DOING BUSINESS IN THE PHILIPPINES
Since 2003, Healy Consultants Group has assisted our clients with business registration in the Philippines. Our services include i) Filipino company registration ii) government license approvals and iii) multi-currency corporate bank accounts and iv) employee recruitment and strategies and v) office rental solutions.
Benefits and problems of Philippines company registration
- If certain conditions are met, a Filipino export company can enjoy i) zero corporation tax for up to 7 years and ii) zero customs duty and VAT for 17 years and iv) exemption from wharfage dues and export tax. An export company is one where at least 60% of sales are exports and the entity is registered with the Filipino Board of Investments. Examples of qualifying companies include offshoring and outsourcing services, manufacturing and distribution, traders that purchase products domestically and export 60% or more of such purchases.
- Additional tax incentives include:
- Manufacturing companies with bonded warehouses enjoy complete exemption from customs duty on importation of required goods and spare parts.
- Pioneer and non-pioneer companies are eligible for income tax holidays from 3 to 8 years for new and expansion projects and projects in remote regions.
- Philippines businesses are permitted to carry forward their losses for up to 3 years.
- Filipino company exports do not suffer VAT.
- Double taxation agreements with 44 countries, thus minimizing withholding tax on repatriation of profits overseas.
- Setting up operations within the Philippine Economic Zone Authority (PEZA) offers numerous tax incentives including i) an income tax holiday 7 years and ii) VAT and duty-free importation of capital equipment, spare parts, and accessories and iii) an exemption from expanded withholding tax and iv) additional deduction for labor expenses and v) unrestricted employment of foreign nationals in supervisory, technical, or advisory positions.
- Over the past 20 years, average Filipino GDP growth was 5%. The Philippines’ rapid economic growth presents opportunities in the following business sectors:
- The Philippines is a leading destination for call centers and Business Process Outsourcing (BPO). The BPO sector is forecast to generate revenues of US$ 58 billion in 2024 – around 8 per cent of the Philippines total GDP. With a large pool of educated, English-speaking professionals, global businesses are offshoring non-core business functions like customer service, payment processing, data analysis, IT support, supply chain management and cloud services.
- The Philippines has the third-largest deposits of gold, fourth for copper, fifth for nickel and sixth for chromite. The Philippines has an estimated unmined mineral wealth of more than US$ 840 billion, with only 2.6 per cent of its 30 million hectares of mineable area currently leased to miners. There are opportunities for our clients to support local industry through joint operations, expertise and technologies that reduce costs and improve productivity and safety. With bans lifted on open pit mining and new mining permits being issued, there are new foreign investment opportunities.
- Foreign equity restrictions are removed on most public services including airlines, subways, toll ways, and expressways and telecommunications. Between 2023 to 2028, President Ferdinand R. Marcos, Jr. committed to maintain annual spending on infrastructure of approximately US$ 30bn per year.
- The Philippines has set targets of 35 per cent renewables in the power generation mix by 2030 and towards 50 per cent by 2040. With the renewable energy sector is open to 100 per cent foreign investment, there are opportunities for our clients. The “Renewable Energy Law” allows foreign nationals to engage in the exploration, development, and utilization of the Philippine renewable energy resources, such as solar, wind, biomass, ocean, or tidal energy, waste management, and sustainable agriculture.
- Over the next six years, the Filipino Government expects to spend approximately US$ 5 billion on digital infrastructure. Priority subsectors include cybersecurity, the cloud, and telecommunications The digital economy amounts to US$ 38 billion, contributing 9% country’s GDP including digital transactions spanning digital-enabling infrastructure, e-commerce, and digital media/content.
- The Filipino fintech industry is experiencing significant growth, presenting investment opportunities for our multi-national clients. The leading fintech subsectors are digital banking, digital payments and mobile wallets, alternative lending, blockchain and cryptocurrency, electronic remittances, insurtech, regtech and suptech. The Central Bank introduced the Regulatory Sandbox Framework, offering a secure environment for fintech firms to experiment with new products and services, without the usual regulatory or licensing requirements. This allows participants to explore emerging technologies while minimising risks to the public. The Crypto Valley of Asia aims to create a favourable environment for the growth of Filipino fintech and blockchain-related businesses by providing infrastructure and regulatory support.
- Doing business in the Philippines is difficult. Examples of problems experienced by multi-national clients include:
- The country’s tax system is complex, with some tax rules lacking clarity and subject to varied interpretation.
- Supply chain risk is high because of the inconsistent quality of the Filipino infrastructure, logistic networks, prevalence of corruption and relatively low levels of supply chain visibility.
- Poor infrastructure, high power and logistics costs, regulatory inconsistencies, a cumbersome bureaucracy, and corruption have hampered the government’s efforts to attract foreign investments.
- The Philippines’ complex, slow, redundant, and sometimes corrupt judicial system inhibits the timely and fair resolution of commercial disputes. Our clients often decline to file cases in court because of slow and complex litigation processes and corruption fears. Foreigners report an inexperienced judiciary when confronted with cases involving complex issues such as technology or science.
- Cybersecurity in the Philippines is a growing concern as the nation increasingly relies on digital technologies. The Philippines faces issues such as outdated infrastructure, limited resources, and a lack of widespread cybersecurity awareness. These factors contribute to vulnerabilities and make the country susceptible to cyber threats like ransomware attacks, phishing, and data breaches.
- Corruption is a pervasive and long-standing problem in both the public and private sectors. The country’s low ranking in Transparency International’s 2023 Corruption Perceptions Index at 115th out of 180 countries. The Bureau of Customs is still considered to be one of the most corrupt agencies in the country.
- Traffic in major cities and congestion in the ports remain barriers to doing business.
- Large, family-owned conglomerates dominate the economic landscape, sometimes crowding out smaller businesses.
- Foreigners are prohibited from fully owning land, although they can lease a contiguous parcel of up to 1,000 hectares for a maximum of 75 years.
- While the Philippines has a large and youthful workforce, there can be a mismatch between the skills demanded by some industries and the skills possessed by the workforce. Industries where skilled workers may be lacking include i) analytics and artificial intelligence and ii) semiconductors and electronics and iii) food processing and iv) healthcare.
- The Philippines is prone to natural disasters such as typhoons, earthquakes, and volcanic eruptions and is one of the world’s most vulnerable nations to climate change. These events can disrupt business operations, damage infrastructure, and pose logistical challenges.
- Inadequate infrastructure can hinder business operations, particularly in terms of logistics. Companies may encounter issues related to transportation, internet connectivity, and utility reliability, affecting their productivity and growth potential Certain regions in the Philippines face infrastructure challenges, including insufficient transportation networks, power outages, and limited access to reliable utilities. These gaps can impact the efficiency and cost-effectiveness of business operations.
- Filipino company registration is difficult because:
- Depending on the industry sector, the paid-up share capital can range from US$ 100 to US$ 2.5m.
- All company shareholders and directors must have a personal income tax number from the Filipino tax authority.
- Countless Government approvals need to be secured including i) a Mayor’s Permit and Business Plate from the BPLO and ii) Sanitary Permit and iii) Secure a Fire Safety Inspection Certificate and iv) Secure Company Cedula or Community Tax Certificate and v) Secure Location/Zoning Clearance and vi) Secure a Barangay Business Clearance and Barangay Business Plate from your area’s Barangay Hall and vii) register as an Employer.
Comparison of popular company solutions in the Philippines
Compare different Philippines entities | Domestic corp | One person corp | Free zone LLC | Branch | Representative office |
---|---|---|---|---|---|
Also known as | Foreign corporation | OPC | FZ | Operating branch | RO |
Best use of company? | All trading activities* | All trading activities* | Manufacturing and export distribution | All trading activities* | Marketing & research only |
How soon can you invoice Clients / sign sales contracts? | 3 months | 3 months | 3 months | 3 months | Cannot |
How soon can you hire staff? | 3 months | 3 months | 3 months | 3 months | 3 months |
How soon can you sign a lease agreement? | Within a month | Within a month | Within a month | Within a month | Within a month |
How long to supply local bank account numbers? | 4 months | 4 months | 4 months | 4 months | 4 months |
How long to supply company registration / tax numbers? | 3 months | 3 months | 3 months | 3 months | 3 months |
Corporate tax rate on annual net profits? | 20% | 20% | 0% | 20% | 0% |
Limited liability entity? | Yes | Yes | Yes | No | No |
Government grants available? | Yes | Yes | Yes | Yes | No |
Resident treasurer required? | Yes | Yes | Yes | Yes | Yes |
Minimum paid up share capital? | US$200,000 | US$200,000 | US$200,000 | US$200,000 | US$30,000 |
Can bid for Government contracts? | Yes | Yes | Yes | Yes | No |
Corporate bank account location? | Citibank | Union bank | HSBC | ANZ | BDO |
Can secure trade finance? | Yes | Yes | Yes | Yes | No |
VAT payable on sales to local customers? | 12% | 12% | 12% | 12% | Cannot |
Average total business set up engagement costs? | US$21,850 | US$24,473 | US$17,750 | US$20,510 | US$20,900 |
Average total engagement period? | 4 months | 4 months | 4 months | 4 months | 4 months |
Accounting and tax considerations | Domestic corp | One person corp | Free zone LLC | Branch | Representative office |
---|---|---|---|---|---|
Legally tax exempt if properly structured? | Yes | Yes | Yes | Yes | Yes |
Must file an annual tax return? | Yes | Yes | Yes | Yes | No |
Must file annual financial statements? | Yes | Yes | Yes | Yes | No |
Must appoint an auditor? | Yes | Yes | Yes | Yes | No |
Access to double taxation treaties? | Yes | Yes | Yes | Yes | No |
Withholding tax on payments to foreign shareholders? | 15% | 15% | 15% | 15% | 0% |
Minimum number of shareholders/partners? | 2 | 1 | 2 | Parent Company | Parent Company |
Maximum shareholding for foreigners? | 100% | 100% | 100% | 100% | 100% |
Minimum statutory paid up share capital? | US$200,000 | US$200,000 | US$250 | US$200,000 | US$30,000 |
Security deposit to be kept with Government? | No | No | No | Yes | No |
Time to incorporate a new entity? | 8 weeks | 8 weeks | 8 weeks | 6 weeks | 6 weeks |
Public register of shareholders and directors? | Yes | Yes | Yes | Yes | Yes |
Can secure an import and export license? | Yes | Yes | Yes | Yes | No |
Minimum number of directors/managers? | 2 | 1 | 2 | 1 | 1 |
Can be wholly foreign owned? | Yes | Yes | Yes | Yes | Yes |
Sponsorship by a local citizen required? | No |
Our Client needs to travel to Philippines for business set up? | No |
Temporary physical office solutions available? | Yes |
You need a local resident as bank signatory? | No |
The entity will likely be regulated by? | SEC |
Monthly VAT reporting to the Government? | Yes |
Must sign an office lease agreement during incorporation? | Yes |
Shareholders & directors documents to be attested/translated? | Yes |
Each foreign director needs a personal income tax number? | Yes |
Foreign director needs a residence visa? | No |
Maximum number of staff allowed? | Unlimited |
Expatriate to local staff ratio? | Yes |
Can secure residence visa for business owner? | Yes |
Other useful information | |
What will be included in my customer sales invoice? | Click link |
This country has signed free trade agreements? | Yes |
This country is a member of WIPO/TRIPS? | Yes |
This country is a member of the ICSID? | Yes |
Average custom duties suffered? | 6.70% |
Government foreign investment approval required? | Yes |
Average monthly office rental? (US$ per sq m) | US$15-35 |
Average monthly US$ salary for local skilled employees? | US$905 |
Overseas remittance currency controls? | Yes |
Banking considerations | |
Multi-currency bank accounts available? | Yes |
Corporate visa debit cards available? | No |
Quality of e-banking platform? | Good |
*All trading activities are allowed, except those on the regular foreign investment negative list.
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