Owning a Business in the Philippines: Practical vs. Actual Ownership for a Foreigner

Foreign ownership limitations in the Philippines can feel like a roadblock. But here’s the solution: leverage asset control! We’ll show you how owning the essential equipment, property, or intellectual property of your business gives you significant influence over daily operations, strategic direction, and ultimately, the profits. Discover how asset control unlocks the door to effective business control in the Philippines.

The Challenge: Navigating Foreign Ownership Hurdles in the Philippines

The Philippines, with its vibrant markets and entrepreneurial spirit, beckons foreign investors. However, unlike some countries with wide-open doors, the Philippines implements a more nuanced approach. While foreign investment is actively encouraged, limitations exist on full ownership, particularly for businesses catering to the domestic market. This can be a stumbling block for aspiring foreign entrepreneurs who envision complete control over their ventures.

The 60/40 Ownership Rule: A Hurdle, Not a Dead End

Imagine the scenario: you have a brilliant business idea perfectly suited for the Filipino market. You’ve meticulously researched, crafted a winning strategy, and are ready to dive in. But then you encounter the hurdle: the Philippine law requiring a minimum of 60% Filipino ownership for domestic market enterprises (DMEs). Headlines might scream “foreigners shut out!”, leaving you wondering if your dream is destined to remain just that.

There’s good news! The Philippines, recognizing the value of foreign investment, offers alternative pathways. By understanding these limitations and exploring strategic approaches, you can achieve significant control over your business, effectively navigating the ownership hurdle and turning it into a stepping stone for success.

Hurdles Beyond Ownership: Understanding the FINL

The 60/40 ownership rule is just one piece of the puzzle. The Foreign Investment Negative List (FINL) further restricts foreign ownership in specific industries deemed crucial for national security or cultural preservation. Understanding the FINL is essential for foreign investors, as it can impact the feasibility of certain business ventures in the Philippines.

The Solution: Asset Ownership as the Key to Effective Business Control

While limitations on full ownership exist, the Philippines offers a compelling solution for savvy foreign investors: strategic asset ownership. This approach allows you to exert significant control over your business, even with a Filipino majority ownership structure. Let’s explore how owning the key assets that make your business tick translates into practical control, empowering you to navigate the ownership hurdle and achieve success in the Philippine market.

Customer Examples: Leveraging Asset Control for Effective Business Operations

The Philippines, with its skilled workforce and competitive labor costs, presents a goldmine for businesses serving foreign markets. Here’s how asset ownership empowers you to navigate the ownership limitations and achieve effective control, even when your customers are outside the Philippines.

The Software Development Powerhouse

Imagine you own a software development company in the US, specializing in creating custom applications. You decide to tap into the Philippines’ talented pool of programmers. Here’s how asset control grants you practical control:

• Owning the Critical Infrastructure: By owning the servers and software licenses where your code resides, you maintain complete control over the development process. This includes:
  • Security: You determine the security protocols and data encryption standards, ensuring your intellectual property remains protected.
  • Deployment: You control the deployment process, deciding when and how new features are released to your clients.
  • Development Flow: You set the development tools and methodologies, ensuring consistency and quality in the code produced by your Filipino programmers.

Remember:

While Filipino developers write the code, the tools they use and the environment they work in are under your control, shaping the final product.

The BPO Powerhouse

Let’s say you run a large call center in the US handling customer service for a multinational corporation. You establish a branch in the Philippines to leverage the skilled workforce. Asset control empowers you in several ways:

• Owning the Tools of the Trade: Owning the specialized equipment gives you control over operational efficiency and customer experience:
  • Call Center Software: You choose the software that determines call routing, data tracking, and performance metrics, ensuring consistent service delivery.
  • Phone Systems: You own the phone systems, allowing you to manage call quality and maintain clear communication channels with clients.
• Owning the Knowledge Base: If your call center operation uses unique scripts, training materials, or customer service protocols, owning the intellectual property ensures consistent service delivery, even with a Filipino workforce.

By controlling these assets, you dictate the “how” and “what” of customer service, even though the service itself is delivered by Filipino employees.

Controlling the Space: Leveraging Leases for Effective Business Management

The Philippines offers creative solutions for foreign investors who want control over their business operations, even with limitations on ownership. One such strategy is strategic lease agreements. Here’s how foreign investors can utilize standard leases, applicable to any type of business, to achieve significant control over their ventures.

Remember: While you don’t own the physical structure, a well-structured lease agreement grants you significant control over the space that houses your business. This allows you to create the desired atmosphere, ensure operational efficiency, and ultimately, influence the success of your venture.

Here’s how a standard lease agreement can become a powerful tool:

Locking in Stability: Long-Term Leases and Renewals

• Secure a long-term lease agreement with renewal options. This provides stability in several ways:
  • Planning and Investment: Knowing you have a secure space for an extended period allows you to confidently invest in equipment, renovations, and staff training for your business.
  • Customer Loyalty: A long lease allows you to establish your business in a specific location, fostering customer recognition and loyalty. This is crucial for businesses that rely on repeat clientele.

Remember:

Long-term leases offer peace of mind and a foundation for building a thriving business in the Philippines.

Shaping Your Workspace: Negotiating Leasehold Improvements

Negotiate the right to make improvements to the leased space. This can involve several aspects:

• Customization: You can customize the space with paint, flooring, furniture, and décor that reflect your brand image and create a unique atmosphere for your business.
• Functionality: Depending on your business needs, negotiate the ability to install essential fixtures, like lighting systems or security cameras. Owning these improvements, even within a leased space, gives you control over their functionality and maintenance.

While you don’t own the physical structure, leasehold improvements allow you to tailor it to your specific requirements and exert significant control over the environment where your business operates.

Optimizing Your Lease Agreement: Exploring Additional Options

Beyond the standard lease terms, consider these additional options to maximize your control:

• Maintenance Clauses: Negotiate the terms of maintenance responsibility for the leased space. While major repairs might fall on the lessor, specifying your right to handle minor maintenance ensures a well-functioning environment for your business.
• Early Termination Clauses: While a long-term lease is ideal, consider negotiating an early termination clause with specific conditions. This provides flexibility in case unforeseen circumstances arise.

By strategically negotiating these additional options within your lease agreement, you can further enhance your control over the space and ensure a smooth operation for your business.