Registering and Doing Business in the Philippines
Now is the best time to start a business in the Philippines. With a 6.3% economic growth forecast for 2019, the Philippines is still among the fastest growing economies in the East Asian region.1 Whether you are a Filipino with a unique idea for a product or 3 service to sell, or a foreigner wishing to ride the bandwagon of opportunities, registering your business can be quite a complicated task. Though there are serious efforts by the government to streamline and simplify the registration processes, the current system can leave the uninitiated lost in the papers. You might be an experienced business owner with acumen for selling and marketing but without legal know-how or assistance,your well-crafted business plan can easily remain just a plan. Heads up, the Philippines has been ranked 166th out of the 190 economies that participated in the World Bank project: Doing Business 2019 in the category “starting a business.”2
Do not be discouraged. This short article will walk you through the tedious process of registering your business in the Philippines.
Step 1. Reserve your business name
The very first step is to reserve a name for your business. This may be frustrating because most catchy business names have already been taken or are currently in use by businesses around the world. Misleading business names or those that are deceptively similar to existing ones will not be allowed. Granting that you are able to register a business name that closely resembles the name of another business in the same industry, you would surely be exposed to lawsuits and may be required eventually to change your business name.3
If you plan to establish your business on your own and be its sole or only proprietor or owner, then you can reserve and register your business name with the Department of Trade and Industry (DTI). Such DTI-registered business name is like your alias or avatar in the business world. It’s best practice to think of 3 to 5 names that you would like for your business, and then rank them in the order of your preference before attempting to reserve or register them. Visit DTI’s website for the application process, fees and requirements in registering a business name.4
Your business name is different from your trademark or trade name, which you may also register separately as your intellectual property for branding, licensing and franchising purposes. Check out the website of the Intellectual Property Office for the application process, fees and requirements in registering a trademark.5
Step 2. Obtain your primary license
As a sole proprietor, you do not need a primary license for your business. An individual is vested with the inherent right to do business as long as he is of legal age and capacity. The certificate of registration of your business name issued by the DTI is enough. This is because a sole proprietorship and its registered owner are considered to be one and the same person or entity. However, if you plan to establish your business in partnership or in association with other persons, then you would need a primary license to do business.
The most common primary business licenses available under Philippines law are those for partnerships, corporations and cooperatives.
You can reserve your business name and register your partnership or corporation with Securities and Exchange Commission (SEC). The Cooperative Development Authority (CDA) is where you reserve your business name and register your cooperative. Each government agency has its own application forms, registration processes, fee schedules, and checklists of supporting documents and other requirements that may be found in their websites.6 The certificate of registration issued 8 by either the SEC or CDA shall be your primary license to do business. The same certificate of registration also creates a legal entity with a personality separate and distinct from that of its owners. Unlike in a sole proprietorship, the owners and their business organization are not one and the same. Such legal entity (whether it be a partnership, corporation or cooperative) can do business, enter into contracts, own properties, acquire rights, incur liabilities, sue and be sued in court, and do all other acts and things as if it is a real person. This is why registered partnerships, corporations and cooperatives are also referred to as artificial (or juridical) persons.
Recently, the Corporation Code has been revised and a new legal entity called the one person corporation (OPC), has been introduced as a fifth option; thus, making it more attractive for lone entrepreneurs to setup a corporate business.
For the definitions and distinctions, as well as the advantages and disadvantages, of the 5 common types of business organizations in the Philippines (namely: sole proprietorship, partnership, corporation, OPC and cooperative), please refer to our succeeding article: “Choosing the Right Organization for Your (Philippine) Business” or go to the website of the Board of Investment for a brief discussion.7
Step 3. Check for special licenses
If you are intending to sell professional services to the public (as your business), then you may need to have a professional license. Lawyers are licensed by the Supreme Court. All other regulated professions are licensed by the Professional Regulations Commission (PRC). For a list of professions that require a PRC license, visit their website.8
As for other businesses, you must check if the services or goods that you are offering necessitate secondary or special licenses. For example, if you are planning to engage in the banking business, you need to obtain a license from the Bangko Sentral ng Pilipinas. For insurance business, a license from the Insurance Commission is needed. For lending investor business, you would need a license from the SEC.
If you are selling food or drugs to the public, you will have to register your products with the Food and Drug Administration. For land transportation services, register with the Land Transportation Franchising Regulation Board. For schools, a permit from the Department of Education, Commission on Higher Education or Technical Education and Skills Development Authority, as the case may be, is required. For telecommunication and public utilities, a congressional franchise may be needed aside from a license from the National Telecommunication Commission. And so on and so forth.
For a partial list of businesses or activities that require special or secondary licenses, please download and refer to the government reference material: “Securing Business Permits and Business Registration.”9
Step 4. Get local permits
Your business should have a physical address even if you only engage in online transactions. For this purpose, you will need clearance from the local barangay authorities and permit from the authorities of the city or municipality which have jurisdiction over your office location. They would determine whether the proposed location is appropriate for your business based on land use and zoning ordinances. If you are going to build an office or any structure, or if you are making significant renovations to existing ones, you must obtain a building or construction permit from the local building officials. Aside from these requirements, you should obtain certificates that your have passed the inspections for fire, health and safety standards conducted by the local authorities. You may consult the website of the city or municipality for the application form and process, the fee schedule ,and the checklist of requirements and supporting documents. Or, you may visit the city hall or municipal hall for all your business permit and clearance concerns. One basic requirement is submission of proof of ownership of the office premises or a lease contract giving you permission to use it for business purposes. Local permits are required to be renewed annually.
Step 5. Pay your taxes
You need to register with the Bureau of Internal Revenue (BIR) for your books of accounts, official receipts and/or sales invoices, as well as for your cash register or point-of-sales (POS) machine, if any. Recently, the BIR gave newly registered businesses the option to purchase from it pre-printed official receipts which can be used temporarily while the permanent official receipts or invoice are being printed.
The BIR will issue a certificate of registration listing down all your national tax obligations, such as income tax, value added tax and withholding tax, with the payment and reporting schedule. Aside from national taxes that are payable to the BIR, you would also need to pay local taxes to the city hall or municipal hall where your business is located.
Step 6. Take care of your employees
Most probably, you will be hiring employees. Hence, you need to arrange for their social welfare benefits. As an employer, you would need to register your business and your employees with the Social Security System (SSS), Pag-IBIG Fund, and PhilHealth. You would also need to register with the Department of Labor and Employment (DOLE) for compliance with occupational safety and health standards. These agencies haver their respective checklists of requirements and supporting documents, which can be found in their websites.
Aside from remitting your contributions to SSS, Pag-Ibig Fund and PhilHealth for your employees’ social welfare benefit coverages, you must make sure that your business is also compliant with labor and employment laws. Download DOLE’s Handbook of Workers’ Statutory Monetary Benefits (2019 Edition) for more information on Philippine labor standards and social welfare.10
Step 7. Check for foreign investment restrictions
There are certain limitations with the kind of businesses and activities that foreigners or foreign-owned companies may engage in. Check out the latest Foreign Investment Act – Negative List to see which businesses or activities are prohibited or regulated when there is a foreign element.11 The general rule is that foreigners and companies with foreign ownership can do business in the Philippines subject to the prohibitions and restrictions in the Negative List.
Example: Domestic market (oriented) enterprises with paid-in equity capital of less than the equivalent of $200,000 cannot have more than 40% foreign ownership, unless it involve advance technology or employ at least 50 direct employees, in which case, paid-in equity capital threshold is lowered to the equivalent of $100,000.
Of course, such businesses would still need to register with the concerned government agencies. For sole proprietorship, it is still with the DTI. For corporations and partnerships, it is still with SEC. And for foreign companies and all other business entities registered abroad under foreign laws, it is with the SEC that they should obtain license to do business in the Philippines.
Note that cooperatives cannot have any foreign equity
Step 8. Avail of incentives and perks
The process might be daunting, but you shouldn’t miss out on the perks of setting up and owning a business. If your business is on the list of priority projects of the government, you can avail of tax and tariff exemptions and other incentives. If you are locating your company in a registered economic zone, you will be privileged with special considerations, such as income tax holiday, in exchange for your investment. For foreigners, you can enjoy additional perks by simply indicating your desire to retire in the Philippines.12 For a list of all these incentives for investors, visit the Board of Investment or its website.13
You don’t have to be a big investor to enjoy perks and privileges. If your capitalization is less than PhP3,000,000 and your business is a micro-enterprise and barangay-based, you may want to avail of the incentives under the Barangay Micro Business Enterprises (BMBE) law. Incentives include exemption from payment of income tax for income arising from the operation of the enterprise, exemption from the coverage of the minimum wage law, special credit window from government financing institutions, business assistance from other government institutions, as well as technology and marketing assistance. To register as a BMBE, go to the DTI website for instructions.14
Step 9. Maximize the Negosyo Centers
The Philippine government has setup Negosyo Centers (or one-stop-shops) to help facilitate the business registration process. Government agencies like DTI, SEC, local government units (i.e. provinces, cities, municipalities, barangays), SSS, PhilHealth and Pag-Ibig usually have help desks or information booths at every Negosyo Center making it truly a business one-stop-shop for entrepreneurs and investors, especially for BMBE.
The processes and procedures needed to establish a business in the Philippines can be very complex, more so for foreign companies and nationals who wish to do business here. It can be quite tedious for most people, and may even be discouraging to many, because government agencies tend to be located far and wide, and there seems to be too much steps and documentation. You might think that as a businessman, you should only focus on the business part, that is, on growing your company, selling your goods and engaging customers. But registering your business and being compliant with laws and regulations can be quite overwhelming considering all the legal requirements you need to observe and documentation you need to provide.
For the reason, the government passed a law on the Ease of Doing Business and Efficient Government Service Delivery, which promises to make it significantly easier to register and do business in the Philippines.15 However, the implementing rules and regulations have yet to be released as of this date.16
But doing business in the Philippines need not be very legalistic and technical to the point of being impractical, inconvenient, time-consuming or unnecessarily costly. We, at the Sangalang and Gaerlan, Business Lawyers, can guarantee an efficient, cost-effective and hassle-free registration of your business. Moreover, since our law firm specializes in business and labor laws, we can advise you on every legal aspects of your business, investment and organization. We can also help you focus more on the essentials, that is, on starting, expanding, growing and profiting from your own enterprise. It is a great time to do business in the Philippines, and we can to help you succeed in making your visions come true.
References
[1] Based on gross domestic product (GDP) as estimated by the ASEAN+3 Macroeconomic Research Office (AMRO). Source: https://www.bworldonline.com/philippine-gdp-growth-seen-slowing/
[2] The Philippines has an overall rank of 124th out of 190 economies in DB 2019 Ease of Doing Business Score. http://www.doingbusiness.org/content/dam/doingBusiness/country/p/philippines/PHL.pdf
[3] Please refer to the Decision of the Supreme Court in the case of “De La Salle Montessori International 5 of Malolos, Inc. versus De La Salle Brothers, Inc. et. al.”, G.R. No. 205548, February 7, 2018.
[4] www.dti.gov.ph/businesses/business-name-registration
[5] www.ipophil.gov.ph/services/trademark/about-trademark
[6] Securities and Exchange Commission website: www.sec.gov.ph; Cooperative
Development Authority website: www.cda.gov.ph.
[7] www.boi.gov.ph/how-to-setup-business/setting-up/enterprise-types/
[8] Professional Regulation Commission website: www.prc.gov.ph/professional-regulatory-
boards
[9] http://invest.cfo.gov.ph/pdf/part2/securing-business-permits-and-business-registration.pdf
[10] http://bwc.dole.gov.ph/images/Handbook/2019-Edition-of-Handbook-on-Workers-
Statutory-Monetary-Benefits.pdf
[11] http://www.officialgazette.gov.ph/downloads/2018/10oct/20181029-EO-65-RRD.pdf
[12] https://pra.gov.ph/
[13] www.boi.gov.ph/how-to-setup-business/incentives-to-investors/
[14] www.dti.gov.ph/businesses/msmes/start-your-business#bmbe
[15] www.dti.gov.ph/businesses/ease-of-doing-business#ra-11032-ease-of-doing-business-
and-efficient-government-service-delivery-act-of-2018
[16] http://arta.gov.ph/
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ABOUT THE AUTHOR
Apollo X.C. S. Sangalang (a.k.a. “Atty. PoL”) is a business lawyer, labor law coach and resource speaker on employment and commercial law. He is the founding partner of the Sangalang & Gaerlan, Business Lawyers, a law firm based in Quezon City. From 2003 to 2006 he was the executive director of the National Labor Relations Commission, under the Department of Labor and Employment, and also worked for the Philippine Senate, the Supreme Court and the University of the Philippines.He has facilitated several training workshops and seminars on labor and business law, and also hosts a weekend program on DZRJ-AM.
You may reach him at pol.sangalang@paladinslaw.org
