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.
Do you have any questions?
Frequently asked questions
Do I have to register my small online shop?
Yes. According to the National Internal Revenue Code (of the BIR), if you earn any income, that is taxable. And the only way you can be taxed is if you register your business.
But I’m only a freelancer/online shop seller
It doesn’t matter whether you are earning PhP5,000 a month or PhP50,000 a month—if you are engaged in buying or selling products/services, you have to register your business.
Do I have to pay taxes?
The answer is it depends. A common misconception is that if you register your business, you are liable to pay taxes. You only need to pay taxes if you meet certain criteria. For example, a graphic design freelancer who’s registered with the BIR only needs to pay income taxes if he/she exceeds PhP 250,000 sales in a given year.
I just completed my registration in November, do I still need to renew my permits next year?
Yes, you have to. Business permits are only valid for any given quarter or year. If you do not renew your permits before the due dates, you are liable for two things: penalties for late renewal or
What taxes should I pay? How much does it cost?
There are different types of taxes businesses are liable for. What taxes to pay is dependent of its BIR Certificate of Registration (COR) or form 2303. How much to pay is also dependent on several factors like your sales level, valid expenses, etc.
I have a business, but it’s not operational. Can I stop filing tax returns?
Theoretically, yes. BUT this means you are opening yourself up for penalties in the future. Remember, from the eyes of the government, you are still operating and simply not complying with the monthly tax requirements. Unless you officially close your business, you will have to continuously file nil/zero tax returns if you want to avoid penalties and issues in the future.