Legal Implications of Doing Business in the Philippines

Nicolas and De Vega Law Offices Article - Legal Implications of Doing Business in the Philippines

Legal Definition of Doing Business in the Philippines

Philippine law defines the term “doing business”. Section 3(d) of Republic Act No. 7042 or the Foreign Investments Act of 1991 provides:

“The phrase “doing business” shall include soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase “doing business: shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.”

Specific Acts Defined by Law as Not Doing Business in the Philippines

The definition of “doing business” in Philippine law, is overly broad. It encapsulates most forms of commercial activities, such that even preparatory or ancillary activities may be construed to fall under such definition. Fortunately, Section 1(f) of the Implementing Rules and Regulations of the Republic Act No. 7042 or the Foreign Investments Act of 1991 clarified that the following acts are not deemed to be “doing business” in the Philippines:

“(1) Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor;

(2) Having a nominee director or officer to represent its interests in such corporation;

(3) Appointing a representative or distributor domiciled in the Philippines which transacts business in the representative’s or distributor’s own name and account;

(4) The publication of a general advertisement through any print or broadcast media;

(5) Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;

(6) Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;

(7) Collecting information in the Philippines; and

(8) Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.”

When an Individual, Corporation or Entity is considered as Doing Business in the Philippines

There are legal implications when a foreign individual, corporation, or entity, is considered as doing business in the Philippines. These legal implications include getting taxed, for example, with higher tax rates, getting slapped with fines, or even criminal liability for failure to comply with regulatory compliance or legal requirements, if an unregistered corporation is considered as doing business in the Philippines.

As a matter of fact, Section 150 of Republic Act No. 11232 also known as the Revised Corporation Code of the Philippines, states that an unregistered foreign corporation doing business in the Philippines is not permitted to “to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines”. On the other hand, the same provision authorizes those that would like to sue such unregistered foreign corporation, to sue or proceed against the unregistered foreign entity before the Philippine courts or administrative tribunals, on any valid cause of action recognized under Philippine laws.

Simply stated, an unlicensed foreign corporation doing business in the Philippines does not have the capacity to sue before the Philippine courts, but may be sued or hailed to court. There is a perceived unfairness brought about by this rule. However, this is a legislated response and a policy endeavor of the Philippine government, to require all foreign entities who wish to enter Philippine commerce, to register or obtain a license prior to doing business, or otherwise face sanctions.

This determination becomes even more relevant, on the face of business all over the world, with their own websites, or publishing advertisements and announcements over the internet. With an innumerable number of websites, representing businesses all over the world, displaying their wares and services, and offering their business to any person in any country in the world, one cannot discount that possibility that such website, wherever located, may be considered as doing business in the Philippines. This is notwithstanding the fact that such enterprise has no physical presence in the Philippines.

Thus, the determination of whether a person is doing business is crucial, especially for foreigners and foreign corporations with commercial activity in the Philippines. After all, not all commercial activity is sufficient to give rise to the conclusion that the individual, person, or entity is doing business in the Philippines.

About Nicolas and De Vega Law Offices

If you need assistance in registration with the Securities and Exchange Commission, or have issues in corporate law, commercial law, corporate or commercial litigation, or civil or other criminal law-related issues,  we can help you. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com.

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