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Guide to Starting A Business In The Philippines

Updated on May 12, 2022 12:41 pm
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Are you dreaming of starting a business in the Philippines but not sure where to start?

We have created a checklist if you are starting a business in the Philippines to get the ball rolling and make the process less daunting. We will get to the checklist a little later in the blog.

Let's first get to know what is the best startup business in the Philippines and the biggest industries in the Philippines to start your business or invest in. It can be a lucrative venture to set up your startup in one of the fastest-growing industries in the country.

According to the Philippines' Department of Trade and Industry, a total of 957,620 business enterprises were operating in the country in 2020. 99.51% of the total are classified as MSMEs (micro, small and medium enterprises), and 0.49% are large enterprises.

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These MSMEs generated 62.66% of the country's total employment. The explosion of e-commerce sites, mobile payment apps, social media platforms, and other online marketplace has made it way easier for people to start their own ventures in 2022.

The top 5 most popular businesses in the Philippines according to the number of MSMEs in 2020 were:

  • Wholesale and Retail, Repair of Motor Vehicles and Motorcycles (445,386)
  • Accommodation and Food Service (134,046)
  • Manufacturing (110,916)
  • Other Service Activities (62,376)
  • Financial & Insurance Activities (45,558)

Some of the trending industries that have the potential to grow bigger in the country in the future due to digital transformation and changing consumer behaviors are E-commerce Consumers and Retail, Telehealth Services, and Digital Solutions Providers.

While starting a business in the Philippines on your own can be rewarding, it is not easy to bring your business idea into a reality. There is a lot that needs to be done: you have to develop your product or service, do accounting, sort out legal matters, take care of marketing, hire employees, and more.

And if you are a foreign investor looking to do business in the country, understanding the business culture in the Philippines can be an advantage. For instance, the business culture in the country is a blend of different western and eastern cultures. Their society is hierarchically structured, and family ties are strong. Many businesses are run by family-owned conglomerates. The more important connections you build, the easier it is to do business in the Philippines.

Now, it is time to get to the checklist that we have prepared, including steps to take before you register your business, through the early stages of your business, and the basic legal requirements.

The Aim Of Your Business & Business Plan

Writing down the aim of your business and coming up with strategies to accomplish them is a very crucial step as you are laying the foundation of your start-up.

To get you started, you will have to ask yourself the following questions:

  • What product or service does your business offer?
  • Why are you in business?
  • What is your target market (customer profile: age, gender, income, location, lifestyle, etc.)
  • What is the unique selling proposition that will differentiate you from your competitors?
  • What is the market size or the business opportunity for your product or service?
  • What are your business goals?
  • How do you plan to fund your venture?
  • What will be the cost of launching your start-up?
  • What will be the name of your business?
  • Should you make a logo to be registered as a trademark?
  • Is there a need for a patent, copyright, or intellectual property protection?

Ways to Fund Your Venture

For small businesses that are not seeking angel funding or venture capital, the following are the best options available:

  • Small Business Grants

Small business grants are one of the best ways to fund your startups and existing businesses. Many of the grants are provided by government agencies or private organizations to small business owners looking to grow. Although it takes effort to research and apply for grants, securing a grant gives you free money to start a business.

  • Small Business Loans

Often less than $10,000, the loans can help you get your business off the ground if you are short of money. There are a lot of government loan programs for medium and small business enterprises in the Philippines. You have to dig further to see what options are out there. Many local governments have special credits to help small businesses grow faster.

  • Personal Loans

You can apply for personal loans from your bank if you have a good credit score instead of business loans. Standard business loans are not always easy to obtain, especially for start-ups with limited or no transaction history. Before applying for one, check with your lender if there are no restrictions on the loans for business use.

  • Crowdfunding

Crowdfunding platforms such as Kickstarter or Indiegogo are a popular way for new business owners to gather funds. The funds are contributed by a large number of people instead of an investor investing a large chunk of the fund.

  • Friends and Family

Asking your friends and family is one of the most common ways to fund your small business. It is less expensive than business loans and other alternative sources of financing your startup. When asking for the fund, be prepared with your pitch and a business plan to help them understand why they should invest in the potential of your business.

Overseas Filipino Workers (OFWs) send money to the Philippines in thousands to help fund the businesses of your friends and family back home.

Most of the money sent home is used for covering household expenses, educational payments, and starting a business. Many OFWs, while earning abroad, gain business experience and, upon returning, start their venture at home or are left to be managed by a family member in the Philippines.

Read more on how to send money to the Philippines.

The Structure Of Your Business

The next step is to decide what type of enterprise you plan to run. Are you the sole owner or proprietor? Do you plan to run it with a partner? Or will it be a corporation?

Each type has its own benefits and different tax liabilities and regulatory requirements.

  • Sole Proprietorship

If you want to be a sole owner, this is the best option. There aren't a lot of liabilities meaning no employees, no major investments, or minimum regulation. As your business grows and starts to generate more profits, you can decide to incorporate.

  • Partnership

Ideal for businesses with two or more business owners. The partnership is a separate legal entity from the individual business owners. Since each partner has a stake in the business, the profits are shared between the partners and may have varying tax implications.

  • Corporation

A minimum of 5 and a maximum of 15 people can form a corporation. One of the major benefits of incorporating your business is tax breaks and avoidance of personal or financial liabilities if someone sues your company. There will be more regulatory restrictions in applying for this type of business structure.

Register Your Business

The next step is to register your business (including your business name) with the relevant government agency based on your business structure.

Sole proprietorships must register with the Department of Trade and Industry (DTI). Partnerships and corporations must obtain approval and get registered with the Securities and Exchange Commission (SEC).

Establish A Business Address

A physical address of your business will be an important requirement during registration and applying for necessary permits/licenses from various government agencies.

Secure Barangay Clearance

A barangay is the smallest administrative unit in the Philippines. All businesses are required to obtain clearance from the barangay they belong to.

Basic requirements to obtain the barangay clearance are:

  • A valid government-issued ID (at least 2)
  • DTI or SEC certification
  • Contract of lease (if the office space is rented)  or title and tax declaration (if office space is owned)

Local Government Unit (LGU) Registration

LGU is locally known as a mayor's business permit. To secure a license to operate in a city, you will need to provide the following documents:

  • Locational Clearance (obtained from the Zoning Administration Division within city hall)
  • DTI or SEC certification
  • Contract of lease (if the office space is rented) or title and tax declaration (if office space is owned)
  • Barangay clearance
  • Comprehensive general liability insurance

Additional requirements may be asked, depending on the nature of your business.

Apply For Business Permits and Licenses

Visit your local government or the Small Business Administration website to find out whether any national or regional licenses are required to operate your business. Each municipality has its own rules and procedures for the registration of business. Better to check the specific websites of the areas in question for more information.

Typical requirements include:

  • DTI or SEC registration form
  • Barangay clearance
  • Zoning clearance
  • Sketch of the location 
  • Land title or contract of lease 
  • Community tax certificate
  • Public liability insurance 
  • Occupancy permit
  • Sanitary permit
  • Environmental permit
  • Fire permit
  • Other additional documents or permits

Register With The Bureau of Internal Revenue (BIR)

The next step is to register your business with the Bureau of Internal Revenue (BIR) to smooth out tax compliance requirements. You need to get a Taxpayer Identification Number (TIN) from the Revenue District Office (RDO) within the registered location of the business.

You need the following documents:

  • BIR Form 1901 (for single proprietorship)
  • BIR Form 1903 (for partnership and corporation)
  • BIR Form 0605 (Tax payment form)
  • BIR Form 2000 (Documentary stamp tax)
  • BIR Form 1905 (books of account registration)
  • BIR Form 1906 (Authority to print receipts)
  • BIR Form 2303 (Certificate of registration)
  • DTI or SEC certification
  • Barangay clearance
  • Mayor's business permit

You also need to register your employees (if you have) to the BIR. You need to provide:

  • Employee TIN
  • Birth certificate or any government-issued ID
  • Certificate of employment or company ID
  • Marriage certificate (if married)
  • Birth certificate of dependents (if applicable)

Register with Social Security System (SSS), PhilHealth, and Pag-IBIG (housing fund)

The Philippines government requires all types of businesses to register as employers with SSS, PhilHealth, and Pag-IBIG. You also need to register your employees with these agencies.

The SSS is a social insurance program that collects the monthly contribution of employees, along with the share of their employer, to give employees health and retirement benefits from their monthly contributions. The SSS also provides a variety of small loans. An SSS membership is mandatory for all employees who are 60 years old and below.

The employee and the employer also need to contribute monthly to the Philippine Health Insurance Corporation (PhilHealth).

Monthly contributions are deducted from the salary of the employee and are contributed to the Home Development Mutual Fund (Pag-IBIG Fund). It provides a variety of housing loans to employees. 

Open A Business Bank Account

When you start a business, it is wise to keep your personal and business finances separate. It is best not to use your personal account for business transactions. You can also get a business credit card to cover your emergency expenses during the early stages of launching your business.

If you plan to expand into international markets and expect to generate substantial sales in these overseas markets, opening an overseas bank account in these markets is the wise decision. You can anticipate a lot of international business transactions. Having an overseas business account can save you money on bank transfers and currency exchange rate fees when sending money to the Philippines or the other way around.

If you wish to avoid banks and their high fees, there are money transfer specialists that you can open a business account with for easy international transactions. Many of them offer multi-currency accounts that let you hold several currencies and convert between them at a low cost.

Furthermore, establishing a financial presence country-by-country allows you to see country-specific revenue. This makes it easier for your bookkeeper and accountant during tax season.

Set Up Accounting Systems

Accounting is keeping a complete record of all the income and expenses, which will show the financial health of a business, especially in the early stages of the business.

Cash flow is a crucial component of running a business to see how your finances are doing on a monthly basis.

Use accounting software to run profit or loss forecasts. The software automates this process and can help you visualize the cash flow (money coming in vs. money going out).

Setting up a proper accounting system from the start with future growth in mind will save you time, money, and headache in the long term.

You can hire an accountant or financial advisor to do the bookkeeping. This can save you a lot of time.

Keep the record of all your finances in a safe place. Every business has legal and tax obligations for record-keeping.

Create An Online Presence

Businesses in today's digital age at least need to have a website and an email address. This should be part of your marketing strategy. This way, you will get new customers online.

Luckily, you have to spend a lot of money on building a website. Services like Squarespace, WordPress, Moonfruit, and Onepager can quickly help you build one. You can improve your site as your business grows.

Social media platforms like Facebook, LinkedIn, and Twitter are other platforms to engage with your customers. Depending on your business, some platforms might be more suitable than others.

Do the research and see what your competitors are doing and implement steps that will work best for your business with respect to digital marketing strategies such as paid ads and search engine optimization.

Conclusion

Setting up a business of your own can be overwhelming. But having a checklist that guides you one step at a time makes it less overwhelming and helps you in making progress. Having business advisors, accountants, or financial advisors can help you understand all the nitty-gritty of starting a business and get you going.

You may have a business idea that you are passionate about. To make it a reality, you need to make a plan, gather resources and skills, work out finances, find business partners, deal with legal matters and have a little bit of luck as things are unpredictable.

As they say in the startup world - "Learn Early, Learn Often."

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