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.
  • Successful Foreign National Entrepreneurs in the Philippines Under 40

    By: Jahzeel Abihail G. Cruz

    The recipe for running a successful enterprise doesn’t necessarily include membership in a related high school club or being voted “Most Likely to Succeed”. What it does include, though, is an expertise in something of personal interest and balance between risk-taking and business sense. And the earlier these factors converge in life, the better. Having enjoyed the perks of being their own bosses before the middle age of 40, these expat entrepreneurs would know.

    Teaming with Talent

    Mr. Gregory Kittelson

    Mr. Gregory Kittelson

    It may not been much for Gregory Kittelson looking back, but dreams of putting up his own Mexican restaurant and a nightclub in his native Rhode Island in the US now seem providential. Self-made at 37, and a foreign country to boot, Greg is co-founder of two Philippine-based companies: Kittelson & Carpo Consulting and the KMC MAG Group real estate brokerage firm.

    “It’s really the people that make the Philippines attractive [for business],” he stresses. He found himself in the country seven years ago, assisting in managing a software outsourcing company, and had prior sales and business development work experience in San Francisco. With these and the burgeoning business process outsourcing (BPO) industry here, Greg found himself at the right place at the right time.

    Finding the right people was the clincher, and for that, the Philippines were a gold mine. He first partnered with friend and seasoned corporate tax lawyer Amanda Carpo to put up Kittelson and Carpo Consulting three years ago. Today the consulting firm is a thriving team of lawyers, recruiters and accountants, which has provided business set-up services for some 200 foreign companies to date.

    It was sister company KMC MAG Group that was more a child traditional business school principles. When Greg and his partner saw an evolution in their clients’ needs to include securing leased office space, they jumped at the opportunity to address the high demand and secure the niche.

    It’s not all business for Greg, though. “Your overall focus has to be on your business, but it’s important to have social outlets,” says this health buff. How he has time for travelling, boxing, muay Thai, and dancing the salsa and meringue are bewildering, but he insists it’s a matter of balancing these with company concerns.

    When called for, however, Greg puts his astute business mind to work by collaborating with people in his workplace. As if to reiterate the importance of skilled personnel, he doles out praise for the team s he has assembled here in the Philippines. “I have a very talented local team that can interface and execute for our clients, and that’s something we’re very proud of,” he says.

    Self-Teaching through Experience

    Mr. Michael McCullough

    Mr. Michael McCullough

    “According to a poll by the HR, I’m relaxed and easy to approach, and talk to,” says Michael McCullough, which may not come as surprise after finding out he hails from Southern California in the US. But don’t be fooled by his approach to management: At 28, he co-manages the KMC MAG Group, a company he launched with Kittelson and Carpo Consulting’s Greg.

    Michael initially started out as an IT Consultant for Greg’s consulting firm, a position he held after stints in Silicon Valley and the Cambria Corporation, a custom software development firm. The latter brought him to the Philippines in 2007 to open a subsidiary company, and it’s felt like home here for him ever since.

    That’s not to say that success came effortlessly for him. “We were never taken seriously by a lot of landlords at first, so establish a name is kind difficult here,” recalls Michael. But in its 13 months of operation, KMC MAG went from unsure to unperturbed, closing several significant accounts and establishing itself as a real estate player to stay.

    The company prides itself in providing immediate solutions, usually for the brisk BPO industry, creating a niche in a country where red tape can be frustrating, Michael says. Triumphs such as providing large-scale serviced office for two clients on a floor of coveted Ayala Avenue building space (“I think we’re one of the first companies to do something like this on a large scale, specially at the price point,” he notes) have sincere created deserved buzz among industry higher ups.

    Nonchalant about his achievements for his age, Michael looks at his business a continuing education. Incidentally, he chose entrepreneurship over graduate school, opting to experience learning rather that paying for it. “All of our clients are very seasoned CEO’s, so when they come to our office, I do nothing but listen and try to learn from them,” he says.

    KMC MAG has since branched out to offer more solutions for its clients, from staff leasing to condominium brokerage. And Michael is living it up in the Philippines, unleashing the water lover in him on weekend getaways. “ I feel like is the 51st state of the US. I feel comfortable here.

    Attuned to Business Weather

    Mr. Sebastien Caudron

    Mr. Sebastien Caudron

    Browse the online materials of some of the most ubiquitous names in business here, and not a few will be the handiwork of NetBooster Asia. This online advertising and marketing agency’s successes were not without constant fine-tuning, however. For his part, company president Sebastien Caudron believes,” [Business] is evolving. You just follow trends and follow what’s working.

    NetBooster Asia’s history owes a revisit to one of its predecessors: Yellowasp. Sebastien’s first venture in the Philippines in 2000, Yellowasp is a software services company offering offshore development services. Noticing that web services were increasingly becoming professionalized, Yellowasp eventually began re-branding as a web services provider.

    Partnering with French web solutions group NetBooster around three years ago marked yet another shift, this time the creation of a full blown online agency offering creative services and online marketing solutions to companies across Asia. Sebastien shares, “Instead of trying to sell them a website or traffic, we went to very basic commercial talk to make them realize that internet has big potential for them.”

    It helps that the Frenchman himself is young; at 36, he’s in touch with a generation that is internet-savvy. As for where he’d eventually set up business, Asia was always on his radar; a joint-venture project in the 1990’s in Manila sealed the deal, and he stayed ever since. The Philippines, with its large, young and English-literate population, provided both the ideal labor pool and target market for NetBooster Asia.

    Sebastian started his first company here at the age of 25, and ten years into the business, he says he’s happy he started early. “If you’ve experienced the comfort and low stress of getting monthly salary, I think it’s difficult to accept the risk of not earning as much on regular basis,” he reasons. Still he notes some changes in perspective that come with experience: “You realize that the independence of an entrepreneur is also not real, because you have to report your clients.”

    NetBooster Asia, with Sebastien at the helm, now looks to be the agency of choice for clients that aim to advertise regionally. “The idea is to be the first and largest digital agency network in Southeast Asia. We want to create value by offering a network,” so his forecast goes.

    Taking the Leap

    It helps for the enterprising hopeful to be well-educated: Greg studied in Mexico and Spain, Michael in Denmark and Sebastien in Scotland. But also like these three, the successful entrepreneur is ultimately the risk taker. Once the plunge is taken, however, there is so much to do to avoid a free fall. “Then it comes down to focus on your business,” Greg advices those setting up business on soil foreign to them.

    “Trust your instinct, make sure you have enough investment, trust top people and include them in the business so they follow you and stick to you,” adds Sebastien. And if all goes well, dividends will not only be in the form of finances, but fulfillment as well. Michael would know: “I remember receiving my very first commission of Php 100,000, and it’s an indescribable feeling.