Doing Business in the Philippines: 8 Business Facts You Absolutely Need to Know

Owning a business is one of the goals of many Filipinos. Everyone has their own reasons:

• Increase their income
• Stop working for somebody else
• Support their family

And many more. But starting a business in the Philippines isn’t as simple as you might think. There are various laws and regulations you need to know beforehand. Otherwise, you could end up facing penalties or incurring unnecessary risks that could hamper your business’ growth.

Freelancers, investing, consulting, buy-and-sell, graphic design, franchising, marketing agency, or any other type of business—here are the 8 things you absolutely need to know if you want to start a business in the Philippines.

1. All income are taxable

Let’s start with the basics.

A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines

—National Internal Revenue Code

This is the main reason why your salaries are taxed. This is why businesses are also taxed. It’s also the reason why you pay taxes for selling properties. It’s why the interests you earn from banks are also taxed.

There are specific guidelines for different entities such as the top 20,000 companies or OFWs. But generally speaking, if you have any form of income, that is taxable.

2. But you need to register to be taxed

Taxes are handled by the Bureau of Internal Revenue (BIR).

Whether you’re a freelancer or a business owner, obtaining a BIR registration certificate is a must for you.

—Taxumo

Despite seen an “additional burden,” it is the current law, and citizens must abide by it.

3. There are lots of options

Business registration can be complex. For Filipinos, you generally have two choices: registering as an individual or a company.

The BIR covers individual registrations. This includes licensed professionals (like lawyers and doctors) and non-licensed individuals (like freelancers and online sellers).

When choosing a company, the most common options are sole proprietorship, partnership, corporation, and the most-recent business type—the one person corporation (OPC).

There are pros and cons for each of these business registrations that’s why it’s imperative you understand them.

4. A name reservation is not a company

The first step of registering a company is reserving a name with either the Department of Trade and Industry (DTI) or the Securities and Exchange Commission (SEC).

A lot of people stop at this stage thinking that they already have a business. But if you do that, what you did is simply reserved a name. You are not a legitimate business yet.

You need to register with the BIR. That is the final step before you can call yourself a business from the Philippine government’s eyes.

5. Know the different taxes you need to pay

Once you finish your BIR registration, you will get a BIR Form 2303 (also called the Certificate of Registration). This document will dictate which taxes you need to comply with.

Depending on your business type and industry (among other factors), you might be liable to two or more types of taxes. Here are the most common:

Income tax—quarterly and annually VAT—monthly and quarterly Percentage tax—monthly and annually

6. Paying taxes and filing tax returns are different

Don’t get confused between the two.

• You pay taxes
• You file tax returns

With that out of the way, you are only required to pay taxes which you are liable for. If your BIR Certificate of Registration says your business is required value- added tax and you do not have any sales, you do not need to pay VAT.

But that doesn’t mean you can skip on filing. You still need to file the appropriate tax returns; otherwise, you will face penalties.

7. Don’t forget to renew your permits and licenses

Having a business means you have to report back to the government. Apart from the tax returns, you are also required to renew your permits and licenses annually.

Depending on your business type (i.e. Sole Proprietorship, Freelancer, Corporation), you will have to submit certain requirements and pay the necessary fees to various government institutions.

Deadlines for these renewals are in January of every calendar year. Yes, even after finishing your registration in October, you still need to renew in January.

8. Close your business formally

Statistically speaking, not all businesses will succeed. There are many factors that affect any business’s performance such as a global pandemic or this in the industry. Regardless, you can’t just call it quits when this happens.

This means you have to formally close your business. And there is a specific process for doing so.

Unless officially closed, from the eyes of the government, your business is still business as usual.

So, if you don’t renew your permits or file your tax returns, you will be liable for penalties. Yes, even if you are not operational anymore for a number of years. This includes no income or sales.

Owning a business is one of the dreams many Filipinos aspire. But it’s different from being an employee. There are rules and regulations that cover businesses that’s why you need to know what they are beforehand.

I’ve spoken with dozens of business owners who have incurred thousands of penalties and other unnecessary costs because they didn’t know these things beforehand. If you are planning to start your own business, it’s best to familiarize yourself with these things.

If you know someone who has a business or is planning to start one soon, feel free to share this post. Save them the headache. They’ll thank you for it. And if you’re looking for a proven suite of tools used by thousands of other businesses to help you manage and grow your business, you can find them all here.

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