Your guide to doing business in the Philippines
The Philippines is an archipelago in the West Pacific Ocean and one of the most populous countries in Southeast Asia. Emerging from a colonial past, the Philippines became a stable democracy in the 20th century, transitioning from a primarily agricultural economy to one based on services and manufacturing. Following further significant reforms, the Philippine economy has grown to become the 33rd-largest in the world: in 2019 it reached an estimated GDP of $357 billion with a growth rate of 6%. Thanks to the Philippines’ resilience to global economic turbulence, that positive trend is predicted to continue, with Goldman Sachs suggesting that it could become one of the world’s 20 largest economies - and the largest in Southeast Asia - by 2050. While agriculture remains an important commercial sector in the Philippines, information technology, energy, and transport infrastructure have grown in economic significance. Today, the Philippines enjoys a buoyant internal consumer market, a stable banking system, and trade connections to the rest of Asia: the Asian Development Bank, for example, is headquartered in Manila and offers businesses a range of initiatives and opportunities around the region. The Philippines is a member of the UN, the WTO, ASEAN, and APEC and was ranked 95 on the World Bank’s Ease of Doing Business Survey 2019.
Interested investors will find a range of reasons to target the Philippines, including:
The government provides various incentives to encourage inward investment in the Philippines, ranging from lower-cost business areas, to reduced taxation strategies.
All entities have to be legally established in the Philippines to be able to process payroll.
Any company wanting to employ staff in the Philippines must meet the following basic requirements to set up a business:
It is mandatory to make payments to both employees and the authorities from an in-country bank account if the client is making the payments themselves. However, if the payroll is outsourced and all cash transactions are dealt with from overseas, a Philippine bank account is not required for payroll purposes as the payroll provider can make payments on the employers’ behalf using their own bank account.
Generally, banks are open to the public from 9:00AM to 4:00PM and closed on Saturdays.
The working week is Monday to Friday. The working day for commercial offices is usually eight hours, exclusive of mealtimes. Some services require that some employees work for 6 days or 48 hours.
General Information
The Republic of the Philippines is actually made up of over 7,107 islands and shares maritime borders with neighbouring Taiwan and Vietnam to the north and west, and Palau, Malaysia, and Indonesia to the east and south. Now a highly ethnically-diverse country, the Philippines was colonised by Europeans in the early 16th century when Magellan’s expedition arrived on the islands and established outpost settlements. While the Philippines’ sovereignty was contested frequently over the following centuries, in 1946 it became an independent nation and began a series of political and economic reforms which would see it emerge as a significant regional and global presence in the 21st century. The Philippines is an active volcanic archipelago and experiences a characteristically warm, wet tropical climate across its many mountainous and rainforest environments. Its flora and fauna are abundant and diverse, and with a range of stunning natural beauty spots, the Philippines attracts millions of tourists from across the world each year.
Full Name: Republic of the Philippines
Population: 108.1 million (UN, 2019)
Capital: Manila
Major Language: Filipino, English (both official)
Major Religion: Christianity
Main Exports: Electrical machinery, clothing, food, live animals, chemicals and timber products
GNI per Capita: US $3,830.00 (World Bank, 2018)
Internet Domain: .ph
International Dialing Code: +63
Hello Kumusta
Good Morning Magandang umaga
Good Evening Magandang gabi
Do You Speak English? Nagasasalita ba kayo ng Ingles
Goodbye Paalam
Thank You Salamat
See You later Nakikita mo sa ibang pagkakaton
The tax year runs from 1 January to 31 December.
There are four statutory obligations that both employees and employers are obliged to adhere to under the Philippine Law.
The monthly Social Security, PhilHealth and Pag-IBIG Fund contributions from the employees’ salary, together with the employer’s share of contributions, has to be paid to the respective statutory agencies or any accredited banks (if applicable) on or before the payment date. The payment date will vary depending on the statutory agency.
Withholding Tax
Every employer is required to deduct and withhold taxes on employees’ compensation in accordance with Philippine Law. Consequently, personal income tax is collected from the employee through the payroll and the employer acts as the withholding agent.
For individual citizens and resident aliens earning purely compensation income and individuals engaged in business and Practice of Profession, the following graduated income tax rates under Section 24(A)(2) of the Tax Code of 1997, as amended by Republic Act No. 10963, or the Train Law effective January 1, 2018.
Amount of Taxable Income (PHP) |
Rate |
---|---|
Up to 250,000 |
0% |
Over 250,000 - up to 400,000 |
20% of the excess over P250,000 |
Over 400,000 - up to 800,00 |
P30,000 + 25% of the excess over P400,000 |
Over 800,00 - up to 2,000,000 |
P130,000 + 30% of the excess over P800,000 |
Over 2,000,000 - up to 8,000,00 |
P490,000 + 32% of the excess over P2,000,000 |
Over 8,000,000 |
P2,410,000 + 35% of the excess over P8,000,000 |
Payment of withholding taxes must be made on the following schedule:
Type of Payment |
Payment due date |
---|---|
Manual Payment |
On or before the 10th of the following month |
Online Payment |
On or before the 15th of the following month |
Social Security System (SSS)
SSS is a privatized social insurance program established to protect members and their families against the hazards of disability, sickness, maternity, old age, death and other contingencies resulting in loss of income or financial burden.
All private employees and employers are compulsorily covered under this program. The Social Security premium of both the employee and employer will vary depending on the employee’s monthly compensation bracket. Employers must deduct the Social Security contributions from the employees’ salary and remit these contributions, together with the employer’s share of contributions, to the SSS or any accredited banks.
An SSS employee-member should:
An employer is obliged to:
The new contribution schedule will be implemented for the applicable month of April and payable in May 2019, the table and payment schedule can be found here.
The typical penalties awarded for the late submission and payment of tax and social security contributions are as follows:
The Philippine Health Insurance Corporation, popularly known as PhilHealth, is a government-funded health care system in the Philippines. It was established to administer the National Health Insurance Program, which will prioritize the needs of the underprivileged, sick, elderly, disabled, women and children.
Both employers and employees are required to contribute to the PHIC equally based on the employees’ monthly salaries.
The employer deducts the amount of monthly premium corresponding to the employee’s share from the employee’s basic monthly salary (Please refer to the latest PhilHealth Premium Contribution Table here), and remit the employee’s premium contribution, together with the employers’ share to any of the Accredited Collecting Agents (ACA) nationwide on or before the due date.
Employers in the Philippines must report tax to the Philippines Bureau of Internal Revenue (BIR), but must first obtain a tax certificate from their local City Treasurer’s Office, and a permit from their Business Permits and Licensing Office. Annual tax returns are made via BIR Form 1700, and must be filed on or before 15 April of the year following the current tax year. Reporting forms required for monthly and annual tax and social security contributions are as follows:
SS Form R-5 & R-3: Contribution Payment Return Form and Contribution Collection List respectively. Used to report the total and per employee SSS contribution for the month.
PhilHealth Form ME-5: Contribution Payment Return used to remit the monthly premium contribution
PhilHealth Form ER2: Report of Employee-Members
PhilHealth Form RF-1: Employer’s Remittance Report
Pag-IBIG Form MCRF: Membership Contribution Remittance Form is used to report monthly
Pag-IBIG contribution BIR Form 1601-C: Monthly Remittance Return of Income Tax Withheld on Compensation
BIR Form 1604-CF: Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes
BIR Form 2305: Certificate of Update of Exemption and of Employer’s and Employees’ Information
BIR Form 1700 (Year End Non-Substituted Filing): Annual Income Tax Return
Alphalist Data File Reporting:
BIR Form 2316: Employer’s Certificate of Compensation Payment / Tax Withheld - to be completed and issued to each employee, by each employer, showing the total amount paid and the taxes withheld during the calendar year.
Information required for completing the form:
Completed forms are to be sent to the respective statutory agencies such as the Social Security System, Philippine Health Insurance Corporation (PhilHealth), Home Development Mutual Fund (Pag-IBIG) and Bureau of Internal Revenue (BIR). The payroll vendor can transact with the statutory agencies as the company’s authorized representative. It is not necessary in the Philippines for the employer to sign the form, as the payroll vendor can sign most documents on their client's behalf provided there is a clear authorization from the client and upon presentation of a documented Secretary's Certificate or Board Resulotion.
The deadline for a new employee to be registered with the authorities is their start date as an employee.
Upon employment, new hires are required to submit the following:
To secure these numbers, new employees need to register with SSS, PhilHealth and HDMF prior to their employment. This is to ensure that the employer can process the respective statutory contribution of the employees.
Registration with the Bureau of Internal Revenue (BIR) to secure TIN will follow a different process. The employee has to fill out the Application for Registration (BIR Form 1902) and attach a copy of the birth certificate. The employer will submit the form to the Revenue District Office (RDO) where the company is registered.
There’s no particular template mandated by Philippine Law for obtaining details to set up a new start. There is, however, basic information required:
Certificate of Compensation Payment and Taxes Withheld (BIR 2316) from the employee’s previous employer should also be submitted to the present employer within 30 days of employment. The tax authority to consolidate the employee’s previous and present income and issue a consolidated Certificate of Compensation Payment and Taxes Withheld (BIR Form 2316) no later than January 31 of the following year mandates the present employer.
Final payment will be given to the leaving employee 10 days after completion of exit clearance requirements.
The responsibility lies with the employer to notify SSS, PHIC and HDMF of an employee’s resignation within 30 calendar days from the date of separation.
Employers in the Philippines must observe a range of payroll compliance regulations, which include monthly withholding obligations. The three main statutory contributions deducted from employee salaries each month are:
Mandatory contributions to Philippine social security schemes must be withheld and paid monthly to the Bureau of Internal Revenue 10 to 15 days after the end of the tax month. Employees must be provided with a payslip, although this may be issued online. Payroll records must be kept for at least 10 years. Foreign businesses should develop a payroll solution which takes into account the pay needs of employees in the Philippines and in other territories. Given the complexity of the Philippine’s payroll regulations, it may be worth engaging a payroll provider to implement a global payroll solution in order to deliver procedural efficiency, and compliance expertise, quickly.