’s a local partnership, export classification, PEZA registration, DOST certification, etc, we offer comprehensive services, including company registration, tax and accounting, and assistance with import and customs clearance.
Reach out to us to learn more about setting up a company in the Philippines and reducing your paid-up capital cost.
Frequently asked questions
What does the paid-up capital requirement depend on?
For foreign investors, the paid-up capital requirement depends on the ownership structure, business model (domestic vs. export), and eligibility for technology/employment-based reductions under the FIA and its implementing rules.
When am I required to invest the paid-up capital?
You need to invest the paid-up capital into your corporate bank account upon registration or before your first annual audit. This means you must inject your paid-up capital into your corporate bank account before the conclusion of your first fiscal year.
Can I use non-cash assets as paid-up capital?
Paid-up capital doesn't have to be exclusively in cash. You can use other valuable assets like property, equipment, or intellectual property, as long as these are properly appraised and documented.
Can I later use the paid-up capital for operating expenses?
Once your paid-up capital is in your corporate account, you can use it for legitimate operational costs, such as rent, salaries, equipment purchases, and other expenses tied to running your business.
When am I required to invest the paid-up capital?
You need to deposit the paid-up capital into your corporate bank account upon registration, or before the conclusion of your first fiscal year at the latest. The SEC typically requires proof of this through a Treasurer's Affidavit, supported by a bank certificate of deposit.
Do I need to keep my export ratio at 60% every year to maintain my reduced capital status?
If you registered as an export market enterprise to avoid the US$200,000 threshold, you need to consistently export at least 60% of your output. If your export ratio drops below this for a sustained period, your company may be reclassified as a domestic market enterprise, which could trigger the higher capital requirement and additional compliance steps.
Can I combine more than one of these pathways?
In some cases, yes. For example, a company can be both an export market enterprise and PEZA-registered at the same time, since PEZA generally requires export-oriented operations. However, pathways like the Filipino partnership route and the foreign ownership above 40% pathways are mutually exclusive by definition, since they depend on different ownership structures. It's best to map out your intended ownership and business activity early so you choose the combination that genuinely fits your plans.