Benefits and problems of registering a company in Philippines
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Benefits and problems
Benefits of Philippines company registration
- Foreigners can register a company in the Philippines without travelling and with a minimum of i) five corporate or individual shareholders ii) five individual directors, half of whom must be resident in the Philippines and iii) a paid-up capital of US$200,000, which is reduced to US$100,000 if the company hires more than fifty employees;
- Philippines is a promising frontier market for worldwide entrepreneurs because:
- The Filipino market is the third largest of Southeast Asia by its size of US$345 billion, after Indonesia (US$1,000 billion) and Thailand (US$430 billion). It also benefits from the second largest population of the region (106 million inhabitants), expected to increase by another 6 million by 2020 according to the International Monetary Fund;
- Along with Vietnam, the Philippines’ economic growth should attain around 6.2% per year, the highest pace amongst major ASEAN economies. This will translate in numerous investment opportunities for businessmen setting up businesses in this country;
- Over the past years, the economy of the Philippines has significantly strengthened and the economy is now much less vulnerable than it used to be, as demonstrated by the fact that the country’s sovereign debt benefits since 2015 from an investment grade rating by both Moody’s, Fitch and Standard and Poor’s.
- Philippines is also a great place to form an export oriented service company because:
- Salaries in the Philippines are low. Foreign companies are usually able to find quality employees by providing annual salaries below US$5,000 per year, according to the Japanese External Trade Organization;
- Most Philippine workers who graduated from high school are able to converse in English, making the country a great place for the relocation of call and BPO centers;
- Philippines is also a great place for expat workers: due to its former status as a United States colony and US base during the Vietnam war, the country has an important expat community, with restaurants, bars catering for a Western expatriate population;
- The Philippine Government also offers tax incentives for foreign investment projects including i) corporate tax holidays and ii) reduced/waived custom duties on imported equipment and raw materials. Eligible projects include: i) medical tourism centers ii) hospitality projects for the retirement tourism industry and iii) IT businesses. See this page for further details on the list of eligible projects and incentives available;
- Office space and utilities and infrastructure costs are low. Our readers can find more statistics on a range of costs on this page prepared by the Philippines Government.
Problems with Philippines company registration
- Starting business in the Philippines is challenging because:
- The Philippines laws do not provide for a limited liability company. Foreigners willing to do business in the Philippines are consequently required to use one of the following strategies: i) register a branch, which subject their overseas business to unlimited liability against their operations in the Philippines or ii) register a joint stock corporation, which require the appointment of at least three resident directors;
- Our Clients registering a subsidiary instead of a branch are also required to offer at least one share of the company to each of the three resident director. While this has no impact on the ownership of the company, this makes it impossible to wholly foreign-own a company in the Philippines;
- Minimum paid-up capital for foreign invested companies is at least US$200,000. In industries subject to foreign investment restrictions including i) retail trade ii) agriculture and iii) advertising, such paid up capital requirement can increase to up to US$2.5 million and may go along an obligation to form a joint venture with a majority joint venture partner of Filipino nationality;
- Philippines company formation follows lengthy procedures, requiring the approval of licenses by several Ministries and by the municipality of the place where the company will conduct operations;
- For all the reasons listed above, Philippines is currently ranked as the 20th most difficult place in the world to start a business by the World Bank.
- Doing business in the Philippines is challenging also because:
- Philippines is a developing country where the population lives with an income per capital below US$3,000 per year. One quarter of the population lives below the poverty level and less than one inhabitant out of two lives in a city;
- Philippines is an archipelago of more than 7,300 islands. However, the maritime infrastructure of the country is generally poor and tends to be ridden with red tape, especially when the products are imported;
- While educated workers in the cities tend to speak good English, most of the population is only able to speak the local language Tagalog;
- Mindanao, the southernmost island of the Philippines, is still subject to an insurgency fomented by Islamist movements in favor of the formation of an independent State.
Best uses for a Philippines company
- Philippines is mostly popular for the formation of export oriented services businesses, such as call centers and BPOs. The English fluency of the local workforce and its adequate level of training are strong assets for such type of businesses;
- Philippines is also a good place for the formation of an agroforestry business, thanks to the natural endowments of the Archipelago and the availability of a low cost workforce.