hilippines is experiencing an explosion in the outsourcing industry today. This is based on investments charts and statistics published by various market forecasters. I had the opportunity to discuss about foreign ownership in outsourcing companies when an editor from a widely circulated business news publication in the Philippines called me up in my office one time.
Generally, foreign investors are allowed to invest 100% equity in companies engaged in almost all types of business activities subject to certain restrictions as prescribed in the Foreign Invesment Act of 1991 and the Philippine Constitution.
Foreign investment in outsourcing business is not a restricted form of investment. Almost all outsourcing companies are also information and communications technology enabled services. As such, it is included in the Investment Priorities Plan of the government wherein 100% foreign invesment is guaranteed by law. Outsourcing companies are also considered export market enterprise because more than 60% of its service output is exported outside of the country.
But how about the provision in the Foreign Investment Act of 1991 which requires a minimum foreign investment of at least US$200,000.00? This minimum foreign investment requirement will only apply if the foreign owned outsourcing company is a domestic market enterprise – meaning more than 60% of its clients are based locally. But this is hardly the case because almost all outsourcing companies in the Philippines are export market enterprises.
In order to be exempted from the minimum investment capitalization of US$200,000.00, foreign owned outsourcing companies who wish to do business under the Foreign Investment Act of 1991 as an export market enterpise will have to submit an application to the Securities and Exchange Commission. The pro forma forms used by the SEC for these particular transactions are Form 100 for new corporations, and Form 101 for existing corporations who are increasing foreign equity to more than 40%.
To be granted the application, the foreign owned outsourcing company must prove that it is an export market enterprise which means that more than 60% of its service output is exported.
Let me clarify further that foreign companies wanting to establish a branch office in the Philippines, so long as it will engage in outsourcing business, need not also remit an inward remittance of US$30,000.00. The appropriate SEC pro-forma form for this is F-103. You can also see the requirements for registering a branch office in the Philippines in the said pro-forma form. Talking about the initial capital, foreign branch office that will engage in outsourcing business can have an initial capital of P5,000.00. This is in accordance with Title II Section 13 of the corporation code of the Philippines.