Starting a business in the Philippines is an exciting prospect full of hope and good wishes for the opportunities to come. Its growing economy, expansive growth in the service industry, vibrant culture and preferable climate have attracted many investors to this vibrant locale. You are not alone in recognizing this opportunity in front of you.
Approximately 13,000 new businesses have opened each year in the Philippines since 2006.
However, there are a few things that you should know about this country before making your investment.
Our local experts at Horizons discuss the framework for starting a business in the Philippines. We are also available to discuss your specific situation during an initial consultation, so don’t hesitate to reach out to us.
Start your business in the Philippines with Horizons.
Types of Business Structures in the Philippines
The Philippines recognize a few different corporate structures, such as:
Sole Proprietorship
A sole proprietorship is a business owned by one individual who is personally liable for any of the debts of the business. The individual and business are considered a single entity.
Partnership
A partnership is a professional association between two or more people. In the Philippines, you can choose whether to structure the partnership with limited or unlimited liabilities. Limited liability partnerships limit the potential liability of a partner up to the amount of their investment. Larger partnerships are required to register with the Securities and Exchange Commission.
Corporation
Another recognized business entity is a corporation. This business structure requires that you have at least five shareholders. The liability of shareholders is limited to the total amount of their invested capital. Corporations must be registered with the Securities and Exchange Commission.
Other Options
If you have an existing business outside the Philippines, you may consider other options, such as establishing a local branch office or representative office. While these are not technically separate legal entities, they may allow you to expand to the Philippines without making a major investment.
However, these offices may be limited on the type of work that they can complete and whether they can generate profit.
What to know before starting a company in the Philippines
Keep in mind that there will be various costs associated with the 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 adequate numbers of forms where applicable to avoid unnecessary delays.
Additionally, the process to register your business will be very different depending on what type of business structure you select.
Guide to Starting a Business in The Philippines
Step by Step Procedure and Requirements (Legal Documents)
Starting a business in the Philippines involves many steps, so it can be a time-consuming process. Here are some of the steps that may be involved in the process:
1. Search for and Register Your Name
The first step is to see if your chosen business name is available. You can search for the name on the Business Name Registration Site by submitting a priority list of three names for your business if your first selection has already been taken by another business.
Once you have paid the fees and your name selection is approved, you will receive a certificate that is valid for five years.
2. Notarize Documents
You will need to notarize certain official documents of your company, including your articles of incorporation and the treasurer’s affidavit. Your notarized documents will be submitted in a later step.
3. Apply for Company Incorporation
You will need to submit a variety of forms and other evidence to the Securities and Exchange Commission. The type of documents that are necessary will depend on the type of business you are establishing. For example, for a sole proprietorship, you will submit:
- The business name registration application
- Your passport or special investor residence visa with a passport photo attached
- Proof of minimum inward payment
To register a partnership, you will also need the business name registration application, as well as your articles of partnership that have been signed by at least two directors. You might also need permits, depending on the type of business you are establishing.
To register a foreign-owned company, you will need to submit the following documents:
- Completed application form
- Notarized articles of incorporation and bylaws
- Written proof agreeing to change the business name
- Board resolution that authorizes the opening of a branch or office in the Philippines
- Proof of minimum inward payment
- Financial records
The Securities and Exchange Commission reviews the submitted documents and issues a pre-approval of the application.
The business must pay the required fees and provide proof of payment. Then, a waiting period is put into motion so that the necessary documents can be prepared, including the incorporation certificate and supporting documents.
The business receives a Taxpayer Identification Number after the SEC approves incorporation.
However, the business is still required to register with the Bureau of Internal Revenue to determine the taxes that it will be subject to, to pay an annual registration fee and to obtain approval to print invoices and receipts.
You are responsible for paying tax on your business, as well as making proper withholdings and contributions to the tax system from employee salaries.
4. Pay Fees
The SEC will issue payment fees after the business applies for company incorporation. The name approval and registration fees must be paid at a bank and evidence of proof of payment submitted to the online system.
Most companies will be responsible for paying the following fees:
- PHP 100 for the name verification fee
- PHP 1,000 for the registration of the bylaws
- PHP of 150 + 320 to register stock and transfer stock required for new corporations
- A filing fee of .2% of the authorized capital stock or the subscription price of the subscribed capital stock, whichever is higher but not less than PHP 1,000
- Legal research fee of 1% of the filing fee but not less than PHP 10
- PHP 10 for the legal research fee for the bylaws
5. Register with Other Agencies
The business will likely be required to register with other government agencies, such as the Social Security System and the Home Development Mutual Fund. You may also have to register your business with the Department of Trade and Industry and the local Barangay Office.
If you have employees, you must register with the Philippine Health Insurance Corporation. You are responsible for paying a fixed amount for each of your employees into a health insurance fund, which is then used if the employee becomes injured or gets sick.
6. Obtain Your Business Permit
You may also be required to obtain a business permit from the local municipality. The fees for your business permit are typically .2% of the value of the authorized capital stock. You may also need to obtain additional permits, such as for:
- Fire safety and inspection
- Location clearance
- Electrical inspection
- Mechanical
- Sanitation
A Mayor’s permit may also be necessary.
The specific types of permits you need are based on the nature of your business.
Associated fees for these permits depend on the nature of your business and land area your corporation will occupy. These fees range from PHP 7 to PHP 5,000, with several being PHP 50 or less.
Before receiving a permit, your business will most likely have to undergo an inspection.
7. Obtain Barangay Clearance
You need to obtain a clearance and pay the annual community tax at the local Barangay where your business is located. Submit the following to obtain your clearance:
- Application form
- SEC Certificate of Incorporation and approved articles of incorporation and bylaws
- Location plan or site map and the lease for your office
- Pay the applicable fee, which ranges from PHP 300 to PHP 1,000 in Quezon City but may be higher or lower in other areas
8. Purchase Special Books of Accounts
You must have special books of accounts to register with the Bureau of Internal Revenue.
They are readily available at bookstores throughout the country. Alternatively, if a business has a computerized accounting system, it can register this system the BIR.
The BIR has a special team that inspects and evaluates these systems within 30 days from the date of registration.
Apply with the Bureau of Internal Revenue for Certain Authorizations
You must register your pre-registered TIN with the Bureau of Internal Revenue and report all internal revenue taxes that you expect to be liable for. You must submit the following documents to the BIR:
- Completed application Form 1893
- Completed payment Form 0605
- Securities and Exchange Commission Certificate of Incorporation
- Notarized articles of incorporation and bylaws
- Contract of lease
- Documentary stamp tax return on the original issuance of shares and payment form
- Mayor’s permit or business permit application
- Applicable fees
9. Register with the Social Security System
Submit the following documents to obtain your final registration with the Social Security System:
- Employer registration Form R-1
- Employment report Form R-1A
- A list of your employees that includes information about their positions, monthly salary, date of employment and date of birth
- Notarized articles of incorporation, bylaws and SEC registration
Once your documents are processed, you will receive your SSS employer and employee numbers. The SSS offers training to help teach you about your obligations.
10. Register with the Philippine Health Insurance Company
Complete your final registration with the Philippine Health Insurance Company by submitting the following documents:
- Employer data record Form ER1
- Report of employee-members Form ER2
- Registration with the Bureau of Internal Revenue and the Securities and Exchange Commission
- Copy of your business permit
You will receive copies of forms that provide proof of membership until you receive your employer and employee numbers within 90 days.
11. Register with the Home Development Mutual Fund
Complete final registration with the Home Development Mutual Fund by submitting the following documents:
- Employers data form
- Specimen signature form
- Copy of your Securities and Exchange Commission certificate of incorporation
- Copy of your approved articles of incorporation and bylaws
- Board resolution or secretary’s certificate showing the duly designated authorized representative
After you submit these documents and make your first payment into the fund, you will receive your certificate of registration and your HDMF number.
12. Submit Printer’s Certificate of Delivery of Receipts and Invoices
After your receipts and invoices are printed, you will receive a Printer’s Certificate of Delivery of Receipts and Invoices from the printer.
You must submit this to the Bureau of Internal Revenue within 30 days from the date you received it. You must also submit the following documents to the Bureau of Internal Revenue:
- Your books of accounts
- Your registration certificate for Value Added Tax
- Your registration with the Securities and Exchange Commission
- BIR Form W-5
- Certified photocopy of the ATP
- Notarized sworn statement
You must also submit a copy of the PCD to the BIR RDO that has jurisdiction.
Your business will be responsible for paying a basic and additional community tax.
The basic tax depends on the structure of your business while the additional tax is based on the assessed value of any real property your business owns in the Philippines.
Where to Find Help with Starting a Business in the Philippines
Horizons provides comprehensive business services to help those who are starting a business in the Philippines. Our innovative solutions allow you to open a business in the Philippines in record time at an affordable price. Contact us today to learn more.
