Do you want to start a business in Philippines as a foreigner? If YES, here is a complete guide to starting a profitable business with no money in Philippines.
Okay, having provided an in-depth analysis of the top 50 best small business ideas in Philippines and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Philippines. So put on your entrepreneurial hat and let’s proceed.
As a newly industrialized country, the Philippines is still an economy with a large agricultural sector; however, services have come to dominate the economy. Much of the industrial sector is based on processing and assembly operations in the manufacturing of electronics and other high-tech components, usually from foreign multinational corporations.
Agriculture employs 32% of the Filipino workforce and this is according to World Bank statistics. Agriculture accounts for 12% of Philippines GDP as of 2013, according to the World Bank. The type of activity ranges from small subsistence farming and fishing to large commercial ventures with significant export focus. The Philippines is the world’s largest producer of coconuts producing 19,500,000 tons in 2009.
Table of Content
- 1 Facts and Figures That Will Interest as an Investor/Entrepreneur in Philippines
- 2 Possible Challenges and Threats of Starting a Business in Philippines
- 3 Quick Check List of What You Would Need to Do Business in the Philippines
- 4 Legal documents You Need to Run a Business in Philippines
- 5 Best Cities to Start a Business in Philippines
- 6 License and Permits You Need to Do Business in Philippines
- 7 Starting a Business in Philippines – Market Feasibility Research
- 8 Starting a Business in Philippines as a Foreigner – Legal Aspect
Facts and Figures That Will Interest as an Investor/Entrepreneur in Philippines
If you are a Filipino expatriate (expat) who wants to start business in the Philippines or a foreigner who wants to invest in Philippine business, there are few things that you need to know about the business laws and regulations in the Philippines.
Be sure to take of these things to save you from business headache and lawsuits that could result from ignoring them. Here are some points that you need to consider:
- A foreigner cannot form a solely owned business in the Philippines without a heavy investment (for a corporation, you are looking at USD$200,000).
- A foreigner can have up to 40% ownership in a corporation – minimum capital to start a corporation is only Pesos 5,000 (approximately USD $1,000).
- The best way to be in business in the Philippines is to be married to a Filipina who holds ownership of the proprietorship, or form a corporation with a Filipina spouse with you owning 40% and she owning 60%.
- You also enter into a corporation with 40% ownership with a Filipina girlfriend or a Filipino friend – but consider the huge risk of having no control over your fellow majority stock owner(s).
- Depending on the purpose of the corporation (such as purchase of a real estate – land or house), it might still make sense that when the property is sold you would be entitled to your share of the proceeds.
- There is one exception whereby you CAN become a 100% owner of a corporation and that is if the corporation is formed to purchase land, or your other shareholder is your spouse, and she dies. Under this arrangement, as the heir to your deceased spouse, you are able to retain 100% ownership of the property.
Possible Challenges and Threats of Starting a Business in Philippines
The Philippines’ newly industrialised economy has been tipped as being among the most promising in the world, but doing business can a tricky task without the help of local experts.
With the 12th largest population and the 43rd largest economy in the world, the Philippines certainly has the scope for development. Included in Goldman Sachs’s Next Eleven economies among the likes of Mexico, South Korea and Turkey, there has been a tremendous transition over the 21st century from an agricultural base to a service-based economy.
But despite the many modernisations undertaken by the country, the World Bank and International Finance Corporation (IFC) rank the Philippines in 138th place (out of 185 economies) for ease of doing business, highlighting the importance of local knowledge. Few challenges include
- Making decisions
- Personal relationship
Starting a Philippine business as a foreigner is complicated, and it is difficult to find accurate information or advice. Equally, most documents governing business activities (i.e. the Constitution, SEC rulings, Supreme Court rulings, etc.) are not well indexed on the internet, so self-educating yourself is inherently flawed.
Generally speaking, the Philippines have restrictions on the percentage of equity foreigners can own of a domestic/Philippine corporation. This fact is widely known, but the details are not easily understood. It is not easy to fully explain in a blog post either.
I highly recommend you speak to a lawyer about the implications of the law on your business. The law is very prescriptive, so it likely has some impact of you. The information below may however come in handy for you.
Quick Check List of What You Would Need to Do Business in the Philippines
- A copy of government issued ID
- A duplicate proposed business name registration form
- Payment of registration fees fixed on territorial based with documentary stamp tax
- Complete employee data form
- Copy of Municipality permission letter
- Community tax certificate
- Location and Barangay clearance
- Fire safety and electrical inspection certificate
- Occupancy certificate and building permit
- Contract of lease, if any
- Verification slip form
- Articles of incorporation
- Notarized bank certificate
- Treasurer’s affidavit
- Written undertaking to change the name of the corporate by trustee or Director
- Clearance certificate from other government agencies
- Foreign investment application form (for foreign corporation subsidiaries
- List of members and contributed amount certified by the secretary
- Registration fee
- Complete employee data form
- Copy of Municipality permission letter
- Community tax certificate
- Location and Barangay clearance
- Fire safety and electrical inspection certificate
- Occupancy certificate and building permit
- Contract of lease, if any
Starting a Business in Philippines as a Foreigner – A Complete Guide
If you are considering starting a business in the Philippines, what is expected of you is to first and foremost conduct thorough research on the industry you are interested in starting a business in. This is very important especially if you are coming from outside the ASEAN.
The truth is that there are different rules and regulations governing new business in the Philippines and you would not want to settle for an industry that you won’t be issued a business license or permit as a foreigner.
This is so because there are some businesses that are not open to foreigners hence the need to visit government agencies responsible for registering businesses in the Philippines to make your enquiries before registering a new business.
Step Two: Choose and Register a Business Name
The next step to take on your quest to starting a business in the Philippines after you have settled for an industry and a business idea is to choose a name for your business and then go ahead to register the name.
When it comes to choosing a name, you have to cross- check to be sure the name you want to register has not been used by any other business entity. You can visit the security and exchange commission to do this. Whatever name you choose for your business must be cleared before you proceed with your registration.
Registration of proposed business names are done in different departments of states in the Philippines and it is based on the type of business you want to register:
- For Sole Proprietorship you would have to visit the Department of Trade and Industry (DTI)
- For Corporation or Partnership company, you would have to visit the Securities and Exchange Commission
- For Cooperative business, you would have to visit the Cooperative Development Authority
Please be informed that aside from the fact that different state departments handle the registration of businesses in the Philippines, the total fee for name registration also varies between PHP 40 to PHP 120.
Legal documents You Need to Run a Business in Philippines
- SEC registration – for registering as a partnership or corporation
- DTI registration – for registering your business trade name (BTR)
- Mayor’s business permit – for getting the license to operate in the city or municipality and payment of your local business taxes.
- BIR registration – for getting TIN, official receipts and invoices, registering your books of accounts, and paying your national internal revenue taxes (Income tax, VAT or Percentage Tax, Withholding Taxes, etc.).
- SSS, PhilHealth, and Pag-Ibig Fund registration – for registering yourself or company as an employer and for remitting your employees’ contribution together with your employer’s share.
- Usually, the BIR and the City/Municipality Office require the certificates of registration with the SEC or DTI before a business can be registered with them. Thus, you need to register through those offices to start commencing your business.
Step Three: Look for an Office Address
In the Philippines, you cannot proceed with the registration of your business if you don’t have an address that you will be operating from. As simple as securing an address is, it can truncate your dream of starting a business in the Philippines. Usually, if you are not sure of where to operate from, you can just go ahead to hire a serviced office address just for the purpose of processing your business registration.
Best Cities to Start a Business in Philippines
Thinking of starting a business but confused as to where to put up one? The cities listed below were ranked based on the number of procedures, days to process, and the cost of the processing. Surprisingly, the country’s central business district, Makati, did not make it to the top 10.
- General Santos City
- Davao City
- Taguig City
- Valenzuela City
- Lapu Lapu City
- Zamboanga City
- Cebu City
- Marikina City
- Mandaluyong City
- Pasay City
Step Four: Choose a Business Structure/Legal Entity
There are different business structures and investor can choose from if you want to start a business in the Philippines and it will be to your advantage to study the administrative requirements and associated.
If you are not familiar with the business environment in the Philippines, here are the different types of business structures or legal entity that you can build your business on.
- Sole Proprietorship: A sole proprietor in the Philippines is someone who is personally responsible for any liabilities incurred in the business. However, they also get full benefit of any profit incurred by the company. In effect, the business and personal interests are considered as one single entity.
- Partnership: This partnership business structure is a separate legal entity. With partnership, you have the options of choosing a business structure with limited or unlimited liabilities. For having a larger partnership in the Philippines, you must register your interests with Securities and Exchange Commission.
- Corporation: A corporation in the Philippines must have at least five shareholders who stake a minimum amount of capital. However, the liability of shareholders is then capped at the total amount of their invested capital. The investor has to register his corporation to the Securities and Exchange Commission.
- Branch Office: A branch in the Philippines is an extension of a foreign company carrying the same activities as the parent company. Here, the only difference is the business is carried out in a different country following the rules and regulations of that country.
- Representative Office: A representative office in the Philippines is a business that is basically set up to promote the parent company. They are only permitted by the law to conduct market research, study the customers and other similar researches. The law does not permit them to conduct buying and selling activities in the country.
Step Five: Proceed to Open an Account and Pay the Minimum Deposit
In the Philippines, part of the requirements of registering a new business in the country is that the business owner must open an account and deposit a minimum amount of capital in the bank account. The Philippines’ Corporation Code sets that minimum at PHP 5,000 but your bank will need additional materials, including articles of incorporation and identification documents.
The amount can be in your personal account since you wouldn’t have opened a corporate account for your business. Without this, you cannot proceed with the registration of your company in the Philippines.
Step Six: Register with the Securities and Exchange Commission (SEC)
In order to complete the registration of your company in the Philippines, you are required to register with the Securities and Exchange Commission (SEC) of the country. The Securities and Exchange Commission (SEC) of the Philippines is a national government regulatory agency, that oversees every registered business entity in the Philippines.
Please ensure that you go with the required documents when you visit the Securities and Exchange Commission (SEC) and here are some of the basic documents you are expected to tender;
- Approved company name
- Articles of incorporation
- Treasurer’s affidavit,
- Statement of assets and liabilities
- Company particulars including information on directors, officers, and stockholders
Please note that according to the section 14 and 15 of the Corporation Code, proper notarization of all the documents as well as the Treasurer’s Affidavit is necessary before proceeding to file with the SEC. The fee is about PHP 500 and would only take 1 day to accomplish.
Step Seven: Apply and Obtain your Tax Identification Number (TIN)
The next step after you must have successfully registered your business with the Securities and Exchange Commission (SEC) is to ensure that you apply and obtain the mandatory Tax Identification Number (TIN) for your company and you can achieve that by submitting the following documents:
- Company name verification slip
- Articles of incorporation (notarized) and by-laws
- Treasurer’s affidavit (notarized)
- Statement of assets and liabilities
- Registration data sheet with particulars on directors, officers, stockholders, and so forth
- Written undertaking to comply with SEC reporting requirements (notarized)
- Written undertaking to change corporate name (notarized).
As soon as you are done with this process, the Securities and Exchange Commission (SEC) of the Philippines is will automate your Tax Identification Number (TIN). Please note that the process of obtaining your Tax Identification Number (TIN) may take an average of 2 working days to complete.
Step Eight: Proceed to Pay the Annual Community Tax
After the Securities and Exchange Commission (SEC) of the Philippines has automated your Tax Identification Number (TIN), the next step to take is to pay the annual community tax. The annual basic and additional community tax can be paid at the City Treasurer’s Office (CTO).
The basic tax you are expected to pay is dependent on your business activity. But have in mind that it is going to be higher than PHP 500. The additional tax on the other hand is subject to the assessed value of the real property you own, along with dividends and earnings of the company.
Step Nine: Register with the Bureau of Internal Revenue (BIR) and the Philippines Social Security System (SSS)
Before you can go ahead to start conducting business in the Philippines, you must register your business with the appropriate departments of the states.
You are expected to register the company with the Bureau of Internal Revenue (BIR) This registration is important because it will help you get the applicable taxes, pay your annual registration fee, stamp sales invoices, receipts, and books of accounts.
You are also expected to register with the Philippines Social Security System (SSS). This is mandatory for all businesses in the Philippines irrespective of the number of employees you have under your payroll. You would need the following documents to get this done;
- Employer registration form (Form R-1)
- Employment report (Form R-1A)
- List of employees, specifying their birth dates, positions, monthly salary and date of employment; and
- Articles of incorporation, by-laws and SEC registration.
Step Ten: Apply and Secure the Needed Clearance and Business Permits
As a new business in the Philippines, you are expected to apply and obtain clearance and business permits before you can open your business.
You would need to apply and obtain a Barangay Clearance. You would have to visit the Barangay office where your business is located, and the documents you are expected to come along with you are your application form, SEC Certificate of Incorporation, approved AoA, lease contract, and business plan. Please note that the fee for Barangay Clearance ranges between PHP 300- PHP 1,000.
Depending on the type of business you want to launch, you can check to know the type of business permits you would need. You can obtain a business permit in the Philippines from the Business Permits and Licensing Office (BPLO).
Please note that the nature of your business will indicate whether you will need special clearances or certificates such as a location clearance, fire safety and inspection certificate, mechanical permit, certificate of electrical inspection, and sanitary permit.
License and Permits You Need to Do Business in Philippines
People do business to make a living, serve their community, and pursue their dreams. It is good to hear a person who’s taking risk to start his or her business, whether small, medium or big. However, the process of starting and registering a business can be one of the most crucial stages of doing business.
Getting the right permits and licenses should be done before running a business; otherwise, you may end up operating a business without a license, which can be punishable under certain business laws. That is why if you are an aspiring business person or entrepreneur, and if you want to conform to the government’s rules on establishing and legalizing a business, you have to be aware of the following list of business permits and licenses in the Philippines.
- Barangay Clearance – The barangay clearance is a certificate that your business complies with the requirements of the barangay where your business is located. To get a barangay clearance, you may visit the barangay office where your business is located.
- DTI Business Name (BN) Registration Certificate – This is the certificate of registration of your business trade name. It gives you the power to use your registered business trade name for business operation. It also protects your business name against being used and registered by other business establishments.
- SEC Certificate of Registration – Corporations (stock or non-stock) and partnerships have to secure a certificate of incorporation or certificate of partnership with the Securities and Exchange Commission (SEC) to be considered as legal or juridical entities. These certificates are also used as a requirement for registering with the BIR, Mayor’s Office, and other government offices. Take note that sole proprietorship businesses are not registered with SEC, but they are registered with the DTI.
- Mayor’s Business Permit– Businesses have to secure a Mayor’s Business Permit or the Local Government Office where their business are located and operated. Requirements in obtaining a Mayor’s Business permit vary from different cities or municipalities. This permit is also a requirement by the BIR in issuing a BIR certificate of registration.
- BIR Certificate of Registration. Any business must be registered with the Bureau of Internal Revenue to comply with the Philippine tax requirements. BIR registration will assign a TIN (Taxpayer Identification Number) to the company or business owner, will give the business authority to print its official receipts and invoices, and registered its books of accounts.
- SSS Employer’s Registration. Republic Act No. 8282 or otherwise known as the Social Security Act of 1997 requires businesses or business owners who use the services of another person or employees in business, trade, industry, or any undertaking to be registered with the SSS (Social Security System).
- PhilHealth Employer’s Registration. All businesses and employers are also required to register with PhilHealth to enable them to provide social health insurance coverage to their employees.
- Pag-IBIG Employer’s Registration. Employers also have to register with the Home Development Mutual Fund (HDMF) to secure their Pag-IBIG Employer ID Number and to provide the required benefits to their employees, who should be Fund members.
- DOLE Registration. Businesses with five or more employees are encouraged to register with the Department of Labour of Employment (DOLE) for the purpose of monitoring their compliance with labour regulations. For companies with 50 or more workers, they are required to register with DOLE, under the Bureau of Local Employment which administers the registration of establishments.
There are maybe other business permits that are required for certain types of businesses aside from what we have listed and mentioned above. Moreover, please remember that legalizing your business doesn’t only extend to registering it and securing a license or permit.
List of Government Agencies and Parastatals that are In-charge of Registering businesses and Issuing Licenses and Permits in Philippines
- BIR (Bureau of Internal Revenue)
Who needs to register?
- Sole Proprietorship
It all starts with the BIR. You cannot operate your business without your business tax identification number (TIN). You need to do these at the BIR
- Register your business establishment and all its branch offices, if any. You do this at the BIR Revenue District Office (RDO) in the place where your business is located. Once you obtain your Certificate of Registration, you must display it in a conspicuous place within your business establishment.
- Register your books of accounts. You accomplish this at the same RDO.
- Request for permit to print and issue receipts and invoices. You must thereafter post a notice in your business premises stating that your establishment issues receipts; and that if no receipt is issued by the cashier, then the customer must ask for one.
- DTI (Department of Trade and Industry)-: Before you can conduct business in the country, you need to register a name associated to your business. This is called business name registration (BNR). This is required if a person will use a name other than his true name.
- SEC (Securities and Exchange Commission)
The SEC is an agency under the Philippine Department of Finance that is responsible for regulating the securities industry. It supervises all registered business entities in the country (with the power to suspend and revoke registrations), investigate violations of securities laws and impose sanctions, and make policies with regard to the market in securities. It also supervises stock and bond brokers as well as the stock exchanges.
- PEZA (Philippine Economic Zone Authority) /BOI (Bureau of Immigration)
PEZA is handled by the Department of Trade and Industry. The PEZA and BOI are focused on businesses that are export-oriented, specifically in designated Special Economic Zones. The BOI is the primary agency responsible for investment promotion in the country and offers a wide range of incentive schemes for both Filipino and foreign investors.
- Local Barangay-: You need to secure a company barangay clearance first in the barangay where your business will be operating. It is also a requirement when registering for a Mayor’s Permit.
- City Hall
A Business Permit is sometimes also referred to as a Mayor’s Permit, because it is processed at the City Hall – the office of the mayor. Securing a business permit from the Mayor’s Office can only be done after accomplishing two other registrations: The registration of your business with the Department of Trade and Industry or DTI (for single proprietorship) or with the Securities and Exchange Commission or SEC (for partnership or corporation.
The term “employee” denotes any person legally employed in the Philippines, any person compulsorily covered by the GSIS under the Commonwealth Act 186, or any person compulsorily covered by the SSS under Republic Act 1161. Such employee is automatically covered for these government mandated employee benefits. This includes self-employed individuals or freelancers.
Step Eleven: Open Your Doors and Start Welcoming Customers
If you have been able to successfully carry out step one to ten, then you have indeed come a long way and it shows that you are truly ready for business. You cannot generate sales from your products or services if you do not open your door for business. In essence, the last step to take in your quest to start a business in the Philippines is to ensure that you open your door for business.
In wrapping up, it is important to state that this article only covers basics steps of starting a business in the Philippines and there are other legal issues as well as accounting requirements such as setting up accounting procedures, acceptable software apps and notifying regional authorities that are not covered here, but are also important procedures when it comes to starting a business in the Philippines. We will advise that you contact professionals to guide you through the process.
Factors that Encourages You to Invest in Philippines
- This nation is becoming attractive for investment, experts say, as the economy grows and large corporations expand operations there. When it comes to emerging markets, the average investor is focused on Brazil, Russia, India and China – known as the BRIC countries. But some smaller developing countries are also worth a look as they pull ahead in terms of economic growth and attract booming industries.
- One notable example: The Philippines grew its gross domestic product 7.2 percent in 2013, and the country has trumped India as the leading destination for call centres. Large corporations including JP Morgan Chase and Procter & Gamble recently expanded operations there.
- Unlike residents of many other emerging markets, Filipinos speak English fluently, and the country supplies low-wage workers that appeal to large companies growing their operations overseas. These factors make the Philippines an attractive area.
- What sets [the Philippines] apart is an improved political environment. President [Benigno S. Aquino III’s] reform agenda has paid dividends in the last couple years,” “They imposed new taxes, such as sin taxes on tobacco and alcohol, raising money that can be redeployed into infrastructure.”
- New infrastructure attracts global businesses and bodes well for the Philippines’ tourism industry, which is underdeveloped. The country has also been insulated from some of the effects of international market downturns thanks to the number of remittances it receives from citizens living abroad.
Starting a Business in Philippines – Market Feasibility Research
The Economy of the Philippines is the 39th largest in the world, according to 2015 International Monetary Fund statistics, and is also one of the emerging markets. The Philippines is considered a newly industrialized country, which has an economy transitioning from one based on agriculture to one based more on services and manufacturing. In 2016, GDP by Purchasing power parity was estimated to be at $811.726 billion.
Primary exports include semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, and fruits. Major trading partners include the United States, Japan, China, Singapore, South Korea, the Netherlands, Hong Kong, Germany, Taiwan, and Thailand. The Philippines has been named as one of the Tiger Cub Economies together with Indonesia, and Thailand. It is currently one of Asia’s fastest growing economies.
However, major problems remain, mainly having to do with alleviating the wide income and growth disparities between the country’s different regions and socioeconomic classes, reducing corruption, and investing in the infrastructure necessary to ensure future growth.
List of Well known Foreign Brands in Philippines
Indeed, the Philippines is a desirable market for international retailers. The strong economic fundamentals and demographics of the country have driven healthy appetite for business and attracted foreign brands like
- Happy Lemon
- Co. Donuts
- Earl of Sandwich
- Forever 21
- Stuart Weitzman
List of Well known Indigenous Entrepreneurs in Philippines
There are many more successful Filipino entrepreneurs than those mentioned here, but here are 10 individuals whose businesses continue to contribute positively to the Philippine economy.
- Henry Sy – ShoeMart(SM) Department Stores
- Tony Tan Caktiong – Jolliibee Foods Corporation
- Cecilio M. Pedro – Lamoiyan Corporation
- Alfredo M. Yao – Zest-O Corporation
- Soccoro C. Ramos – National Bookstore
- Mariano Que/Vivian Que Azcona – Mercury Drug Stores
- Corazon D. Ong – CDO Foodsphere
- Engineer Gregorio G. Sanchez Jr. – LactoPAFI
- Ernest L. Cu – SPI Technologies / eTelecare International, Inc.
- Diosdado Banatao-Computer Chips – Mostron and S3
List of 10 Well Known Indigenous Business Brands in Philippines
- Beer brand
- Great taste
- Silver swan
The Philippine economy has been growing steadily at an average annual rate above 6 percent for the past five years. The government has pursued legislative reforms to enhance the entrepreneurial environment and develop a more vibrant private sector to generate broader-based job growth. Despite some progress, poor infrastructure remains a serious impediment to economic growth.
- 2016 Economic Freedom Score: 63.1 (up 0.9 point)
- Economic Freedom Status: Moderately Free
- Global Ranking: 70th
- Regional Ranking: 14th in the Asia–Pacific Region
- Notable Successes: Monetary Freedom and Management of Public Finance
- Concerns: Rule of Law and Labour Freedom
- Overall Score Change Since 2012: +6
Overcoming lingering institutional challenges will require a deeper commitment to reform. Although the perceived level of corruption has declined, more effective anti-corruption measures need to be institutionalized. The judiciary remains susceptible to political interference and does not provide dependable enforcement of the law.
Corruption and cronyism are rife in business and government. A few dozen leading families hold a disproportionate share of land, corporate wealth, and political power. A culture of impunity, stemming in part from case backlogs in the judicial system, hampers the fight against corruption. The rule of law is generally weak as courts are hampered by inefficiency, low pay, intimidation, and corruption.
Starting a Business in Philippines as a Foreigner – Legal Aspect
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