How do you set up a business in the Philippines? Payroll, HR and entering the filipino market

Located in the heart of Asia, the Philippines is a nation with countless trading opportunities for western businesses. The local economy is also strong, and innumerable bright and hungry new graduates join the labour force every year. You’ll need to jump through many hoops to get your business up and running in the Philippines, but those who demonstrate patience will be rewarded.

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Does the Philippines welcome overseas businesses?

Thanks to the Foreign Investments Act (known as the FIA) of 1991, the Philippines is wholly welcoming to overseas investment. 

The authorities do not necessarily make it easy to start a business – if you have an aversion to paperwork and administration, you’re going to struggle in this country. 

However, any entrepreneur with a compelling business plan (and sufficient capital) likely to yield profit and create job opportunities for the local workforce will be welcomed to the Philippines with open arms.

What industries are most popular in the Philippines?

The Philippines is famed for its lush and beautiful terrain, so it’s perhaps unsurprising that agriculture and tourism are the biggest industries in the country. The further you drift away from major cities like Manila, the more you’ll find these sectors dominating the economy.

Station yourself in urban areas, however, and you’ll find plenty more options. Other popular industries in the Philippines include:

• Manufacturing and exports, most notably food and drink, textiles and clothing, industrial equipment, and petroleum
• Real estate, as a growing local population and an increasing number of imports seek homes and commercial properties
• Retail. Employment is high in the Philippines, and many Filipinos have disposable income to spend on consumer goods, most notably clothing
• Healthcare. An ageing population and increased awareness of personal health have seen this sector rise in popularity

Perhaps the fast-growing industry in the Philippines is CIT, and associated business services. The Philippines is home to countless opportunities to outsource skilled labour to western businesses, as well as seeing a rise in domestic companies.

Is it easy to set up a business in the Philippines?

Easy is not the word we would use. It’s more laborious. If you have an aversion to bureaucracy, consider hiring a third-party business to set up your business. If you’re happy to go it alone, here are the steps:

The process will take weeks, and you will be charged fees are almost every juncture, so make sure you have a clear credit card – you’ll need it.

Can I run a business in the Philippines while living overseas?

The Philippines welcomes 100% foreign investment and ownership of companies, so you do not need to live in the country to run your business. 

However, somebody needs to present in person to file the documents required to set up the business, and at least one resident director needs to be a resident of the Philippines. 

Your choices are to partner up with a local or to hire a third-party business to act as your representative.

Cultural considerations when running a business in the Philippines

If you’re looking to do business in the Philippines, you’ll need to adapt to some local customs and learn how residents like to conduct their affairs. Considerations include:

• While Filipino businesses work to a strict hierarchy, with the highest-ranking person making all final decisions, there will likely be much discussion with team members of all levels to achieve a group consensus. This means negotiations may take time
• A verbal promise is considered binding in the Philippines. If you say something you don’t mean in a meeting in an attempt to move on, hoping it will be forgotten or you can row back on it later, you will earn a reputation as somebody that cannot be trusted
• Stick to the facts, and do not exaggerate. Trust is everything when doing business in the Philippines, so if you promise great things, prove that you can deliver them. If you fail to do so, your associates will lose trust in you – and, by extension, lose interest in trading with you
• Body language and non-verbal cues will tell you a lot about negotiations. Associates in the Philippines will be very reluctant to say “no” outright, as they will worry about causing offence or shame. If they pause or look away, treat this as a sign that you should finesse your proposal a little

What business structures are supported in the Philippines?

The most popular business structures for a new venture in the Philippines are as follows.

Type of filipino business entity	What is it?
Sole Proprietorship	Basically a sole trader. Your business and personal assets will be linked, and you may need to pay more taxes.
One-Person Corporation	A limited liability company with just one owner – ideal for an SME. The only snag is that it needs to be registered in person.
Partnership	A two-person corporation – ideal if you want to partner up with a Filipino local to get your business up and running.
Corporation	A private or public entity with up to 15 directors or decision-makers. Selling shares to the public is optional.

Alternatively, you can open a branch of your overseas company.

Taxation in the Philippines

If you want to do business in the Philippines, you must understand the taxation rules and regulations that will impact your bottom line. 

What is the corporate tax rate in the Philippines? 

The corporate tax rate in the Philippines is currently 25% on all business profits, recently reduced from 30%.

The Philippines has a double taxation treaty with the UK, so you will not be taxed twice. However, you will be liable for a 15% profit remittance tax on anything repatriated to your parent company.

What are the employee income tax brackets in the Philippines?

All employees in the Philippines must pay income tax. The contributions are as follows.

Annual salary	Income tax
₱249,999 or lower	Nil
₱250,000 – ₱399,999	15% of salary
₱400,000 – ₱799,999	Flat fee of ₱22,500, plus 20% of salary
₱800,000 – ₱1,999,999	Flat fee of ₱102,500, plus 25% of salary
₱2,000,000 – ₱7,999,999	Flat fee of ₱402,500, plus 30% of salary
₱8,000,000 or higher	Flat fee of ₱2,202,500, plus 35% of salary

As well as income tax, which should be withheld from employee wages at the point of payroll, Filipino employees pay contributions to the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund (HDMF.)

How are taxes paid in the Philippines?

The financial year in the Philippines runs from January 1^st to December 31^st, with all tax reports and associated payments due to the Bureau of Internal Revenue by the end of April of the following year.

Payroll and hiring employees in the Philippines

Hiring the right talent can make or break a company. Ensure your Filipino business interests are staffed by the best possible talent.

Does the Philippines welcome overseas talent?

The Philippines has a very low unemployment rate, and the authorities will always prefer opportunities to go to local residents. However, skilled and senior employees that meet the strict national visa guidelines will be welcomed into the country.

Who needs a visa or work permit to work in the Philippines?

If you do not hold a Philippines-issued passport, you’ll need a visa and an Alien Employment Permit to work legally.

What employee benefits are compulsory in the Philippines?

All employees of a Filipino business are entitled to the following mandatory benefits:

• Minimum of five “service incentive days” to use as holiday or sickness, but many companies offer 15 holiday days and 15 paid sick days.
• Multiple social security contributions – these will vary according to your industry, income, and number of employees.
• A bonus month of salary (some companies offer 1.5 months), payable as a lump sum in December or across the year.
• 105 days of maternity leave on full pay, rising to 120 days for single mothers.
• Overtime pay at 125% of salary for any duties conducted in the workplace beyond a 48-hour week.

Employment law considerations in the Philippines

Minimum wage in the Philippines varies between territories and industries. You’ll need to check what applies to your business to ensure that you remain legally compliant.

Laws in the Philippines frequently favour employees – especially lower-level labourers – over management, so it’s pretty hard to terminate employees without a compelling reason. Choose your hires carefully.

The law recognises the rights of Filipino employees to form trade unions, and this option is taken up in many sectors.

The law surrounding working hours without overtime pay is quite strict in the Philippines. However, a loophole in the Labour Code dictates that it only applies to duties fulfilled in the workplace. This means it’s common for office-based employees to take work home and continue working without pay in the evening and over the weekend.

Cultural considerations when hiring employees in the Philippines

If you wish to run a business in the Philippines that relies upon the local labour force, ensure you understand some of the nuances you will encounter. These include:

• English is widely spoken in the Philippines, so you should not struggle to communicate with your employees, but it remains advisable to learn at least some of the local dialects.
• Your employees are likely to be subservient, addressing you as sir or madam, or at least Mr or Ms <surname>. This may take getting used to, but if it makes your employees more comfortable, learn to live with it.
• Your employees may bow and press your hand to their head when you issue an instruction. This is a mark of respect that many Filipinos wish to observe, known as a “mano.”
• Filipino employees will always work as a team and look after each other. Your most senior employee will likely take on an unofficial advisory role, and colleagues will refer to them as a big brother or big sister.

FAQs about setting up a business in the Philippines

Still have questions or are seeking a swift answer to a basic query? Here are some of the most frequently asked questions about establishing a business in The Philippines.