A Comprehensive Guide for Entrepreneurs Doing Business in the Philippines (InCorp Global)
Business OpportunitiesSeptember 6, 2021 - InCorp Global Pte Ltd
This is a thought leadership article from PrimeGlobal member firm InCorp Global in Singapore, providing guidance on doing business in the Philippines.
The Philippines is recognized as one of the most ideal investment hubs in Southeast Asia. Its strategic location, fast-growing economy, and business-friendly regulations offer numerous opportunities to foreign investors seeking to penetrate the Asian market.
Doing business in the Philippines can be tricky. To help you, this article will give you an insight into the Philippine market and how your company can maximize its resources.
Starting a business in the Philippines allows foreign investors to tap into the Asian market with ease. Its strong government support of improving small and large enterprises helps the country attract a large amount of Foreign Direct Investments (FDIs), improving competitiveness against its ASEAN neighbors.
Strong Economic Growth
According to the Asian Development Bank (ADB) report, the Philippines is expected to gain a 6.5% GDP growth in 2021, ahead of Vietnam (6.3%), Myanmar (6%), and Cambodia (5.9%). The Philippine government is determined to restore the country’s economic performance in 2021 with measures provided in the Philippine Development Plan (PDP) 2017-2022.
The country also ranks 52nd for Global Startups Ranking in the Global Startup Ecosystem Index by StartupBlink. Within the East and Southeast Asian region, the Philippines ranks 9th after Vietnam (10th) and Mongolia (11th).
Government Support for Local and Foreign Enterprises
Despite the COVID-19 pandemic, the Philippines remained resilient with producing reforms and measures to support its economy.
Government initiatives such as the Corporate Tax Reform Program (CTRP), the Build Build Build (BBB) program, and tax incentives provided by Investment Promotion Agencies (IPAs) help improve crucial industries that contribute to the country’s development.
The Corporate Tax Reform Program (CTRP)
The Philippines has been aggressively reforming its taxation system to provide a simpler and more efficient tax system to local and foreign enterprises. The Corporate Tax Reform Program (CTRP) introduces several tax reform packages to boost investment and business activities in the country.
Under CTRP, the most significant reform program is the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. The act significantly reduces the corporate income tax (CIT) rate from 30% to 25% while continuously decreasing by 1% every year until 2027.
The act also introduces new and modified tax incentive options for foreign enterprises who engage in export-oriented activities in manufacturing, tourism, or similar business activities.
Tax Incentives from Investment Promotion Agencies
The Philippines provides tax incentive schemes to attract foreign investment. The Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA) are the special agencies responsible for administering and regulating tax incentives in the country.
Both BOI and PEZA offer similar incentives to foreign enterprises willing to invest in the Philippine market. Such incentives include, but are not limited to:
- Income tax holiday (ITH) of four to eight years
- ITH bonus of years under certain conditions
- Special corporate income tax (SCIT) rate of 5% based on gross income in lieu of national and local tax rates
- Enhanced deductions (ED) for expenses on production of goods and services, labor, research and development, training, power generation, and domestic input
- Value-added tax (VAT) zero-rating and exemptions on importation or local purchases of goods and services directly and exclusively used on the registered project.
- Duty exemption on imported capital equipment, raw materials, spare parts, or accessories
- Exemption from wharfage dues and export tax, duty, impost, and fees
- Tax credits on imported raw materials
- Tax and duty-free importation of consigned equipment
- Additional deduction for labor expenses
- Employment of foreign nationals in supervisory, technical, or advisory positions.
There are also 17 different investment promotion agencies (IPAs) that also administer, promote, and oversee various tax incentives in their respective regions.
Build, Build, Build Program
In 2017, President Rodrigo Duterte initiated the Build, Build, Build (BBB) program, aiming to accelerate infrastructure and development in the Philippines. The program opened the country to many foreign investors, inviting them to invest in agriculture, manufacturing, and energy sectors.
According to the ASEAN Post, the BBB program consists of around 20,000 infrastructure projects nationwide, involving roads, highways, farm-to-market roads, airports, seaports, terminals, evacuation centers, lighthouses, hospitals, schools, government centers, and the like. It is the centerpiece and one of the top-priority programs of the Duterte administration, which has been allocated a budget of around ₱8 trillion (US$164.7 billion) for six years (2017-2022).
Such budget allocation on infrastructure is thus far the highest in Philippine history to date.
With its strategic location, large pool of talented individuals, and business-friendly regulations, the Philippines provide many advantages for foreign and local entrepreneurs.
The Philippines is home to many skilled professionals emerging from different economic sectors such as agriculture, manufacturing, energy, IT-BPO, etc. These professionals allow foreign investors to maximize their organization’s output production while saving money due to inexpensive labor costs.
The Philippines produces approximately 350,000 graduates per year, with a national literacy rate of 97.8%. The country is deemed as the most literate country in Southeast Asia.
Additionally, English is widely spoken across the country, allowing employers to hire top-performing candidates in the Philippines with ease. The government mandates schools to include the English language as part of the national curriculum. This removes the difficulty of a language barrier between foreigners and locals.
Crucial Entry-Exit Point in Southeast Asia
Located at the heart of Southeast Asia, the Philippines is a major gateway to approximately 500 million individuals in the ASEAN region. With over 396 maritime ports and 22 airlines, foreign investors can reach major Asian markets such as Singapore and Hong Kong within a few hours.
Enterprises engaging in export-oriented activities can also take advantage of its entry point to transport products between Asia-Pacific, the Americas, and Europe.
Foreign Business Ownership
Full foreign ownership is allowed in the Philippines. However, such ownership is subject to limitations provided under the Foreign Investments Negative List (FINL).
There are six types of business entities in the Philippines:
- Domestic Corporation
- One Person Corporation
- Branch Office
- Representative Office
- Regional Headquarters (RHQ)
- Regional Operating Headquarters (ROHQ)
Foreign enterprises who wish to expand in the country can decide between several business entity types that best cater to their business needs. These legal entities provide different functions and benefits for your company.
Investing or expanding into a high-growth market can provide you with many benefits for your enterprise. Doing so allows your business to expand and grow its reach across international and regional markets.
Starting a business in the Philippines may be challenging. If you find such procedures exhaustive, it is best to reach out to business consulting firms to guide your business through the necessary procedures of company incorporation.
InCorp Global Pte Ltd
Headquartered in Singapore, InCorp Global is a leading corporate services provider, with an established regional presence across seven Asian countries, including Indonesia, India, Hong Kong, Philippines, Vietnam, and Malaysia. The group services more than 12,000 corporate clients across various industries, including asset / fund managers, as well as family offices. They are official partners with key government authorities in the region, such as Singapore’s Economic Development Board, a government agency that is tasked with bringing in foreign direct investments into Singapore.Learn more