Setting up a business in the Philippines

The Philippines is very open to foreign investment.  Foreigners possessing the 9(G) visa can start a business in the Philippines. Furthermore, foreign-owned enterprises can invest a small amount for conducting operations in the Philippines.  To obtain the 9(G) visa and other investor-related visas, check out our Visas in the Philippines article, or alternatively, make sure you have the relevant documents as per the Bureau of Immigration. 

The country has been able to come forward on the Asian economic landscape, offering various opportunities in several fields. Indeed, many foreign business people have successfully managed to set up a business in the country over the years. Procedures and conditions may be quite tedious. But you can definitely take this challenge if you have sufficient information, both on related formalities and on the local market's requirements.

Keep in mind that there will be various costs associated with the business registration process. You may incur additional fees for notarizing your documents, receiving legal advice, or taking care of other aspects of the registration process.  The process to register a business in the Philippines is different for foreigners than it is for local residents.  When registering your business, you often need multiple copies of the same documents, so be sure you submit an adequate number of forms where applicable to avoid unnecessary delays.

Good to know:

The Ease of Doing Business and Efficient Government Service Delivery Act of 2018 is a reform to ensure competitiveness and promote the ease of doing business in the country. It aims a making the business process easier, faster, and more convenient.

Business structures in the Philippines

Before starting, it is best to be aware of the different business structures existing in the Philippines and of the conditions regarding the setting up of a company by an expat/ foreigner. Here is an overview:

The corporation

The Corporation is a company requiring 5 to 15 incorporators and is regulated by the Securities and Exchange Commission (SEC). Once the company has been set up, more shareholders can join in. At least 60% of the shareholders must be Filipino nationals in order for the corporation to be considered Filipino-owned. As regards the minimum capital of 5,000 pesos, 25% of this amount has to be subscribed, and another 25% must be released. Each partner's liability is limited to the amount contributed. It can be either Stock or Non-stock.

The Close Corporation

The Close Corporation is a closed joint-stock company requiring a maximum of 20 associates and partners. There is no minimum capital requirement, but 25% of the paid amount has to be subscribed, and 25% of it must be released during the setting up. Each partner's liability is limited to the amount contributed.

The Partnership

The Partnership is formed by at least two partners with a minimum capital of 3,000 pesos and must register with the SEC if the capital exceeds this amount. A General Partnership is where each partner's liability is unlimited, while in a Limited Partnership, each partner's liability is limited to the amount contributed.

The sole proprietorship

This business structure is owned by a single individual who must apply for a Business Name and be registered with the Department of Trade and Industry (DTI).

Starting a business procedure in the Philippines

Before registering a business, it is certainly advisable to do your market research, create a business plan, speak to people on the ground, prepare your financial forecasts, and make sure your business is permitted.

Good to know:

Certain businesses in the Philippines cannot be opened by expats/ foreigners, such as companies that are wholly nationalized, mass media, retail trade and private security agencies.

Once you have understood and decided which type of company will best suit your activities, you have to gather the required documents and present them to local authorities responsible for the setting up of businesses in the Philippines.

Under the new process, thanks to the Ease of Doing Business Act, the process has been streamlined (from 28 days to 16 days):

• SEC verification of your company name, submission of SEC registration, and documentary requirements (i.e., approved company name, articles of incorporation, treasurer's affidavit, statement of assets and liabilities, and company particulars including information on directors, officers, and stockholders). These are all done online (1 day).
• Notarize (Php500) your Articles of Incorporation and Treasurer's affidavit that the minimum paid-up capital has been paid instead of a bank certificate deposit as with the old process (1 day).
• Pay the SEC fees online and claim the certificate of SEC registration (1 day).
• Submit the documents required for a business permit at the Quezon City Government One-Stop Shop (1 day). Unlike before, there is no need to present a barangay clearance.
• Pay the taxes, fees and charges, and claim the business permit (Php500) from the One-Stop Shop (1 day).
• Submit your application and documents (you need the book of accounts for Php400, which consists of four books where you record the company's collections and disbursements. In the case of computerized accounts, you can request Form No. 1900); pay the fees and documentary stamp tax at the Bureau of Internal Revenue (BIR).
• You will then be issued a certificate of registration and authority to print receipts (Php3,500). Unlike before, there is no need to have BIR stamp the printed receipts and invoices; the printer just submits the certificate of delivery of receipts and invoices (7 days). You will also be issued a Taxpayer Identification Number (TIN) from the BIR.

Hiring employees in the Philippines

If you intend to hire employees once you have successfully registered your business in the Philippines, you will have to follow the following steps:

• Register your new employees with the Social Security System (SSS) (1 day).
• Register your new employees with Philhealth (1 day).
• Register your new employees with Pag-IBIG Fund (1 day).

Registering with the Social Security System

To register your company with the SSS, you will need the following documents:

• the company registration form (R-1 Form);
• the employment report (R-1A form);
• a list of employees, specifying their birth dates, positions, salary and date of hire;
• the company's statutes, regulations; and
• the SEC registration certificate.

A Social Security number will then be issued to the company and the employees. Note that employees in the Philippines are entitled to information and training on their rights and obligations.

Registering with Philhealth

To register with PhilHealth, you will need the following documents:

• the ER1 form containing information on the employer;
• the ER2 form containing the list of employees and their details;
• proof of registration at the SEC;
• proof of registration at BIR; and
• a copy of the company's operation permit.

An affiliation number will be issued within three months.

Registering with Pag-IBIG FUND

To register your business with the Home Development Mutual Fund or Pag-IBIG, you will need the following documents:

• an EDF form [FPF040] containing the company's information;
• a SSF form [FPF170] containing specimen signatures;
• a copy of the company's incorporation certificate issued by the SEC;
• a copy of the company's approved articles and regulations; and
• the Board Resolution or Secretary's Certificate indicating an authorized representative.

Once you have paid the relative fees, a Pag-IBIG Fund number and registration certificate will be issued.

Do foreign companies have to pay tax in the Philippines?

Both Philippine corporations and resident foreign companies (SMEs/ foreign companies engaged in a trade or business within the Philippines) are taxed at a rate of 25% (reduced from 30%), except for corporations having net taxable revenue of less than 5 million PHP and total assets of less than 100 million PHP, which is taxed at a rate of 20%. This also applies to “resident foreign companies”, i.e., SMEs/ foreign companies engaged in a trade or business within the Philippines.

If you are a freelancer or a self-employed expat, you are categorized under the sole proprietorship label. Foreigners can have a sole proprietorship in businesses not governed by ownership equity laws.

The documents required to register for corporate tax for foreign companies are a Treasurer's Affidavit, a Bank Certificate of proof of Inward remittance and notarized articles of Incorporation and by-laws.

For companies with more than 40% foreign equity, an SEC form F-100 is required.

To register, you must comply with the Securities and Exchange Commission.

Useful links:

Securities and Exchange Commission

Department of Trades and Industries

Bureau of Internal Revenue (BIR)

Revenue District Office (RDO)

Republic of the Philippines Social Security System

Pag-IBIG Fund

Philhealth