Foreign nationals or investor companies thinking of opening a business in the Philippines are well advised to know whether the planned business activity would constitute “doing business” in the Philippines as defined under Philippine law.
Under the Foreign Investments Act (FIA) of 1991 the term “doing business” includes:
- 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
- any other acts 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 Philippine Supreme Court has explained that the test of “doing business” is not the number or quantity of transactions, but rather the intention of the entity to continue its business in the country. 1
Thus, a foreign corporation is not “doing business” if it engages in an isolated transaction, or, a transaction or series of transactions different from or unrelated to the common business of the foreign enterprise in the sense that there is no intention to engage in the progressive pursuit of the purpose and object of the business organization. 2 Finally the Supreme Court cautioned that since there is no hard-and-fast rule as to what constitutes “doing business”, each case is to be judged according to its peculiar circumstances. 3
In addition, the Supreme Court listed other instances where a foreign corporation is considered not “doing business” in the Philippines:
- investing as a shareholder in domestic corporations and/or the exercising rights as a shareholder investor;
- maintaining a nominee director or officer to represent its interest in domestic corporations;
- appointing a representative or distributor domiciled in the Philippines to transact business in the representative’s or distributor’s own name and account
Moreover, the FIA implementing regulations further list the following activities as not “doing business”:
- 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 sued in the processing of products for export
- collecting information in the Philippines
- 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.
The Court noted that most of these activities do not bring any direct receipts or profits to the foreign corporation, consistent with its earlier ruling that “activities within Philippine jurisdiction that do not create earnings or profits to the foreign corporation do not constitute doing business in the Philippines. 4
But why the need to draw the line between “doing business” and not doing business? Under Philippine corporate law, a foreign corporation doing business in the Philippine without securing the proper license from the Securities and Exchange Commission(SEC) “shall (not) be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.” 5 In other words, a foreign corporation doing business in the Philippines without a license cannot sue, although it may be sued. By implication, a foreign corporation engaged in an isolated transaction does not need an SEC-issued license to do business in order to file legal action to assert or protect its rights arising from the isolated transaction.