Are you planning to buy a property under a corporation in the Philippines? As reported by the Department of Finance (DOF), the country’s economy has a steady gross domestic product (GDP) growth of 5.6% and ranks as the 8th fastest-growing economy in 2024. This growth is driven by higher investment opportunities and consumption, which is a huge advantage to foreign investors in the country.
However, there are certain restrictions for foreign nationals interested in purchasing property in the Philippines. This article provides insights into these restrictions, including the associated fees and taxes, and the advantages and disadvantages of property ownership under a corporation in the country.
What is Equity Law?
The Equity Law, also known as the 60-40 ownership rule, governs business ownership and foreign investments in the Philippines. It mandates that Filipino investors must own 60% of the business, while foreign investors can own up to 40%. Additionally, the Equity Law aims to protect national interests, development, security, and economic welfare.
Can a Corporation Buy a Property in the Philippines?
Under the Foreign Investment Act of 1991, domestic corporations can own land in the Philippines, given that 60% of the corporation is owned by Filipino citizens and the remaining 40% by foreign citizens. The process for this includes compliance checks, property selection, due diligence, document preparation, and payment of taxes.
On the other hand, foreign corporations cannot directly own land in the country but may own condominium units or engage in long-term leases. This process involves securing permits, settling leases or condominium agreements, and complying with regulations.
Meanwhile, corporations within Special Economic Zones can own land strictly for business purposes, according to the Philippine Economic Zone Authority (PEZA). This process includes verifying PEZA registration and complying with the acquisition process.
Can Foreigners Lease Land in the Philippines?
The Department of Tourism (DOT) states that foreign investors can lease private lands for fifty (50) years, and can be renewed once for an additional twenty-five (25) years. Lease agreements for tourism projects are limited to those with a minimum investment of US $5 million, which must be infused into the said project within three (3) years from the signing of the lease contract.
What is the Foreign Investment Negative List (FINL)?
The Foreign Investment Negative List (FINL) outlines the restricted and prohibited areas for investment in the Philippines. These industries are categorized into List A and List B. List A limits foreign ownership based on the Philippine Constitution and other laws. Sectors such as mass media, retail trade enterprises, and certain professions are exclusively for Filipino citizens. On the other hand, List B limits foreign ownership due to national security, defense, health, morals, and public safety concerns.
What Types of Businesses Can Be Fully Owned by Foreigners?
In the Philippines, foreign nationals can fully own export-oriented businesses with 60% revenue from overseas sales, Business Process Outsourcing (BPO), IT-enabled services, and enterprises registered with economic zones, such as the Philippine Economic Zone Authority (PEZA). Additionally, manufacturing companies that produce goods for export can also be fully owned by foreign nationals. However, foreign ownership restrictions still apply to certain sectors, such as land ownership, media, and utilities.
What are the Fees and Taxes When Buying a Property?
Purchasing a property involves additional fees and taxes, which are as follows:
Fee and Tax | Rate | Basis | Responsible Party |
Capital Gains Tax | 6% | Sale price, zonal value, or fair market value (whichever is highest) | Seller |
Documentary Stamp Tax | 1.5% | Sales price, zonal value, or fair market value (whichever is highest) | Buyer |
Transfer Tax | 0.5% to 0.75% | Sales price, zonal value, or fair market value (whichever is highest varies location) | Buyer |
Title Registration Fee | Around 0.25% | Sales price | Buyer |
Why Foreigners Can’t Own Property in the Philippines?
The purpose of this restriction is to protect the country’s resources and to ensure that the country’s land remains in the hands of Filipinos. In this case, you can only own the building but not the land where the property stands. Even if you are married to a Filipino citizen, the land title will automatically be in your spouse’s name. Furthermore, you can buy a property by having a Special Resident Retiree’s Visa (SRRV), which has no expiration date and grants you the right to stay in the Philippines permanently.
What are the Advantages and Disadvantages of Buying a Property Under a Corporation?
Purchasing a property comes with both advantages and disadvantages.
Advantages of Buying a Property Under a Corporation
Investment
The Philippines is an attractive destination for both local and foreign investors. With its growing economy, the demand for residential, commercial, and industrial properties is expected to rise and may cost several more in a decade.
Limited Liability
A corporation is a separate legal entity, distinct from its shareholders, directors, and officers. This separation safeguards personal assets from any corporate liabilities, ensuring that personal finances and property are protected from any business risks, except in cases of fraud.
Easy Transfer of Shares
Property ownership is represented by shares of stock in the corporation. Acquiring an interest in the property is done through buying shares, which is simpler and faster than traditional property registration.
Income Taxes
Based on the provisions in the Tax Code on Improperly Accumulated Earnings Tax (IAET), income taxes are only due on declared dividends, which allows shareholders to control their yearly income.
Control by the Boards of Directors
According to Section 23 of the Corporation Code, the Board of Directors has full control over the corporation and its property, including management and decision-making. This centralized control maintains diversified ownership.
Disadvantages of Buying a Property Under a Corporation
Higher Corporate Income Tax
Corporations are subject to a 30% income tax rate, which may be higher than the tax rates applied to individuals once a certain income threshold is exceeded.
Minimum Corporate Income Tax (MCIT)
After four (4) years of operation, corporations are subject to the Minimum Corporate Income Tax (MCIT) of 2% of gross income. This does not apply to individual owners, whose income tax is based solely on net income.
Higher Tax Rate on Share Transfers
The TRAIN Law imposes a 15% tax rate on capital gains from share transfers, compared to the 6% capital gains tax on property ownership transfers incurred by individuals.
Double Taxation
Corporate profits are subject to corporate income tax, and shareholders must pay income tax on dividends, resulting in double taxation on corporate earnings.
Additional Costs
Buying a property under a corporation involves additional costs from processing requirements and fee payments, which are often unforeseen during business formation.
Need further information and assistance regarding Buying Property under a Corporation? Talk to our team at Duran & Duran-Schulze Law to know more about the requirements and process. Call us today at (+632) 8478 5826 or +63 917 194 0482, or send an email to info@duranschulze.com for more information.
