Company Structures for Davao-Based Entrepreneurs: The Three Questions

The question of whether you need a company — and if so, what kind — comes up in almost every client conversation. The answer depends on three questions.

Question 1: Is all your income passive?

If you live on dividends, interest, capital gains, and rent — all from foreign sources — you may not need an operating company at all. These income streams are fully exempt from Philippine tax for a Resident Alien. You receive them as an individual, they are not subject to Philippine income tax, and no company structure is required to achieve that result.

A holding company — a US LLC, for example — may still be useful for asset management, estate planning, or banking purposes. But it is not required by the Philippine tax situation.

Question 2: Are you actively billing clients?

If you are billing clients — as a consultant, developer, designer, agency, or any active service provider — you need some kind of structure. The question is which one.

For those billing entirely foreign clients, the cleanest solution is usually a company incorporated outside the Philippines — Hong Kong, Delaware, BVI — with a genuine director based outside the Philippines. You draw a modest local salary or consulting fee, declare and pay Philippine tax on it locally, and the company's profits accumulate offshore outside Philippine tax jurisdiction.

The critical point: if you are physically present in the Philippines and serve as the primary director yourself, you risk creating a Philippine Permanent Establishment — meaning the company could be deemed tax-resident in the Philippines. This is managed by ensuring a genuine external director with real authority and real compensation.

Question 3: Do you want to operate openly in the Philippines?

If you want to hire locally, invoice Philippine clients, or operate with a visible Philippine presence, a different structure is needed — a Philippine company within a Special Economic Zone or PEZA-registered area. This route involves income tax holidays of 4–7 years and subsequent reduced corporate tax, but requires proper legal advice and a genuine commitment to local operations.

The practical result

Most of our clients who are active service providers use an offshore company — Delaware LLC or Hong Kong limited company — with a genuine external director. This is clean, well-understood, and works. We coordinate the incorporation and the bank account opening, and we work alongside your existing advisers.