Philippines Key Industries, Incorporating, Employment, Payroll & Tax, and Immigration

Philippines Key Industries

Manufacturing Industry Capabilities

• Since the Philippines is located along a belt of volcanoes, there are metallic mineral deposits formed from volcanic activity and plate convergence. With rich resources for mining, the Mining and Mineral Processing sector is an attractive business investment
• Moreover, objectives are set to increase Philippines’ manufacturing innovation ecosystem.
• Likewise, there are also other manufacturing sector to venture into such as aerospace, automotive and parts, electronics or semi-conductors, pharmaceuticals, and shipbuilding.

Information Technology & Business Process Outsourcing Industry Capabilities

• Talented pool of service-oriented professionals possessing good language skills
• As has been noted, the Information Technology and Business Process Association of the Philippines (IBPAP) has set policy reform goals that support employees’ skills development
• In addition, the country has a comparatively low cost of doing business. At the same time, they are generally being known for providing necessary service quality
• Altogether, this industry provides excellent opportunities in sectors such as contact centres, back office services, data transcription, animation, software development, engineering development and game development

Agribusiness Industry Capabilities

• There is an increasing demand for agriculture products
• The recently approved Philippines’ Investment Priorities Plan (IPP) by the Philippine Board of Investments (BOI), an agency of Department of Trade and Industry (DTI) has underscored its agribusiness industry
• Furthermore, this industry provides opportunities in harvesting rubber, coconut, mangoes, bananas, coffee, palm oil, cacao, and other emerging high value crops.

 Incorporating in Philippines

 Types of Entities

• Sole Proprietorship is owned by an individual who has full control over all the assets and unlimited liability.
• In contrast, a Partnership consists of two or more individuals, where the partners have unlimited liability for the debts and obligation of the partnership.
• Additionally, Limited Partnerships is where one or more general partners have unlimited liability and the limited partners have liability up to the amount of their capital contributions.
• A Representative Office is a foreign corporation under foreign laws is fully subsidized by its head office. It carries out certain business activities that deal directly with the parent company’s clients but do not derive income from the host country.
• A Branch Office is a foreign corporation under foreign laws that carry out head office’s business activities and derives income from the host country.
• Regional Headquarters (RHQs) and Regional Operating Headquarters (ROHQs) can be established by multinationals under foreign laws with branches, affiliates and subsidiaries in the Asia Pacific Region and other foreign markets.
  • RHQ undertakes a supervisory, communicating and coordinating center for its subsidiaries, affiliates and branches in the Asia-Pacific region. It does not derive income from sources within the Philippines. Also, it does not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines.
  • On the other hand, ROHQ performs business services to its affiliates, subsidiaries, and branches in the Philippines and derives income in the Philippines
• Corporation consists of at least five (5) to fifteen (15) incorporators, each of whom must hold at least one share. In summary, the liability of the corporation’s shareholders is limited to the amount of their share capital. If 60% is Filipino-owned while 40% is foreign-owned, it is considered a Filipino corporation. On the flip-side, if 40% or more of the corporation is foreign-owned, it is considered a foreign-owned corporation.
  • A Stock Corporation is where shares are issued and is allowed to distribute dividends or surplus profits to shareholders.
  • A Non-stock Corporation does not issue shares and is organized principally for public purposes such as charitable, educational, cultural or similar purposes.

Registering a Filipino-Owned Corporation (60% Filipino-40% Foreign Equity and 100% Filipino Equity)

1. Verify and reserve the company name via the SEC iRegister.
2. Once the reservation is done, register the company using SEC iRegister.
3. Download or print the Articles of Incorporation and By-Laws after the online registration.
4. Pay the required filing fee online or through the SEC cashier.
5. Present the required documents for stock corporations / non-stock corporations to the Civil Registration Management Division (CRMD).
6. Claim the SEC Certificate of Registration from the Releasing Unit, Records Division.

Registering a Foreign-Owned Corporation (More than 40% Foreign Equity)

1. Verify and reserve the company name via the SEC iRegister.
2. Once the reservation is done, register the company using SEC iRegister.
3. Prepare the Articles of Incorporation and By-Laws after the online registration.
4. Present the required documents for pre-processing at the CRMD.
5. Pay the filing fees to the cashier.
6. Claim the Certificate of Incorporation from the Releasing Unit, Records Division.

Employment Regulations

Employment

The Labour Code of the Philippines (Labour Code) governs the employment matters in the Philippines. The employment contractual terms should not fall below the applicable labour standards of the Labour code. Consequently, any employment term against the Labour Code’s provisions will be considered invalid. There are minimum wage rates for agricultural or non-agricultural employees that vary according to regions. The regional minimum wages are prescribed by the Regional Tripartite Wages and Productivity Board under the Republic Act No. 6727, also known as the Wage Rationalization Act.

Termination

The employer or employee may terminate the contract. As for the employer, the contract may be terminated under any of the following reasons:

• The employee has demonstrated serious misconduct or wilful disobedience of the lawful orders by the employer or representative in connection with the employee’s work.
• There is gross and habitual neglect of the employee’s duties.
• There is fraud or employee’s wilful breach of the trust given by the employer or duly authorized representative.
• The employee committed a crime or offense against the employer or any immediate family member or representatives.
• Or, any other causes similar to the abovementioned reasons.

According to the Labour Code, there are other authorised reasons such as the closure of establishment and reduction of personnel, along with disease as grounds for termination. On the other hand, the employee may terminate the contract without just cause by serving a written notice on the employer at least one month in advance. If no such notice was served, the employer may hold the employee liable for damages. Additionally, no notice by the employee is needed if there is serious insult by the employer or representative on the honour and person of the employee. This encompasses inhuman and unbearable treatment on the employee by the employer or representative; commission of a crime or offense by the employer or representative against the employee or any of the immediate family members; or any other causes akin to the aforementioned reasons.

Payroll and Tax Regulations

Social Security Scheme

The Social Security System (SSS) is a social insurance program, protecting employees in the event of death, disability, sickness, maternity and old age. Additionally, all SSS-registered employers and their employees are compulsorily covered under the Employees’ Compensation (EC) Program.  Hence, the SSS requires contribution from both the employer and employee, where the employee’s portion will be deducted from the employee’s salary. Only the employer is required to contribute monthly to the EC on behalf of the employees. In addition, there is a Government Service Insurance System (GSIS). The contributions are made from the government and members, where members’ contributions are deducted from their salary.

Philippines Tax

 The Bureau of Internal Revenue (BIR) is the main authority for collecting taxes in the Philippines.

Corporate Income Tax

For domestic companies, the income derived from sources within and outside the Philippines is taxable. Likewise, resident and non-resident foreign corporations’ receiving income from sources within the Philippines is taxable. The corporate income tax rate is 30%, based on net taxable income. 

Individual Income Tax

Income from sources within or outside the Philippines received by the resident citizens is taxable.  Additionally, non-resident citizens receiving income from sources within the Philippines are taxed. Aliens, whether resident or not, are taxed in the same manner as resident citizens on income derived from sources within the Philippines.

Individual Income Tax Rates

Net Taxable Income		Rate
Over	But Not Over
P0	P10,000	5%
P10,000	P30,000	P500 + 10% of the Excess over P10,000
P30,000	P70,000	P2,500 + 15% of the Excess over P30,000
P70,000	P140,000	P8,500 + 20% of the Excess over P70,000
P140,000	P250,000	P22,500 + 25% of the Excess over P140,000
P250,000	P500,000	P50,000 + 30% of the Excess over P250,000
P500,000		P125,000 + 32% of the Excess over P500,000 in 2000 and onward

 Other Taxes

• Value Added Tax (VAT) is an indirect tax that can be passed on to the buyer. It is imposed on the sale, exchange or barter of goods and properties at a rate of 12% of the gross selling price or gross value in money.
• There is also a 12% VAT on the gross receipts from the sale or exchange of services and use or lease of properties, as well as the import of goods.
• As for export sales and other zero-rated sales, there is a 0% VAT.
• The other taxes include a Documentary Stamp Tax on certain documents, Donor's Tax on donations or gifts, as well as Capital Gains Tax on the gains realized by the seller from the sale, exchange, or disposition of capital assets located in the Philippines.

Immigration

Work Passes and Permits

Alien Employment Permit (AEP)  Who is it for? All foreign nationals who want to work in the Philippines, with some exceptions  Requirements If the foretign nationals have commenced work while their applications for an AEP or a Pre-arranged Employee Visa (9G) are still pending, they must secure a Provisional Work Permit (PWP)  Brief overview of application steps The applicant has to file for an AEP personally or through their respective employer with the Department of Labour and Employment (DOLE) Regional Office or Field Office with jurisdiction over the intended place of work.  If foreign nationals are assigned to subsidiaries, branch offices and joint ventures or in headquarters with functions that are overlapping with the branch offices, the applications can be filed at the DOLE Regional Office or Field Office that is nearest to their place of work. Submit the required forms and documents to the DOLE Office. Pay the permit fee upon submission of application. The Secretary of Labour and Employment, through the DOLE Regional Director, who has jurisdiction over the intended place of work of the foreign national, will be able to authorize the issuance of an AEP.