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.

Business Registration in the Philippine

Business Registration in the Philippines

Whether you are a foreign company or an individual, you have multiple options depending on the nature of the business your company intends to operate.

To legally conduct business in the Philippines, your company should be registered with either the DTI or the SEC. Once registered with one of the latter, you will be required to obtain local company business permits.

Certain company structures are a better choice for individuals intending to open a small business. Philippines foreign investors generally may own and control any business within the limits of the Philippine foreign investment negative list.

 

Organized under Philippine Laws

Is a business structure which is owned by a single individual who owns all the assets and has unlimited personal liability for losses. There is no legal distinction between the owner and the business. A sole proprietorship must apply for a business name and be registered with the DTI.

Partnerships may either be general partnerships, where the partners have unlimited liability for the debts and obligation of the partnership, or limited partnerships, where one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. It consists of two or more partners. The managing partner always has unlimited liability, must be a Filipino citizen and resident of the Philippines. A partnership with more than P3,000 capital must register with the Securities and Exchange Commission (SEC). Under the Civil Code of the Philippines, a partnership is treated as juridical person, having a separate legal personality from that of its members.

Must be registered with the SEC and have a minimum of 5 incorporators whom are usually the first directors. Every director must own at least one share of the corporation. The liability of the shareholders of a corporation is limited to the amount of their share capital. A corporation can either be stock or non-stock company regardless of nationality. A corporation, if 60% Filipino-40% foreign-owned, is considered a corporation of Filipino nationality; If more than 40% foreign-owned, it is considered a domestic foreign-owned corporation and of foreign nationality.

A one person corporation (OPC) is a corporation with a single stockholder, who can only be a natural person, trust or estate.
The incorporator of an OPC being a natural person must of be of legal age.

Organized under Foreign Laws

1. Branch Office – is a foreign corporation organized and existing under foreign laws that carries out business activities of the head office and derives income from the Philippines. It is required to remit to the Philippines a minimum of US$200,000 as paid-in capital (this can be reduced depending on the nature of the business) .Registration with the SEC is mandatory.

2. Representative Office – is a foreign corporation organized and existing under foreign laws. It may not derive income from the Philippines and is fully subsidized by its head office. It deals directly with clients of the parent company as it undertakes such activities as information dissemination, acts as a communication center, and promotes company products, as well as quality control of products for export. It is required to have an initial minimum inward remittance in the amount of US$30,000 to cover its operating expenses and must be registered with the SEC

3. Regional Headquarters (RHQs) – An RHQ undertakes activities that shall be limited to acting as supervisory, communication, and coordinating center for its subsidiaries, affiliates, and branches in the Asia-Pacific region. It acts as an administrative branch of a multinational company engaged in international trade. It does not derive income from sources within the Philippines and does not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines. Annual required minimum inward remittance is US$50,000 to cover operating expenses.

4. Regional Operating Headquarters (ROHQs) – An ROHQ performs the following qualifying services to its affiliates, subsidiaries, and branches in the Philippines.
– General administration and planning
– Business planning and coordination
– Sourcing/procurement of raw materials components Corporate finance advisory services
– Marketing control and sales promotion
– Training and personnel management
– Logistic services
– Research and development (R&D) services and product development
– Technical support and communications
– Business development
– Derives income in the Philippines
– Required capital: US$200,000 – one time remittance

Once the entity you have chosen to setup has been licensed to transact business in the Philippines you may apply for work visas. It is necessary to have the appropriate visa to avoid being deported or placed on the immigration blacklist.