Starting a Business in the Philippines

Our team is mainly based in the Philippines and we are very proud of it. The company is currently expanding internationally but our roots remain in the Philippines. This beautiful and dynamic country has a lot to offer and is destined to play a bigger role in Asia in the next few years.

Unlike top business hubs in Asia like Singapore or Hong-Kong, the Philippines is still considered a relatively risky country for doing business. Even if the country is currently upgrading its business environment, navigating through the country’s administrative and compliance rules is still a challenge, and local knowledge is essential.

In this article, we’ll give you an overview of the business environment in the Philippines, and outline your best options to set up and operate your business in the country.

The new "Doing Business in the Philippines" Guide by the French Chamber of Commerce in the Philippines is accessible here.

Business Environment in the Philippines

    1. The Philippines: a dynamic country in the heart of South-East Asia

The Philippines is one of the most dynamic economies in Asia and in the World. The country has a young and well-educated population, strong consumer demand and robust remittances from overseas Filipino workers. The Philippines is situated at the heart of South-East Asia. South-East Asian countries are growing rapidly and are working to integrate their economies further through The Association of South-East Asian Nations (ASEAN).

With its singular history - in particular with Spain and more recently with the United States - the archipelago has a strong affinity to Western culture and with more than two-thirds of its 100M+ population fluent in English, it is regarded as one of the largest English-speaking countries in the world. 

Labor cost is also significantly lower than in developed economies with some businesses saving up to 70% on staff costs with an outsourcing office in the Philippines.

The Philippines is also undergoing many modernisations including:

  • simplification of the tax system with the Tax Reform for Acceleration and Inclusion Law (TRAIN Law);

  • easing submission of Audited Financial Statement and other requirements with the SEC Electronic Filing and Submission Tool (eFAST); and 

  • liberalization of selected industries to foreign investments like retail, energy, telecoms, tech sectors, etc.

    2. Still a challenging country for doing business

The World Bank and International Finance Corporation (IFC) still rank the Philippines in 95th among 190 economies for ease of doing business.

Starting and registering a new Business is still a complex and long process that can take up to a few months. In the same way, operating a business can also be challenging with a heavy  administrative and compliance burden for businesses. 

Also, legal limitations on foreign ownership with the Negative List is still very restrictive. Even with the liberalization of some selected industries, many foreign business owners hesitate to consider the Philippines an investment destination due to these restraints on foreign ownership.

                  How should I set up my Business in the Philippines?

                  Even before setting up a legal entity in the Philippines, you can still conduct business activities and hire employees in the country via Employer of Record (EOR) providers like iScale Solutions. This is a popular solution for companies looking for a lighter solution during the prospective phase.

                  Once you are ready to set up a legal entity in the country, you will have few options. In this article, we have decided to highlight the three main business structures you could have in the Philippines. Do not hesitate to Contact Us if you have any additional questions or if you would like to know which setup would be best for your business!

                  Note: This blog article does not constitute professional or legal advice. It is only intended to provide general information on a subject.

                      1.  Set up a Domestic Corporation in the Philippines

                  Setting up a Domestic Corporation is usually the go-to structure for starting a business in the Philippines. Similar to Limited Liability Companies (LLCs) or Private Limited Companies (PLCs), this structure incurs its own liabilities and is legally responsible for the payment of its obligations. The stockholders are only liable to the extent of their share capital. 

                  Here is a summary of the key features of a Domestic Corporation in the Philippines:

                  Shareholders: domestic corporations usually have a minimum of 5 incorporators. A corporation may have up to 15 shareholders. Corporations with a single shareholder are now authorized and are called One-Person Corporations (OPC).

                  Capital requirement: minimum capital requirement for corporations depends on the level of foreign ownership. The minimum capital requirement for a domestic corporation with less than 40% foreign ownership is usually (depending on the industry) PHP 5,000. A domestic corporation with more than 40% foreign ownership will usually (again depending on the industry) be required to have a minimum capital requirement of USD 200,000. However for foreign-owned export enterprises (exporting should be more than 60% of gross sales) the capital requirement is not USD 200,000 but PHP 5,000.

                  Board of Directors: each director must own at least 1 share and the majority of directors must be Filipino citizens.

                  Corporate Officers: all domestic corporations in the Philippines must have the following officers:
                  - President: must be a director and shareholder of the company but does not have to be Filipino citizen or a resident of the Philippines
                  - Corporate Secretary: must be a citizen and a resident of the Philippines;
                  - Treasurer: does not have to be a Filipino citizen but he or she must be a resident of the Philippines.


                      2.  Set up a Representative Office in the Philippines

                  A Representative Office is set up by a parent company from a country outside of the Philippines. Representative Offices are not allowed to engage in any commercial activities nor earn any revenue in the Philippines. However, they can perform support business activities for the foreign parent company like administrative activities, customer service or market research.

                  Representative Offices are considered an extension of the foreign parent company and do not have a separate legal personality. The governing laws for the Representative Offices are the laws of the country where the parent company is established.

                      3.  Set up a Sole Proprietorship in the Philippines

                  A Sole Proprietorship is a simple business structure owned by an individual with full control and authority over the business. This individual is also personally liable for all the debts and losses of the business.

                  The business registration process for a Sole Proprietorship is relatively easy. Also Sole proprietorships are the easiest to run since they do not have the same formalities and regulations that corporations have.

                      Compliance Overview for your Domestic Corporation in the Philippines

                          1.  Compliance overview for Incorporating a Domestic Corporation in the Philippines

                      - Articles of Incorporation (AOI) Preparation

                      - Securities and Exchange Commission (SEC) Registration

                      - Lease Contract (with Physical or Virtual Office) Signature

                      - Bureau of Internal Revenue (BIR) Registration

                      - Local Government Unit (LGU) Registration and Business Permit Processing

                      - Corporate Bank Accounting Opening

                      - Government Contributions (Pag-IBIG, SSS, and PhilHealth) Registration


                          2. Compliance overview for Operating a Domestic Corporation in the Philippines

                      - Preparation of Audited Financial Statements (AFS)

                      - Yearly submissions to the Securities Exchange Commission (SEC)

                      - Renewal of Business Permit with Local Government Units (LGU)

                      - Monthly, Quarterly and Yearly Filings with Bureau of Internal Revenue (BIR)

                      - If you have employees, various compliance requirements with Social Security System (SSS), Pag-IBIG, and PhilHealth

                          3.  How can Proseso Consulting help you with your Accounting and Compliance in the Philippines?

                      We have extensive experience in managing businesses in the Philippines. From registering your business, to doing your daily bookkeeping or managing your monthly tax filings, we have the expertise and the digital tools to support your business, every step of the way.

                      Proseso Consulting - The Finance expert for growing and international businesses


                      For more information on our Services or if you have any questions on how you can outsource your admin and accounting functions, contact me directly at ninoy@proseso-consulting.com.

                      Proseso Consulting provides business advisory and finances managed services (bookkeeping and accounting, outsourced and automated payroll, tax compliance, financial reporting, etc.). We are here to help you achieve your long-term business goals!

                      Ninoy Salmon is a seasoned business and finance professional with extensive experience working with both fast-growing startups and companies in the Philippines and around the world.

                      Get in touch with our team at contact@proseso-consulting.com or visit us at www.proseso-consulting.com for more information about our services.

                       

                      This blog article does not constitute professional or legal advice. It is only intended to provide general information on a subject.

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