Are you interested in starting a business in Philippines online? If YES, here is a complete guide plus legal requirements for starting a business in Philippines as a foreigner.
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.
The Harsh Truth About Starting a Business in Philippines
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.
Starting a Business in Philippines as a Foreigner – A Complete Guide
- General Overview
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.
Coconut production in the Philippines is generally concentrated in medium-sized farms. By 1995, the production of coconut in the Philippines had experienced a 6.5% annual growth and later surpassed Indonesia in total output in the world. The Philippines is also the world’s largest producer of pineapples, producing 2,198 thousand metric tons in 2009. Other products include rice, rubber etc.
The Philippines is also a major player in the global shipbuilding industry with shipyards in Subic, Cebu, General Santos City and Batangas. It became the fourth largest shipbuilding nation in 2010. Subic-made cargo vessels are now exported to countries where shipping operators are based. South Korea’s Hanjin started production in Subic in 2007 of the 20 ships ordered by German and Greek shipping operators. The country’s shipyards are now building ships like bulk carriers, container ships and big passenger ferries. General Santos’ shipyard is mainly for ship repair and maintenance.
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.
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
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
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.
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 Business in Philippines as a Foreigner – Legal Aspect
- 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.
The Best Legal Entity for Starting a Business in Philippines
- Sole proprietorship
This is a business structure owned by your spouse who has full authority in her own name and owns all the assets. However, she also will owe and answer personally to all liabilities or suffer all losses, but enjoys all the profits. It is easy to form and simple to register with the government.
This is a business structure owned by two or more partners. One with more than Pesos 3,000 capital has to register with the Securities and Exchange Commission. All the partners have unlimited personal liability for the affairs of the business. There is no benefit to you as a foreigner with this form of ownership by your spouse.
This is the preferred form of ownership if the business is going to be anything larger than a small hobby type business. For a small business, you are best off just being in a sole proprietorship – due to the low cost and ease of formation and its relative freedom from regulation by the government.
However, for a business of any significance (a real estate ownership business, a franchise, a significant manufacturing or export business, etc.), this is definitely the preferred form of ownership, and you as the foreigner can retain up to 40% ownership.
Minimum paid up capital requirement for a Philippine business is Pesos 5,000 and it is regulated by the Securities and Exchange Commission. The shareholders/owners liability is simply limited to their amount of the share capital. There must be at least five (5) incorporators, each of which must hold at least one share. So what you do, for example, is issue 56 shares to your spouse, 4 shares to her relatives, and 40 shares to yourself.
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.
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.