COUNTRY

The Philippines is a country situated in the southeast of Asia and known for its sun, sand, and beaches. It is comparatively new as against to other industrialized nations. Starting a business in the Philippines is one of the most aspiring careers for Filipinos. The country is still largely depended on agriculture, however in the recent few years services have dominated the economy. Agriculture employs 32% of the workforce (according to World Bank statistics, 2015) and the country is one of the largest producers of coconut in the world.

With a high level of proficiency in English and a population eager to work abroad or with foreigners, the Philippines’ economy is also rapidly advancing in global services and trade.

After decades of political difficulties and isolation, the Philippines has taken a turn for the better and undertaken a complete transformation of its politics and economy. Having capitalized on its population’s proficiency with English language and overseas workers, and led by its largest companies, the Philippines has now become one of the world’s most dynamic emerging market.

In support of the economic environment, taxes in the Philippines are relatively low compared to the rest of the world, though not as low as other countries of Southeast Asia.

TAXATION

  • Headline tax rates: CIT 30% (15% Branch remittance tax), PIT 5-32%, VAT 12% (0% Export goods/services), WHT 20% (Interest, royalties) – 30% (Dividends)
  • Treaty Jurisdictions:

The Investment Priority Plan (IPP) details the investments in which incentives are available. The list of preferred activities include: business process outsourcing, electronics industry, renewable energy, shipbuilding, and manufacturing export related goods and services.

According to the Philippine Economic Zone Authority (PEZA), enterprises in the tourism, medical tourism, manufacturing, information technology, agro-industrial, utilities, logistics, facilities, and retirement sectors incorporated within any of the Philippines several special economic zones may qualify for Income Tax Holidays which provide 100% exemption from corporate income tax for a period of 4-6 years. For companies operating in the manufacturing and information technology sectors, tax holidays may be extended for a period of up to 8 years provided that the corporation meets additional stipulations identified in Philippines tax code. Following the expiration of tax holidays, companies incorporated within Philippines Economic Zones are subject to just 5% gross income tax.

Additionally, PEZA-registered Economic Zone enterprises enjoy other benefits such as simplified import-export procedures, the ability to hire non-resident foreign nationals in supervisory, technical, and advisory positions, and special non-immigrant visa eligibility with multiple entry privileges.

The incentives offered under the BOI or PEZA (Philippine Economic Zone Authority) include:

  • Tax holiday for up to eight years
  • Upon expiry of the tax holiday – 5% special Tax on Gross income.
  • Exemptions from taxes, duties and fees.
  • Employment of foreign nationals
  • Privilege to operate a bonded warehouse

BUSINESS

  • Suitable for: Manufacturing, Banking, Insurance, Trading Goods, Trading Financial
  • Company Types: Limited companies, public limited companies, shareholding companies, general partnerships, limited partnerships, branches and sole proprietorships
  • Formation Cost: 500 – 1000 USD
  • Formation Time: 05 – 10 days
  • Maintenance cost: 1000 – 2000 USD

INCORPORATION

Corporation

A foreign investor may set up a wholly owned domestic corporation in the Philippines. If the activity is subject to foreign equity limitations, a foreign investor will have to set up a domestic corporation with a qualified Philippine partner as joint venture partner.

Establishing a corporation in the Philippines can take approximately 29 days for a total cost of PHP 7,630.

Verify and reserve the company name with the Securities and Exchange Commission (SEC)

The name search can be done electronically via the SEC’s online verification system, but applicants must pay for the reservation fee on site at the SEC. Once the reserved name is approved by the SEC, a fee of PHP 40 will be required for the first 30 days. The company name can then be reserved for a maximum of 90 days at a cost of PHP 120, which is renewable upon expiration of the period. The reservation certificate is obtained directly at the Security and Exchange Commission.

Deposit the paid-in minimum capital at the bank

Under Section 13 of the Corporation Code, the paid-in minimum capital is PHP 5,000. Even though a certificate of deposit is not a requirement by the Securities and Exchange Commission for company registration, this procedure must be completed in order to abide by the applicable law.

Notarize articles of incorporation and treasurer’s affidavit at the notary

Articles of incorporation should be notarized before filing with the SEC. Under Section 15 of the Corporation Code, the Treasurer’s Affidavit should also be notarized. The 2004 Rules on Notarial Practice require the presence of the person(s) who executed the document (Articles of Incorporation and Treasurer’s Affidavit) before the notary public.

Register the company with the SEC and receive pre-registered Taxpayer Identification Number (TIN)

The company can register online through SEC i-Register. The following documents are required for SEC registration:

  • Company name verification slip;
  • Articles of incorporation (notarized) and by-laws;
  • Treasurer’s affidavit (notarized);
  • Statement of assets and liabilities;
  • Registration data sheet with particulars on directors, officers, stockholders, and so forth;
  • Written undertaking to comply with SEC reporting requirements (notarized);
  • Written undertaking to change corporate name (notarized).

Starting from August 15, 2011, the Security and Exchange Commission launched the Green Lane Unit that provides 1-day registration of applications for stock corporations and partnership. In practice, it takes 1-3 business days to process incorporation papers and obtain SEC approval.

The pre-registered Taxpayer Identification Number is automatically obtained from the SEC Head Office upon registration. However, the company must still register with the Bureau of Internal Revenue in order to identify applicable tax types, pay an annual registration fee, obtain and stamp sales invoices, receipts and the books of accounts.

Cost: 1/5 of 1% 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 (LRF) equivalent to 1% of filing fee but not less than PHP 10 + PHP 500 By-laws + PHP 150 for registration of stock and transfer book (STB) required for new corporations + PHP 320 STB + PHP 10 legal research fee for the By-laws.

Obtain barangay clearance

The barangay clearance is a prerequisite for the issuance of business permit to operate.

To get the barangay clearance, it is necessary to submit the following documentary requirements to the Barangay: Application form, SEC Certificate of Incorporation and approved articles of incorporation and bylaws, location plan/site map and the contract of lease over the corporation’s office.

This clearance is obtained from the Barangay where the business is located. Barangay fees vary in each Barangay since they have the discretion to impose their own fees and charges as long as these fees are reasonable and within the limits set by the Local Government Code and city ordinances. In Quezon City, the fees range from PHP 300 to PHP 1,000.

The clearance is obtained in one day, provided that the barangay captain is in the office as the captain is the only official authorized to sign.

Pay the annual community tax and obtain the community tax certificate (CTC) from the City Treasurer’s Office (CTO)

The company is assessed a basic and an additional community tax. The basic community tax rate depends on whether the company legal form is a corporation, partnership, or association (PHP 500 or lower). The additional community tax (not to exceed PHP 10,000) depends on the assessed value of real property the company owns in the Philippines at the rate of PHP 2.00 for every PHP 5,000 and on its gross receipts, including dividends or earnings, derived from business activities in the Philippines during the preceding year, at the rate of PHP 2.00 for every PHP 5,000.

Obtain the business permit to operate from the BPLO

The fees vary depending on the LGU issuing the permit. The rate of license fee imposed in Quezon City is 25% of 1% of the authorized capital stock. Other permits, such as location clearance, fire safety and inspection certificate, sanitary permit, certificate of electrical inspection, mechanical permit, and other clearances or certificates required depending on the nature of business, are also imposable. The rate of these fees depends on the nature of business and land area occupied by the proposed corporation.

Executive Order No. 17, series of 2011 created the Business-One-Stop- Shop to obtain a business permit. The entire procedure including getting approval for the business permit takes around one to two weeks.

Cost: PHP 2,400 business tax (25% of 1% of paid-up capital) + PHP 200 mayor’s permit + PHP 150 sanitary inspection fee + PHP 50 signboard fee + PHP 300 business plate + PHP 100 QCBRB + PHP 545 zoning clearance + PHP 1,300 garbage fee+ PHP 300 FSIC (10% of all regulatory fees).

Buy special books of account at bookstore

Special books of accounts are required for registering with the BIR. The books of accounts are sold at bookstores nationwide. One set of journals consisting of four books (cash receipts account, disbursements account, ledger, general journal) costs about PHP 400.

If the company has a computerized accounting system, it may opt to register it under the procedures laid out in BIR Revenue Memorandum Order Nos. 21-2000 and 29-2002.

The BIR Computerized System Evaluation Team is required to inspect and evaluate the company’s computerized accounting system within 30 days from receipt of the application form (BIR Form No. 1900) and complete documentary requirements.

Apply for Certificate of Registration (COR) and TIN at the Bureau of Internal Revenue (BIR)

After the taxpayer obtains the Taxpayer Identification Number, the company must pay the annual registration fee of PHP 500 at any duly accredited bank, using payment form BIR Form 0605).

All newly formed corporations subject to SEC registration are issued pre-generated TIN by SEC-Head Office, which is indicated on their SEC Certificate of Registration. The corporation only has to register its pre- generated TIN with the BIR and report all internal revenue taxes that it expects to be liable for.

The requirements for application for COR with the BIR are:

  • Duly accomplished and filled-out BIR Form No. 1903 (Application for Registration for Corporations);
  • Payment Form (BIR Form No. 0605);
  • SEC Certification of Incorporation;
  • Articles of Incorporation and By-laws;
  • Contract of Lease (with BIR Form No. 2000 and supporting BIR Payment Form as proof of payment of documentary stamp tax on the lease agreement);
  • Documentary Stamp Tax Return (BIR Form No. 2000) on the original issuance of shares and Payment Form (for the DST payment);
  • Mayor’s Permit/Business Permit Application (duly stamped received by the Business Licensing Division of the local government of Quezon City).

Pay the registration fee and documentary stamp taxes (DST) at the AAB

The rate of documentary stamp tax on original issuance of shares of stock shall be PHP 1.00 for every PHP 200 or fractional part thereof, of the par value, of such shares of stock.

The documentary stamp tax return shall be filed and the tax paid on or before the fifth (5th) day after the close of the month of approval of SEC registration.

Cost: (PHP 500 registration fee + PHP 5,165 DST on original issuance of shares of stock. DST on the lease contract is not included in the computation of the cost)

Obtain the authority to print receipts and invoices from the BIR

The authority to print receipts and invoices must be secured before printing the sales receipts and invoices. The BIR issued Revenue Regulations No. 18-2012 and it became effective on January 18, 2013. It adopted the online system for authority to print official receipts, sales invoices and other commercial invoices. In this regard, all unused or unissued receipts and invoices which were printed prior to January 18, 2013 will be deemed valid only until June 30, 2013.

To obtain the authority to print receipts and invoices from the BIR, the company must submit the following documents to the Revenue District Office (RDO):

  • Duly completed application for authority to print receipts and invoices (BIR Form No. 1906);
  • Job order;
  • Final and clear sample of receipts and invoices (machine-printed);
  • Application for registration (BIR Form No. 1903);
  • Proof of payment of annual registration fee (BIR Form No. 0605).

Have books of accounts and Printer’s Certificate of Delivery (PCD) stamped by the BIR

After the printing of receipts and invoices, the printer issues a Printer’s Certificate of Delivery of Receipts and Invoices (PCD) to the company, which must submit this to the appropriate BIR RDO (i.e., the RDO which has jurisdiction over the company’s principal place of business) for registration and stamping within thirty (30) days from issuance. The company must also submit the following documents:

  • All required books of accounts;
  • VAT registration certificate;
  • SEC registration;
  • BIR Form W-5;
  • Certified photocopy of the ATP;
  • Notarised taxpayer-user’s sworn statement enumerating the responsibilities and commitments of the taxpayer-user.

The company must also submit a copy of the PCD to the BIR RDO having jurisdiction over the printer’s principal place of business.

Register with the Social Security System (SSS)

To register with the SSS, the company must submit the following documents:

  • Employer registration form (Form R-1);
  • Employment report (Form R-1A);
  • List of employees, specifying their birth dates, positions, monthly salary and date of employment;
  • Articles of incorporation, by-laws and SEC registration.

Upon submission of the required documents, the SSS employer and employee numbers will be released. The employees may attend an SSS training seminar after registration. SSS prefers that all members go through such training so that each member is aware of their rights and obligations.

Register with the Philippine Health Insurance Company (PhilHealth)

To register with PhilHealth, the company must submit the following documents:

  • Employer data record (Form ER1);
  • Report of employee-members (Form ER2);
  • SEC registration;
  • BIR registration;
  • Copy of business permit.

Upon submission of the required documents, the company shall get the receiving copy of all the forms as proof of membership until PhilHealth releases the employer and employee numbers within three months.

Register with Home Development Mutual Fund (Pag-ibig)

To register with the HDMF, the corporation must submit the following documents:

  • Employer’s Data Form (EDF [FPF040]);
  • Specimen Signature Form (SSF[FPF170]);
  • Copy of SEC Certificate of Incorporation;
  • Copy of Approved Articles of Incorporation and By-laws;
  • Board Resolution or Secretary’s Certificate indicating the duly designated Authorized Representative.

Upon submission of the complete documents and payment of the first contribution to the fund, the Pag-IBIG will issue the HDMF number and the HDMF Certificate of Registration.

Branch

A Philippine branch office of a foreign corporation is a form of an operating resident foreign corporation in the country where its legal entity is being brought to engage in some activities of its parent company abroad. As such, the company must secure a License to do Business in the Philippines for its branch office.

Since a Branch Office is an income producing entity, it is subject to 30% income tax and 12% VAT on its local sale. Furthermore, it is subjected to withholding taxes on income payments and compensation.

Documentary Requirements

  • Form F103 or Application of a Foreign Corporation to Establish a Branch Office in the Philippines;
  • Name Verification Slip. As mentioned, this is reserved manually with the Security and Exchange Commission for a minimal fee of PHP 40 for every 30 days up to a maximum of 90 days;
  • Authenticated copy of Board Resolution authorizing establishment of office in the Philippines designating resident agent and stipulating that in absence of such agent or upon cessation of business in the Philippines any summons may be served to SEC as if the same is made upon the corporation at its home office;
  • Financial Statements as of a date not exceeding one year immediately prior to the application certified by independent CPA of home country and authenticated before the Philippine Consulate/Embassy;
  • Authenticated copies/Certified copies of the Articles of Incorporation/Partnership with an English translation, if in a foreign language;
  • Proof of inward remittance (US$200,000) minimum;
  • Resident Agent’s acceptance of appointment (if not signatory in application form).

License to do Business in the Philippines

The request will undergo initial evaluation of the SEC and approval normally comes after 2-10 days. Connected fees and other registrations are likewise required such as community tax certificate, barangay clearance, fire permit, occupancy permit and similar.

Tax Registration

The Security and Exchange Commission will assign a Tax Identification Number that must be formally registered with the Bureau of Internal Revenue (BIR).

Processing

After the recent improvement in the online processing system, completing all the above requires approximately 3-4 weeks. We recommend you to secure all required services to a GEO agency to assist you in the complete registration of the company in the Philippines.

Representative Office

Under our current tax rules, a representative office is not liable to pay income tax since it derives no income from the Philippines. The Court of Tax Appeals (CTA) pronounced that a representative office, as defined, is fully subsidized by its head office in the form of foreign inward remittances which is utilized to cover the expense in doing business.

Documentary Requirements

  • Form F-104 or Application of a Foreign Corporation to Establish a Representative Office in the Philippines;
  • Name Verification Slip. This should be reserved manually with the SEC for PHP 40 for every 30 days up to a maximum of 90 days, subject to renewal;
  • Authenticated copy of Board Resolution authorizing establishment of office in the Philippines; designating resident agent & stipulating that in absence of such agent or upon cessation of business in the Phil. Any summons may be served to SEC as if the same is made upon the corporation at its home office;
  • Financial Statements as of a date not exceeding one year immediately prior to the application certified by independent CPA of home country and authenticated before the Philippine consulate/embassy;
  • Affidavit executed by the resident agent stating that mother office is solvent and in sound financial condition;
  • Authenticated copies of Articles of Incorporation with an English translation if in foreign language other than English;
  • Proof of inward remittance (US$30,000) minimum such as bank certificate;
  • Resident Agent’s acceptance of appointment (if not signatory in
    application form).

Recommended

  • Verify/reserve proposed name;
  • Get F-104 form from CRMD;
  • Present accomplished forms/docs for pre-processing at CRMD;
  • Pay filing fees to cashier;
  • Claim license from Records Division.

Time: 2 days from filing.

Foreign Partnership

A foreign partnership or Joint Venture can occur when a cooperative arrangement of corporations to jointly perform a single project with each of the partners contributing to the performance.

Capital Requirement

If foreign interest exceeds 40% of the outstanding capital stock of the JV, the required minimum capital is USD 200,000. If advanced technologies (as determined by the Philippine Department of Science and Technology) are applied within the project or the business directly employs minimum 50 employees the minimum capital is reduced to USD 100,000. The minimum capital requirement of USD 200,000 does not apply to enterprises that export at least 60% of their output or domestic purchases.

Taxes

The JV is taxed on income derived from sources within and without the Philippines at the rate of 30%. Dividends are generally taxed at 30% but the rate may be reduced to 15% in case the country where the non-resident company has domicile grants any tax benefits on dividends.

If a foreign corporation invest in the Philippines by acquiring shares in an existing domestic corporation or by merging/consolidating with a domestic corporation, it shall be subject to the regular 30% tax rate. The same rate applies if the foreign company choose to enter into a management contract with a domestic corporation to manage all or substantially all of the business of a domestic corporation.

Documentary Requirements

  • Name of verification slip;
  • Get F-105 Form from CRMD;
  • Articles of Partnership;
  • Written joint undertaking to change corporate name signed by two (2) incorporators/Directors;
  • Clearance/endorsement from other govt. agencies, if applicable;
  • Proof of remittance of foreign partners (only for those partners who want to register their investments with BSP);

Recommended

  • Verify/secure proposed name;
  • Buy articles of Partnership forms from the Express lane;
  • Get FIA Form 105 from CRMD;
  • Get endorsement of other government agencies, if needed;
  • Presents accomplished forms/docs for pre-processing at CRMD;
  • Pay filing fees to cashier;
  • Claims Certificate of Incorporation from releasing Unit, Records Division.

Time: 1 day from filing

Regional Headquarters / Regional Operating Headquarters

A RHQ/ROHQ is an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade which principally serves as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets and which does not earn or derive income in the Philippines.

A RHQ is not allowed to do business or earn income from the host country, unlike a branch or subsidiary.

The required minimum capital for a RHQ is the amount of not less than USD 50,000. All funds of the RHQ shall be utilized for salaries and other emoluments, including fringe benefits of personnel, rental of offices, transportation expenses, communication fees and similar costs for the maintenance of the RHQ in the Philippines.

A ROHQ is a branch office established in the Philippines and engaging in:

  • General administration and planning;
  • Business planning and coordination;
  • Sourcing and procurement of raw materials and components;
  • Corporate finance advisory;
  • Marketing control and sales promotion;
  • Training and Personnel management
  • Logistics services;
  • Research and development services;
  • Technical support and maintenance;
  • Data processing and communication;
  • Business Development.

By law, ROHQ are prohibited from offering qualifying services to entities other than their affiliates, branches or subsidiaries, as declared in their registration with SEC.

The minimum capital requirement for a ROHQ is no less than USD 200,000.

Licensing Requirements

  • Secure license with the Philippine Securities and Exchange Commission (SEC), upon favorable recommendation of the Board of Investments (However, ROHQs of banking and financial institutions are required to secure licenses from both the SEC and the Bangko Sentral ng Pilipinas (BSP).
  • Minimum Requirements.
    • Certification from the Philippine Consulate Embassy, or duly authenticated certification from the Philippine Dept. of Trade and Industry or its equivalent in the foreign firm’s home country that the firm is engaged in international trade with affiliates, subsidiaries, or branches in the Asia-Pacific region and other foreign markets.
    • Certification from the principal officer of the firm that the firm has been authorisedby its Board of Directors to establish its RHQ in the Philippines, specifying the following:
      • Activities of the RHQ shall be limited to acting as supervisory, communication, and coordinating center for its subsidiaries, branches, and affiliates in the region;
      • RHQ will not derive any income from sources within the  Philippines;
      • RHQ shall notify the BOI and the SEC of any decision to close down or suspend its operations 15 days before the same is effected.
  • An undertaking that any violation of the Omnibus Investments Code and its implementing rules and regulations shall constitute sufficient cause for the cancellation of RHQ’s license to operate.