Joint Ventures
Source:
"How to Invest in the Philippines" by PricewaterhouseCoopers Philippines (printed with permission from author)

Foreign Equity, Control, Officers and Directors, Applicable Tax Policies

1) If we enter into a joint venture with Philippine investors, will the SEC allow us to hold 51% or more of its equity?

The SEC will allow foreign equity in excess of 50% provided the area of activity involved is not covered by the third regular foreign investments negative list under EO No. 11. (Please refer to Appendix II).

2) If we are restricted to a 40% equity holding, how can we obtain control of the operations?

In general, control of an enterprise goes to the group which has the power to determine its policies and the manner in which the enterprise is to be run, and such assurance of control is obtained through majority ownership of the voting capital stock of the corporation. There are, however, certain arrangements that could provide a minority group with working control, such as diffusion of majority ownership and licensing agreements.

3) Are there any requirements that directors and other officers must be Filipino citizens and/or residents?

The majority of the directors must be residents of the Philippines and the secretary must be a resident Filipino citizen. Although not required by law, the SEC, as a matter of policy, also requires the treasurer to be a resident. However, in the case of banks and domestic air carriers, at least two-thirds of the members of the board of directors must be citizens of the Philippines. For a firm engaged in a nationalized or partially nationalized activity, the maximum number of foreign directors must not exceed the proportion of actual foreign equity in the firm, and all of its executive and managing officers must be Filipino citizens.

4) How are joint ventures taxed?

An unincorporated joint venture is taxed like a corporation. The shares of the joint venture partners will no longer be taxable to them because they partake of dividends, if paid to a domestic or resident corporation. However, an unincorporated joint venture formed for the purpose of undertaking a construction project or engaging in petroleum operations is not subject to the corporate income tax. Only the joint venture partners will be taxed on their respective shares.