Philippines

How to start a business in PHILIPPINES

Building your own business takes a tremendous amount of preparation and careful planning. From choosing the type of product or services that you want to offer, studying your target market and to even doing your homework about the industry that you are planning to venture into are essential in the early stages of your research.

The Philippines is made up of over seven thousand islands, divided into several regions. These places, although belonging to the same nation, are geographically scattered and culturally different from one another. That is why, depending on the industry that you plan on venturing into as well as the type of business that you want to operate, there should be a plan for your enterprise.

In this issue, you can find about everything you need to know about Philippines’s business environment.
• What to consider?
• Protection of FDI
• Procedures
• Negative List
• Investment Aids
• Top Industries to Invest in Philippines
• General Information

What to consider?

Philippines has a skilled young English speaking workforce. With a population of over 103 million people, the country has a large domestic market, and also a gateway to the other big ASEAN countries. With a very advanced legal system and considerable natural wealth, Philippines economy has succussfully integrated enterprise outsourcing.

However, there are risk factors that investors should be aware. The Philippines has a poor quality of infrastructure and restrictions on foreign invesment in certain sectors. Even with an advance legal system, there is a lack of transpareny when it comes to procudures. According to the latest news, the country has a high level corruption in the administration and state agencies. There are inequalities among regions, and Philippines has a problematic security situation in the south side of the country.

Procedures

To obtain a primary licence or licence to do business in the Philippines, a corporation must register with the SEC. Doing business in the Philippines without a licence is penalised. Additional licences may also be required for certain activities (for example, banks, insurance companies,
investment houses and so on).

Some of the business activities set out in the Negative List require the enterprise to be fully owned by Philippine nationals (for example, the practice of professions). In addition, foreign equity in some areas of the activities carry
restrictions of 20% to 60% on foreign ownership, depending on the industry sector. Certain activities also require the procurement of service contracts with the government, such as mining and the harnessing of renewable sources of energy to generate electricity.

Investment Aids

Under the Omnibus Investments Code of 1987, there are various incentives for a company in Philippines in the form of tax exemption and reduction. The company will enjoy up to 6 years of income tax holiday, depending on type of the project and whether it is located in remoted areas. The company will also
enjoy tax exemption on imported spare parts, wharfage dues and export tax, duty and fees. In addition, there are tax credits and deductions claimable on domestic breeding stocks and raw materials purchased and wages paid. Under certain qualifying conditions, a company is also exempted from Value Added Tax (VAT).

Besides tax incentives, companies registered with the Philippines Board of Investment (BOI) also enjoy additional privileges. For instance, a BOI registered company can employ foreign nationals in supervisory, technical and advisory positions. The company will also benefit from simplified import customs procedures and no restriction imposed on usage of consigned equipment.

Protection of FDI

Philippines has signed multipal bilateral investment conventions over the years. Among those agreements, the most important one is ATIGA (ASEAN Trade in Goods Agreement). This agreement, signed in 2010, seeks to
establish a single market and production base with a free flow of goods in the ASEAN region, which consolidates Philippiness as a gateway to the area.

The government helps and offers assistance in case of disagreement and there are various different organizations can help with such cases. Philippiness is also a member of the Multilateral Investment Guarantee Agency and has
strong legal connections with other signed partners.

Negative List

The Foreign Investments Act provides a list of restrictions on foreign ownership in specific industry sectors. This is called the Negative List and is comprised of two lists. It provides that List A may be amended “at any time to reflect changes instituted in specific laws”, while List B can only be amended once every two years, pursuant to the Foreign Investments Act and its revised
implementing rules and regulations.

-List A

• Foreign equity is not permitted in the mass media, except recording and internet business, the practice of all professions, retail trade enterprises with paid-up capital of less than USD2.5 million, co-operatives, the organisation and operation of private detective, watchman or security guard agencies, small-scale mining, utilisation of marine resources, ownership, operation and management of cockpits, the manufacture, repair, stockpiling or distribution of nuclear weapons, the manufacture, repair, stockpiling or distribution of biological, chemical and radiological weapons and anti-personnel mines, the manufacture of firecrackers and other pyrotechnic devices.
• Up to 20% foreign equity in private radio communications networks.
• Up to 25% foreign equity in private recruitment, whether for local or overseas employment, contracts for the construction of defence-related structures.
• Up to 30% foreign equity in advertising.
• Up to 40% foreign equity in contracts for the construction and repair of locally-funded public works (with exceptions) the exploration, development and utilisation of natural resources;
the ownership of private lands, the operation of public utilities (w.e.), educational institutions other than those established by religious groups and mission boards (w.e.), the culturing, production, milling, processing and trading, except retailing, of rice and corn, and the acquisition, by barter, purchase or otherwise, of rice and corn and the by-products of these, contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporations, the operation of deep sea commercial fishing vessels, the ownership of condominium units, private radio communications networks.

-List B

This list includes activities and enterprises regulated for reasons of security, defence, risk to health and morals, and protection of small and medium-sized enterprises. This provides a restriction of
• Up to 40% foreign equity in the manufacture, repair, storage or distribution of products or ingredients requiring clearance from the Philippine National Police, the manufacture, repair, storage or distribution of products requiring
clearance from the Department of National Defense, the manufacture
and distribution of dangerous drugs, saunas and steam bathhouses,
massage clinics, and other like activities regulated by law because of risks posed to public health and morals, except wellness centres,all forms of gambling (w.e.), domestic market enterprises with paid-in equity capital of less than the quivalent of USD200,000 or domestic market enterprises which
involve advanced technology or employ at least 50 direct employees
with paid-in equity capital of less than the equivalent of USD100,000.

Top Industries to Invest in Philippines

The World Bank expects that the economy of the Philippines will continue to grow in the coming years due to productive investment in the national resources both human and physical. The government has outlined some programs to improve the national economy such as designing training programs to improve the skills of the nation’s workforce. The government is also looking into supporting several research and development initiatives which will increase innovation in the country. The government is emphasizing the development of clean industries to ensure that the nation’s economic growth is sustainable. Proper resource management ensures that the country develops faster and more sustainably. Here are the top industries that it is
highly likely to pay you back every penny you spend.

Tourism

The tourism sector took a big piece of the GDP pie in 2017 when it accounted
for 21 percent of the whole economy. Those figures alone should tell you how
big of an impact the tourism industry provides in terms of economic growth.
Aside from the revenue generated, it also generated 2.3 million jobs. And this
figure is expected to grow in the next few years. There is also the added
benefit for jobs not directly related to tourism but are positively affected by
the business it brings. Per current estimates, this industry generated 7.8 million jobs for both direct and non-direct tourism business, which is about 19.2 percent of the country’s total workforce.

Real Estate

Once the government’s Build, Build, Build (BBB) program takes off, its expected that more commercial and residential units to get built. With
improved transportation infrastructure and creation of more jobs, Pinoys are projected to have more spending power. Businesses can also expand
outside of Metro Manila when better infrastructures for transportation get built. The previously “hard to reach” locations will start to look more feasible to investors and start another chain of supply and demand cycle within the real estate sector.

The real estate industry also receives a big share of annual foreign direct investments, a sign that investors abroad still see plenty of growth potential
in this industry.

Agriculture

The Philippines is responsible for 2.8% of the global rice production earning it
the distinction as the 8th largest rice growing country in the world. In 2010,
the Philippines imported more rice than any other country to satisfy the citizen’s demands. Research into rice varieties has led to the development of improved rice varieties which has significantly increased the crop yields. Corn is also an essential crop in the Philippines because 600,000 farm households earn their livelihoods from the plant. Sugarcane is also a vital crop in the Philippines owing to the vast tracts of land under sugarcane cultivation. The Negros Island Region has the most significant share of sugarcane plantations in the country accounting for around 51% of the total area under sugarcane cover. Mindanao region, accounting for approximately 20%, comes in second. Coconuts are also a vital part of the nation’s economy as it is the global leader in the production of coconuts according to data published by the Food and Agriculture Organisation in 2015. Coconuts occupy around 13,513 square miles of land which accounts for 25% of the nation’s agricultural land. The Philippines also produces vast quantities of fruits such as bananas and pineapples. The Philippines was ranked in the top three in the production of both fruits globally.

Retail

Amidst the current pesky inflation rate, overall spending and consumption among consumers are still high, thanks to the country’s high employment rate. This is important because retail depends on continuous public spending to
drive its growth. And its been on a steady rise, according to Philippine Retail Association president Rose Ong. Online shopping has been a driver of this rise. More Filipinos utilize mobile technology to fulfill their shopping needs. According to Ong, it is easier now to become a retailer through the convenience of the internet.

Brick and mortar stores also saw an increased presence in key locations. The small store format, specifically, saw a significant increase in numbers.

General Information

The Philippines has an American-style democracy, headed by a president who is both head of state and head of government. The president is limited to one 6-year term in office. A bicameral legislature made up of an upper house, the Senate, and a lower house, the House of Representatives, make laws. Senators serve for six years, representatives for three. The highest court is the Supreme Court, made up of a Chief Justice and 14 associates. The current president of the Philippines is Rodrigo Duterte, elected June 30, 2016.

The Philippines has a population of more than 100 million people and with an annual growth rate of around 2 percent, it is one of the most populous and fastest growing countries on Earth.

Ethnically, the Philippines is a melting pot. The original inhabitants, the Negrito, number only about 15,000, consisting of about 25 tribes scattered over the islands. According to the 2000 census which is the latest available containing ethnic information, the majority of Filipinos are from various Malayo-Polynesian groups, including the Tagalog (28 percent), Cebuano (13 percent), Ilocano (9 percent), Hiligaynon Ilonggo (7.5 percent) and others. Many more recent immigrant groups also live in the country, including Spanish, Chinese, American and Latin American people.

The official languages are Filipino (which is based on Tagalog) and English. More than 180 different languages and dialects are spoken in the Philippines.
Commonly used languages include Tagalog (26 million speakers), Cebuano (21 million), Ilocano (7.8 million), Hiligaynon or Ilonggo (7 million), Waray-
Waray (3.1 million), Bicolano (2.5 million), Pampango and Pangasinan (2.4 million).

The climate in the Philippines is tropical and monsoonal. The country has an average yearly temperature of 26.5 C (79.7 F); May is the warmest month, while January is the coolest. The monsoon rains, called habagat, hit from May to October, bringing torrential rain which is abetted by frequent typhoons. An average of 6 or 7 typhoons per year strikes the Philippines. November to April is the dry season, with December through February also being the coldest part of the year.

Philippiness’ Gross Domestic Product (GDP) grew year-on-year by 6.2 percent in the third quarter of 2019.

Trade and Repair of Motor Vehicles, Motorcycles, Personal and Household Goods; Construction, and Financial Intermediation were the main drivers of growth for the quarter.

Among the major economic sectors, Services posted the fastest growth with 6.9 percent. Industry grew by 5.6 percent. Agriculture, Hunting, Forestry and
Fishing registered a growth of 3.1 percent.

Net Primary Income (NPI) from the rest of the world and Gross National Income (GNI) had corresponding growths of 2.9 percent and 5.6 percent.

With the country’s projected population reaching 108.3 million in the third quarter of 2019, per capita GDP grew by 4.5 percent. Meanwhile, per capita GNI and per capita Household Final Consumption Expenditure (HFCE) posted a growth of 4.0 percent and 4.3 percent, respectively.