Company Registration in Philippines- An Overview
Philippines is an island which is considered as an archipelagic country in South Asia. In ASEAN, it is considered as the fifth largest economy. A company can be formed in Philippines without being physically present in person. Hence companies can be set up virtually with minimum requirements. In 2019, the government of Philippines ruled out the requirement for foreign companies to appoint board of directors. Hence the overall compliance burden for appointment of directors is not required.
This country consists of three main geographic regions which include Luzon, Visayas and Mindanao. Manila is considered as the largest business hub in Philippines. Registering a business is quite straightforward in Philippines as there are different forms of business structures which can be utilised.
In terms of GDP, the country is showing progressive growth with the current rate of GDP at 6%. Statistics show that the current rate of GDP is constantly rising. The government of Philippines provides different forms of investment opportunities for foreign entrepreneurs. Hence an investor would want to go for Company Registration in Philippines.
There are different forms of credit rating agencies present in Philippines, which contribute majorly to the financial sector and the development of the economy.
Benefits of Company Registration in Philippines
- Easy Incorporation
It is quite straightforward to go for company incorporation in Philippines. There is no requirement for a foreign resident to be physically present in Philippines for company registration procedure. This makes the procedure more simplified for foreigners to incorporate a company in Philippines. Only a single shareholder and director is required for the process of incorporating a company in Philippines. Registration procedures are mostly digitised hence the process of company incorporation would take less time.
- Good Market
Philippines is ranked 5th in terms of GDP in ASEAN region. GDP growth is at a rapid pace and in 2020 the GDP was 6%. There are different forms of credit rating agencies present in Philippines which contribute to the development of the economy. The government has provided different forms of initiatives for start-ups in Philippines. This would also include the Innovative Start-Up Act and the Philippines Innovation Act which provide different forms of benefits for start-ups. There are different economic zones such as the PEZA which offers different forms of incentives for entrepreneurs.
- Tax Incentives
The government provides different forms of tax incentives to support foreign investment in the country. These incentives include provision of corporate tax holidays, reduced amount of custom duties and excise on import of equipment and raw materials. Foreign investment is supported for medical tourism, IT sector and the BPO sector.
- IT and ICT Centre
The IT and ICT service sector in Philippines is rapidly growing. It is one of the largest centres which outsource work through the processes of BPO, LPO and KPO. It is considered as the global outsourcing hub for different form of companies. It is ranked in the top 10 places for companies to set up BPO operations. The government has developed the PCC (Philippines Cyber Services Corridor) which has the conglomerations of different types of BPO. Hence it would be beneficial to go for the process of company registration in Philippines due to these factors.
- Signatory of Treaties
Philippines is a Signatory of different treaties which allow benefits related to trade to be enjoyed by companies.
Eligible Business Structures for Company Registration in Philippines
The following business structures can be utilised for company registration in Philippines:
- Subsidiary Company
A subsidiary company is a domestic company which is incorporated in Philippines. This company would be separate from the foreign parent company. The liability of this form of entity is limited. To incorporate this form of entity, two promoters would have to sign the articles of incorporation of the subsidiary company. The rules of the Revised Corporation Code would be applicable for company registration in Philippines. There is no limit on the number of shareholders in a subsidiary company. However, if shares are issued to 20 or more shareholders, then it has to register itself with the Philippines Securities and Exchange Commission (SEC). The tax rate which is applicable to subsidiary company is 30%.
- Branch Office
A branch office is considered as a mere extension of the parent company. The liability would not be separate from the parent company. Domestic income from Philippines is derived for the branch office. This company can be formed by taking a resolution at the foreign parent company. A representative or manager has to be appointed to manage this form of entity. The tax rate which is applicable to branch office is 30%.
- Representative Office
A representative office is also a mere extension of the foreign parent company. The liabilities which are Bourne by the representative office would be a part of the foreign parent company. No corporate tax or Value added tax would be paid by this company, as no forms of profits are derived by this company. However, annual compliance with the Philippines Securities and Exchange Commission (SEC) must be carried out.
A partnership has separate legal entity from the partners. Under the rules of commercial law, the partners are mere agents of the partnership. A foreign company can be a partner of a partnership. However, regulatory consent and permission must be taken from the relevant authority to become a partner. This form of entity must be formed with at least two partners who carry out regular transactions. If a foreign company wants to be a partner, then it must register itself with the SEC. All the partners have to get into a partnership agreement. This agreement is also known as the Articles of the Partnership. The partnership would be taxed at a rate of 30%.
- One Person Corporation (OPC)
The Revised Corporation Code has brought out a different from of entity. As per the above, a single stock holder who subscribes to the shares of this entity would form an OPC. This form of entity can only be started by a trust or a natural person. The individual would be considered as the sole shareholder and the single director of the company. OPC can carry out other appointments such as the company secretary, treasurer and officers within 15 days of the incorporation.
- Area Headquarters
This form of entity would only be considered for the purposes of carrying out administrative work. The liabilities of this administrative branch would be deemed as the liabilities of the foreign head office. Such entities cannot carry out activities. There are different forms of tax incentives granted with respect to the operation of the Area Headquarters.
Minimum Eligibility Criteria for Company Registration in Philippines
The following eligibility criterion has to be sufficed for company registration in Philippines:
- Minimum Capital
The minimum capital required for Company Registration in Philippines would be different for all business structures:
• USD 200,000
• USD 100,000 minimum capital is required if the company is utilising some form of advanced technology. The type of services utilised by the company would be determined by the Philippines Department of Science and Technology (DOST).
• USD 100,000 would also be required if the company has minimum of 50 employees. All the residents of Philippines have to be Filipino. This requirement would be carried out by the Department of Labour and Employment (DOLE).
• If the branch office is planning to export about 60% of the products then the above minimum capital is not required.
• The Revised Corporation Code (RCC) has negated the requirement for minimum capital. Previously the requirement of PHP 5,000 was needed.
• A deposit of PHP 500,000 must be provided to the SEC. The market values of the securities have to be the above amount.
• After each financial year, 2% of the gross income must be deposited every year. This is the amount of minimum capital required for branch office company registration in Philippines.
• For forming a subsidiary the same amount of minimum capital would be required as utilised by a branch. Hence if an investor goes for company registration in Philippines and sets up a subsidiary then the same amount which is utilised by a branch would be required for a subsidiary.
- Representative Office
• The foreign parent company has to make a deposit of USD 30,000.
• For forming a partnership the same amount of minimum capital would be required as utilised by a branch. Hence if an investor goes for company registration in Philippines and sets up a partnership then the same amount which is utilised by a branch would be required for the partnership.
- Area Headquarters
• Deposit of USD 50,000 would be required.
- Minimum Shareholders
There is no minimum number of shareholders required for company registration in Philippines.
- Minimum Directors
Minimum of two directors would be required for company registration in Philippines. The upper limit for directors is 15.
- Residency Requirements
There is no residency requirements for company registration in Philippines. Nationality of shareholders would depend on the type of business structure.
Procedure for Company Registration in Philippines
The following procedure has to be utilised for company registration in Philippines:
- Application Online
First and foremost, the applicant has to go to the following website (https://crs.sec.gov.ph/ ). Information which is asked above has to be provided by the applicant.
- Name Availability and Reservation
The applicant can also check the requirements of the name of the company. The applicant has to go first and click on register a new company. After this, the type of industry, business and other requirements can be filled by the applicant. Then the name of the company has to be proposed by the applicant.
- Add Information about the company
In the next step, information about the company must be added. All information which is added would be added to the online form.
- Upload Documents
In the last step, all the documents have to be uploaded for approval. The approval would be provided by the SEC.
Compliances for Company Registration in Philippines
The following compliances have to be considered for company registration in Philippines:
- Shareholders meeting
A subsidiary company is required to hold an annual general meeting. If stated in the articles of association, then the company requires to have a shareholders meeting.
- Board Meetings
A subsidiary company has to conduct board meetings. If the articles of the company state it then a board meeting has to be carried out.
- Company Tax
Annual Income tax returns have to be filed by the subsidiary office and branch office. Corporation tax levied at the rate of 30% for companies.
- Business Permits
All relevant permits have to be secured from the Bureau of Internal Revenue (BIR), Social Security System (SSS), Philhealth and Pag-Ibig.
- Corporate Compliances
GIS which is the general information sheet and AFS have to be submitted to the SEC. This would only be carried out after it is received by the BIR. Annual registration fee must be paid before 31 January every year.
Documents required for Company Registration in Philippines
The following documents are required for company registration in Philippines:
- Barangay Clearance which can be obtained from the Barangay Hall
- A Business Permit from the Business Permit and Licensing Office
- The Mayor’s Permit from the Mayor’s Office
- Business Registration Certificate - This can be obtained from the SEC
- Proof of the Address or the contract of lease
- Articles of Partnership,
- Treasurer’s Affidavit,
- Cover Sheet,
- Passport Information on Shareholders and Directors
- Endorsement Certificates.