WHAT CONSTITUTES DOING BUSINESS IN THE PHILIPPINES
The Corporation Code requires foreign corporations that are “doing business” in the Philippines to obtain the appropriate license for this purpose from the SEC (SEC License). To obtain an SEC License, a foreign entity may register the appropriate corporate vehicle in the Philippines. In the alternative, it may incorporate a Philippine corporation and engage in business through such corporation.
The FIA and its implementing rules and regulations of the Foreign Investments Act (FIA IRR) provide a non-exclusive enumeration of specific activities that constitutes doing business in the Philippines, as follows:
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 totalling 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.
The above enumeration is not exclusive. According to the Philippine Supreme Court (Supreme Court), the true test for doing business is whether the foreign corporation is continuing the body of the business or enterprise for which it was organized and whether there exists a continuity of commercial dealings and arrangements which include acts that are normally incident to, and in the progressive prosecution of, the purpose and object of its organization.
Also, under Philippine jurisprudence, an essential condition to be considered as doing business in the Philippines is the actual performance of specific commercial acts within the Philippine territory because the Philippines does not have jurisdiction over commercial acts performed in foreign territories.
A foreign entity that is found to be “doing business” in the Philippines without an SEC License:
is denied standing to bring suit before Philippine courts for the enforcement of its rights, but may be sued before Philippine courts for any valid cause of action;
Based on jurisprudence, the lack of standing to sue may be cured by subsequently obtaining an SEC License.
may be subject to a fine and/or imprisonment for not less than 30 days but not more than five years, in the discretion of the court. In case of foreign corporations, the penalties are imposed on the directors and officers responsible for the violation.
WHAT DOES NOT CONSTITUTE DOING BUSINESS IN THE PHILIPPINES
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;
having a nominee director or officer to represent its interest in such corporation;
appointing a representative or distributor domiciled in the Philippines which transacts business in the representative’s or distributor’s own name and account;
the publication of a general advertisement through any print or broadcast media;
maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;
consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;
collecting information in the Philippines; and
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.