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What You Should Know Before Starting a Business in the Philippines

October 3, 2014 | Sharon Cheong

There are a lot of benefits in starting a small-to-medium business (SMB) in the Philippines. First, there are fewer obstructions for foreigners running a business here compared to most other countries. For most Westerners, it's easier to relate to Filipino culture because it has a lot of Western influences (among other cultures), making foreign companies and business owners penetrate the local market easily.

The BIR

The Philippine Bureau of Internal Revenue (BIR) is the equivalent of the U.S. Internal Revenue Service (IRS). The BIR is one of the most important factors to consider when starting a business in this country. If a business earns a certain amount last year, but then earns less in the year after, it still has to pay the same tax as the previous year. To get a lower tax, the business should submit a request for audit.Without doing so, the BIR assumes that the business earned roughly the same amount, and thus require the same tax.

Auditing includes a receipt for every peso that a business has invested. That's the major difference between the IRS and the BIR. Also, compared with the IRS, where an investigation of one's taxes means trouble, Philippine-based businesses often regularly voluntarily seek auditing from the BIR during lean years to avoid paying tax equivalent to that of their more profitable years.

The burden of proof lies on the business. It takes a lot of effort to get deductions because the taxation system in the Philippines isn't keen on giving out tax reductions. The BIR is extremely adamant in monitoring business earnings. Because the Philippine middle class is small, there's an increased demand of taxes from the business sector.

Local Opportunities and Considerations

Before opening a business in the Philippines, it is advisable to have a few pointers. First, a foreigner that isn't a naturalized citizen cannot own land in the Philippines. This is very important for businesses that require a huge amount of land for operations.

Courts side more often with locals than with foreigners when it comes to business-related complaints. In addition to these, the country has several charter restrictions that keep investors from flooding the market.

Meanwhile, there are several benefits of opening a business in the Philippines. As mentioned earlier, the capital to jumpstart a business is much lower compared to Western-based SMBs. Entrepreneurs also face far fewer regulations when it comes to dealing with the BIR. Moreover, according to the Clutch website, the Philippines is one of the most reliable countries in the world in terms of outsourcing, next to India, Indonesia, Estonia, Singapore, Bulgaria, and China. It is not surprising that business process outsourcing companies (particularly call centers for American companies) are alive and well in this country, expecting to employ at least a million Filipinos in 2014.

Finally, nearly all Filipinos (educated and not) speak excellent to good English, a second language that they've been speaking all their lives. This makes it easy for international companies or foreign-targeted businesses to hire local manpower and reach more clients, both within the country and overseas.

If you want to have a Philippine-based business, let Servcorp help you with its virtual office solutions and corporate registration services.