The Philippines is one of the fastest growing economies in Southeast Asia with a strong labor force of more than 73.1 millionFilipinos. Highly educated with a 98.18 percent literacy rate, Filipinos have a good command of the English language which makes the country one of the top countries to set up a business-process outsourcing center.
In the latest Global Startup Ecosystem Report 2019 by the Startup Genome, the Philippines is a perfect location for companies seeking to minimize operating costs while recruiting top talents at less than a quarter of the global average compensation. This quick guide is meant to provide a brief overview of the corporate structures and restrictions for foreign companies planning to do business in the Philippines. The focus of the guide are those affecting start-ups and small and medium enterprises (SMEs).
During the Duterte administration, several laws and regulations have been passed aiming to ease doing business in the Philippines. Some of the major laws affecting start-ups and SMEs include:
Revised Corporation Code
After a long wait, the much needed update to the corporation code was released early this year. The key amendments include:
- Allowing the registration of corporations with less than five shareholders including one-person corporations;
- Removing the requirement for minimum subscribed (25 percent of authorized capital) and paid-up capital (25 percent of subscribed capital) for the registration of a corporation;
- Removing the term limitation of 50 years for corporate life; and
- Exempting corporations with less than P600 million in assets or liabilities from the submission of audited financial statements.
Comprehensive Tax Reform Program
The CTRP is the flagship program of the Duterte administration aimed at improving tax collection through more efficient tax collections. While business critical packages are yet to be passed by Congress, these are some of the expected benefits for corporations:
- Lowering of corporate income tax from the current 30 percent to 20 percent over a 10-year period with an annual 100 basis point reduction in tax rates;
- Providing amnesty program for corporations with tax delinquencies;
- Increasing the tax deductible bases for certain expenses on-line with national priorities, such as research and development and trainings; and
- Facilitating the process for claiming tax credits.
Innovative Startup Act
Passed this year, it aims to improve the competitiveness of start-ups and innovative businesses. We are still waiting for the release of the implementing rules and regulations to be jointly released by the tasked agencies. The benefits of the Innovative Startup Act include:
- Providing visas to foreign owners, investors and employees establishing, investing or working in a qualified innovative startup business or support business;
- Providing incentives and subsidies to startups in the Philippines;
- Establishing Philippine Startup Ecozones; and
- Providing assistance to startups in processing of business registration requirements and protection of intellectual property.
Ease of Doing Business Act
TO promote entrepreneurship in the country and improve the country’s position in the global ease of doing business ranking, the government formed the Anti-Red Tape Authority tasked to promulgate the Ease of Doing Business Act, as part of this, Arta has been actively engaging with different government agencies in establishing timelines for processing of individual and business documents.
Altogether, these recent laws and regulations have improved the business environment in the Philippines. While Package 2 of the CTRP is still contentious with the potential removal of tax incentives offered to existing ecozone locators, careful planning of the right legal and tax structure can still allow foreign companies to maximize the benefit of locating in the Philippines.
Filbert Tsai is the managing director of UpSmart Strategy Consulting Inc. He leads the consulting practice of UpSmart and specializes in corporate finance and financial transformation for SMEs and family businesses. He was previously a consulting manager at Ernst and Young Llp in the United Kingdom.
This column accepts contributions from accountants, especially articles that are of interest to the accountancy profession, in particular, and to the business community, in general. These can be e-mailed to boa.secretariat.@gmail.com.
1 comment
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