Company Registration in the Philippines
Healy Consultants Group PLC
14 November, 2014
There a few advantages to incorporating a company in the Philippines. The country boasts a large well-educated and English-speaking workforce. Approximately eight million are college graduates, and 16 million are high school finishers. The Philippines is a member of the Association of Southeast Asia Nations. Becoming a member allows several benefits, such as benefiting business people throughout the region with greater access and lower costs. The Philippine economy is very open, granting 100% foreign equity for businesses in most sectors. A newly incorporated company which has registered with the Philippine Board of Investment can enjoy income tax holidays for up to six years after the date of incorporation.
There are three types of business entities in the Philippines: sole proprietorship, partnership, and corporation. A sole proprietorship is fully owned by one individual, who has complete control over the company and owns all of the assets. All liability for the firm falls on the individual, and also enjoys all profits. A partnership entity has at least two proprietors. The company is treated as a separate legal entity from its owners. There are two types of partnerships: a general partnership and a limited partnership. Partners in a general partnership have unlimited liability for debts and obligations of the company. General partners in a limited partnership have unlimited liability. The third entity type, corporation, is a legal entity which is separate from that of its shareholders. This entity must be made up of at least 5 to 15 incorporators and have a minimum paid-up capital of at least PHP5,000. There are two corporation types present in the Philippines: stock corporation, and non-stock corporation. A stock corporation has its stock shared equally into shares, and it is authorized to distribute profits and dividends to stockholders based on the number of shares held. A non-stock corporation is organized for public purposes, and the members are not issued shares.
The Philippines boasts a number of industrial free zones. These zones are extremely benfitical to foreigner investors who used the Philippines as a gateway to South East Asia. Companies are 100% tax exempt for 4-8 years, including corporation tax and customs duties. Currently, some of the several free zones which the Philippines currently boasts, include: Subic Bay Freeport Zone, Check Freeport Zone, Zamboanga Ecozone and Freeport, Cagayan Special Economic Zone. Due to the Philippines being a member of the Association of Southeast Asian Nations (ASEAN), the Philippines are able to enjoy membership benefits, like tariff cuts on goods traded, trade barriers with other ASEAN countries are greatly reduced.
There are a few accounting and tax matters to take into account. If a non-resident foreigner who participates in trade or business has stayed in the Philippines for more than a combined period of 180 days in one year then he/she is subject to a tax rate of 20%. However, this rate will alter if the Philippines has a tax treaty with the foreign individual or if the corporation is a resident. Foreign companies who are not conducting business in the Philippines are subjected to a 30% withholding tax rate on income, if the income has been accumulated from a source within the Philippines. Foreign employees, whether resident or non-resident are required to pay taxes, of approximately 5% to 32%, on income which is accumulated from the Philippines. It is required that they file their income tax returns by April of each year.
There are also some disadvantages to incorporating a company in the Philippines. Some sectors and company types require a minimum capital requirement of US$200,000. Incorporation cam seem complex and time consuming, with incorporation and bank account opening can be completed in approximately eight weeks. Corruption is a quite common occurrence in the Philippines. There are high levels of systematic corruption in several institutions, in 2012 the Corruption Perception Index, the country ranked 105th out of 176 countries.
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