How to Start a Business in the Philippines

According to the Philippines' Department of Trade and Industry, there are over 957,620 commercial companies in operation. MSMEs (micro, small, and medium enterprises) account for 99.51% of the total, employing over 62.66% of the country's overall workforce. With these, the growth of e-commerce websites, mobile payment apps, social media platforms, and other online marketplaces has significantly simplified the process for consumers to start their own businesses. 

The numbers show that the Philippines is an excellent place to establish a business and take advantage of the growing markets and competent workforce!

With this guide, we'll lead you through the essentials of starting a business in the Philippines, from comprehending the benefits to navigating regulations.

Benefits of Starting a Business in the Philippines

Before getting into the basics of how to establish a business in the Philippines, it's critical to understand the advantages that await prospective entrepreneurs. As a business owner, you can tap into a diverse client base while simultaneously benefiting from government tax advantages designed to foster economic growth. The country's openness to foreign investment, as well as its growing wealthy segment, contribute to a healthy economic environment. 

Some other benefits are as follows:

Economic development: The Philippines has had consistent economic development in recent years, making it a potentially attractive market for a variety of companies and sectors.

Strategic Location: The Philippines' strategic location in Southeast Asia provides it a gateway to the ASEAN market, one of the world's fastest-growing economies.

English Proficiency: Because English is widely spoken and understood in the Philippines, communicating with consumers, partners, and workers is simplified.

Skilled Workforce: The country offers a huge pool of talented experts in disciplines such as information technology, customer service, and diverse industries. This can benefit your business operations.

Cost-Effective Talent: Labor costs in the Philippines are relatively lower compared to many Western countries, allowing you to access quality talent at a more affordable rate.

Types of Business Structures in the Philippines

When deciding how to start a business in the Philippines, it is vital to understand the various business types. Those who want substantial liability protection and the capacity to attract greater investments may find that forming a company is the best option. However, the structure you select should be in line with your business objectives and financial capabilities. The following are examples of traditional business structures:

Sole Proprietorship:

• A sole proprietorship is the simplest form of business structure where an individual operates and owns the business.
• The owner has full control over business decisions and assumes all the risks and liabilities.
• Registration with the Department of Trade and Industry (DTI) is required.

Partnership:

• A partnership involves two or more individuals (partners) who agree to contribute capital, skills, or resources to run a business.
• Partners share the profits, losses, and liabilities according to the terms of the partnership agreement.
• Registration with the Securities and Exchange Commission (SEC) is required for partnerships with a capital contribution of more than a certain threshold.

Corporation:

• A corporation is a separate legal entity from its owners (shareholders), offering limited liability protection.
• Shareholders' liability is generally limited to their investment in the corporation.
• Corporations are registered with the SEC and are subject to more complex regulatory requirements.
• There are various types of corporations, including stock corporations and non-stock corporations (usually for nonprofit organizations).

One Person Corporation (OPC):

• Introduced to provide a corporate structure for single proprietors.
• An OPC is a corporation with a single shareholder who has full liability for the corporation's debts up to their investment.
• Registration with the SEC is required.

Cooperative:

• A cooperative is an organization formed by individuals with common goals, where members actively participate and share in the benefits and profits.
• Cooperatives are registered with the Cooperative Development Authority (CDA).

Branch Office:

• A foreign corporation can establish a branch office in the Philippines to conduct business, subject to SEC approval.
• The branch office operates as an extension of the foreign corporation and is subject to local regulations.

Representative Office:

• A foreign corporation can establish a representative office for purposes such as market research, promotion, and liaison activities.
• A representative office is limited in the scope of activities it can undertake and cannot engage in revenue-generating activities.

Regional Operating Headquarters (ROHQ) and Regional Headquarters (RHQ):

• These structures are typically used by multinational corporations for centralized management and support functions within the region.
• They enjoy certain tax incentives and are subject to approval from the Board of Investments (BOI).

Things to Know Before Starting a Company in the Philippines

Before getting into the registration process, there are key factors to consider. Firstly, conducting thorough market research to identify demand and competition is essential. Additionally, grasping the cultural nuances and business etiquette in the Philippines can help you build valuable relationships. Lastly, understanding the legal and regulatory framework, such as obtaining necessary licenses and permits, is crucial to avoid potential setbacks.

Steps Involved in Starting a Business in the Philippines

Answering ‘how to register a business in the Philippines’ requires a methodical approach. Here's a concise breakdown of the steps involved.

Choose a Business Name

Selecting a suitable and unique business name is a crucial step. It's essential to conduct a name search through the DTI or SEC to ensure that the name is not already registered by another business and does not infringe on existing trademarks. This process helps avoid legal disputes and confusion in the future.

Register with the Department of Trade and Industry (DTI)

For sole proprietorships, registering with the DTI is mandatory. This registration provides legal recognition of your business name and allows you to operate under that name. The process involves submitting the required documents and paying the necessary fees. Once registered, you'll receive a certificate that validates your business identity.

Register with the Securities and Exchange Commission (SEC)

If you're establishing a corporation or partnership, registration with the SEC is necessary. This step involves more comprehensive documentation and compliance with regulatory requirements. The SEC reviews the articles of incorporation, bylaws, and other relevant documents to ensure that your business structure is legally sound. Once approved, you'll receive a Certificate of Incorporation or Registration.

Obtain a Mayor's Permit

After securing the necessary national-level registrations, you need to acquire a mayor's permit from the local government unit where your business will operate. This permit grants you the authority to conduct business activities within that jurisdiction. The requirements and procedures may vary among different units, so it's important to inquire about the specific process in your chosen location.

Register for Taxes

Registering for taxes is a crucial aspect of operating a business. You need to obtain a Tax Identification Number (TIN) from the Bureau of Internal Revenue (BIR). Depending on your business activities, you may also need to register for Value Added Tax (VAT) if your annual gross sales exceed the threshold set by the BIR. Complying with tax regulations is essential to avoid legal issues and ensure your business's financial stability.

Social Security System (SSS) and Employees' PhilHealth and Pag-IBIG Fund

If you plan to hire employees, you have legal obligations to contribute to their social security, health insurance, and housing funds. Register your employees with the Social Security System (SSS), the Philippine Health Insurance Corporation (PhilHealth), and the Home Development Mutual Fund (Pag-IBIG Fund). Fulfilling these requirements ensures that your employees have access to social benefits and protections.

Open a Business Bank Account

Setting up a separate business bank account is essential for managing your business finances effectively. This account will help you track income, expenses, and other financial transactions associated with your business. Having clear financial records not only simplifies tax reporting but also enhances your business's credibility and transparency.

Setting Up a Company vs. Partnering with an Employer of Record in the Philippines

When expanding or establishing a business presence in a foreign country like the Philippines, organizations often face a crucial decision: whether to set up a company independently or to collaborate with an Employer of Record (EOR). Each approach comes with its own advantages and considerations, ranging from legal obligations and financial implications to operational efficiency. 

This comparison table highlights the differences between these two options on various aspects such as capital requirements, taxation, timeline, risk management, expertise, and management of financial accounts.

It's essential to note that the specifics of each option may vary based on the latest regulations and guidelines provided by the Thai government.

Hire Talent in the Philippines Compliantly

Starting a business in the Philippines holds tremendous potential, thanks to the country's favorable economic climate, youthful workforce, and openness to foreign investment. Understanding the various business structures and adhering to legal requirements can set the stage for a successful venture, but it might be a lengthy and expensive process. 

With Skuad’s Employer of Record solutions, you can hire, onboard, and pay employees in over 160 countries, including the Philippines while ensuring full compliance with local laws and regulations. Speak to our experts today!

FAQs

Can foreigners start a business in the Philippines?

Yes, foreigners can start a business in the Philippines, provided they follow the Foreign Investment Negative List, which outlines the sectors where foreign ownership is restricted or limited.

What business is in demand in the Philippines?

Industries such as BPO (Business Process Outsourcing), e-commerce, renewable energy, and tourism-related services are currently in demand in the Philippines.

Can foreigners own 100% of the company in the Philippines?

Foreign ownership restrictions vary by industry. While some sectors allow 100% foreign ownership, others require a certain percentage of Filipino ownership.

Do US citizens need a business visa for the Philippines?

Yes, US citizens engaging in business activities in the Philippines typically need a business visa. It's recommended to consult the Philippine embassy or consulate for the most up-to-date information.