Start Up In The Philippines
Short guide for start-up business
With the Philippines tipped as one of the “emerging economies” in the world by several major credit institutes and economic firms, most recently, by the French credit body, Compagnie Française d’Assurance pour le Commerce Extérieur (COFACE), in its latest economic publication, citing the PH as a country with high growth potential and have the most favorable business climate among Asian countries, entrepreneurs and investors alike are now considering starting businesses in the country.
However, what potential entrepreneurs and investors must understand is that the country’s high growth potential and favorable business climate do not guarantee that starting a business in the country is anything easier. As a matter of fact, starting a business in the PH is still full of challenges, thus difficult, just like when starting up a business in any country with an emerging economy.
This post is made as part of our efforts in allowing people like you, particularly those expats and foreigners, who are interested in developing their overseas trade and doing business in the Philippines, know the challenges of starting a business in the country so they will be well informed and be able to plan ahead ways possible to avoid or minimize the frustrations associated in starting a business in the country often experienced. With that said, some of the challenges in starting a business in the country are outlined below.
Challenges of Starting Up A business in The Philippines
1. Plenty of Procedures, Slow Processing: There are a massive 16 procedures to navigate when starting a business in the Philippines. Some of these procedures are complex legal procedures requiring the help of a legal adviser one way or another.
All of the procedures can take an average of 36 days to complete. This long and back-breaking nature of setting up a business in the country placed it 161st in the World Bank and IFC rankings.
The rankings indicate the ease of doing business in all countries and were determined according to a variety of indicators which include: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. Out of the 189 countries that were ranked, the PH ranked 161st, a good indication that starting a business in the country is a difficult and complex process.
Villa Judan Cruz Law, a local aw office firm specializing in handling legal cases for businesses is a place we recommend you go to for all the legal help you will need when finally starting a business in the PH to make sure you will have a less hassle journey starting up.
Most of the procedures when starting a business in the PH include the submission of some basic documentary requirements that will prove that you as a foreign business person, is allowed to start a business in the country in the very first place. Basic documentary requirements include:
Business Visa: Of course, as a foreign investor, you will have to obtain your business visa before anything else. There are various types of special visas issued for foreigners who want to work or start a business in the country, depending on certain criteria. Types of Visas include Special Visa for Employment Generation (SVEG), the Special Investor’s Resident’s Visa (SIRV), and visas issued through the Board of Investments (BOI), Philippine Export Zone Authority (PEZA), and the Subic Bay Metropolitan Authority (SBMA).
If you don’t have the required Visa, talk to VJC VISA CENTER PHILIPPINES, a visa issuing company which help foreign people seeking to tour, work, invest, study, permanently reside,or retire in the Philippines, obtain their required Philippine visas complying with the laws set by the Philippine Government.
Business place: Another basic is finding the right place to do the business transactions in and submit all that place’s the documentation requirements by DTI other agencies. Documentary requirements include zoning clearance, environmental permit to operate, fire clearance, sanitary inspection, etc.
For more info on this and to see service offices you can get for your new business, visit Property Finder Manila, a listing of Service offices around metro manila and other nearby places. And The Private Residence to find a place to stay in while establishing your business in the country. The Private Residence offers a list of a wide range of ready to occupy private residences and serviced apartments for business groups and individuals alike.
Business Licenses/ permits: Whether you will be starting a business in the country as single proprietorship, partnership or corporation, you need to obtain licenses or permits from government, such as a business license in the locality where you will be establishing your business (this includes Barangay Clearance and mayor’s permits, ), as well as register the business with the Department of Trade and Industry ( For sole proprietorship), or with the Securities and Exchange Commission for partnerships and corporations. Other Licenses/permits you need include licenses/permits from:
Alien Employment Permit (AEP)
Bureau of Internal Revenue (BIR)
Social Security System (SSS)
Philippine Health Insurance Corp (Philhealth)
Department of Labor and Employment (DOLE)
Special clearance/Licenses/permits. Depending on the nature of your business’ operations, you might be required to secure a special clearance, license, or permit from some other government agencies. To know if your business is required to obtain any special clearance/license/permit, go to Villa Judan Cruz Law.
2. Highly Personalized Business Culture. Another challenge that entrepreneur will encounter when starting up a business in the country is the Philippine’s highly personalized business culture.This is in a sense that Filipinos tend to establish and cultivate relationships in the business which, if not carefully considered can cause many obstacles to business endeavors.For example, Filipinos like to engage in personal small talk to develop a warm and pleasant working atmosphere before establishing a cordial atmosphere where people negotiate. For foreign investors, especially western investors, who like to think that time is gold and want to get to the point immediately, this can be frustrating.
3. Local competition: There’s the local competition to deal with. Here, any foreign investor should do his research and study how the local businesses operate and have the help of a local expert.
4. High Income Tax Rates for all forms of businesses: The high Income tax rates for all forms of businesses and individual entities in the country turns off many investors.
|FORM OF BUSINESS||DESCRIPTION||REGULAR TAX RATE|
|Individual||Resident/non-resident/resident alin/non-resident alien||5%-32%|
|Domestic Corporation||Businesses established under Philippine laws||30%|
|Foreign Corporation||Organized and established under other country’s laws||30%|
|Resident ForeignCorporation||Engaged in trade or business in thePhilippines usually through a branch||30%|
|Non-resident ForeignCorporation||Not engaged in trade orbusiness but derives income from thePhilippines usually in the form of passiveincome like dividends or royalties||30%|
5. Restrictions on foreign ownership of business land and investment. The country allows only 40% foreign ownership of a business. This fact, like the high income tax rates, turns off most foreign investors.
Advantages of Starting A Business in the Philippines
Despite the challenges and their negative effects that entrepreneurs and investors will encounter when starting up a business in the country, the benefits, more often than not, outweigh the challenges and their negative effects. The Philippines have certain strengths that makes starting and investing new businesses in it worth the risk:
1. Strategic location. The Philippines is an ideal base for business due to one simple, yet really important business consideration: location. The country is strategically located in the fastest growing Asian region. It serves as a getaway to over 500 million people in the ASEAN Market and a natural gateway to the East-Asian economies.
2. One of the largest English speaking countries in the world. In today’s business world, having a good command of the English language is essential. The Philippines is blessed with an educated, multi-cultural, bilingual and skilled labor force.
In 2012, the country was named the world’s best country in business English proficiency, even beating the U.K and the U.S, according to Global English, the only index that measures business English proficiency in the workplace. From 76 represented countries, only the Philippines got a score above 7.
3. At its Finest. With growth at 6.6% in 2012, following a 3.9% growth in 2011, the country has never been the best place for start ups.These growths and other positive changes in the country’s economy in the past years, led Fitch Ratings to upgrade the Philippines’ credit rating to BBB-, the country’s first ever investment grade.
With its strategic location, highly skilled and highly trainable people, and a vibrant economy, the Philippines is a very good investment destination. If you or anyone you know wants to set up in the Philippines or just want to streamline their Philippine operations, we here in Arttechz Innovation, we have the local knowledge and resources to help you navigate and get set up on your business’ technical side, an important aspect of every business in today’s modern business world. Talk to us today.