Guide

Expanding to Philippines

The flourishing economy and dynamic demographics of the Philippines present alluring prospects for global businesses. Nevertheless, careful planning is indispensable before venturing into this market. This guide furnishes a thorough roadmap, guiding you through the crucial considerations for establishing a successful and sustainable enterprise in this thriving Southeast Asian nation.

How to set up a business in the Philippines?

The Philippines, with its vibrant economy, friendly culture, and dynamic workforce, beckons entrepreneurs seeking new horizons. But before planting your flag in this tropical paradise, thorough preparation is key. Here's a roadmap to navigate the exciting journey of setting up your business in the Philippines:

Things to consider for starting a Company in Philippines:

Business Plan: To conquer the Philippine market, meticulous research must come first. This isn't just about finding customers; it's about uncovering hidden gems – profitable opportunities lurking within your industry. Imagine diving into local trends and needs, understanding what makes Philippine consumers tick. How big is the market? Is it growing? Who are your competitors? What are they charging? By answering these questions and more, you'll map out a treasure trove of untapped demand, ready to be claimed with the right adaptation. This meticulous research is your compass, guiding you towards sustainable success in this exciting new landscape.

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Identifying Sales Channel/Partners: To ensure smooth delivery of your offerings, finding dependable sales channels and partners is key. Think distributors with local expertise, savvy sales agents who tap into the consumer pulse, and efficient logistics providers who deliver your goods with island-hopping ease. These partnerships form the backbone of your supply chain, ensuring your products reach their destination swiftly and cost-effectively. Remember, it's not just about finding partners; it's about building trusted relationships that navigate the market's nuances together. With the right network in place, your supply chain transforms, not just into a delivery system, but into a conduit for success.

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Local Labor Market Insights: Expanding to the Philippines means understanding its vibrant workforce. Dive into local labour market insights to uncover talent pools, wage levels, and skill sets available in your industry. Remember, staff benefits are more than just a paycheck here. Explore common practices like health insurance, 13th-month pay, and leave policies to build competitive compensation packages that attract and retain top Filipino talent. By respecting local norms and tailoring your approach, you'll unlock the full potential of the Philippines' dynamic workforce, forging successful partnerships that pave the way for long-term growth.

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Networking & Support: Expanding doesn't have to be a solo act. In the Philippines, a wealth of local business networks & chambers of commerce await. These communities offer invaluable networking opportunities, connecting you with fellow entrepreneurs and industry experts. Plus, tap into government support programs designed to empower startups and new businesses. There are several government agencies in the Philippines like the Department of Trade and Industry (DTI), Board of Investments (BOI) & Philippine Economic Zone Authority (PEZA), which offer support to foreign businesses in different ways. From financial incentives to training initiatives, these resources can propel your growth. Remember, collaboration is key in the Philippines. Embrace the welcoming business ecosystem and watch your ventures flourish in this supportive environment.

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Cultural and Language Considerations: To truly thrive in the Philippines, embrace its rich tapestry of customs. Learn essential local practices and language preferences, ensuring smooth communication and avoiding accidental mistakes. Respect for elders and hierarchical structures are key. Remember, business etiquette flows with warmth and genuine connections. Build rapport, share a lighthearted conversation, and watch trust blossom. By immersing yourself in the cultural nuances, you unlock a treasure trove of goodwill, paving the way for successful partnerships and a truly fulfilling Philippine journey.

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Infrastructure & Resources: Before your engines start humming, ensure your infrastructure hums smoothly too. Find the perfect office space, be it a sleek high-rise or a charming local hub. Reliable utilities and essential services like internet and waste management are vital, so research availability and providers. From bustling Manila to idyllic island locations, the Philippines offers diverse options. Remember, flexibility is key. Adapt your needs to the available resources and leverage creative solutions. With meticulous planning and a resourceful spirit, you'll build a solid foundation for your Philippine venture, ready to plug into success.

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Local partner: Finding your way through the intricacies of the Philippine business landscape can feel like navigating a vibrant labyrinth. That's where a trusted local partner becomes your invaluable compass. With their expertise and deep-rooted connections, they can unlock doors to information about sales channels, labour markets, cultural nuances, and infrastructure resources. Think of them as your insider's guide, helping you avoid unnecessary detours and reach your goals swiftly. Don't underestimate the power of a strong local partnership; it can transform your expansion from a solitary trek into a smooth, collaborative journey towards success in the Philippines.

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How to Set up a Company in the Philippines?

Setting up your B2B company in the Philippines requires a clear roadmap. Here's a simplified guide to navigate the company setup process:

Business Structure: The Philippines offers 4 types of business structures for you to choose from. Here's a quick overview:

Sole Proprietorship: Imagine charting your own course, making all the decisions, and reaping the rewards (or weathering the storms) single-handedly. That's the essence of a Sole Proprietorship. This simple and budget-friendly setup is ideal for solo go-getters who value control and are comfortable with unlimited liability, meaning their personal assets are tied to the success of the business. Setting up is a breeze, but remember, you'll be the captain and crew, handling everything from registration to taxes to operations.
Partnership: Sometimes, collaboration is the key to success. Enter Partnerships, where you team up with like-minded individuals to navigate the entrepreneurial journey together. Choose your partners wisely, as you'll all be responsible for profits and losses, depending on the type of partnership you choose. General Partnerships see all partners bearing equal liability, while Limited Partnerships offer some protection for partners who invest capital but take a less active role. Registration can be handled by the SEC or DTI, depending on your capital. Remember, teamwork makes the dream work (but requires clear communication and agreements).
Corporation: If ambition and scalability are your guiding stars, the Corporation awaits. This complex structure creates a separate legal entity from its owners (shareholders), shielding their personal assets from business liabilities. Whether you're dreaming of a domestic Filipino-owned powerhouse or a foreign-backed venture, the Securities and Exchange Commission (SEC) is your gateway to incorporation. But be prepared for a more intricate setup process and ongoing compliance requirements. The reward? A structure built for sustained growth and attracting investors.
Cooperative: Not all businesses are driven by profit. Cooperatives prioritise the needs and benefits of their members, whether it's providing essential services like healthcare or promoting collective production in agriculture or industry. This democratic model thrives on collective ownership and a one-member-one-vote principle, making the Cooperative Development Authority your key partner in setting up. Remember, cooperatives focus on shared success, not individual wealth, and offer a unique way to empower communities and address social needs.

Registration Process: Here are some steps required to register a company in Philippines:

Pick Your Path: Decide on your business structure (branch, representative office, or domestic corporation) based on ownership and activity restrictions.
Work Visa (if needed): Secure a working visa from the Bureau of Immigration if you'll be actively managing the business.
SEC Registration: Register your chosen structure with the Securities and Exchange Commission (SEC) with standard documents.
Tax ID: Obtain a Tax Identification Number (TIN) from the Bureau of Internal Revenue (BIR) for tax purposes.
Local Permits: Register with the local government unit (LGU) for a Mayor's Permit and relevant business licences.
Bank Account: Open a corporate bank account using your SEC documents and board resolution.
Additional Permits (optional): Depending on your industry, secure specific permits like Fire Safety or Environmental Clearance certificates.
Reporting & Compliance: Maintain regular reporting with SEC, BIR, and relevant agencies to avoid penalties

Local Regulations: Operating in the Philippines dynamic business environment requires awareness of its robust legal framework. Here's a starting point for responsible and compliant operations:

General Business Laws: Here are some important business laws in Philippines that you should be aware of:

The Constitution: The bedrock of the Philippine legal system, dictating basic rights and business framework.
The Revised Corporation Code: Governs the formation, governance, and operation of corporations in the Philippines.
The Labor Code: Defines employer-employee relationships, minimum wages, and working conditions.
The Consumer Act: Protects consumers from unfair trade practices and defective products.
The Bureau of Internal Revenue (BIR) Code: Outlines taxation rules for businesses and individuals.

Industry-Specific Regulations:

Food and Drug Administration (FDA): Oversees the safety and quality of food, drugs, cosmetics, and medical devices.
Department of Environment and Natural Resources (DENR): Regulates environmental impact assessments and resource utilisation.
Department of Transportation (DOTr): Governs transportation services and public utilities.
Insurance Commission (IC): Supervises the insurance industry and sets regulatory standards.
Securities and Exchange Commission (SEC): Monitors capital markets and regulates corporations.

Banking & Finance: Charting your Philippine financial course starts with choosing your banking partner. Opt for established players like BDO, BPI, Metrobank, or PNB for their extensive reach and varied services. If digital agility is your priority, consider UnionBank, or if you cater to Chinese businesses, Chinabank offers specialised expertise. Once documents like business registration, tax IDs, and authorised signatories' IDs are ready, explore the wider financial ocean. Secure business loans for growth, dive into local investment opportunities, and ride the FinTech wave with secure online platforms. Remember, building strong relationships with your banking team can unlock valuable advice and personalised services. Navigate the Philippine financial landscape with confidence, and watch your venture blossom in this vibrant archipelago.

How do I go about Manpower and Human Resources?

Managing manpower and human resources (HR) effectively is crucial for any business venture in the Philippines. Here are some key things that you should consider:

Work permit/visas: Your Philippines adventure beckons, and navigating the visa landscape is key to success. Let's dive deeper into the two main visa types you mentioned:

Temporary Visitor's Visa (9 (a)): This versatile option, available in both tourism and business versions (9(a)), allows stays up to 16 months, extendable to 24 months or even two years with proper approvals. Ideal for short-term ventures, business meetings, or leisure trips.
Special Investor's Resident Visa (SIRV): Perfect for those seeking long-term residency and business opportunities, this visa grants indefinite stay with minimal conditions. Invest $75,000 USD and enjoy the freedom to live and work in the Philippines.
Pre-Arranged Employee Visa (9(g)): The most common work permit, sponsored by any employer. The employees must obtain an Alien Employment Permit (AEP) first, then a 9(g) visa for multiple entries and extended stays based on their contract. Processing time is around 2-3 months.
Special Non-Immigrant Visa under EO. 226: Executives at regional headquarters or multinational companies can opt for this visa. No AEP is required, and processing is swift (3-4 weeks). One can enjoy a three-year validity with a potential three-year extension.
International Treaty Trader/Investor (9(d)): Open to citizens of Japan, the US, and Germany, this visa caters to those involved in trade or developing their invested enterprises. Requires significant investments but offers a 1-2 year visa extendable to another two years.
Special Work Permit (SWP): Employers who have a short-term project that lasts 3 to 6 months can apply for SWP. SWP has a 3-month validity and can be renewed 1 time for another 3 months. However, if the worker exits the country even though the SWP is still valid it will automatically void/cancel and cannot be used upon entry. Processing time is around 5-10 working days.
Provisional Work Permit (PWP): Ideal for employees who have a pending 9G visa application but want to legally start working while waiting for 9G visa approval. PWP is valid for 3 months and can be renewed until the 9G visa has been approved. Processing time is around 5-10 days.

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Payroll Administration : Unravelling the mysteries of Philippine payroll requires navigating a tapestry of requirements. Ensure your business is duly registered, then gather detailed employee information. Deduct and remit mandatory contributions for SSS, PhilHealth, Pag-IBIG, and income tax based on salary brackets. Master the art of payroll calculations, meticulous recordkeeping, and timely tax filing. Leverage payroll outsourcing companies or software, seek expert guidance, and stay updated on policy changes. By weaving compliance and accuracy into your payroll fabric, you build trust with employees and pave the way for a harmonious Filipino venture.

Tax and Social Security Management: Expanding to the Philippines? The below points simplify tax and social security intricacies for smooth financial operations.

Taxation Essentials: Resident foreign corporations (those engaged in trade or business through a branch office) are taxed similarly to domestic corporations, except for capital gains on building sales (taxed as ordinary income). Only income sourced from the Philippines is subject to taxation. Here are the applicable specific tax rates:

Income of international carriers on their gross Philippine billings: 2.5%
Interest income from foreign currency loans granted by FCDUs to residents (excluding OBUs and other FCDUs): 10%
Income of FCDUs from foreign currency transactions with non-residents, OBUs, other FCDUs, and authorised local commercial banks: Exempt
Regional or area headquarters of multinational corporations meeting specific criteria: Exempt

Social Security Contributions:

Social Security System (SSS): Employers contribute alongside employees to the SSS, which provides retirement benefits, disability support, and loan programs. Employer and employee each contribute 9.5% and 4.5% of monthly salary with a ceiling at PHP30,000.some text
- Employees' Compensation (EC) Program: Employer contributes to Employees' Compensation (EC) program to assist workers who suffer work-connected sickness or injury resulting in disability or death. Employer and Employee’s contribution is capped at PHP30 per month.
Philippine Health Insurance Corporation (PhilHealth): Both employers and employees contribute to PhilHealth, which grants access to essential healthcare services and financial assistance during medical emergencies. For white collar work, employer and employer each contributes 2.5% of monthly salary with a ceiling at PHP100,000.
Home Development Mutual Fund (Pag-IBIG): This scheme encourages employee savings and homeownership through mandatory contributions from both parties. Pag-IBIG also offers housing loans and other benefits. Employer and employee each contribute 2% of monthly salary with a ceiling at PHP10,000. This is not applicable for expatriates.
Philippines Employment Laws: Compliance with the essential employment laws in the Philippines is necessary to fuel a successful B2B business journey. Here are some key provisions of the Philippines Employment Act that you should comply with.
Minimum Wage: Set by the Department of Labor and Employment (DOLE) and varies based on region and industry.

Working Hours: Regular working hours are 8 hours per day, 40 hours per week. Overtime work earns premium pay (1.25x, 1.5x, or 2x regular rate depending on day and hours).
Leaves: Employees who have worked for at least 12 months are entitled to service incentive leave (5 days/year) though vacation leave and sick leave are not mandatory. Most employers provide various paid leaves, including vacation leave (10 days/year), sick leave (10 days/year). Maternity leave is 105 days with full pay.
Probationary Period: Up to 6 months for a regular employee, but not exceeding 1 year for managerial positions.
Termination: Requires just cause or authorised grounds, with due process and separation pay for qualified employees.
Non-Discrimination: Employees are protected from discrimination based on age, gender, religion, etc.
Collective Bargaining: Employees have the right to form or join unions and engage in collective bargaining.
Child Labour: Prohibited for children under 15 years old, with exceptions for light work within family-owned businesses.
Health and Safety: Employers must provide a safe and healthy work environment and comply with occupational safety and health standards.

Other Employer Costs & Insurance: Beyond salaries, 13^th month bonus equivalent to 1 month salary or prorated thereof according to serviced months is mandatory by Department of Labour and Employment (DOLE) and has to be paid out at the end of the calendar year.

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Should I Set Up My Own Entity Or Outsource To A Local Expert?

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Deciding between setting up your own entity or outsourcing to a local expert is pivotal for your Philippines venture. Managing HR and payroll alone in a foreign market can be complex, making the expertise of a local specialist invaluable. Outsourcing is not a sign of weakness but a smart move to navigate regulatory landscapes and ensure smooth operations. By partnering with a local expert, you save time, resources, and gain confidence in compliant practices. Focus on your business vision while they handle the intricacies, setting the stage for a successful journey in the Philippines.

Factor	Outsourcing HR & Payroll	Managing HR & Payroll In-House
Cost	Generally cheaper, especially for small teams. Payroll software and hardware expenses are avoided.	More expensive due to salary costs for in-house HR and payroll staff, plus potential software and hardware expenses.
Expertise	Access to experienced HR and payroll professionals who specialise in local regulations and compliance.	Requires hiring and training qualified in-house staff with knowledge of local HR and payroll practices.
Time Commitment	Less time spent on HR and payroll tasks, freeing up internal resources for core business activities.	Significant time commitment to setting up and managing in-house HR and payroll functions.
Flexibility	Easier to scale HR and payroll services up or down as needed.	May be less flexible, especially with fixed-cost salaries for in-house staff.
Language and Cultural Understanding	Local experts better address language & cultural nuances	In house team may not have that level of expertise
Compliance	Outsourcing provider handles compliance with local regulations and provides guidelines to ensure you remain in compliance.	Full responsibility for ensuring compliance with local HR and payroll regulations.

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Innovare: Your Partner in managing Payroll, Compliance & More

Innovare, with its extensive partnership and network, can assist you with company setup, initial market research as well as manage your HR matters in a compliant manner for your new company. We recognize the challenges new businesses face as they embark on their entrepreneurial adventure. We can alleviate the burden of payroll, compliance, immigration and more from day one, allowing you to focus on growth with complete peace of mind. Think of us as your experienced guide, helping you clear the path, avoid the pitfalls, and reach your destination with success.

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