Business
Adding or Modifying Business Activities Post-Incorporation in the Philippines
Philippine corporations operate within their registered purpose; expansion requires amendments, affecting ownership, capital, and regulation. Foreign investment rules specify capital requirements, restrictions, and tax benefits.
Operating Limitations and Expansion Requirements
A Philippine corporation can only operate within the purposes outlined in its Articles of Incorporation, registered with the Securities and Exchange Commission under the Revised Corporation Code. Any expansion into a substantially different activity requires an amendment to the purpose clause. This process involves a thorough review of ownership eligibility, capital classification, and regulatory compliance, as it may affect the company’s legal standing and operational scope.
Capital Requirements for Retail and Domestic Enterprises
Retail trade businesses with foreign involvement generally need a paid-in capital of US$2.5 million, with specific thresholds of US$250,000 per store in certain cases. If the activity falls into a restricted sector, an equity restructuring must be undertaken before amending the purpose clause. For foreign-owned domestic market enterprises, a minimum paid-in capital of US$200,000 is typically required, which can be lowered to US$100,000 upon meeting employment or certified technology criteria. Export-oriented firms are exempt from this threshold.
Foreign Investment Regulations and Tax Incentives
Under the Foreign Investments Act, enterprises registered with the Philippine Economic Zone Authority or the Board of Investments may qualify for income tax holidays lasting four to seven years, and occasionally a 5% tax on gross income. However, income from activities outside the approved scope could be taxed at the standard corporate rate of 25%, or 20% for qualified small domestic corporations, which could impact overall tax obligations within a single legal entity.
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