Starting a Business in the Philippines as a Foreigner

TransferWise
03.31.20
8 minute read

With increasing urbanization, a growing middle-income class, and a large and young population, the Philippines economic dynamism is rooted in strong consumer demand supported by improving real incomes and robust remittances. Businesses have transformed into something new together with the advancement in the field of information technology and industrial development. Although its economy is largely dominated by the agricultural sector there’s still a lot of opportunity in this newly industrialized country, not just for Filipinos but also for foreigners.

Why Philippine market is good for business?

Aside from the fact that the Philippines is rich with natural and mineral resources, beautiful tourist spots, and diverse culture it is also a good market to tap for both local and foreign entrepreneurs. Here are the reasons why:

Strategic Location. The Philippines is in the heart of Asia, making it a strategic country that plays a huge role not only during the war era but until today in the field of trade and commerce resulting in faster growth in its economy. It is located within four hours flying time from major capitals of the region. Sited at the crossroads of the eastern and western business, it is a critical entry point to over 500 million people in the ASEAN market and a gateway of international shipping and air planes suited for European and American businesses.

Strong and Quality Manpower Resources. The Filipino workforce is one of the most compelling advantages the Philippines has over any other Asian country. With higher priority in its education, the literacy rate in the country is 99.08¹ percent of the highest in the region. English is taught in all schools aside from its native language, making the Philippines one the world’s largest English-speaking country.

Openness to New Opportunities. Most Filipinos are short-oriented and are receptive to changes and new ideas given its history from foreign colonizers. Challenges and problems are usually simply accepted and dealt regardless as determined by fate and even there’s nothing to be done about it. They are also resilient even in the worst calamities that have hit the country over the past few years.

Filipinos are Confident Consumers. Filipinos are confident spenders in the world putting their hard-earned money on new clothes, vacations, investments and home improvements. Based on the survey² conducted by Nielsen it showed Philippines as the top ranked spenders globally and on top of even the United States which placed fourth. The Philippines outranked neighboring countries in Asia-Pacific such as India and Indonesia which placed second and third respectively.

Developing Infrastructure. The Philippines is an archipelago that makes it a challenge to connect every island, but through the initiative of its government a well-developed communication, transportation, business and economic infrastructure links the three major islands and distinguishes the Philippine economy. Highly accessible by air, water and cyberspace, liberalization of inter-island shipping and domestic aviation further sparked improved facilities and services.

Unlimited Business Opportunities. The Philippines has improved and primed up various areas for investors and offers a dynamic consumer market accustomed to a group of product choices created by a competitive domestic economy. It offers a good opportunity to new business ideas given its diverse culture backed up by confident buying power of its people, so see for yourself what opportunities this country offers.

What industry can I venture on?

Keep in mind all the reasons why it’s good to do business in the Philippines, let us now analyze the top 7 best industry you can venture on;

  • Travel and Tourism. The Philippines takes pride in its scenic beauty and lavish tourist destination, there is a huge demand for services, packages, offers, facilities, accommodations, trips, transport, food and beverage and other travel related services.
  • Agriculture. The Philippines being a tropical country holds a massive agrarian land mass extending to 9.7 million hectares of fertile soil suitable for different crops like, coconut, rice, mango, sugarcane, corn, coffee, banana, pineapple and cacao. The country also produces poultry and livestock which support the basic needs of the region so it’s a good industry to venture on.
  • Manufacturing. Given the country’s low labor cost, the Philippines is a good place to venture on manufacturing, covering the creation of products that include food and beverage, petroleum, transport, and industrial equipment, textile and others.
  • IT, BPO, and Business Services. The development in the Information Technology sector leads to fast-paced and rapid expansion in Business Process Outsourcing, from the last decade, BPO’s emerged as the top contributors to the Filipino economy.
  • Real Estate. Real estate is still considered to be a flourishing industry even when it has already achieved so much in the last few years. As the population keeps increasing there will always be a demand for property space and offices. It is a fairly sustainable market with attractive potential for high returns as investors can access a whole market for home seekers and travellers.
  • Retail. Amidst the currency inflation rate, overall spending and consumption among consumers are still high, thanks to the country’s high employment rate. Online shopping and delivery has been a driver of this rise, more Filipinos utilize mobile technology to fulfill their shopping needs.
  • Healthcare. This industry seems to be picking up steam as the country’s health expenditure grew significantly for the past few years. This is a good indication that people prioritize a healthy lifestyle and a good industry to be looked on.

Do I need a visa to start a business in the Philippines?

For most foreign nationalities, it’s easy to stay in the Philippines with a visa on arrival for a few months, however, if you want to stay for 3-6 months or longer you will need a business visa or also called a visitor’s visa. It allows you to negotiate terms with partners, attend international conferences, join business meetings, and others.

Applicants for temporary visitor's visa should normally apply at the Philippine Embassy or Consulate that has jurisdiction over their place of residence. While some visa applicants may apply at any Philippine Embassy or Consulate abroad, others are only allowed to apply his/her visa at the Philippine Embassy or Consulate in his country of origin or legal residence.

The following are the minimum requirements for applying a temporary visitor's visa:

  1. Passport/Travel Document Valid for at least six (6) months beyond the intended period of stay in the Philippines;
  2. Duly Accomplished Visa application forms;
  3. Passport Photos (2 pieces);
  4. Proof of bona fide status as tourist or businessman;
  5. Confirmed tickets for return or onward journey to the next port of destination; and
  6. Payment of Visa Fees

For additional information and complete guidelines you can visit DFA's official website.

Business Laws and Regulations

In most industries, foreign investment is promoted by fiscal and non-fiscal incentives in the Philippines. The country’s Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA) outlines these incentives and their requirements for availment. While for some industries there are restrictions in terms of maximum capital investment and all of them can be found in the Philippine Foreign Investment Negative List. If your business of choice falls into the industries outlined in the negative list³, you have to follow a defined recap.

The rules for foreign equity capital are as follows:

  1. For domestic market enterprises (which are defined as companies deriving at least 40% of their revenue from sources within the Philippines), Foreign equity is limited to 40%. It also means that you cannot be company president. However, if your domestic market business has a minimum paid capital of US$200,000 or more, the equity cap can be lifted and foreigners can fully own their businesses.
  2. For export oriented enterprises (which are defined as companies deriving at least 60% of their revenue from sources outside the Philippines), they can do away with the capitalization requirement and go beyond the 40 percent cap on equity owned by foreigners.

The Philippines also has an Anti-Dummy Law which penalizes individuals who violate the restrictions on foreign equity and those who evade laws on nationalization. To avoid more complications, it has been a practice by foreign investors to use their Filipino marriage partner’s name or partner with a local to work around the restrictions, but this arrangement poses several risks as well.

Step by step guide to starting a business in the Philippines

1. Search on the industry you are interested in.

It is important to identify some businesses that are not open to foreigners hence the need to visit government agencies responsible for registering businesses in the Philippines to make your enquiries before registering a new business.

2. Choose and register a business name.

Registration of proposed business names are done in different departments of states in the Philippines and it is based on the type of business you want to register:

  • For Sole Proprietorship you would have to visit the Department of Trade and Industry (DTI)
  • For Corporation or Partnership company, you would have to visit the Securities and Exchange Commission
  • For Cooperative business, you would have to visit the Cooperative Development Authority

Legal documents You Need to Run a Business in Philippines

SEC registration - for registering as a partnership or corporation

DTI registration - for registering your business trade name (BTR)

Mayor’s business permit – secure the license to operate in the city or municipality and payment of your local business taxes.

BIR registration – Tax Identification Number (TIN for business), official receipts and invoices, register your books of accounts, and pay your national internal revenue taxes (Income tax, VAT or Percentage Tax, Withholding Taxes, etc.).

SSS, PhilHealth, and Pag-Ibig Fund registration - register yourself or the company as an employer and remit your employees’ contribution together with your employer’s share.

Usually, the BIR and the City/Municipality Office require the certificates of registration with the SEC or DTI efore a business can be registered with them. Thus, you need to register through those offices to start commencing your business.

3. Choose an office address.

Registration of proposed business names are done in different departments of states in the Philippines and it is based on the type of business you want to register.

4. Open a bank account and pay the minimum deposit.

Part of the requirements of registering a new business in the Philippines is that the business owner must open a bank account and deposit a minimum amount of PHP 5,000 ($100) together with additional requirements such as articles of incorporation and identification documents.

5. Apply and Secure the Needed Clearance and Business Permits.

As a new business entity in the Philippines you are expected to secure all permits, licenses, tax requirements and clearances needed to start your business operations. You can also check with the local region where your business is located to know additional requirements needed aside from what was mentioned above.

If you have been able to successfully complete all the requirements needed you can now open your doors and start welcoming customers to your business.

A cost-effective way of sending funds to the Philippines

Did you know that you lose over $50 of a $1000 transfer abroad due to high Swift fees and poor exchange rate using most traditional banks?

If you have to convert your initial capital from another currency, use TransferWise to save over 50% on transfer fees. It offers a free international account to help send and receive transfer in different currencies including Philippine peso all in one account via the app or website. This helps you manage your cash flow faster and cheaper.

Additional benefits include:

  • USD global - pay overseas contractors in USD
  • Multiple transfers to vendors and suppliers in one go
  • Borderless account - hold, send and receive funds in one multi-currency account
  • Linkable to accounting software such as Xero
  • Automated batch payments through open API to save you time and streamline the process.

Sign up on TransferWise for Business, and start saving time and money today!

Sources:

  1. Unesco official website
  2. Nielsen 2017 report
  3. Official gazette - Executive order no. 65

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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