The Philippines is one of the most attractive countries in Asia, with a growing economy and high standards of living. The country has abundant natural resources and a diversified industrial base. It is also known for its friendly people who are eager to welcome foreign investors with open arms.
What is Incorporation?
Incorporation is the process of forming a legal entity (company, LLC, etc.) that can conduct business in a country.
Registration, on the other hand, is the act of applying for a license or authorization from governmental agencies such as the Securities and Exchange Commission (SEC), Business Permit and Licensing Office (BPLO), Bureau of Internal Revenue (BIR), Department of Labor and Employment (DOLE), Bangko Sentral ng Pilipinas (BSP), etc to engage in certain types of activities and/or activities within specific industries. These agencies may issue a registration certificate upon payment of fees specified by them.
Benefits of Incorporation
Incorporation will also give you the following benefits:
[a] Incorporation allows you to do business and operate as a local. You can own a business in the Philippines, which means that your company can hire employees, open bank accounts and make other financial transactions locally.
You can also do business with other companies within the country through trade agreements or contracts. This is especially useful if you have products or services that are unique or non-existent in this market place, but could still be profitable if they were sold on an international level (such as medical equipment).
[b] You have access to a cheaper labor market, and you have access to hard-to-find talents. The other benefit that incorporated businesses have is the wide access to a global market full of hard-to-find talents. The Philippines is a great place to find that talent. If you are serious about taking your business to the next level, you’ll need to find ways to lower your costs. One avenue to do this is through the acquisition of skilled labor from within your larger community or regional markets by incorporating in that locality, in this case, the Philippines.
Talents from the Philippines are usually wary about fly-by-night companies. Hence, establishing a company in the Philippines will give your company a stamp of approval from the Philippine government and will also allow your company to provide benefits.
Unlike if the Filipinos are hired as independent contractors, the Filipinos cannot benefit from government mandated contributions unless they pay voluntarily. Also, they will have no recourse on labor related issues against the employer if the latter is not registered in the Philippines.
[c] You can avail of tax incentives to reduce taxes if registered in certain government agencies tasked to provide incentives e.g. PEZA, BOI. The Philippine Economic Zone Authority (PEZA) is a government agency created to promote economic development in the country. It provides incentives to businesses who wish to incorporate or have their company based outside of Metro Manila.
If your company is registered with PEZA, under existing laws and regulations, your company is entitled to both fiscal and non-fiscal incentives offered to both investors and their families.
Pursuant to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act (RA 11534), PEZA has the full authority to either approve or disapprove the grant of the following incentives to registered activities with an investment capital of PhP One (1) Billion and below.
- Income Tax Holiday (ITH) up to six (6) years. (Export Enterprises may be granted for four (4) to seven (7) years depending on the industry and location)
- Special Tax Rate of 5% of Gross Income after ITH
- Exemption to pay all national and local taxes
- Exemption from wharfage dues on import shipments of equipment
- Exemption from Expanded Withholding Tax
It is to note that the following benefits shall only apply to goods and services directly and exclusively used in the PEZA registered activity:
- Tax-free and duty-free importation of machinery, raw materials, and equipment
- VAT-zero rating on local purchases of goods and services
This is pursuant to PEZA’s Section 5 of RR 21-2021, stating that:
Section 5: Value-added Tax (VAT) zero-rating and exemption – The VAT exemption on importation and VAT zero-rating on local purchases shall only apply to goods and services directly and exclusively used in the registered project or activity of export enterprises, for a maximum period of seventeen (17) years from the date of registration, unless otherwise extended under the SIPP.
The direct and exclusive use in the registered project or activity refers to raw materials, inventories, supplies equipment, packaging materials, services, including provision of basic infrastructure, utilities, and maintenance, repair and overhaul of equipment, and other expenditures directly attributable to the registered project or activity without which the registered project or activity without which the registered project or activity cannot be carried out; PROVIDED, THAT THE VAT ZERO-RATING ON LOCAL PURCHASES SHALL BE GRANTED UPON THE ENDORSEMENT OF THE CONCERNED IPA, IN ADDITION TO THE DOCUMENTARY REQUIREMENTS OF THE BIR.” (Sec 5, RR 21-2021) … “
Aside from the fiscal incentives, there are also non-fiscal incentives:
- Special Non-Immigrant Visa with multiple-entry privileges
- Extended visa assistance to foreign nationals, their spouses and dependents
- Simplified import-export procedures
- Employment of non-resident foreign nationals either in advisory, supervisory and technical positions
[d] Your Data Privacy can be protected if you have employees in the Philippines vs. just employing them as independent contractors. The Data Privacy Safeguards that are in place for workers located in the Philippines are not so strong when said employees are being employed as independent contractors. If you need to transfer your business overseas, this may be an area you want to take into consideration before making any of the final decisions.
Data Privacy is a big concern for everyone, whether you have employees in the Philippines or just employers. It is easier to prosecute if there is a breach if you are registered in the Philippines.
Pursuant to Republic Act 10173, also known as The Data Privacy Act of 2012, the 1987 Philippine Constitution specifically lays down, as basis, the basic human right for privacy and information. Being registered in the Philippines allows you to seek redress from the Philippine courts if your confidentiality, data privacy, and even restrictive clauses such as non-solicitation, non compete are breached. This would include customer lists containing contact information for potential customers who might be interested in buying from you someday down the road, protection of trade secrets, including product know-how.
[e] Your name, intellectual property (if registered) will be protected. Your company will have its registered business name, reserved and set aside with the SEC or the DTI. It would be difficult for another company to use the same name if it is confusingly similar to the one that already exists.
Once established in the Philippines, and you have continuously used your brand, you can protect your Trademark by submitting a Declaration of Actual Use with the Intellectual Property Office (IPO). Being registered with the IPO also protects you from having your logo or product names stolen by another company that wants to use them in its own marketing materials.
When registering a business in the Philippines, it is important that you include all of these protections so that no one else can claim ownership over any of your IPs (intellectual property). This includes things like product names or trade names or trademarks, and patents for inventions.
Your brand is an essential asset for your company. This will help give you an edge over other companies who may copy your ideas or designs without permission from you as the creator/owner. When you register a company properly with Philippine authorities, it becomes legally registered under Philippine law and internationally recognized by many countries around the world, including the United States (US).
So long as it is registered with the Philippine IPO, it also helps protect your intellectual property rights from being stolen by others, such as competitors who might try stealing from you without paying royalties. While you can still complain before the Intellectual Property Office of the Philippines, being registered in the Philippines helps in the prosecution of your rights against infringement.
Doing business in the Philippines has more benefits than meets the eye. The Philippines is a great place to do business and it has many benefits for both foreign and local companies.
… and you might just need our assistance.
Ready to incorporate your company or business in the Philippines? Set up a consultation with FilePino today! Call us at (02) 8478-5826 (landline) and 0917 892 2337 (mobile) or send an email to info@filepino.com.
