Doing Business in Philippines

The Philippines is an island nation 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 and transitioned from a primarily agricultural economy to one based on services and manufacturing. Following further significant reforms, the Philippine economy has grown to become the 36th-largest in the world, displaying a remarkable resilience to the global economic crisis - so much so that Goldman Sachs predicted it would become the world’s 20th-largest by 2050 - and the largest in the Southeast Asia region. While agriculture remains a major commercial sector, information technology, energy, and transport infrastructure have grown in economic significance. Today, the Philippines enjoys a buoyant internal consumer market and a stable banking system: the Asian Development Bank, headquartered in Manila, offers businesses a range of initiatives and opportunities around the region. The Philippines is a member of the United Nations, the World Trade Organisation, the Association of Southeast Asian Nations, and the Asia-Pacific Economic Cooperation group.

Why invest in Philippines?

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.

Foreign Direct Investment in the Philippines

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

Company Registrations and Establishing an Entity in the Philippines

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 complete the following basic requirements to set up a business:

  • Obtain a bank certificate of deposit of paid-in capital.
  • Register with the Securities and Exchange Commission (SEC).
  • Obtain a community tax certificate (CTC), Barangay (district) clearance, and mayor’s permit/municipal license.
  • Register for taxes at the Bureau of Internal Revenue (BIR).
  • Obtain and present special books of account - comprising one set of four books: the cash receipts account, the disbursements account, the ledger, and the general journal.
  • 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 the Philippines Health Insurance Company (PHIC).

Business Banking in the Philippines

It is mandatory for employers in the Philippines to make payments to both employees and the authorities from an in-country bank account. Generally, banks are open to the public from 10:00AM to 4:00PM, and closed on Saturdays.

However, if 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 employer's’ behalf.

Working Days in the Philippines 

The Philippines’ working week is Monday to Friday. The working day for commercial offices is usually eight hours, exclusive of meal times. Some services require that some employees work for 6 days or 48 hours.

Basic Facts About the Philippines

General Information

The Republic of the Philippines is actually made up of over 7,000 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: 93.6 million

Capital: Manila

Primary Language: Filipino, English (Both official)

Main Religion: Christianity

Monetary Unit: 1 Philippine peso = 100 centavos

Main Exports: Electrical machinery, clothing, food, and live animals, chemicals, timber products.

GNI per Capital: US $2,060 (World Bank, 2010)

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

Good Bye Paalam

Thank You Salamat

See You later Nakikita mo sa ibang pagkakaton

Income Tax & Social Security in the Philippines

The Philippines’ Tax Year runs from 1st January to 31st December. There are four statutory social security obligations that both Employees and Employers are obliged to adhere to under that Philippine Law: the monthly Social Security, PhilHealth, and Pag-IBIG Fund (HDMF) contributions from the Employee's’ salary, together with the Employer’s share of contributions. Each must be submitted to the respective statutory agencies or any accredited banks (if applicable) on or before the 10th day of the following month.

The Home Development Mutual Fund (HDMF) or popularly known as the Pag-IBIG Fund seeks to provide a national savings program and affordable shelter financing for all Filipino workers. Membership to the Fund is mandatory for all employees, workers, professionals, officers, and companies who are compulsorily covered by the Social Security System (SSS) and Government Social Insurance System (GSIS).

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 payroll, and the employer acts as the withholding agent.

Citizens of the Philippines, Resident Aliens earning only compensation income, and anyone involved in a business profession must pay income tax at the following progressive rates:

Amount of Taxable Income (PHP)

Tax Rate On Income Band

Up to 250,000

0%

Over 250,000 - up to 400,000

20%

Over 400,000 - up to 800,000

25%

Over 800,00 - up to 2,000,000

30%

Over 2,000,000 - up to 8,000,000

32%

Over 8,000,000

35%

Note that there will be no withholding of tax required where the total compensation income of an individual does not exceed the statutory minimum wage, or five thousand pesos (PHP 5,000) per month, whichever is higher.

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 in the Philippines

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

Typical penalties awarded for the late submission and payment of tax and social security contributions are as follows:

  • Tax - 25% surcharge for failure to file and pay the amount of tax
  • SSS - 3% monthly penalty for overdue contributions

Philippine Health Insurance Corporation (PHIC)

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 prioritizes the needs of the underprivileged, sick, elderly and disabled, and of women, and children.

Both Employers and Employees are required to contribute to the PHIC equally, based on the employees’ monthly salary. Employers must deduct the monthly PhilHealth contribution from employees’ salaries and remit it, together with the employer’s portion, to PhilHealth.

Reporting Tax in the Philippines

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

BIR Form 2316: Employer’s Certificate of Compensation Payment / Tax Withheld - to be accomplished and issued to each employee, by each employer, indicating therein the total amount paid and the taxes withheld there from 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 boards such as the Social Security System, Philippine Health Insurance Corporation (PhilHealth), Home Development Mutual Fund (HDMF/Pag-IBIG) and the Bureau of Internal Revenue (BIR). Payroll vendors can transact with the statutory boards as their client-company’s authorized representative. It is not necessary in the Philippines for employers to sign the forms, because payroll vendors can sign documents on their clients’ behalf.

New Employees and New Starts in the Philippines

New employee contracts can be either verbal or written - and probationary periods for new employees (except those in skilled apprenticeship programmes) may last no longer than six months. When employers hire a new employee they must register that employee with the BIR, SSS, Philhealth, and the HDMF before their start date. 

New hires are required to submit the following information to their current employer prior to their start date:

  • Social Security No.
  • PhilHealth No.
  • HDMF No.
  • Taxpayer Identification No. (TIN)

To secure the respective numbers, new employees need to register with SSS, PhilHealth and HDMF prior to their employment. This cut-off serves to ensure that employers can process the respective statutory contribution of their employees on time.

Registration with the BIR to secure a TIN involves a different process. Employees must first obtain a Certificate of Employment from their current employer before BIR registration can be processed. There is no particular template mandated by Philippine Law for obtaining details to set up a new start, however certain basic information is required:

  • Name
  • Gender
  • Marital Status
  • Date of Birth
  • Nationality and Citizenship
  • Address
  • Social Security No.
  • PhilHealth No.
  • HDMF No. (valid HDMF IDs start with digit 1)
  • Taxpayer Identification No. (TIN)
  • Tax Status (marital status and no, of dependents)

The Certificate of Compensation Payment (BIR 2316) from employee’s previous employer should also be submitted.

Employee Benefits in the Philippines

Employees in the Philippines receive certain statutory benefits as a result of their social security contributions. These benefits include overtime and sickness pay, retirement funds, paternity and maternity leave. Further to the Social Security system, the Philhealth programme provides universal healthcare, and the HDMF provides affordable housing to its employee-members.

The Philippines also offers its employees certain unique state-funded benefits, which include:

  • 13 Month Pay: A financial benefit given to non-senior employees who have worked for at least one month - amounting to 1/12 of their employee’s annual salary.
  • Night Shift Differential: A night shift differential of at least 10% of an employee's regular wage is given for each hour of work performed between 10pm and 6am.

Beyond those mandated by the government, employers in the Philippines may also offer their employees a range of additional benefits, including:

  • Performance bonuses
  • Employee Share Schemes (ESS)
  • Enhanced medical insurance or healthcare
  • Company car
  • Company phone/laptop/tablet
  • Travel allowance
  • Meal vouchers
  • Work from home/flexi-time plans
  • Career development options
  • Global mobility options
  • Access to gym/leisure facilities
  • Children’s educational stipend

Leavers in the Philippines

Final payment will be given to leaving employees 30 days after completion of clearance. Employers have a responsibility to notify SSS, PHIC, and HDMF of an employee’s resignation within 30 calendar days from the date of separation.

Payroll in the Philippines

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:

  • Social Security: General social insurance covering sickness, disability, maternity and old age.
  • PhilHealth: The Philippine Health Insurance Corporation scheme aims to provide access to quality medical and health care services for all employees. 
  • Home Development Mutual Fund: A housing program designed to provide short term loans and access to housing programmes for all workers in the Philippines. 

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 5 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. 

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