How to Register Philippine Business Entity?

By: Garry S. Pagaspas, CPA For a number of good reasons, Philippines has been an good location for foreign investors to do business – economic standing, consumer population, manpower quality, culture, climate, among others, and the best way to establish in the Philippines is to register a Philippine business entity appropriate to the intended operations in the Philippines – back office support, business process outsourcing in Philippines, manufacturing, service export, non-stock operations, trading and importation, etc.. Philippine likewise provides tax incentives to some industries (e.g. export oriented enterprise exporting at least 70% of its output like business process outsourcing in the Philippines) where they could enjoy an income tax holiday (ITH) for up to 8 years, 5% gross income taxation, and such other tax perks. Philippines have lots to offer when it comes to legal business entity and a choice of the type of legal business entity to register would have a great impact on the success of such business in the Philippines. This article will help you understand the basic things about how to register a Philippine business entity that could be useful for your making a decision.

Choices on Type of Legal Business Entity in Philippines
In the Philippines, the choice of legal business entity would depend on the intended operations in Philippines in relation to capitalization, target market – local or foreign, and extent of foreign ownership, among others. Notably, not all aspects of business or industries are open to foreign investors and reference to foreign investment laws or applicable special laws could be had for the purpose. There could be no single formula or hard and fast rule to determine appropriate business entity in Philippines. Following are the basic options of the foreign investors depending on the intended Philippine business operations for the business entity:

I. Using foreign corporation abroad, where legal entity of foreign corporation is brought to the Philippines and used to secure a license to do business in Philippines and operate as a:

  • Philippine branch office that is commonly used for business process outsourcing (BPO) in Philippines with reasonable amount of capitalization;
  • Philippine representative office, a non-income generating administrative office that could interact with local clients and US$30,000.00 initial capitalization or Philippine peso equivalent;
  • Regional operating headquarters, a special service operating entity catering to related parties, taxed at 10%, and with initial capitalization of US$200,000.00 or Philippine peso equivalent; or
  • Regional or area headquarters, a non-income generating administrative office in Philippines with initial capitalization of US$50,000.00 or Philippine peso equivalent.

Using a foreign corporation and securing license to do business in Philippines would require a board resolution to establish such legal business entity in the Philippines, audited financial statements of foreign entity, appointment of a Resident Agent, inward remittance of required capitalization to a temporary trust account for the purpose, and that corporate documents abroad will have to consularized or apostilled for use in Philippine registration of legal business entity. Tax implications could vary on the above operations and interactions with parent company abroad.

II. Registering a local domestic company, a limited liability corporation, to the extent allowed foreign ownership
  • Regular domestic corporation of natural persons – 2 – 15 persons for stock or nonstock corporations;
  • Philippine subsidiary, if majority of voting shares of stock are owned by a foreign company abroad to the extend allowed; or,
  • One person corporation (OPC), a single stockholder corporation with limited liability features.

Related documentary requirements executed in the Philippines normally requires notarization while if executed while signatories are abroad, then consularization or apostillement applies. III. Registering a partnership, a non-limited liability Philippine legal business entity of at least two (2) persons as partners for a particular trade or business and dividing profits among themselves IV. Registering a sole proprietorship with the Department of Trade and Industry, a solely owned business but without separate legal entity from the owner.

After deciding on the appropriate legal business entity to register in the Philippines, the following steps could then apply:
Step 1 – Registration with Securities and Exchange Commission
Based on the applicable documentary requirements to register Philippine business entity, you can now proceed to process registration with the Securities and Exchange Commission’s (SEC) Company Registration System (CRS) where you are required to fill-out certain details and upload documentary requirements  for Philippine business entity registration. SEC staff would evaluate the application, would issue Payment Assessment Form (PAF) for the filing and other fees, and after payment, will process further for the approval of the application. For local corporations, a stock and transfer book (STB) for stock corporations or Membership Book for non-stock corporation is required to be registered. For Philippine branch, a security deposit amounting to at least PhP500,000.00 is required to be complied within sixty (60) days from date of SEC approval of license to do business.
Approval of the application marks the legal personality of the Philippine business entity and you can commence dealing with operational matters like regularizing bank account, hiring for employees, entering lease contract and contracting renovation works, if any, and other related matters.
Step 2 – Securing Local Business Permit with LGU of Location
Local business permit with the city (e.g. Makati City, Pasig City, City of Taguig) or municipality of location is required to make business legal. They would normally look into compliance with engineering laws, sanitary, health and other basic compliance aspects. Fees could be based on capitalization and/or area of office space and this business permit is renewable yearly, not later than January 20 of each year.
Step 3 – Registration with Tax Authority – Bureau of Internal Revenue (BIR)
Withe the SSEC approval and local business permit of Philippine business entity, registration with the BIR for tax compliance and reporting in Philippines follows. BIR will register the Philippine business entity on its system through the SEC-generated tax identification number (TIN), register books of accounts, and register commercial receipts or invoices.
Step 4 – Registration with Employee Welfare Agencies
This step pertains to employee welfare registrations for social security with Social Security System (SSS), health insurance with Philippine Health Insurance Corporation (PHIC), and housing with Home Development Mutual Fund (HDMF). Registration would require at least one (1) employee registration details with such agencies. This are just matters of documentation and basic processing.
Other Philippine business entity registrations
With the completion of the above steps, your legal business entity in the Philippines could now be ready to operate. The following may or may not apply, and could be optional to register.
  • Availing of Tax Incentives in Philippines. Normally, export oriented companies exporting at least 70% of output and located in an economic zone under Philippine Economic Zone Authority (PEZA) could avail for tax incentives – income tax holiday of up to eight (8) years and/or 5% gross income taxation. Application could be made simultaneously with SEC registrations.
  • Securing Secondary License, if necessary. This applies to industries or businesses that are regulated under special laws like lending companies, banks, insurance companies, etc.
  • Securing Import-Export Accreditation with Bureau of Customs for import/export business related to bringing into Philippines of goods for domestic trade.
  • Registering Foreign Direct Investments with Central Bank of the Philippines is undertaken for government monitoring and servicing of foreign investments with foreign currencies for future repatriation of profits and capital.
  • Securing alien employment permits (AEP), alien certificate of registration identification card (ACR i-Card), and immigration visas for expatriate employees working on your Philippine business entity.

Operational compliance – tax, accounting, corporate, reporting, etc. Registration with the above agencies comes with compliance with reporting, remittance, filings and renewals. You can have your own team deal with these or you can source out professional service providers for the purpose. About the author:

garry s pagaspas

Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for two (2) decades helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@), or you may post a question at Tax and Accounting Center Forum and participate therein.


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