An overview of doing business in the Philippines: culture, laws and other tips
With the Philippines’ services sector leading the way, commercial activity is increasing, resulting in valuable opportunities for market entrants interested in doing business in the country and neighbouring states. The Philippine economy is driven by high consumer demand, a competitive labour market and considerable remittances, making it an ideal country for entrepreneurs to establish a business.
Why do business in the Philippines?
The Philippines has established itself as a prime location for growth projects in Asia Pacific, largely thanks to:
- competitive workforce;
- strategic business location;
- unrestricted business opportunities; and
- stable macroeconomics policies.
In addition, market entrants can benefit from the numerous opportunities in the country’s growing industries such as construction, BPO, IT and business services, among others.
We discuss more about the advantages of entering the Philippine market in this blog.
How the Filipino culture impacts business
The rich history of the Philippines has significantly impacted its business culture. Its emphasis on family and community is represented throughout its social and business relationships.
Here are some key aspects of business etiquette in the Philippines:
- Greetings: When meeting a person for the first time, it is customary to smile and do a handshake as a greeting.
- Respect and Hierarchy: The Philippines has a hierarchical culture, so it is important to show respect to those in positions of authority. Filipinos often use formal titles when addressing someone in a professional setting.
- Communication: Filipinos tend to be indirect in their communication style, preferring to use polite language and avoid confrontation.
- Religious customs: The Philippines is considered to be one of the world’s most religious countries. It is customary to avoid scheduling meetings or events on religious holidays.
- Personal relationships: Filipinos value personal relationships, building rapport and trust is crucial. Filipinos greatly value the concept of “pakikisama,” which refers to the idea of getting along with others and maintaining harmonious relationships.
The Philippines’ legal and regulatory framework
The legal and regulatory framework in the country comprises of various laws and regulations that businesses should be aware of in securely doing business in the Philippines.
Business forms in the Philippines generally consists of (i) sole proprietorship, (ii) partnership and (iii) corporations. The partnership and corporation are generally subject to regulations as juridical entities, with the latter being more challenging to establish, organise and govern. Corporations are primarily governed by the Corporation Code of the Philippines and overseen by the Securities Exchange Commission (SEC).
Here is an overview of other points to take note of.
- Business Registration Process
Sole proprietors are required to register and submit documentary requirements with the Department of Trade and Industry (DTI). Meanwhile, partnerships and corporations are required to register with the SEC.
To register a business in the Philippines, businesses must obtain a business permit from the local government unit where they will be located. Additionally, businesses must register with the Bureau of Internal Revenue (BIR) to obtain a Tax Identification Number (TIN). Depending on the nature of the business and the presence of employees, a business may also be required to register with other concerning agencies.
- Taxation and Compliance
The Philippine tax system is composed of national and local taxes. National taxes are administered by the BIR, while local government units collect local taxes. Corporate income tax is, on general, set at a flat rate of 25 per cent, while value-added tax is set at 12 per cent. Businesses are also required to comply with a variety of regulations related to accounting and bookkeeping. For example, all companies must maintain a general ledger, a journal and a subsidiary ledger. They must also issue official receipts and/or sales invoices, as well as maintain proper records of all transactions.
- Labor Laws and Employment Regulations
The Labor Code of the Philippines establishes labour relations regulations, which provide guidelines for the employment and separation of private workers, their working conditions, the benefits of employees, the rules for organising and joining labour unions and engaging in collective bargaining.
There are five recognised categories of employment arrangements in the Philippines based on the nature of the employment. These include:
- Regular employment, where the employee works for an indefinite period;
- Probationary employment, which involves a period of observation and evaluation to determine the worker’s suitability for permanent employment; and
- Project-based employment; fixed-term employment; or seasonal employment, which are all predetermined arrangements with set expiration dates.
Tips for doing business in the Philippines
- Building Relationships with Local Partners
The Philippines is a country that values relationships with others such that developing a strong network of local partners is crucial for business success. Local partners can provide valuable insights in aspects such as customer preferences, trends, purchasing behaviors and access to new customers and business opportunities. Local partners can also help navigate cultural and business differences. Moreover, they can also assist with the processing of permits, licenses and legal requirements, making compliance with local laws and regulations easier and smoother.
- Hiring Local Talent
Hiring local talent is a critical factor in the success of any company operating in a foreign market. Local employees often have an extensive network of contacts, an understanding of the local market dynamics and are familiar with the cultural nuances of doing business in the country. This can be especially beneficial in industries where building relationships and trust with local stakeholders is critical to success.
- Understanding Local Customs and Culture
The Philippines is a vibrant and diverse country with a rich cultural heritage. Understanding local customs and culture is essential when doing business in the Philippines as it can help build trust and credibility with local partners, avoid misunderstandings and assist in developing effective strategies that resonate with Filipino consumers.
- Staying up-to-date on Regulatory Changes and Reforms
Staying up-to-date on regulatory changes and reforms is crucial for any business operating in the Philippines to avoid fines, legal disputes and reputational damage. Foreign businesses should be aware of the legal and regulatory framework in the country which can be complex and constantly evolving, with new laws and regulations being introduced regularly.
On the other hand, regulatory reforms can create new opportunities for businesses, such as tax incentives or new investment opportunities. Foreign businesses can take advantage of these opportunities and gain a competitive advantage in the market.
Challenges of doing business in the Philippines
One of the challenges that market entrants should take note of before doing business in the Philippines is the possible slowdowns and costs associated with the country’s complex regulatory environment and multiple government agencies responsible for enforcing different regulations. These hurdles can result in a lengthy and complicated process for those not familiar with the procedures for obtaining permits, licenses and authorisations. Moreover, market entrants that are unaccustomed with the country’s business culture may find it challenging to swiftly adapt and efficiently navigate the Philippine market.
Bolder solutions in the Philippine market
In conclusion, the Philippines presents itself as a prime location for business expansion in the Asia Pacific region. Its competitive labour market, strategic business location, stable macroeconomic policies and unrestricted business opportunities provide valuable advantages for those planning to enter and expand within the ASEAN market.
As a global corporate service provider, Bolder Group has a team of professionals ready to assist you with the planning and preparations in doing business in the Philippines. Bolder’s corporate services are tailored to the local market and a client’s specific needs, ensuring that all middle- and back-office functions are accomplished.
Ready to enter the Philippine market? Contact us for more information.
