Business Incorporation in the Philippines: How to Incorporate Legally.

by: Austin Shi

Date published: 4/4/2011

From Doing Business in the Philippines Blog

In starting and incorporating a new business in the Philippines, a foreign company faces a number of bureaucratic and legal hurdles that make the entire process both complicated and tedious. However, if armed with the right information, the company will be able to overcome these initial difficulties, and incorporate the business successfully in the Philippines. A number of things must be taken into consideration in incorporating a business in the Philippines. The company must first determine the best investment vehicle for setting up operations in the country, and register the business with the relevant government agencies, including the Philippines Securities and Exchange Commission (SEC), the Department of Trade and Industry (DTI) and the Bureau of Internal Revenue (BIR).

According to Business Consultant Gregory Kittelson of Philippines consulting firm Kittelson & Carpo Consulting,

Mr. Gregory Kittelson

Mr. Gregory Kittelson

“Incorporating a business in the Philippines is a long and somewhat complicated process for foreign owned companies and could become problematic down the line, even if the company is 100% compliant from the very beginning.  It is imperative to either know the exact incorporation steps yourself and ensure they are implemented on time or find a company or individual who specializes in Philippine business registration to assist you.”

Moreover, special income tax holidays and regimes are also available to foreign companies interested in setting up and incorporating a business here in the Philippines. In order to become eligible for these benefits, companies must first comply with a list of government-issued requirements, including business registration with government agencies like PEZA and BOI. There are four possible options in setting up and incorporating a business in the Philippines. A company may choose to set up a fully-foreign owned branch office, a fully-foreign owned representative office, a fully-foreign owned domestic corporation or a 60/40 subsidiary. Each of these options have their own advantages and disadvantages, and a foreign company must incorporate the business according to what is most beneficial.

In incorporating a business in the Philippines, the following steps must be followed: Procedures may vary according to the type of company being registered, but the general procedure is essentially the same.

  • Determine the Availability and Reserve a Company Name with the Philippine Securities and Exchange Commission (SEC)
    • This can be done through the SEC’s online verification system, free of charge.
    • Once approved by the SEC, reserving a company name costs about Php 40.00 a month for the first 30 days.
    • Company names can be reserved for a maximum period of 90 days (or three months), for an average fee of Php 120. This can still be renewed upon expiration.
  • Depositing a Paid-up Capital to the Authorized Agent Bank (AAB) in order to obtain a Certificate of Deposit
    • A company is required to deposit a paid-up capital amounting to at least 6.25% of the corporation’s authorized capital stock.
    • This paid-up capital must not be less than Php 5,000.
  • Notarizing the company’s Articles of Incorporation and Treasurer’s Affidavit
    • A company’s articles of incorporation must be notarized in any notary public, before filing with the SEC.
  • Registering a company with the Philippine Securities and Exchange Commission (SEC)
    • A company can register online, but payment must be done in person.
    • The following documents will be needed, in registering your business:
      • Company name verification slip
      • Notarized articles of incorporation and by-laws
      • Notarized Treasurer’s Affidavit
      • Statement of Assets and Liabilities
      • Certificate of Deposit on the Paid-in Capital
      • Bank authorization to verify the account
      • Company Data Sheet
      • Written and Notarized undertaking to comply with all SEC requirements
      • Written and Notarized undertaking to change company name.
  • Upon registering with the SEC, companies must pay the Documentary Stamp Tax (DST) for the original issuance of shares for domestic corporations or subdsidiaries.
    • The DST must be paid on or before the 5th day of the following month, from the date of the company’s registration with the SEC.
  • Obtaining a 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 is dependent on the type of corporation registered, while the additional community tax is pegged on the assessed value of the property a company owns in the Philippines.
  • Obtaining a Barangay Clearance
    • A barangay clearance is required to obtain a business permit from the city or municipality
    • The barangay charges a fee to the company, which is fixed in each barangay. This fee may vary for barangays in the Metro-Manila area.
    • A minimum of Php 500 is charged, with an additional Php 300 for the barangay clearance plate.
  • Obtaining a License to Operate at the Licensing Section of the City Mayor’s Office
    • For businesses setting up operations in the City of Manila, a company must first submit a business transaction form (BTF) containing all of the information for the application, before obtaining a business permit. This document can be obtained at the Manila City Business Center (MCBC).
    • In addition to the BTF, the following documents must also be submitted:
      • Barangay Clearance
      • SEC Registration
      • Occupancy Permit of the Building/Unit Leased
      • Public Liability Insurance (for restaurants, malls, etc.)
      • Authorization Letter from the Owner (with ID)
      • Lease Contract/Tax Declaration
      • Community Tax Certificate

The zoning, engineering, and fire safety departments must also inspect the office space leased by the company. Upon inspection, strict compliance must be observed in complying with the additional requirements that may be imposed by these offices.

  • Registering for Taxes at the Bureau of Internal Revenue (BIR)
    • To register with the BIR, the company must first accomplish BIR form 1903 together with the required documentation and submit it to the Revenue District Office.
    • The newly registered company is required to first pay the Documentary Stamp Tax (DST) on the originally issued shares (for domestic or subsidiary companies), as well as the DST on the lease contract (if the office space used by the company is being leased). The payment for the Documentary Stamp Tax on the originally issued shares for domestic or subsidiary companies is due on the 5th day of the following month from the notarization of the document.
    • An additional requirement for business registration is BIR form 1906 or the authority to print receipts.
    • Companies are assessed through various taxes, including but not limited to a value added tax (VAT), a community tax, a local tax and an income tax.
    • Generally, companies are expected to comply with the periodic reporting and payment of income tax, Value-Added Tax (VAT), Expanded Withholding Tax and Withholding Tax on Compensation. Additional taxes or exemptions to taxes, based on company type, should be properly registered or reported to the BIR.
  • Initial Registration with the Social Security System (SSS)
    • To be considered an employer, the company must have at least (1) employee.
    • An employer is required to register with the SSS, using the employer registration form (R-1), the employment report (R1-A) and the specimen signature card (L-501). The employer is also required to submit an employer registration form (R1) and an employment report (R1-A) to the offices of the Philippine Health Insurance Company.
    • The SSS issues the company an employer number, together with the employer’s copy of a processed BR-1, an employer identification card or an SSS registration plate, and a list of employer obligations and post-registration requirements. The SSS registration plate is a mandatory requirement for registration and companies are required to pay a fee of Php 165.00 for it. The plate is released 6 months after the application and payment.
  • Completing Registration with the SSS and the Philippines Health Insurance Company (PhilHealth)
    • The company must submit the following documents to the SSS within 30 days from the issuance of an employer number:
      • Employment Report (form R-1A)
      • Specimen Signature Card (form L-501)
      • Sketch of Business Address
      • Validated Miscellaneous Payment Return Form (Form R-6)
    • The company must also submit the following documents to PhilHealth:
      • Member registration forms for each employee and the required documentation.
  • Registration with the Home Development Mutual Fund (HDMF) or the Pag-Ibig Fund
    • Registration with the HDMF is dependent on the company’s SSS registration. Only employees duly registered with the SSS are qualified to be registered with the HDMF.
    • In registering with the HDMF, the company is required to submit the following documentation:
      • Employer Data Form (EDF)
      • Membership Registration/Remittance Form (form M1-1)
  • Payment of the Initial monthly contribution of the employees, which will serve as a proof of registration for the company.
  • Global BPO: Philippines vs. India

    By: Kathleen Yu

    Business Process Outsourcing (BPO) is one of the fastest growing industries in the world today. As emerging leaders in the global BPO market, both India and the Philippines are considered prime outsourcing destinations for multinational companies all over the world. India dominates with 37% of the global offshoring market, Canada at 27% and the Philippines in third at 15%. However, the Philippines, which boasted a 40-50% industry growth in the last three years, is now on the fast track to overtaking India as a global BPO provider.

    The Indian BPO industry averages an annual revenue of $11 billion dollars, about 1% of the country’s total GDP. The government estimates that at its current growth rate, the outsourcing industry could reach $50 billion by 2012. However, there is still much to be desired in linking the country’s BPO industry to its local education system and skilled English speaking workers are not always available. This increases company spending on in-house training for employees and led to the skills shortage currently affecting India’s BPO industry. Only about 700,000 professionals are employed in the country’s outsourcing sector.

    In sharp contrast, the Philippines boasts one of the largest English speaking workforces in the world today. Most of the country’s professionals are fluent in English, the lingua franca of the global outsourcing industry. The country also has an average literacy rate of 93%, one of the largest in the world. Filipinos have neutral  American accents, giving them the advantage where verbal communication is concerned.  The advantage has led to a total average revenue of $7.5 billion for the BPO industry in 2009 alone. Profits are still expected to soar; experts estimate revenues of up to $10-12 billion by 2010. Manila, Philippines was recently named a top BPO location in Southeast Asia is second only to Bangalore, India. Over 900,000 professionals are currently employed in the local BPO industry and the number is expected to increase in the coming years.

    According to Business Consultant Gregory Kittelson of Kittelson and Carpo Consulting, “The Philippine BPO industry is growing by as much as 46% annually and may soon overtake India as the industry leader. In fact, we have started to see an influx of BPOs and call centers from India registering businesses in the Philippines and setting up operations here.  The opposite is not the case.”