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Pros and Cons of Starting Foreign Companies in the Philippines

Infographic summarizing the Pros and Cons for foreign companies in the Philippines

Like it or not, today’s business landscape is incredibly competitive and will continue to be so. It’s no wonder that companies scramble to build, maintain, and expand their edge over competitors. To get that proverbial edge, the savviest of entrepreneurs are exploring strategies that they have never pursued before.

Among these strategies is establishing businesses overseas. After all, one can make money anywhere in the world. In recent years, the Philippines has become a favored destination for aspiring moguls and tycoons. Opening foreign companies in the Philippines allows them to be successful even outside of their home countries.

Any businessman worth his salt would do his research before investing his hard-earned money in another country. After all, doing business in the Philippines is not for the faint-hearted. If you have ever thought of branching out abroad, you must be aware of the benefits and risks of doing so. To guide you, here is a short list of the pros and cons of starting your own business in the Philippines as a foreigner:

Pros:

Cons:

Pros of Starting Foreign Companies in the Philippines

A Large Market

With a population of over 100 million, the Philippines offers numerous opportunities for any enterprising businessman to sell his products and services. Filipinos have an affinity for Western culture and are famously consumer-driven. Foreigners would have an easier time adjusting here compared to other Southeast Asian countries like Thailand and Indonesia.

Despite the great income disparity between population sectors, a smart entrepreneur can profit by honing in on and marketing to specific segments. In addition, locating your business in the Philippines allows you to take advantage of the greater ASEAN and Asia-Pacific markets.

Low-Cost, Talented Labor

Naturally hardworking, Filipinos are the dream employees of every company. Each year, the country’s universities and colleges add thousands of graduates to an already large labor pool. This has been – and still is – a boon to the business process outsourcing (BPO) sector, with the average Filipino’s good command of the English language and excellent communication skills.

Salaries in the country are also much lower compared to North America and European countries. With the exchange rate hovering at around PhP 50 to USD 1, foreign companies in the Philippines definitely get more bang for their (payroll) buck.

Good-Enough Infrastructure

Despite being an archipelagic country, the main islands of the Philippines are surprisingly well-connected to each other and the outside world. Large cargo shipments mostly utilize the seaports, while smaller ones go through the various airports dotting the major cities.

Within the greater metropolitan Manila area, the key business hubs are Makati City, Bonifacio Global City (BGC), and Ortigas Center. Rivaling the likes of Hong Kong and Singapore, these places boast of state-of-the-art, eco-friendly communities that bring residents and businesses together.

While there remains a lot to be done to improve the country’s infrastructure, President Rodrigo Duterte has recently initiated the “Build, Build, Build” program to fast track major infrastructure projects that would benefit both local and foreign companies in the Philippines.

Incentives from the Government

The Philippine government, through the Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA), provides several incentives to attract foreign investments, especially into priority areas and industries marked for development.

Fiscal incentives include income tax holidays, tax exemptions and deductions, and preferential rates on the final tax of gross income (for PEZA-registered companies). Among the non-tax incentives are simplification of customs procedures for imported products, issuance of resident visas to foreign investors and their families, and the privilege to operate a bonded trading or manufacturing warehouse.

If it’s your first time to open an foreign-owned company in the Philippines, don’t forget to avail of these goodies!

Cons of Starting Foreign Companies in the Philippines

More Holidays in the Philippines

The Philippines has 18 official non-working holidays. Many of these are of great cultural significance, such as Christmas, New Year, the Christian Holy Week, and All Souls’ Day.

On the other hand, these holidays provide a ready-made, annually-occurring boon to consumer-oriented businesses. Marketing your products and services could not become any easier, with the extended Christmas season in the Philippines that unofficially starts in September and ends in February.

The Law Favors the Laborer

Most of the labor laws in the Philippines are geared to favor employees over management. For example, companies cannot simply fire underperforming employees at will. Before fully terminating someone, the employer has to prove first that the staff member concerned was at fault or failed to pass the standards of his/her probationary period. Companies are also mandated by Philippine law to provide severance pay and 13th-month pay.

These conditions may seem unfair to some, but overall such laws have contributed to higher morale and a lower turnover rate among Filipino employees compared to their foreign counterparts. That is something any smart businessman would appreciate.

Heavy Traffic

Sad to say, the Philippines lacks any kind of efficient mass transportation system. According to the Asian Development Bank, Metro Manila tops the list of 278 most congested cities in developing Asia. The sheer volume of public utility buses, jeepneys, and private vehicles on its roads during work hours leads to slow-moving traffic at best and outright gridlock at worst.

The good news is that various skyways and expressways, as well as a new train line in the northern part of Metro Manila, are being built to ease the traffic situation. It may take some time, but things are bound to get better.

Despite the government-provided incentives mentioned above, some foreign businessmen still hesitate to shortlist the Philippines as an investment destination because of the restriction on foreign ownership of land. They may, however, own 40 percent of a corporation that owns land. Most businesses are allowed to be 100% foreign-owned. The Foreign Investment Negative List contains the limitations of foreign ownership mandated by the constitution and specific laws.

It must be noted that 100% foreign ownership of a company catering to the Philippine local market is allowed, subject to having a minimum paid-in capital of USD 200,000.00. An exemption may be obtained for foreign companies in the Philippines that employ a minimum of 50 direct employees or use advanced technology, for a minimum paid-in capital of USD 100,000.00.

Need Help with Starting Your New Business?

You may be discouraged by some of the cons we enumerated, but don’t be. The Philippines has been one of the fastest-growing economies in Asia, and it will continue to expand in the coming years. With its friendly people and climate, you have even more incentives to build your dream business here.

If you don’t know where (and how) to start, we at DAYANAN Business Consultancy are here to help. Contact us today.

Doing Business in the Philippines

Philippines Business Registration
Ayala Avenue Makati City Central Business District

Dayanan Business Consultancy assists individuals and foreign companies of all sizes in setting up their business operations in the Philippines. Doing business in the Philippines has many advantages as well as a large amount red tape.

Once we know your goals and the kind of business you want to launch in the Philippines,  DBC will recommend the best structure for your KPO, Call Center, IT or Web Development Outsourcing, Back Office Operation or Import and Export. DBC will advise you how to register your investment with PEZA or BOI to obtain tax incentives.

Get the Leading Business Process Outsourcing in the Philippines

We will also ensure that you will get the best Business Process Outsourcing in the Philippines. BPO is a cost-saving measure which is a method of subcontracting business-operations to a third party. One category of BPO is outsourcing of back office services, and Dayanan can help you starting from your business registration in the country.

DBC’s knowledge of the Philippine’s business environment and government agencies allows DBC’s clients to reach their objectives quickly. Personalized service is our commitment, whether your intention is to establish a:

Once the SEC has issued your License to Transact or Certificate of Incorporation, DBC will still be there to help get local business permits and licenses and register with other government agencies when necessary.

Other services DBC provides Business Development and Marketing, Business Plans, Visa Processing, Bookkeeping and Payroll.

Your Business Registration in the Philippines will be done quickly and professionally through Dayanan Business Consulting services.

Contact the DBC Team now for a free consultation.

Things You Need to Know When Setting Up A Call Center in the Philippines

There are two legal entities which can be used to register a call center, BPO, KPO or outsourcing company in the Philippines.

The choice is limited to a Branch Office or a Domestic Corporation. Both can be 100% foreign owned as long as at least 60% of its services. A Representative Office can not be used for BPO, outsourcing or back office operations.

A Philippines corporation is the entity that resembles the most an LLC.

A Domestic Corporation is required to have a minimum of 5 directors. Each director must own at least one share of the corporation. Three of the directors must be residents of the Philippines.

A Branch Office must have a resident agent whose main responsibility is to receive legal summons from the government. Liability lies with the Parent Company as the branch is only an extension of its parent. Within 60 days of having receiving its license to transact business a Branch Office is required to give the SEC a security deposit of PHP100,000.00.

Once the Certificate of Incorporation or the License to Transact Business has been issued it’s time to apply for the for the local business permits. After which registration with the Social Security System can be done.

The Philippines government offers various Income Tax Holidays for most outsourcing businesses. PEZA and BOI are the agencies which grant Tax Incentives.

Philippines Business Registration.

Philippines Call Center Setup Startup
Call Center Setup

Philippines Business Registration Back Office Operations Setup

The Philippines is a popular destination for Back Office Business Process Outsourcing (BPO). Back Offices are usually setup for data entry, accounting, bookkeeping, human resources, financial services, marketing, software development and anything that could be competently at a lower cost in the Philippines.

100% foreign ownership of back office operations is allowed in the Philippines. The business may be setup as a Branch Office or a Philippines Domestic Corporation. Both are required to register with the SEC before starting operations. Back office operations are considered an export business and therefore can be started with a lower paid-in capital than required by companies serving the domestic market.

The advantages of starting a back office in the Philippines are to expand quickly with lower manpower costs. And with a highly educated, trainable, English speaking workforce that is available in most of the country.

Many large foreign banks such as Citibank and JP Morgan have sizable back office operations in the Philippines and employ thousands of qualified employees.

We will examine what you intend to operate and advise you on the best way to start your company in the Philippines. Certain BPO operations are eligible for tax incentives from either the Board of Investments or PEZA. DBC will help you in setting up your back office operations in the Philippines, guide you through the red tape and make sure you obtain all the business permits you need to operate legally.

Contact DBC now for a free assessment of your outsourcing operations in the Philippines.

Philippines Back Office BPO

Representative Office Registration

Philippines Representative Office

The process for obtaining a license to transact business from the Philippines SEC to operate a Foreign Company Representative Office in the Philippines is similar to that of the Foreign Company Branch Office.

The required annual minimal inward remittance of funds for a Foreign Representative Office as working capital is US$ 30,000.00 as opposed to a one time minimum remittance of US$200,000.00 of a Foreign Branch Office as mandated by the SEC regulations. Every year the parent company must remit at least US$ 30,000.00 to cover operating expenses.

A Representative Office of a foreign corporation may not derive income from its operations in the Philippines. All of its operating costs must be covered by transfer of funds from the parent company.  Usual activities allowed are dealing with the clients of the parent company, dissemination of information, promotion of company products and quality control of products for export. It is forbidden to offer services to 3rd parties.

A Representative Office does not pay income taxes as none of its income is derived from the Philippines and is not qualified to apply for tax incentives with the BOI or PEZA authorities.

Dayanan Philippines Business Consultants will assist you with the setup and registration of your business with the relevant government agencies for a quick opening of a representative office in Philippines.

Philippines Representative Office Requirements

1 – Application Form

2 – Name Verification Slip (A name search will be done at the SEC to determine if the corporate name has any similarity with an existing corporation already registered with the SEC).

3 – Certified copy of the Board Resolution authorizing the establishment of an office in the Philippines; designating the resident agent to whom summons and other legal processes may be served in behalf of the foreign corporation; and stipulating that in the abscence of such or upon cessation of its business in the Philippines, any summons of legal process may be served to SEC as if the same is made upon the corporation at its home office

4 – Audited Financial Statements as of date not exceeding one year immediately prior to the filing of the application certified by an Independent Certified Public Accountant of the home country and authenticated before the Philippines Consulate/Embassy

5 – Certified copies of the Articles of Incorporation/By-laws/Partnership with an English translation thereof if in a foreign language (not English)

6 – Proof of Inward Remittance such as a bank certificate of inward remittance in the amount of US$30,000.00

7 – Resident Agent’s acceptance of appointment 9not necessary if agent is the signatory in the application form)

All foreign documents must be authenticated by the Philippines Embassy/Consulate of the home country.

Once the SEC has issued a license to operate, the representative office is required to obtain Philippines local business permits and register with the Bureau of Internal Revenue. The representative office may now apply for work permits and visas for its foreign employees.