Thinking about setting up a business in the Philippines? You’re not alone. According to the Philippine Statistics Authority, there are close to 1,000,000 business enterprises in the country. These include domestic corporations, foreign investors, partnerships, and sole proprietorships. Self-employed individuals and family corporations make up the rest. There are a whole host of factors considered by Filipinos and foreigners alike when deciding to set up a business in a foreign land. The charm of the tropics, the low cost of living, cheaper wages, the expertise of its professionals, and its proficiency in Business English to name a few. These things and so many others all contribute to the comparative advantages of setting up a business in the Philippines. But whatever your reasons may be, it would be a good idea to get some guide in setting up shop in the country. Whether you are at the early stages of your business vision, rethinking your business platform, or considering a merger or acquisition, setting up a business in the Philippines is not just a complex process. You would need to know the necessary steps in doing so, meet the regulatory requirements, and comply with the statutory obligations by drafting or reviewing the necessary legal documents. Being informed on these essential steps would be a prudent and intelligent course of action. Starting a business in the Philippines can be an exciting venture with great potential.
Overview of the Business Environment
The highly developed business infrastructure, plus the liberalization and deregulation that lead to the offshoot of direct foreign investments, technology transfer, etc., and which allows foreign investors to participate in a number of economic activities, have given impetus to the significant growth of businesses existing in the Philippines. Several locator companies nowadays are even granting privileges to their investors and officers. However, a number of factors go into play before planning to start a business or endeavor in the Philippines.
For one whose tongue is turning Filipino by any means, are you ready to go into business? A vital step in starting one’s own business in the Philippines is when it falls into the hands of non-Filipino nationals. In the latter case, it is advisable to participate in the management of the business or ownership on its capital is the best option. Joint ventures may also be entered into, even if participation exceeds 40% foreign interest. As an incentive, companies registered with the Philippine Economic Zone Authority (PEZA) automatically have 100% foreign ownership. Setting up a business Philippines requires knowledge of local laws and procedures.
Importance of Legal Assistance
There are instances where businesses try to set up their structure without the help of legal advice. Often, they end up with less than what they expected or even with an unworkable business model, as well as taxed more than what they might be able to handle. Also, there are scenarios during which a business realizes that they really need a lawyer just as they are about to sign on the dotted line, however, at that point it’s quite late, as the document may not be what the business situation actually needs but are already bound by it.
As future legal matters may require professional advice and expertise, it is best to establish a relationship with a lawyer or a law firm from the inception of your business. Legal advice can help businesses understand and manage the risks involved in the early stages of the business and solve arising problems and subsequent needs as necessary. This is quite favorable to an enterprise, as entering into reworded contractual relationships is essential and sometimes neither easily achievable nor economically feasible. Business permit registration Philippines is essential for operating your business legally.
Business Structure Options
Almost all the business firms in the Philippines are set up as a partnership (GP), limited partnership (LP), corporation, one person corporation (OPC) as introduced by the Revised Corporation Code (RCC), a branch (a foreign corporation legally doing business in the Philippines), a regional area headquarters (a foreign corporation whose function is supervision and control of its subsidiaries, branches or affiliates in some countries), and representative office (a foreign corporation whose function is to serve as a liaison office). The most common structure is a stock corporation, which is the usual vehicle for foreign companies investing in the Philippines. The choice of business structure is important in the tax, administrative, and regulatory compliance context.
Corporations and partnerships are considered as juridical persons. As such, a corporation or partnership may enter into contracts, own properties, including funds, and even be a party to a civil, tort, criminal, or administrative action as a defendant or plaintiff. The stockholders and partners involved are not personally liable for the debts and obligations of the corporation or partnership, and the same rule applies to the latter for stockholder or partner debt or obligations. Non-residents have the same rights as residents to enter into corporations or partnerships. The minimum number of directors for a corporation is five (5). It is not suggested that a public corporation should operate with only five (5) members of the Board of Directors because the workload of such executives would be heavy. Corporate officers are also the members of the board of directors. In the case of partnerships, the minimum number of partners is considered compulsory; however, it is included in those not engaged in a professional or occupation. Although alterations and amendments to the registration of the private corporation do not require the approval of SEC, the following requirements are still to be complied with. Similarly, but curiously, the content of the amendment may not violate any existing or new laws or legislation.
Business Registration Process
The Philippine business registration process is comprised of processes at the Securities and Exchange Commission (SEC), Bureau of Internal Revenue (BIR), Social Security System (SSS), Department of Labor and Employment (DOLE), Health Department (DOH), Department of Environment and Natural Resources (DENR), various Local Government Units (LGU), and other such government institutions. When business registrants are presenting requirements in any of these entities, they will be required to present common documents like birth certificates, location clearances, and other supportive documents, such as the city treasurer’s permit and the barangay clearance.
It is important to note that Philippine law requires that all businesses be compliant with pertinent legal framework, be it business or investments law, labor law, tax law, or other such laws that may bear impact on the business entity. Compliance with law, as required in the 2020 IRR for R.A. No. 11232, is so strict that companies that fail to comply with each and every requirement set forth by law may be dissolved.
The first step in achieving business registration in the Philippines is for the applicant to submit to the SEC the request for verification and/or reservation of the enterprise name. The name of the business is crucial because it will serve as the unique registered name that is given to corporations, partnerships or proprietary corporations. At least one name must be proposed, and that name may be verified and/or reserved at the Office of the SEC. Upon receiving the company name, the applicant(s) must scrutinize the code structures of the “throughput” for potential clash points. The SEC must deliver within four (4) business hours of the request the result of the verification of the assistance, and if the proposed export name is available.
If a clash is found, the proposed name cannot be accepted, and the applicant may continue asserting their name until they have confirmed the claim name without implying acceptability of the name. If a conflict-free name is found, it may be deemed held on interest for thirty (30) days from the time of the clearing in favor of the applicant, who shall have the single option within the reservation time to register a company or a company with the retained name during this period. Therefore, in the standard regularization of the company a name must also be set aside and held within a few days. Upon full implementation of the requirements and the payment of the costs associated with the reservation of the company name, the SEC reserves the company’s name within thirty (30) days of the date of reservation.
Local Government Permitting
Local government permitting can be complex and require obtaining multiple permits depending on the nature of the business and the location. Local government units are required to conduct pre- and post-operational inspections of businesses following the standard procedures. Zoning and Building Occupancy must be complied with. After the issuance of the clearance, the applicant shall file his/her application with the concerned Business One Stop Shop Teller to avail of the ‘No Holds Business Permit’ transaction using the single or unified registration form.
The application shall be under oath on a form prescribed by the City/Municipal Mayor showing, among others, that the business owner/lessor has a building permit or an amended one issued by the local building official or has complied with all the requirements set out in the Building Code and Annex “A” of Office Order No. 25 also known as “the application checklist” issued by the Department of the Interior and Local Government, and certified by a professional architect or civil engineer. Business establishments engaged in the service sector shall present approved plans/permits on business sanitation, mechanical, electrical, electronics, or such other permits related to the operation of the establishment. For new business establishments, the permit requirements shall be submitted within a period not exceeding sixty (60) calendar days.
Compliance and Licensing
The following licenses and permits are generally required to be secured in operating a business in the Philippines, unless the business is exempt from securing such licenses and permits:
Barangay Clearance – The Barangay Business Clearance or Permit is required for all businesses located within the jurisdiction of the barangay. The barangay is the smallest local government unit in the Philippines, usually composed of less than 1,000 houses. The permit must be secured before the business starts to operate. Clearance or Permit must be obtained from the Barangay Hall of the location of the business establishment.
Business Permit – Other than the Barangay Business Permits, all persons or entities that intend and start to operate in business within any city/municipality in the Philippines are required to secure a Business Permit from the Office of the Treasurer, in the City/Municipality where the business establishment or office is located.
Registration of Books of Accounts – All corporations are required to register their books of accounts and official receipt for Value Added Tax (VAT) purposes with the Bureau of Internal Revenue.
Mayor’s Permit – The Mayor’s Permit is secured from the Office of the Mayor in the city/municipality/province where the entity/business establishment is located. It is secured once the business starts to operate. In case of implementing regulations at the municipality/provincial level, then the Mayor’s Permit is equivalent to the municipal/provincial business permit.
Barangay (Village) Business Clearance/Permit – This permit is secured if the location of the business establishment is within a barangay. The Barangay Chairman signs the business permit.
