Negosentro.com | Why You Should Invest and Setup Your Business in the Philippines | The Philippines is in the East Asia Pacific region, being one of the countries that have the most dynamic economies. The Philippines is well-known for agriculture and its famous beaches, but the economic upsurge during the past years has made the Philippines a flourishing nation which is among the fastest-growing economies in Asia. With its increasing urbanization, a growing middle class, and a large and young population, the country is also well-known in a good country to invest and to start a business. It continues to push economic development by attracting foreign investment and ongoing integration in the regional and global markets.
There are a lot of reasons why it is best to put up a business in the Philippines. Filipinos are very open to new ideas and opportunities; hence, they easily accept changes especially in business and in the market. When it comes to the workforce, the Philippines consists of a large pool of skilled and trainable people. Filipinos are known as very hardworking and can be trained easily. Also, Filipinos are known for being highly proficient in English due to U.S colonization that influenced a lot of Filipinos. This made the Filipinos highly in-demand workforce because they can fluently speak the universal language. Also, businesses in the Philippines are highly personalized. Filipinos are known for being hospitable and even in business, most of the owners spend time in building friendships and connections with other businessmen. Engaging in business in the Philippines can be the bridge for new networks and this will open further opportunities for you and your business. Filipinos are very consumer-driven because of its large population. The domestic market offers many sales market opportunities. At the same time, a business location in the Philippines can serve as a strategic position for further Asia-Pacific business expansion programs. Of interest are the lucrative ASEAN market or trade opportunities with East Asia. Also, the Philippines has a favorable economic setting. The government in the Philippines has introduced various incentives to create an investor-friendly climate and attract foreign business ventures. These include tax deductions and exemptions, income tax holidays, special economic zones as well as non-fiscal incentives such as permanent resident status for foreign investors and their families.
A Quick List of Why You Should Invest in the Philippines:
- English-speaking, Hardworking and Competent Workforce – with a population of 103 million, the Philippines is a great choice to set up a business because of its vast workforce. Many companies set up their shared services in the Philippines for this reason.
- Low cost of living especially for Expats – the cost of living in the Philippines is very low compared to its immediate Southeast Asian neighbors. This is evidenced by the cheap cost of labor and affordable housing. A lot of condominiums have risen in the past few years which has spiked a boom in real estate. Food is abundant and the cost of utilities has been on a steady clip.
- Medical facilities and personnel are well-trained and abundant – getting sick maybe fear for expats around the world. But the Philippines is known for its vast pool of medical doctors, experts and service personnel plus the hundreds of hospitals it has scattered around the urban and business centers. Its wellness centers and hubs are comparable, if not better, than in the western hemisphere.
- The economy is on the upswing – investing in the Philippines has been on the upsurge given it vibrant economy, not-withstanding the pandemic. As a business tip, inflation for 2020 is seen at 2.25% and 375.00 USD Billion by the end of 2020, according to Trading Economics global macro models and analysts expectations. Again, this does not take into consideration the outcome of the lockdowns and corona virus effects. In the long-term, the Philippines’ GDP is projected to trend around 390.00 USD Billion in 2021 and 420.00 USD Billion in 2022, according to our econometric models.
- Filipinos are known worldwide to be friendly, caring and hospitable – Anywhere you go in the world, you will easily spot a Filipino. This is because of the Filipinos’ reputation for their ever-smiling attitude, almost never complains and works hard while knows to have fun.
- Enjoy the sights and sounds of the Philippines – the tourism slogan of “More Fun in the Philippines” defines what you would expect on leisure in the country. The country’s awesome beaches and lush mountains are just some of its lure to foreigners. The bars and nightlife is almost 24/7 in many cities because of the booming BPO industry where workers are 24/7, too. Love to shop? Asia’s biggest and luxurious malls abound plus the usual night markets buzz with activity all year long. If these perks do not pique your interest in setting up a business in the Philippines, I do not know what will.
Now, if you are really interested in putting up a business in the Philippines, the first question that will pop on your mind is how you will do it? What are the things that you must do? Where can you file the documents needed?
Starting a business in the Philippines can be a bit confusing because of the many legal requirements necessary before a business can operate. Here are the legal requirements that you must do:
A. Register the Business Organization
The first step is to register the business with the appropriate government agency depending on the type of business organization one wants to establish. If you want to establish a:
● Sole proprietorship—register with the Department of Trade (DTI).
A sole proprietorship is the simplest type of business organization that may be established by a person, called the sole proprietor.
● Partnership—register with the Securities and Exchange Commission (SEC).
A partnership is a business organization whereby two or more persons agree to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession.
- Corporation—register with the SEC.
A corporation is “an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.” The corporation has an existence separate from that of its stockholders.
B. Mayor’s or Business Permit
All businesses must secure a mayor’s permit or business permit from the local government of the city or municipality where the business is located.
The following are the general requirements for securing a permit for a new business:
- DTI registration or SEC registration, whichever is applicable
- Lease contract or title covering the property where the business is located, whichever is applicable
- Locational or zoning clearance
- Building permit and occupancy permit
- Public liability insurance
- Barangay clearance
- Fire safety certificate
C. Register with the Bureau of Internal Revenue (BIR)
All businesses must register with the BIR before you can operate the business for taxation purposes.
The registration process involves obtaining and registering a tax identification number (TIN), obtaining BIR-registered official receipts and invoices, registering the business’s books of accounts, and paying the applicable fees.
The registration must be done at the Revenue District Office (RDO) of the BIR, which covers the registered address of the business. Don’t forget to ask about things like 12% VAT and the EWT or Expanded Withholding Tax which are important to your business.
D. Register with the Social Security System (SSS)
All businesses that have employees must be registered with the SSS. The registered employer will be assigned an employer number, which will be used as reference for the remittance of monthly contributions, composed of the employee’s contribution and the employer’s share.
E. Register with the Philippine Health Insurance Corporation (PhilHealth)
All employers are required to register themselves and their employees with PhilHealth, the government health-care system. Upon registration, an employer shall be issued an employer number.
F. Register with the Home Development Mutual Fund (Pag-IBIG Fund)
All employees who are or ought to be covered by the SSS are also covered by mandatory membership in the Pag-IBIG Fund. The Pag-IBIG Fund provides various types of housing loans to employees. The loans are deducted on the salary of the employee. Some employees choose consolidation loans to avoid paying their debt monthly.
The above legal requirements are only the essential requirements for starting a business in the Philippines. There may be other special permits, clearances, or registrations from or with other government agencies that may be necessary, depending on the kind of business and projects a business owner plans to engage in.
It is very important to secure these essential legal requirements. The consequences of operating a business without the said legal requirements range from the closure of business to the imposition of monetary fines, or imprisonment.
What types of business can you set up?
There are three types of businesses that you can choose from that you want to establish in the Philippines. They are:
- Sole Proprietorship
Sole Proprietorship is a business structure owned by an individual, who is called sole proprietor, who has full control/authority of its business and owns all the assets, personally owes answers to all liabilities or suffers all losses but enjoys all the profits to the exclusion of others.
A partnership must consist of 2 or more partners to establish the business. Under the Civil Code of the Philippines, a partnership is treated as a juridical person, having a separate legal personality from that of its members. Partnerships may either be general partnerships, where the partners have unlimited liability for the debts and obligation of the partnership, or limited partnerships, where one or more general partners have unlimited liability and the limited partners have liability only up to the number of their capital contributions. A partnership with more than Peso 3,000 capital must register with the Securities and Exchange Commission (SEC).
A corporation is composed of juridical persons established under the Corporation Code and regulated by the SEC with a personality separate and distinct from that of its stockholders. It must consist of at least five to 15 incorporators, each of whom must hold at least one share and must be registered with the SEC. The liability of the shareholders of a corporation is limited to the amount of their share capital. The minimum paid-up capital is Peso 5,000 for the business to be registered. A corporation can either be a stock or non-stock company regardless of nationality. The corporation must have 60% Filipino – 40% foreign-owned is considered a Filipino corporation; if more than 40% foreign-owned, it is considered a domestic foreign-owned corporation.
Where to find people who can work for you?
After you successfully register your business, the next question is where you can find your employees and how can you hire them for your business to start operating. There are different types of jobs that you can offer to employees. It can be a full-time job, part time job, freelance or contract jobs. It depends on what our business needs. Some businesses, the owner is also the first employee of the business, but there are some positions that you should hire someone for it.
- Outsourcing to Freelancers
Business owners know that it is stressful to hire and train new workers. There are lots of things that you must consider in hiring an employee. The monthly salary, the office supplies and the distance of their home to their job since this can affect if they will accept a job or not. Freelancers can be a great help especially to newly established companies. Freelance workers from almost anywhere can access and work on projects, upload and download files and leave comments for each other. Using communication programs like Skype, it’s easy to stay in touch. You can hire an assistant, a project manager, writers, web designers, accounting people and many others.
- Newspaper Ads
This is the old way of Filipinos in finding a job. Print and online newspapers have a special corner for vacant positions. If you’re looking for someone with specific skills, you can place an ad in the newspapers and often get dozens of responses. Most of companies doesn’t use this anymore but it is a good to try it out as well especially if the kind of workers that you are looking for is always buying or reading a newspaper.
- Job Recruiters
This is an excellent way to find employees in the Philippines. Though employers must pay a fee, the service is free to workers. Job recruiters are supposed to comb through the many applications and select the best people. It’s their job to check references so you don’t have to. All applicants should be screened by the recruitment agency. By using job recruiters or agencies, you are sure that your employees are properly scanned, and they really fit for the vacant position in your company. Also, it will save you time by scanning potential employees for your company, hence, they provide a great help for startup businesses.
- Online Job Sites
Today, you’ll find several good job websites. These are generally free to use for both employers and employees. You can just post the available position in your company and the qualifications needed. Also, even if they didn’t send an application in your company, you can still reach them and see their background and experience. This can help you to reach the potential employees that you want in your company. This is the easiest way for employees and employers to find a job although it is very time consuming for the part of the employer so you must have an HR personnel to do this for you. The famous job sites are Jobstreet, LinkedIn, Indeed, Glassdoor, etc.
Jobs are now also listed on Facebook for direct sales companies and for easier communication for the employer and employee. There are different groups in the Facebook that is specially made for specific skills and industry only like for HR personnel, for advertising agencies etc. With the continuous improvement in the digital industry, jobs are now more accessible and easier to find for employees and employers.
Taxes are Important for the business:
Taxes are the money that you pay for the government. All collected taxes are used for different government projects like salaries of government workers, rehabilitation and for the community.
In the Philippines, all companies – either domestic or foreign – are liable to pay corporate income tax (CIT). The tax liability for a corporation is determined by its residency status and is based on the net income it obtains while carrying out its business activity, normally during one business year.
- All registered domestic and foreign companies in the Philippines are liable to pay corporate income tax.
- Starting in 2020, corporate income tax will be reduced from 30 percent to 20 percent over a 10-year period through the CITIRA initiative.
- Businesspeople should regularly familiarize themselves with regulations for tax residency, corporate income tax, withholding tax, and others to remain compliant.
Corporate income tax
The applicable CIT rate for both resident and non-resident corporations is 30 percent based on net taxable income. This is set to change with the introduction of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) in September 2019. CITIRA will see CIT rates reduced to 20 percent in annual increments of 1 percentage point over a 10-year period starting in 2020.
Expanded Withholding Tax
The expanded withholding tax meaning is a kind of withholding tax Philippines which is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the income was earned.
Dividends distributed by a resident company are subject to withholding tax at 30 percent; those distributed to non-residents are taxed at 15 percent, provided the country of the non-resident recipient allows a tax credit of 15 percent. The withholding tax may be reduced under an applicable tax treaty.
Interest paid to a non-resident is subject to a 20 percent withholding tax unless otherwise stipulated under a tax treaty.
Royalty payments made to a domestic or resident company are subject to a final withholding tax of 20 percent. A 30 percent withholding tax is levied on royalty payments to non-residents.
There are other taxes that you should settle if you want to establish a corporation. It is important to have an accountant or a business services firm that understands all the policies for the company taxes.
Where to invest in the Philippines?
If you are not yet ready in establishing a business, why not try to invest first? There are lots of options in the Philippines where you can invest your money for them to grow instead of stacking them up. Here is a quick rundown of the general types of investments that attract several investors:
1. Stocks and Bonds
Stocks are units of ownership in a corporation. To put it simply, when you buy stock from a certain corporation, you technically “own” part of the company.
Depending on the type of stock or “equity” you purchase, some other perks come with it such as being part of the decision-making of the company. The higher the amount you invest, the more power you have over it.
Bonds are a lot more complex than stocks. A bond is a debt security. Basically, if you were to buy a bond, you would be called a creditor. When corporations, agencies, organizations, and even the government need funding, they turn to bonds. So as a creditor, it would be as if they’d be borrowing money from you and return it with interest.
Some policies and guidelines in buying stocks or bonds are hard to comprehend and they are also risky since you either gain or lose your money. If you are not an expert in buying stocks or bonds and you are not that confident about it, you can ask for stockbroker Philippines for help.
2. Bank Products
These are the most common type of investment. You basically deposit a sum of money and it will be held securely and limits withdrawal.
3. Commodity Futures
A commodity future is an agreement designed to buy or sell certain “commodities” at a fixed price on a specific future date. The three main areas that it covers are food, energy, and metal. How it works is that investors can buy these commodities like a direct selling business at a lower price on a certain date and sell them at a higher price in the market when they go up.
4. Security Futures
A security future is also an agreement designed to buy or sell, except instead of commodities it would be on shares of stocks.
5. Investment Funds
This is the capital sourced from different investors. Mutual funds count as a type of investment fund.
6. Real Estate
There are several possible ventures in real estate investment. These options include leasing land, condotel investing, renting property, land partnership, and many more.
7. Life investments
There are investments that ensure a much more comfortable life for you and your loved ones. Education funds, insurances, retirement funds are the common investments that most people already have the funds for.
What are the cyber security and other security issues in doing business in the Philippines?
The Philippines is generally peaceful. Most reports about large scale criminal activity are untrue. Like any other country in the world, it is in cybersecurity where the Philippines is very much involved in prevention and detection.
Security issues are very risky for a business since your files compose of different important documents about your company that can do harm for your business once it is accessed by an unauthorized person. Accessing third party data without authorization may be unlawful under several laws in the Philippines and you can be penalized under the Cybercrime Prevention Act of 2012 (Republic Act No. 10175; “Cybercrime Act”) if:
- the data is accessed and stored by a third party without authorization from the owner of the data,
- access and storage may be an offense punishable for being an offense against the confidentiality, integrity and availability of computer data and systems.
The unauthorized access may be classified as any of the following offenses:
- Illegal Access
- Illegal Interception
- Data Interference
- System Interference
- Misuse of Devices
Aside from cybersecurity, there are other security issues that might occur in your business like:
- data breaches due to lack of training
- Failure to update your system
- Weak passwords
- Unpatched devices
- Access of computers by non-authorized persons
- Failure to encrypt your data
- Lack of mobile security
With many options listed above, if you are really thinking of investing in a business, I can say that it is good to establish and invest in the Philippines. There are lots of opportunities and types of business that you can explore and, you can find the hardworking people in this country who will help you to make your big or small business successful.
About the Author: Homer Nievera
Homer Nievera is a digital evangelist, serial technopreneur and digital transformation expert in the Philippines. He dabbles in blogging and influencer marketing, and is a group publisher for 30+ websites including this one and the likes of World Executives Digest, Technology News PH, Tours PH and more.
Homer is also a life coach, executive mentor and lifelong learning advocate. His post-graduate studies on various programs include distance education, viral marketing, startups and entrepreneurship and social enterprise are from the University of the Philippines, The Wharton Business School, Harvard University and MIT.