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.
  • Philippines vs. Malaysia: Call Centers and BPOs

    By: Eden Lorren Pabalan

    Malaysia and Philippines are two of the top four offshore countries in Asia together with India and China. As the BPO industry progress, the first two countries are battling neck to neck in striving to achieve a higher global market share. Both the Philippines and Malaysia are experiencing unprecedented growth rate and revenue. Call center companies are booming in both countries and are expanding quickly.

    The Philippines, composed of approximately 7,107 islands, is a country boasting of growth and development in Southeast Asia and home to different international BPO companies. Office spaces in the Philippines are being filled up by start-up BPO companies and the Philippines was hailed as the “2nd Top Business Process Outsourcing (BPO) Destination in the Asia-Pacific” by International Data Corporation (IDC). Three of its key cities were also awarded a slot in the “‘Top Ten Asian Cities of the Future” by Financial Times, placing Quezon City at 7th Place, Cebu at 8th and Davao at 10th place.

    Convergys Philippines is the top BPO employer in the country with approximately 12,000 employees. Setting up a business in the Philippines is a good investment because of the high growth rate of its economy. The BPO annual growth in the Philippines average at 46% since 2006, thus, bringing in more jobs to Filipinos. The BPO output for 2008 in the Philippines was US$ 6.1B, making the country the 3rd largest BPO destination (15%) after India (37%), and Canada (27%).

    Meanwhile, Malaysia is a country located south of the Philippines in Southeast Asia. It has a land area of 329,845 square kilometers and is currently ranked next to Philippines as a BPO destination. Malaysia is home to many international BPO companies such as Scicom (MSC) Bhd, SnT Global Sdn Bhd, and Vsource Asia Bhd. Malaysia has a unique advantage in government support, human capital, infrastructure, and domain expertise for supporting Asia-Pacific over neighboring countries.

    Contact centers and BPO companies in Malaysia, like the Philippines, are also growing in number. The advantage of Malaysia is that their economy is more stable in the past few years than the Philippines’ before the Global Economic Crisis. The inflation rate of Malaysia (2.4%) is not as low as the Philippines’ (5.0%).

    According to Gregory Kittelson, Business Consultant for Kittelson and Carpo, a Makati-based consulting firm, “Asia is awaiting the Philippines’ rise, especially with the change of political leaders of the country this year. BPO companies prefer the Philippines to other Southeast Asian countries because of the Filipinos’ skill of having a good command of English. Malaysia has already shown its tremendous progress from 2007 to 2008 before the Global Economic Crisis while the Philippines is yet to rise this year. It’s about time the country advance economically.”

    The Philippines is expected to have an increase in revenue for 2010 especially after the elections in the country. More BPO companies are seeing the Philippines as a potential place of investment for the industry. Malaysia, on the other hand, is predicted to feel the effect of the 2009 Global Economic Crisis this year which affected their GDP tremendously at -2.0%, thus, giving the Philippines an advantage.

    Experts Forecast Clear Skies Ahead for Philippine BPO Industry

    Author Name: Kathleen Yu

    Regarded as one of the fastest growing industries in the world, the Philippine BPO market is expected to continue on a positive trend this year. Experts at the Business Processing Association of the Philippines project an annual increase of at least 4-10% in global market shares, coupled with an expected revenue of at least $10-12 billion. An annual hiring rate of 150,000 is also anticipated, thereby establishing the Philippines as one of the top choices for BPO destinations in Asia.

    Considered an emerging leader in the global BPO industry, the Philippines has grown 46% annually since the year 2006. Estimates from the Business Process Association of the Philippines (BPA/P) and the BPO Services Association (BSA/U) put the number of people employed by the BPO sector at 435,000 during the end of 2008.  However, Managing Director and BPO Consultant Gregory Kittelson of Kittelson & Carpo Consulting believes the numbers could be even higher. “There are small foreign investors arriving daily to the Philippines and setting up branch offices and subsidiaries for their BPOs.  I feel that some of these small companies and their employees may not be accounted for just yet.  Hence, the number of employees in the BPO industry could even be larger than most statistics claim.”  According to statistics from the Department of Labor and Employment, the number is still expected to increase in the coming years. As the industry continues to expand, experts are now observing a shift from cost-effectiveness to skills quality and competence.

    As overseas companies expand their operations toward the Asian frontier, the future of the Philippine BPO industry has never looked brighter. The Philippines is now the third largest BPO destination in the world, commanding 15% of the global market. Highly recognized in the outsourcing industry, the country was recently awarded Best Offshoring Destination for the year 2009. The award was given by the United Kingdom’s National Outsourcing Association, to recognize the productivity of the economic environment here in the Philippines.

    As the year progresses, more and more investors are now looking to localize their operations here in the Philippines. Clients from the United States, Australia, India, China and the UK, are now hiring more and more Filipinos to oversee their business operations. Known for their cost effectiveness and efficiency, Filipinos are fluent in English-the lingua franca of the call center industry. This has opened doors for recently graduated Filipinos in the country, creating opportunities for them to thrive in the BPO industry. To date, call centers comprise about 80% of the outsourcing industry in the Philippines, contributing 12% of the country’s GNP.

    The BPO Industry has created other financial opportunities as well. Foreign companies are now hiring medical transcriptionists to process voice-recorded reports into text format. These specialists process up to 1,000 lines of transcripts per day, with a 98% accuracy rate. Companies are also tapping into the Philippine workforce for their Corporate Back office Operations. These services include accounting, bookkeeping, account maintenance and other finance-related operations.

    Recently ranked #1 in the availability of knowledge-based workers worldwide, the Philippines is now playing host to a thriving IT industry. Outsourcing services such as software and web development are now finding themselves in the hands of capable Filipino professionals. Filipino animators are also doing well in the global marketplace, as evidenced by the success of recent animated movies like Cars.

    The majority of BPO facilities in the country are located in First Tier cities like Manila, Makati, Fort Bonifacio, Ortigas and Cebu. Second and Third Tier facilities have recently sprung up in regional areas as well. As the industry continues to expand, more and more facilities are being established around the country. Experts forecast clear skies ahead for the local BPO industry, as it continues a steady expansion in the year 2010.