Philippines

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.

General Information

• 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

How Do I Say in Filipino?

• 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

Interested investors will find a range of reasons to target the Philippines, including:

• Growth sectors: Over the past 60 years, the Philippines has experienced exciting growth in a range of sectors, including manufacturing, construction, mining and renewable energy. The country has also developed a regional reputation as a hub for technology production.
• Economic resilience: The Philippines’ economy has weathered tough economic times relatively well. After emerging from the global financial crisis, both the OECD and the National Competitiveness Council ranked the Philippines’ corporate governance practices as some of the best in Asia.
• Geographic location: The Philippines enjoys a strategic location at the heart of one of the world’s fastest-growing economic regions. A gateway to a regional market of over 500 million people, the Philippines also represents an ocean and air freight ‘crossroads of trade and investment interests.
• Government reforms: The government has adapted the Philippine economy to foreign investment, establishing special economic zones and allowing increased private-sector participation in infrastructure development. A variety of sectors have been deregulated to stimulate investment.
• Skilled workforce: The Philippines’ workforce is one of the most skilled in Asia with high rates of literacy and education, and English language proficiency. In 2000, the Meta Group ranked the country as one of world’s best knowledge bases.

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.

The government provides various incentives to encourage inward investment in the Philippines, ranging from lower-cost business areas, to reduced taxation strategies.

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.

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:

• Obtain bank certificate of deposit of the paid-in capital
• Register with the Securities and Exchange Commission (SEC)
• Obtain Community Tax Certificate (CTC), Barangay (district) clearance and mayor’s permit/municipal license
• Register for taxes at the Bureau of Internal Revenue (BIR)
• Obtain special books of account (one set of four books: the cash receipts account, the disbursements account, the ledger, and the general journal) for presentation
• Pay documentary stamp taxes
• Obtain the authority to print receipt/invoices from the Bureau of Internal Revenue (BIR)
• Register with the Social Security System (SSS), Home Development Mutual Fund (HDMF) or Pag-ibig Fund and Philippines Health Insurance Corporation (PHIC)

Previously, only those applying with the Bureau of Immigration for a visa to work for over six months, or those applying for an Alien Employment Permit (AEP) with DoLE (Dept of Labour and Employment) were obliged to secure a Taxpayer Identification Number (TIN). Subsequently, the TIN requirement for AEP was removed when Provisional Work Permit (PWP) applications, processed while the work visas are still pending, were likewise required to be supported with a TIN. A PWP allows foreign nationals to commence working in local establishments, usually within the validity period of three months or until the work visa has been approved.

With the issuance of the joint guidelines, all applications for work permits and working visas must be supported by a TIN. Regardless of the duration of the assignment, foreign workers are required to apply for a TIN.

Eligibility Requirements

All work visas for the Philippines will require the candidate to have a sponsor in place, i.e. a Philippines based company. The offer of employment must be demonstrated through a letter of request from the sponsoring Employer in addition to an affidavit of support and guarantee.

Leaving the Philippines

In the Philippines, work visa holders must notify the Philippines immigration services about their intention to depart the country. A letter of cancellation must be presented to the Bureau of Immigration and the client must return their Alien Employee Permit.

Family Immigration

In the Philippines, visas of this kind do not categorize unmarried partners, whether common-law or conjugal as dependents and as a result, only married partners may be included on the main candidate's application.

The husband or wife of the main applicant along with any dependent children may accompany the main applicant to the Philippines for the same duration and will be granted the opportunity to study in the Philippines should they choose to do so.

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.

Income Tax in the Philippines

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.

Payment of withholding taxes must be made on the following schedule:

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:

• Secure their SSS numbers;
• Ensure that they are reported for coverage under the SSS by their employers;
• Pay their monthly share of contributions and ensure that these contributions are remitted to the SSS by their employers;
• Submit to their employer SSS Salary Loan Voucher or Statement if any, to commence loan amortization deductions from their monthly payroll. Ensure that the employer has done the necessary ML2 posting.

An employer is obliged to:

• Require to see the SSS number of a prospective employee;
• Report all employees for SSS coverage within thirty (30) days from the date of employment
• Deduct from the employees the monthly SSS contributions based on the schedule of contributions;
• Submit a summary of all employees’ contributions
• Ensure that Monthly SSS Electronic Collection Lists with Payment Reference Number (PRN) where employees’ names are included, are submitted to the SSS with payment.
• The employer shall be responsible for the collection and remittance to the SSS of the amortization due on the member-borrower’s salary loan through payroll deduction.

The Philippine Health Insurance Corporation, popularly known as PhilHealth, is a government-funded health care system in the Philippines. Both employers and employees are required to contribute to the PHIC equally based on the employees’ monthly salaries.

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:

• Schedule 1 (REMITTANCE PER BIR FORM NO. 1601-C)
• Schedule 7.1 (ALPHALIST OF EMPLOYEES TERMINATED BEFORE DECEMBER 31)
• Schedule 7.2 ALPHALIST OF EMPLOYEES WHOSE COMPENSATION INCOME ARE EXEMPT FROM WITHHOLDING TAX BUT SUBJECT TO INCOME TAX
• Schedule 7.3 ALPHALIST OF EMPLOYEES AS OF DECEMBER 31 WITH NO PREVIOUS EMPLOYER WITHIN THE YEAR
• Schedule 7.4 ALPHALIST OF EMPLOYEES AS OF DECEMBER 31 WITH PREVIOUS EMPLOYER/S WITHIN THE YEAR
• Schedule 7.5 ALPHALIST OF MINIMUM WAGE EARNERS

Employees with purely employment income from just one employer in any tax year are classified under substituted filers, whereas employees with mixed sources of employment income with different employers are under non-substituted filers.

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:

• Registered Company Name
• Registered Company Address
• Names of the Employees
• Statutory Employee and Employer Account Numbers
• Monthly Employee and Employer share

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:

• Social Security No.
• PhilHealth No.
• HDMF No. (Valid HDMF IDs to start with Digit 1)
• Taxpayer Identification No. (TIN)

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:

• Name
• Gender
• Marital Status
• Date of Birth
• Nationality and Citizenship
• Address
• Social Security No.
• PhilHealth No.
• HDMF No. (Valid HDMF IDs to start with Digit 1)
• Taxpayer Identification No. (TIN)
• Tax Status (Marital Status and No. of Dependents)

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.

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.

It is legally acceptable in the Philippines to provide employees with online payslips.

Every employer shall pay their employees by means of a payroll wherein the following information and data shall be individually shown:

• Length of time to be paid;
• The rate of pay per month, week, day or hour etc.;
• The amount due for regular work;
• The amount due for overtime work;
• Deductions made from the wages of the Employees;
• Amount actually paid.

Reports

All employment records that are required to be kept and maintained by Employers must be kept for 5 years from the date of the last entry in the records.

Holiday Accrual

Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five (5) days with pay.

Maternity Leave

Employees are entitled to 105 days of paid maternity leave for normal childbirth or caesarean delivery with an option to extend maternity leave a further 30 days without pay - so long as written notice is given at least 45 days before the original leave is set to end.

This applies to all instances of pregnancy and all categories of working mothers in the Philippines. Single mothers can receive 120 days of paid maternity leave. In cases of miscarriage, or emergency terminations, women will receive 60 days of maternity leave at full pay.

Paternity Leave

Paternity leave of up to 7 days is allowed, however, this is a company benefit and not a statutory benefit. Paternity Leave is applicable for the first up to fourth deliveries of the legitimate spouse. A birth certificate must be submitted to support the paternity leave.

All married male employees in the private sector will be granted a paternity leave of 7 days with full pay regardless of their employment status.

Sickness

There is no legal entitlement for sick leave. The yearly Service Incentive Leave (SIL) can be used for sick leave purposes. It is then the company’s discretion to give Employees additional sick leave entitlement.

However, SSS has a sickness benefit that may be availed by SSS members, if that SSS member has met the requirements. In this case, the SSS will pay the Employee’s sick leave.

The sickness benefit is a daily cash allowance paid for the number of days a member is unable to work due to sickness or injury. The amount of a member’s sickness benefit per day is equivalent to ninety percent (90%) of the member’s average daily salary credit.

It is the responsibility of the employer to calculate the amount of the sickness benefit and do the advance payment to the employee. The sickness benefit that was advanced by the Company will be reimbursed by SSS upon submission of the necessary documents such as the Sickness Reimbursement Form and medical reports related to sickness.

National Service

There is no compulsory military service in the Philippines.

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.

Expenses

Employee expenses can be integrated into payroll as allowances. It is the discretion of the company to identify what kind of allowance will apply. These allowances when paid to the employee on a regular basis will be taxable.

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents