Business Registration: FAQ

Business RegistrationI’ve been receiving quite a lot of queries on business registration abroad.  Thus, this topic is for those living abroad either Filipino citizen, resident or foreigner who wanted to put up business in the Philippines.

Anyhow, our company helps locals, Filipinos abroad and foreigners to start their business in the Philippines. We take note of your requirements and recommend the best corporate structure to utilize and give you insights on the advantages and disadvantages of the various entities available.

Having problem? Talk to us.  We can help and assist you, please don’t hesitate to contact us. We will be more than glad to hear from you and we will respond to your request as soon as we can.

OUR ADDRESS

University Tower 1
831 Moret Street
1008 Sampaloc
Manila Philippines

Email:  info@bongcorpuz.com

Telephone: +632 618 3144


I am a Filipino living abroad and I would like to setup a company in the Philippines. I intend to sell imported goods to local people. What sort of company structure would suit us best?

Generally, Filipino living abroad or a permanent resident of a foreign land cannot put up a single proprietorship business sanctioned by Department of Trade and Industry (DTI).  Your option is to put-up a domestic corporation and register the business with Securities & Exchange Commission (SEC).


Do I need a Philippine office for my company/business ?

Yes, it’s a requirement for business registration and incorporation.


Can we use virtual office as our registered address for our company incorporation?

Yes, virtual office is acceptable for this purpose.  A virtual office is an office located in the Philippines.


I am a foreigner and I would like to setup a company in the Philippines. Our intention is to sell technology services to local people. What sort of company structure would suit us best?

If more than 30% of your sale/service is derived from Philippine market, then your company is considered a domestic market enterprise. As such, generally, foreigners may own only up to 40% of the company.


How long does it take to incorporate a company in the Philippines?

Normally, it takes at least 45 days, if all documents needed are forwarded as early as needed. This is on the assumption that no government delays will occur in the process such as system downtime and the like.


I am a foreigner. Do I really need to put in US$200,000 to incorporate a company in the Philippines?

Yes, Under usual circumstances, you really need to remit USD200,000 into a Philippines bank account as part of the process to incorporate your company in the Philippines. The money can be withdrawn after the release of the SEC certificate.

If your company is considered as an export market enterprise (i.e. more than 60% of your revenue or output is exported from the Philippines), then you are not required to put up $200,000.00 as paid up capital. The minimum paid up capital for an export market enterprise is only Php5,000.00. However, if your company is considered as a domestic market enterprise, and subject to the foreign investment negative list, then you are required to invest US$200,000 for you to be able to set up a 100% foreign owned company. Please take note though that foreigners are generally not allowed to engage in retail business (as this is reserved for Filipinos), unless they are investing $2.5 million.


What is the estimate cost to maintain a company here in the Philippine?

The cost really depends on the nature of business, please consider as well the minimum wage, taxes and other government compliance for your additional operational expenses.


What is the corporate tax rate in the Philippines?

Domestic corporations (as well as partnership other than a general professional partnership) are taxed on their income from all sources (whether within or without the Philippines. Resident Foreign Corporations are taxed on their income from sources within the Philippines. Both are taxed at 30% on taxable income (revenue less allowable deductions).

Non-resident foreign corporations are taxed at 30% at source (final withholding tax). The tax rate may be reduced if there is a tax treaty between the Philippines and the country where the NRFC is registered.


Are there any tax when we repatriate our investment out of Philippines?

Yes, there will only be a 10% tax on the fund you declared to repatriate out of the country.


Are there any foreign currency exchange control when we repatriate our profit?

No, but there will be a 10% withholding tax for all outgoing funds declared as repatriation.


How do I determine the actual amount of money I need to remit to start a company?

It depends on your business need. Of course, take note of the 25%-25% rule which states that at least 25% of the authorized capital stock must be subscribed and 25% of the subscribed capital stock must be paid up. There are areas of investments, though, that the law provides for a minimum paid up capital (e.g. recruitment agencies, schools).


How long does it take to incorporate a company in the Philippines?

In the Philippines, most people usually break the entire process into 2 parts. Part 1 is to get your company name approved and registered with SEC. This process can be completed within 10 working days. The 2nd part is to get your company registered with the local government unit having and Bureau of Internal Revenue exercising jurisdiction over the place of business. This process will take about 3 – 5 weeks.


What is PEZA?

The Philippine Economic Zone Authority (PEZA) is attached to the Department of Trade and Industry and is tasked to promote investments, extend assistance, register, grant incentives to and facilitate the business operations of investors in export-oriented manufacturing and service facilities inside selected areas throughout the country proclaimed by the President of the Philippines as PEZA Special Economic Zones.


What are the benefits of getting a PEZA status?

FISCAL INCENTIVES

Income Tax Holiday (ITH) – 100% exemption from corporate income tax.

Upon expiry of the Income Tax Holiday – 5% Special Tax on Gross Income and excemption from all national and local taxes (“Gross Income” refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period).

Tax and duty free importation of raw materials, capital equipment, machineries and spare parts.

Exemption from wharfage dues and export tax, impost or fees.

VAT zero-rating of local purchases subject to compliance with BIR and PEZA requirements.

Exemption from payment of any and all local government imposts, fees, licenses or taxes. However, while under Income Tax Holiday, no exemption from real estate tax, but machineries installed and operated in the economic zone for manufacturing, processing or for industrial purposes shall be exempt from real estate taxes for the first three (3) years of operation of such machineries. Production equipment not attached to real estate shall be exempt from real property taxes.

NON-FISCAL INCENTIVES

Simplified Import – Export Procedures (Electronic Import Permit System and Automated Export Documentation System).

Non-resident Foreign Nationals may be employed by PEZA-registered Economic Zone Enterprises in supervisory, technical or advisory positions.

Special Non-Immigrant Visa with Multiple Entry Privileges for the following non-resident Foreign Nationals in a PEZA-registered Economic Zone Enterprise : Investor/s, officers, and employees in supervisory, technical or advisory position, and their spouses and unmarried children under twenty-one years of age. PEZA extends Visa Facilitation Assistance to foreign nationals their spouses and dependents.


What are the criteria to become a PEZA company?

One of the main criteria is that your company needs to be an export based company and to be considered that, 60% or more of your company revenue must be derived from overseas. PEZA requires eligible company to submit monthly reports to verify this and secondly your company needs to be located in a PEZA designated building or area.


How often does a Corporation needs to submit their income statement to the government for compliance reason?

Corporations are required to file quarterly income tax returns (and pay the corresponding tax therefor) together with an accompanying financial statements including an Income Statement. Monthly VAT returns will require a supporting schedule of income and expenses.


Can I incorporate a Philippines corporation without stopping foot in the Philippines?

Yes, this is possible with our service. We will be couriering you some documents for you to sign and you will need to get it notarized in your country and notarized by the Philippine Embassy nearest to you, and send it back to us. The process is pretty straight forward but it may just cost a bit more for the courier fee and notarization.


Do I need to be present in the Bank to open a bank account?

Yes, you need to be present in front of the bank manager to open your bank account. However, the incorporators may appoint a treasurer-in-trust, who must be resident, to open up a bank account in trust for the company that is in the process of incorporation.


How can I be sure that my remittance of US$200,000 will be safe?

We can arrange to open an account in a minimum amount in the name of the company then the remittance will be sent to the name of the company being registered. No one can withdraw the funds without the written permission of the board of the company.


Should the company incorporation process fail or be denied for any reason after I deposit the US200,000, how certain am I to be able to withdraw the money with any hindrance and also to repatriate the money without any unnecessary fees or taxes?

It will not happen because we pre-process all application for incorporation and check for legal implications to make sure the company being set up is allowable. If its not allowable we will not advise you to remit funds.


I understand that there must be a minimum of 5 shareholders in a Corporation. How many of them must be a Filipino citizen? And can this person be living abroad?

To set up a corporation, you will need to have at least 5 incorporators majority of them must be resident. If setting up a 100% foreign corporation majority can be foreigners and at least one (1) local Filipino resident.


How many types of withholding taxes are there?

There is (1) Withholding tax on Compensation, (2) Expanded Withholding Tax, (3) Final Tax, and (4) Fringe Benefit Tax.


Is there any implications if most of my shareholders or incorporators reside outside the Philippines?

No implications at all.


Can a President of a corporation be the treasurer at the same time?

No, this is an express prohibition under the Philippine Corporation Code. The obvious reason is conflict of interest.


What is the role of Corporate Secretary?

The corporate secretary by law is the keeper of the company records. He/She certifies all documents being issued and released by the company.


How often there will Board Resolution?

As long as there is a board meeting and a resolution.


Do we need to conduct monthly Board Meeting? What if we are all abroad or outside the Philippines?

No, you don’t need to. Meeting can be conducted off site and resolution could be achieve by a Circular Resolution.


If I send document to one of the directors residing outside Philippines for signature, how is the process?

It needs to be stamped and authenticated by the Philippine Embassy of his/her country residing at present.


How can you categorize if a corporation is a local or foreign corporation? Is there any differences with government fees need to pay?

The only difference is as Foreign Corporation, you need to have a much higher Paid Up capital which will result higher Document Stamped Tax and a higher Filing Fee for Article of Incorporation.


I am not in the Philippines, but I would like to start my company registration, can you help me to have an office in the Philippines?

Certainly, we can assist you for a suitable office in the Philippines depending on your choice of location.  We can also provide you a virtual office packages based on your needs, so that you can use prestigious business address right away for your company registration as well as communication line.


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TAXATION FOR PROFESSIONALS

True Wellness WarriorsTaxation, in general, is not that popular with most small & medium business owners. The same scenario exists for those professionals who wanted to practice their chosen profession such as doctor. Perhaps because most of the time, taxation is synonymous with a reduction to the overall profitability of a certain business. However, Taxation is a MUST particularly if you wanted to start a business.

Last May 30, 2015, I conducted a seminar entitled “Taxation for Professionals” at the Bayview Park Hotel in Manila organized by True Wellness Warriors. True WellnessThe seminar was specifically intended for doctors who wanted to practice profession and of course doctors who wanted to venture into business such as clinic and the like. The topics I prepared are basically about BIR registration, invoicing compliance, bookkeeping requirements, tax computation, penalties, interest & surcharges, and important dates. Yep, it’s practically an ultimate guide for professionals who wanted to become self-employed and yes starting a business too.  Whew! the question and answer portion is the most exciting portion of the seminar.

WarriorsAnyhow, since I already caught your attention and you are now browsing through and reading this article, I would like to share you the requirements first before we go to the step-by-step procedures, okay?

Okay, if you are a professional, a doctor, lawyer or an accountant, here are the requirements that you need to accomplish.

1. A registered TIN number
2. One original and two photocopies of BIR Form 0605
3. Photocopy of your birth certificate (NSO)
4. Photocopy of your marriage certificate (if married) and the birth certificate/s of your dependents, if you have any
5. Two copies of completed BIR 1901 form
6. Photocopy of proof of address
7. Payment of Professional Tax Receipt (PTR)
8. PRC License
9. Affidavit indicating the rates, manner of billings, and the factors considered in determining service fees (as specified in BIR Revenue Regulation 4-2014). You can download a sample affidavit here.

After securing all those requirements mentioned, here is what you need to do next.

Step 1 – is to know you Revenue District Office (RDO)

Step 2 – go to the RDO and register by filling up BIR Form 0605 (payment form) and pay Php500.00

Step 3 -Fill up BIR FORM 1901 (application for registration) and submit the needed requirements

Step 4 – Apply for Invoices/Receipts using BIR FORM no. 1906 – Authority to Print (ATP). Release of ATP is usually 3-5 working days.

Step 5 – Register books of accounts and have them stamped by RDO where you are registered. These are:(1) Journal (2) Ledger (3) Subsidiary Professional Income Books (4) Subsidiary Purchases (5) Expenses Books

There. Simple, yes?  Congratulations, you can now start becoming a self-employed professional.  Good luck!

Attention Corporation: Risk of paying not less than Php10,000.00 penalty on 1702Q

1702QATTENTION CORPORATION: There is a potentially expensive sting in the tail for pay and file taxpayers who have not yet paid & filed their 2014 second quarter corporate income tax (1702Q). Second quarter covers April, May & June 2014 and the deadline for filing is on the 28th of August or on or before 60 days following the close of each of the quarters.  Anyhow, for corporate taxpayers, the 2014 income tax return will trigger a penalty not less than Php10,000, if not filed. Therefore, it is important, however, to note that the penalty is calculated on your income tax liability, and that this penalty is in addition to the tax liability. Oh yes! aside from the tax payable you will be charged for additional penalty.  You don’t want that do you?  Well of course, the BIR issued a table of compromise penalty depending on the amount of tax involved.   But that is not he point.  Because additional penalties may also apply for non-compliance with filing obligations and worst you will be monitored already.

Thus, if you want to avoid any penalty then make sure you have filed and paid your 1702Q ON OR BEFORE THE DEADLINE.

 

Why you need an Accountant?

Almost always business owners, particularly those who are managing small businesses and those under SME category, disregards to see the importance of having accountants. Oftentimes, they look for an Accountant when it’s already too late or worst the BIR had issued a letter of notice (LN) or letter of authority (LOA) for their business.

As an Accountant, we understand that small business owners find it costly to maintain a retainer to do the monthly bookkeeping and tax preparation for their business. But what they don’t realize is the monetary and non-monetary benefits of maintaining one.

The following will explain the importance of accountant in your business, no matter how big or small it is.

1. Organized Record of Financial Data. Most business owners want to focus their time and energy operating and growing their business. As such, their financial documents for personal and business often mixed up. Having an unorganized financial documents create stress and headaches to business owners because they don’t know exactly what is happening in terms of financial standing. First, accountants maintain an organized record and filing of business day to day financial records. This is often referred to as Bookkeeping. When the business has a systematized and organized record keeping of business transactions, it will save you time worrying about whether your business is on the profit side or losing end. Also, you don’t need to worry on how to organize all the receipts you need to file and record.

2. BIR Tax Compliance and Other Reportorial Requirements. All income earners are required to pay monthly taxes, even small business owners. Yep, as a general rule, everything is taxable. As such, not having an accountant means you have to understand Taxation law of the Philippines in order to be tax compliant. Thus, this is another importance why you need an accountant. Seemingly, an accountant can compute and prepare BIR Tax Returns for you. It will save you time in studying tax law and computing your own tax return. Further, accountants can also give advice on effective tax management.

3. Save Time to Focus on Growth of Business. Keeping track of your financial data, recording and filing it can be time consuming, especially if you are not used to it. If you have an accountant, you can save a lot of time to focus on growing your business instead of worrying about tax deadlines and keeping an organized accounting records.

4. Save Money. When you don’t have an Accountant, there will be high possibility of future penalties, plus interest, on government reports you missed filing or incorrectly filed. Having an accountant can save you cost on these future penalties and charges of correcting your accounting books and tax returns on time.

5. Peace of Mind. The last but not least importance of an accountant in business is for owners to have peace of mind. When you have an accountant who does the record keeping and tax compliance, you don’t need to worry that if somebody comes to your business to do Audit. You are somehow confident that you have records to show you are complying with accounting and government reportorial requirements.

BIR Certificate of Registration (BIR form 2303)

BIR Certificate of Registration (COR) or BIR Form 2303 is a basic requirement in the conduct of your business in the Philippines. Of course, its a MUST following the general principle that “everything is taxable”. Anyhow, if you are Self-Employed, Corporation, Partnership, Cooperatives, Associations or Government-Owned and Controlled Corporation (GOCC),  then you are required to secure a Certificate of Registration (COR) from the BIR and of course pay the necessary registration fee, if applicable.

(1)    For Self-employed individuals, (for example a single proprietor or single proprietor with business), professionals (for example a practicing lawyer, architect, engineer, doctor, accountant, etc.) estates and trusts, their branches or facilities. Secure the COR within thirty (30) working days from the day the corresponding Mayor’s Permit/PTR is issued to the taxpayer.

(2)    For Corporations, partnerships, cooperatives, associations, their branches or facilities. Secure the COR before payment of any tax due.

(3)    For GAIs, GOCCs, LGUs, their branches or facilities. Get the COR before or upon filing of any applicable tax return, statement or declaration

Easy, YES, NO?!?

Now, this is somewhat complicated to others.  However, these are the simple rules.

1) Registration Form (BIR Form 1905) shall be filed with the same RDO where the TIN was obtained.

2) If an individual already have TIN but the principal place of his business is under the jurisdiction of different RDO, then his TIN shall be transferred to the RDO where his principal place of office is located.

3) For Corporation, Partnership, Association and Cooperative, the COR is under the jurisdiction of the RDO where the principal office is located.

PROCEDURES

1. Prepare / accomplish in 3 copies the following BIR forms needed for your business. They are available at all BIR offices or download these forms online.

Documentary Requirements

Single Proprietor

Partnership

Corporation

BIR FORM 1901 (Application Form)

BIR FORM 1903 (Application Form)

BIR FORM 0605 (Payment Form)

BIR FORM 2000 (Documentary Stamp Tax on Lease)

BIR FORM 2000 (Documentary Stamp Tax on                    Subscription)

2. Go to the Revenue District Office (RDO) that has jurisdiction over your registered address. You can also visit this link to know which RDO has jurisdiciton over you.

3. Go to the officer of the day. He will assess how much to pay for the registration. Normally, the registration fee is P500.00 while the Documentary Stamp Tax on Subscription depends on how much your capital is, while the Documentary Stamp Tax on Lease depends on your monthly rental. Please submit these forms and documents to the officer of the day.

Documentary Requirements

Single Proprietor

Partnership

Corporation

BIR FORM 1901 (Application Form)

BIR FORM 1903  (ApplicationForm)

BIR FORM 0605 (Payment Form)

BIR FORM 2000 (Documentary Stamp Tax on Lease)

BIR FORM 2000 (Documentary Stamp Tax on Subscription)

Photocopy DTI Certificate

Photocopy SEC Certificate

Contract of Lease

4. After the assessment, go to the accredited banks for payment. Usually accredited banks are within the vicinity of the RDO or you can ask anyone from the BIR in that RDO to be sure. Submit these assessed forms to the teller of the bank.

Documentary Requirements

Single Proprietor

Partnership

Corporation

BIR FORM 0605 (Payment Form)

BIR FORM 2000 (Documentary Stamp Tax on Subscription)

BIR FORM 2000 (Documentary Stamp Tax on Lease)

5. After the payment has been made, go back to your RDO. Get a queue number from the guard. Go to the registration section for the receiving of your application. Wait for your turn to be called and submit a photocopy of BIR form payments, special BIR payment form (all Accredited Banks of  RDO have a special payment form for BIR only) and other documentary requirements. The following are:

Documentary Requirements

Single Proprietor

Partnership

Corporation

BIR FORM 1901 (Application Form)

BIR FORM 1903 (Application Form)

Photocopy of Paid BIR FORM 0605 (Payment Form)

Photocopy of Paid BIR FORM 2000 (Documentary Stamp Tax on Lease)

Photocopy of Paid BIR FORM 2000 (Documentary Stamp Tax on Subscription)

Contract of Lease or Land Title/Tax Declaration

Photocopy of Mayor’s Permit

6. Schedule for release. Some RDOs may request you to attend a seminar about the filing of your taxes before the actual release of Certificate of Registration but some do not; be prepared just in case.  Also, don’t forget to ask for an “Ask for Receipt” sign. Some RDOs will automatically give it to you together with the COR and some do not. So to be sure, just ask for it.

7. Purchase Books of Accounts. Normally for VAT (Value Added Tax) there are six (6) Books of Accounts  while there are four (4) Books of Accounts for NON VAT and these are: 

Kind of Books

Value Added Tax (VAT)

Non Value Added Tax (Non VAT)

Journal

Ledger

Cash Receipt

Cash Disbursement

Subsidiary Sales Journal

Subsidiary Purchase Journal

8. Register the Books of Accounts – First, accomplished BIR Form 1905.  Submit BIR Form 1905 and Books of Accounts to the Registration Section and wait for the release.

9. Apply for Authority to Print (ATP) –  First, accomplished BIR Form 1906.  Attach photocopy of COR, sample printed receipts,  and paid Registration BIR 0605.

10. Lastly, printing of your receipts (Official Receipts and / or Invoices). This normally takes one to two weeks to be printed.

AND ALWAYS REMEMBER: The COR shall be posted or exhibit the same, and his/its duly validated RF Return at a conspicuous place in its/his principal place of business to avoid penalties and fine.