Entrepreneurship in the Philippines is an exciting venture, but the process of registration and compliance can be challenging. With this in mind, the Philippine Portal for Business (PHortal)—a Business Consulting and Services Startup—unveils 4 Key Items to Know When Setting Up a Business in the Philippines.
1. Choosing a Suitable Legal Entity
The first key to properly setting up your business is selecting the legal entity for your business. This is very important because if this is not done correctly, it will result in paying higher fees and taxes, leaving you with less money to invest in the growth of your business.
In the Philippines, there are various legal entities available for both local entrepreneurs and foreign investors. Each entity has its own associated income tax rates. For local entrepreneurs, you can choose among the three following entities:
Sole Proprietorship: A sole propietorship’s income tax rates range from 0% to 35%.
Partnership: A Partnership’s income tax rate can either be 20% or 25% depending on taxable income. This is the same with corporations, too.
Corporation: A Corporation’s income tax rate can either be 20% or 25% depending on taxable income. A Branch’s income tax rate is 25%, while a Representative Office has an income tax rate of 0%.
Below is the table summary with all the tax rates from each legal entity:
| Legal Entity | Tax Rate |
| Sole Proprietorship | 0% to 35% |
| Partnership | 20% or 25% |
| Corporation | 20% or 25% |
| Branch | 25% |
| Representative Office | 0% |
Selecting the right legal entity is a crucial first step in establishing a business. Corporations are a popular choice due to their protective measures and tax advantages over sole proprietorships. For foreign investors, a representative office in the Philippines can be a smart move, as it exempts them from income tax, facilitating expansion and resource management.
The choice of legal entity impacts the business’s operations, finances, and taxes. Carefully selecting the appropriate entity can help entrepreneurs set up smoothly and find ways to reduce costs and taxes.
2. Choosing Your Company Name
In the meticulous journey of establishing a company in the Philippines, the second pivotal aspect to consider is the selection of a fitting company name. This phase, often met with anticipation akin to naming a newborn child, holds significant weight in the entrepreneurial landscape.
However, in the excitement, it is crucial for aspiring business owners to be careful. A common mistake is choosing a name too quickly without checking if it’s available. This can lead to many problems, including wasting time, money, and effort to fix it, and possibly legal issues.
The rules are strict about this. Chosen names must be unique and not conflict with existing businesses or trademarks. Ignoring these rules can result in the name being rejected. For instance, the Securities and Exchange Commission (SEC) of the Philippines has invalidated names that infringed on Yahoo! Inc.’s trademark rights. Examples include:
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- Yahoo Food Industries Inc.;
- Yahoo Computer Center Co.;
- Yahoo Trading Co.;
- Yahoo Transport Inc.;
- Yahoo Corporation;
- Yahoo Sales International Corporation
To avoid issues, entrepreneurs should thoroughly research business names using online resources like SEC or DTI websites to ensure availability and legality.
By following these principles, entrepreneurs can navigate regulations carefully, securing unique and legally sound business names that lay the foundation for future success.
3. Having a Business Address
When establishing a business in the Philippines, designating a company address is a critical step. This seemingly simple detail is a fundamental requirement for business registration with government agencies.
The designated business address is crucial beyond just administrative formalities. It appears on official documents and transactions, so choosing the right address is important for compliance and efficiency.
For startups, a virtual office can provide a business address at lower cost, while offering a sense of legitimacy without the expense of a physical office. As the business grows, the address can transition to a physical location.
Establishing the right business address is essential for meeting regulatory requirements, ensuring credibility, and supporting the company’s growth plans in the Philippine market.
4. Capital Requirements
The final key element is understanding the capital requirements. This is especially important for local entrepreneurs, as it affects the due diligence of larger companies when considering business relationships. Inadequate capitalization can put potential deals or sales at risk, so meeting or exceeding the financial thresholds is crucial.
The Philippines generally has no minimum capital requirements, except for specific industries. However, corporations with more than 40% foreign equity and less than 60% exports must have at least $200,000 in capital.
For foreign investors, the capital requirements are: $200,000 for corporations meeting the criteria above, and $30,000 for branches and representative offices.
| Legal Entity | Capitalization |
| Corporation | $200,000* |
| Branch | $200,000 |
| Representative Office | $30,000 |
Understanding the four key elements sets the foundation for company establishment. However, there are other additional details to consider that can impact compliance and tax optimization.
Ignoring these nuances risks penalties or missing out on legal incentives to reduce tax burdens.
Taking a comprehensive approach to company formation allows entrepreneurs to navigate the complexities of the Philippine business landscape, positioning their ventures for growth, compliance, and financial resilience.
Interested to explore further how to set up your company in the Philippines? Reach out to PHortal to learn more: https://www.phortal.ph/ or send them an email at crystian@phortal.ph.
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The Philippine Portal for Business (PHortal) assists multinational companies, foreign investors, and entrepreneurs in gaining substantial profits and competitive advantages for their businesses through opportunities in the Philippines.
Facebook Page: www.facebook.com/PHortalForBusiness