Start a Business in the Philippines

Below is a comprehensive overview of the key legal and regulatory considerations for starting a business in the Philippines, from choosing a business structure to registering with the relevant government agencies. While this guide provides a general outline, always consult legal and accounting professionals for advice tailored to your particular circumstances and to stay up to date on recent legislative changes.

1. Overview of Philippine Business Structures

When starting a business in the Philippines, entrepreneurs must select an appropriate legal form. The Philippine legal framework—primarily governed by the Revised Corporation Code of the Philippines (Republic Act No. 11232) and other related statutes—recognizes several common forms of business organization:

  1. Sole Proprietorship

    • Owned by one individual.
    • Requires registration with the Department of Trade and Industry (DTI) to obtain a Business Name Certificate.
    • The owner has unlimited liability, meaning personal assets may be used to settle business obligations.

  2. Partnership

    • Formed by two or more persons who agree to contribute money, property, or industry to a common fund and share in profits and losses.
    • Governed by the Civil Code of the Philippines (Articles 1767–1867).
    • Partnerships must register with the Securities and Exchange Commission (SEC).
    • General partners have unlimited liability, whereas limited partners (if structured as a limited partnership) have liability only up to the extent of their investment.

  3. Corporation

    • A separate legal entity with juridical personality, offering limited liability to its stockholders.
    • Must register with the SEC under the Revised Corporation Code.
    • Requires at least one incorporator (under the Revised Corporation Code, the “one-person corporation” is also allowed).
    • Comprises shareholders (stock corporations) or members (non-stock corporations).
    • Ideal for larger enterprises or those requiring substantial capitalization.

  4. One Person Corporation (OPC)

    • Introduced under the Revised Corporation Code.
    • Formed by a single stockholder who can be a natural person, trust, or estate.
    • The single stockholder has limited liability, separate from personal assets.
    • Requires strict compliance with corporate formalities outlined by the SEC.

  5. Branch Office, Representative Office, or Regional Headquarters (for foreign corporations)

    • Applicable to foreign companies that want to establish a presence in the Philippines without forming a subsidiary.
    • Must also register with the SEC, but additional requirements apply under laws such as the Foreign Investments Act (FIA) (Republic Act No. 7042, as amended by RA 11647), the Omnibus Investments Code, and other relevant regulations.

2. Relevant Laws and Regulations

  1. Revised Corporation Code (R.A. No. 11232)

    • The primary legislation governing corporations, including OPCs.
    • Introduced reforms such as the one-person corporation, electronic filings, and less stringent rules on minimum capitalization.

  2. Foreign Investments Act (R.A. No. 7042, as amended by R.A. No. 11647)

    • Governs foreign ownership of businesses and prescribes possible restrictions for certain industries as reflected in the Foreign Investment Negative List.
    • Defines how foreign investors can participate in different sectors and sets the criteria for foreign equity limitations.

  3. Civil Code of the Philippines

    • Governs partnerships and other contractual relationships.
    • Outlines general obligations and rules on liability for different business forms.

  4. Consumer Act of the Philippines (R.A. No. 7394)

    • Covers consumer welfare and protection, imposes requirements on labeling, warranty, and product liability that businesses must comply with.

  5. Data Privacy Act of 2012 (R.A. No. 10173)

    • Regulates the collection, handling, and protection of personal data, important for businesses that handle customer or employee data.

  6. Tax Laws

    • The National Internal Revenue Code (NIRC), as amended by subsequent laws, outlines taxation requirements.
    • Businesses must comply with the requirements of the Bureau of Internal Revenue (BIR), including regular tax filings, bookkeeping, and issuance of official receipts.

3. Step-by-Step Registration Procedure

Below is a generalized process for registering and setting up a business in the Philippines. The exact steps may vary depending on your chosen business structure, location, and whether you have foreign investors.

3.1 Sole Proprietorship

  1. Register a Business Name with the DTI

    • File for a unique business name that is not misleading or already taken.
    • Once approved, you’ll receive a Business Name Certificate valid for five years (renewable).

  2. Obtain Barangay Clearance

    • Register with the local Barangay (the smallest local government unit).
    • This step confirms that your business operations comply with the barangay’s rules and regulations.

  3. Obtain Mayor’s or Business Permit

    • Apply at the local City or Municipal Hall (Business Permits and Licensing Office).
    • You may need to submit documents like the DTI Certificate, barangay clearance, lease contract or land title, sketches or location plans, fire safety inspection certificate, etc.
    • Once granted, you receive a Mayor’s Permit (often called a Business Permit).

  4. Register with the BIR

    • Secure a Tax Identification Number (TIN) or link your existing personal TIN to your business.
    • File BIR Form 1901 for sole proprietors.
    • Register your business books of accounts, official receipts, and invoices.
    • Receive a Certificate of Registration (COR) from the BIR.

  5. Register with SSS, PhilHealth, and Pag-IBIG (if you will hire employees)

    • Enrollment in these government social security and benefit agencies is mandatory if you have at least one employee.

3.2 Partnership or Corporation (including OPC)

  1. Check Name Availability and Reserve

    • Conduct a name availability search on the SEC’s website or at the SEC main office.
    • File a Name Verification Slip to reserve the chosen business name.

  2. Draft and Notarize Constitutive Documents

    • For a partnership: Articles of Partnership.
    • For a corporation: Articles of Incorporation (plus Bylaws if more than one stockholder). For an OPC, prepare the Articles of Incorporation for OPC.
    • Have the documents notarized.

  3. Submit Documents to the SEC

    • Accomplish all SEC forms, pay registration fees, and submit documents.
    • Wait for the Certificate of Registration from the SEC, signifying the business is duly registered as a partnership or corporation.

  4. Obtain Barangay Clearance

    • Same as with sole proprietorships: secure clearance from the barangay where the business is located.

  5. Obtain Mayor’s or Business Permit

    • Submit your SEC Certificate of Registration, barangay clearance, lease contract or proof of property ownership, and other documents to the local government for issuance of the Mayor’s/Business Permit.

  6. Register with the BIR

    • File the appropriate registration form (e.g., BIR Form 1903 for corporations).
    • Obtain your TIN (if you don’t already have one specifically for the entity).
    • Register books of accounts, have your official receipts and invoices printed, and secure a Certificate of Registration (COR).

  7. Register with SSS, PhilHealth, and Pag-IBIG

    • Register your employees so they receive mandatory government benefits.

3.3 Foreign Corporations (Branch, Representative Office, Regional Headquarters)

  • Obtain Licenses from the SEC
    • Submit the Application for License to Do Business in the Philippines with supporting documents (e.g., certified copies of board resolutions authorizing the Philippine branch, financial statements).
  • Follow the same steps for Barangay Clearance, Mayor’s Permit, BIR Registration, and Social Agencies as applicable.
  • Compliance with the Foreign Investments Act must be checked to ensure that the business activity is not part of the Negative List.

4. Capitalization Requirements

  • The Philippines does not impose a universal minimum paid-up capital for local corporations, except for certain specific industries (e.g., banking, insurance, or areas regulated by special laws).
  • For foreign-owned corporations, the Foreign Investments Negative List may require minimum capitalization in some sectors.
  • For corporations exporting at least 70% of their output, the minimum paid-up capital can be lower.
  • Branch offices of foreign corporations must typically remit an initial inward capital remittance of USD 200,000, unless they meet export or advanced-technology criteria that lower the threshold.

5. Regulatory Bodies and Their Roles

  1. Department of Trade and Industry (DTI)

    • Oversees sole proprietorship registrations and enforces fair trade and consumer protection laws.

  2. Securities and Exchange Commission (SEC)

    • Governs registration, regulation, and compliance of partnerships and corporations.
    • Ensures enforcement of corporate governance standards and compliance with the Revised Corporation Code.

  3. Bureau of Internal Revenue (BIR)

    • Responsible for tax administration, including registration of businesses, issuance of TINs, collection of income tax, VAT, percentage tax, and other taxes.
    • Regular compliance (monthly, quarterly, annually) is crucial to avoid penalties.

  4. Local Government Units (LGUs)

    • Handle the issuance of Barangay Clearance and Mayor’s/Business Permits.
    • Enforce local business regulations and relevant ordinances.

  5. SSS, PhilHealth, and Pag-IBIG

    • Social Security System (SSS): mandatory pension and benefits for private sector employees.
    • Philippine Health Insurance Corporation (PhilHealth): government-run health insurance program.
    • Home Development Mutual Fund (Pag-IBIG Fund): provides housing loans and savings programs.

6. Operational and Ongoing Compliance Requirements

  1. Issuance of Official Receipts and Invoices

    • All businesses must issue BIR-registered receipts or invoices.
    • Non-compliance leads to penalties.

  2. Bookkeeping and Records

    • Businesses must maintain BIR-registered books of account (e.g., General Ledger, Cash Disbursements Book).
    • Keep records for at least 10 years (as mandated by the NIRC).

  3. Regular Tax Compliance

    • File monthly and quarterly tax returns for income tax, VAT, withholding taxes (if applicable), and other taxes as required.
    • File the annual income tax return and pay any additional tax due.
    • Submit audited financial statements to the BIR and SEC (for corporations and partnerships) by the prescribed deadlines.

  4. SEC Reporting (for Corporations and Partnerships)

    • Prepare and file the General Information Sheet (GIS) annually.
    • Submit audited financial statements within the prescribed deadlines.
    • Comply with corporate governance and other disclosure requirements if you fall under special regulated sectors (like publicly listed companies or quasi-banking institutions).

  5. LGU Renewals

    • Renew the Mayor’s Permit annually with your LGU, usually at the beginning of the year.
    • Failure to renew can result in fines or closure orders.

  6. Compliance with Labor Standards

    • Follow the Labor Code of the Philippines in areas like minimum wage, overtime pay, holiday pay, 13th-month pay, benefits, and conditions for hiring and termination.
    • If hiring foreign employees, ensure compliance with Alien Employment Permits (AEP) and relevant immigration requirements.

  7. Data Privacy Compliance

    • If your business collects or processes personal data of customers or employees, ensure you follow the Data Privacy Act and its Implementing Rules and Regulations (IRR).
    • Register with the National Privacy Commission (NPC) if you meet certain thresholds and implement data protection measures.

7. Special Considerations for Foreign Investors

  1. Foreign Investment Negative List (FINL)

    • Specifies industries where foreign equity is either prohibited or capped. Examples include certain areas in mass media, retail trade (subject to thresholds), public utilities, etc.
    • Keep updated on the latest iteration of the FINL to ensure compliance.

  2. Tax Incentives and Special Economic Zones

    • Depending on your industry and location, you might qualify for tax incentives under the Philippine Economic Zone Authority (PEZA), the Board of Investments (BOI), or local special economic zones.
    • Incentives can include income tax holidays, tax and duty exemptions, and simplified import-export procedures.

  3. Visa and Employment Permits

    • Foreign nationals who plan to work in the Philippines must secure the appropriate visa (e.g., 9(g) pre-arranged employment visa) and an AEP (Alien Employment Permit) from the Department of Labor and Employment (DOLE).
    • Some types of visas (e.g., Special Investor’s Resident Visa) may require minimum investments.

8. Common Mistakes and Pitfalls

  1. Neglecting Comprehensive Legal and Tax Advice

    • Underestimating the need for professional guidance can lead to compliance issues, penalties, or, in extreme cases, business closure.

  2. Inaccurate Record-Keeping

    • Failing to keep proper books of accounts and file tax returns on time may result in heavy fines and reputational risks.

  3. Failing to Renew Permits and Licenses

    • All permits and registrations (Mayor’s Permit, business name, etc.) have validity periods and require timely renewal.

  4. Unclear Ownership Structures and Roles

    • Especially in partnerships and corporations, define roles, responsibilities, and policies on profit distribution, dispute resolution, and governance.

  5. Non-Compliance with Labor and Employee Benefits

    • Neglecting statutory obligations to employees (SSS, PhilHealth, Pag-IBIG, 13th-month pay) can result in legal liabilities and administrative sanctions.

  6. Underestimating Local Culture and Market Nuances

    • For foreign investors, understanding Philippine business culture, language nuances, and consumer preferences is essential.

9. Conclusion

Starting a business in the Philippines requires careful adherence to a variety of legal and regulatory requirements. From choosing the right business structure and registering with multiple government agencies to ensuring ongoing tax and labor compliance, each step is vital to laying a solid foundation.

The Philippine government has introduced reforms—such as the Revised Corporation Code, the ease-of-doing-business measures, and improved digital filing systems—to streamline the process of business registration and encourage both local and foreign entrepreneurs. Nonetheless, the regulatory landscape can still be complex, so consultation with licensed attorneys, accountants, or business consultants is strongly recommended.

By understanding and fulfilling your legal obligations, you can establish a compliant and thriving enterprise that benefits both your business and the local community.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

Privacy Policy

Terms of Use

Lawyer Login

 
 
Privacy Policy         Terms of Use         Lawyer Login