The Expat’s Ultimate Guide to Starting a Business in the Philippines

The Philippines has long been hailed as the sleeping tiger of Asia. Over the past years, this moniker is still going strong as more and more businesses have started to set up shop in the country.

Deemed as an excellent choice for business startups, the World Bank maintains its 6.7% growth forecast for the Philippines. It is predicted to sustain this robust economy over the next three years.

The data released by the Philippine Statistics Authority (PSA) showed that the Philippines still remains as the fastest growing economy in the ASEAN region in the second quarter of 2017.

The 2018 Global Economic Prospects report from the World Bank supported these figures and noted that “The Philippines will continue to be the fastest-growing economy in the Association of Southeast Asian Nations (ASEAN), despite some stabilization of investment growth.”

The emerging business landscape in the Philippines

With its growing robust economy, the Philippine business landscape is an emerging market where various products and services are in several stages of the product lifecycle. This poses as a great opportunity for expats to tap into the developing markets in the country. Several business industries are showing great potential in the Philippines.

For example, the retail and food industry in the Philippines is undergoing modernization and expansion that resulted in steady growth over the years. Shopping malls and supermarkets with regional operations are developing innovative stores that upstaged traditional retail chains. These retailers have expanded their services in urbanized areas in Manila, Cebu, Bacolod, Cagayan de Oro, and Davao.

The Philippine ICT industry has also been steadily expanding in areas on computer networking, data communications, software industries, among others. ICT-related growth and other services tied to information technology generate steady growth in the Philippine economy.

As one of the world’s top outsourcing destinations with a labor rate of around USD$5 per day, the Philippines has an abundant pool of intellectual capital with a developing inbound and outbound logistics network. Its attractive low labor costs also include a large pool of university-educated English speakers and highly adaptable workers.

The robust growth and expansion of various industries in the Philippines are generally attributed to its dynamic consumer market that is cushioned by multiple political and economic developments in recent years.

Overall, the Philippines has a favorable business landscape with a growing level of customer sophistication and a supportive government for international investment.

Combined with its ability to provide suitable technology and infrastructure, expats who are considering to build a business enterprise in the Philippines are in a very good position to leverage resources, improve operational efficiency, and maximize revenues here in the country.

For expats who are considering setting up shop here in the Philippines, here’s a list of possible challenges that you may have to overcome:

Foreign Equity Restrictions

The Foreign Investments Act of 1991 outlines the industries that foreign capital can enter into, including the percentage of foreign ownership that is allowed and the accompanying incentives. Some sectors that are critical to national economic development in the Philippines have stringent foreign equity restrictions.

The Philippine Foreign Investment Negative List outlines the business activities in which foreign participation and equity are prohibited or limited to a specific percentage. Industries without strict foreign equity restrictions have the following rules:

• Local businesses that make at least 40% of revenues in the Philippines are allowed a foreign capital of 40%. Foreign nationals are not allowed to be company president of those businesses. However, if your company has a minimum paid capital of USD$ 200,000 or more, the equity limit is lifted, and foreign nationals can fully own the business. Additionally, if the firm employs a minimum of 50 workers or utilizes advanced technology, the minimum capital is reduced to USD$100,000.
• For export-oriented businesses that make at least 60% of revenues outside the country, the minimum capital requirement can go beyond 40%.

Anti-Dummy Law

This is a law that forbids the so-called “dummy arrangement” that foreign investors may arrange for locals to buy land in the Philippines and register the property under the local’s name. Circumventing the Foreign Equity Restrictions poses a significant risk for both domestic and foreign nationals. Sanctions may include 5-year imprisonment and a hefty fine, depending on the severity of the violation.

Visa Applications and Work Permits

Processing visa requirements and work permits can be a tenuous process for entrepreneurs who want to start a business in the Philippines. Even after your business kicks off, visa and work permits will still remain to be a problem because it often needs to be renewed annually. Consulting with immigration specialists such as FLA Law Offices regarding your immigration needs will help expedite the processing of your visa applications and alien employment permits in the Philippines.

Local Bureaucracy

Navigating the local bureaucracy is a challenge that most expats are not used to. Long lines, unhelpful officials, slow progress, and corruption are just some of the things that foreign entrepreneurs may encounter in the country. Getting the right business partner that is accredited by the Philippine Bureau of Immigration to consult on how to get things done here in the country can be an invaluable asset for your company.

Cultural Differences

It is essential to understand the local Filipino culture if you want to run a successful business in the Philippines. Building a broader cultural awareness will help you forge relationships and expand your network in the country. If you want your business to thrive for the long-term, consider getting expert advice from reputable immigration specialists and lawyers. It will not just help get your business up and running, but it will also help you have a better grasp of the Philippine business landscape and its distinct cultural traits.  

But what do you really need to get your business up and running in the Philippines? Here’s a checklist of all the business permits and licenses that you need to set up shop in the country:

• Barangay Clearance

This is a certificate that shows that you have successfully complied with all the barangay or local village requirements in the area where your business is situated.

• Department of Trade and Industry (DTI) Business Name Registration

This is a certification of the registration of your company’s official business trade name that will be used for its official operations. It will protect your business name from being used and registered by other companies.

• Securities and Exchange Commission (SEC) Certificate of Registration

Businesses of corporations or partnerships need to have a certificate of incorporation or certificate of partnership licensed by the SEC to be considered as an official legal entity. This certificate is necessary to register your business with the DTI, Mayor’s Office, and other government offices.

• Mayor’s Local Business Permit

Obtaining a Mayor’s Local Business Permit will depend on the location of your business operations. Requirements of the permit may vary depending on the municipality, but it often includes a lease contract, barangay clearance, occupancy permit, sanitary and fire permit, and a community tax certificate. All of those you can get and coordinate with your local municipality.

• Bureau of Internal Revenue (BIR) Certificate of Registration

Businesses need to be registered with the BIR to conform to the tax requirements in the Philippines. The registration will grant your business with a corresponding Tax Identification Number (TIN) that will authorize your company to print official receipts, invoices, and registered account books.

• Social Security System (SSS) Employer’s Registration

The Social Security Act of 1997 compels all business owners who use the services of their employees in business, trade, or industry to be registered with the SSS for their insurance benefits.

• PhilHealth Employer’s Registration

Every employer is required to register their business with PhilHealth to authorize them in providing their employee’s social health insurance coverage.

• Pag-IBIG Employer’s Registration

Employers also need to secure a Pag-IBIG Employee ID Number and register their business with the Home Development Mutual Fund (HDMF) to provide the required Pag-IBIG fund benefits to their employees.

• Department of Labor and Employment (DOLE) Registration

Business owners with 50 or more employees need to register their business with DOLE under the Bureau of Local Employment to monitor their compliance with the Philippine Labor Code.

Are you all set to start a business in the Philippines?

Setting up a business here is an excellent opportunity for expats who love to bask under the warm tropical climate of the country. Make sure that you’re fully informed and updated with the latest requirements you need to set up shop here in the Philippines. Let FLA Law Offices help you with all your immigration needs, visa applications, and work permits.

 

References:

Expats Guide: Starting a Business in the Philippines – Expat.com.ph. (2018). Expat.com.ph. Retrieved 1 December 2018, from https://expat.com.ph/expats-guide-starting-a-business-in-the-philippines/

Inc., P. (2018). Expat’s Quick Guide to Starting a Business in the Philippines. Business. Retrieved 1 December 2018, from http://primer.com.ph/business/2017/04/23/expats-quick-guide-to-starting-a-business-in-the-philippines/

Pettus, M. L., & Mark Munoz, J. (2008). Conducting business in the Philippines: The case of FedEx. Global Business & Organizational Excellence, 27(3), 57–67. https://doi.org.ezproxy.upd.edu.ph/10.1002/joe.20204 (

PH Maintains Spot as Fastest-Growing Economy in ASEAN. (2018). Entrepreneur.com.ph. Retrieved 30 November 2018, from https://www.entrepreneur.com.ph/news-and-events/ph-maintains-spot-as-fastest-growing-economy-in-asean-a1673-20170817

Philippines Growth to Remain Strong Despite Global Uncertainty. (2018). World Bank. Retrieved 30 November 2018, from https://www.worldbank.org/en/news/press-release/2018/07/13/philippines-growth-to-remain-strong-despite-global-uncertainty

Starting a Business in the Philippines as a Foreigner. (2018). Profitableventure.com. Retrieved 30 November 2018, from https://www.profitableventure.com/starting-a-business-philippines-foreigner/