Legal Requirements For Business in the Philippines

Laws serve several purposes in society. Among of which is defining the acceptable behaviors that are considered as a norm of conduct for the citizens.

It sets the standards and boundaries of what a person can do while living in a specific place. Each country has its own set of laws that govern every aspect it has, be it people, territory, natural resources, and others. 

The state has a set of laws to protect the businessmen, managers, and employees, and the business itself. Understanding and following the implemented legalities in the business industry can help you identify the legal issues that may come up in the future, make better decisions, and apply necessary actions. 

This will also prevent you from paying for penalties or ending up suffering the penalties, which could come to the worst scenario—closing your business, and you don’t want to make it happen. 

The best way to start your business and make it successful is to comply with all the crucial requirements mandated by the government of the Philippines. Before that, it is significant that you identify first the kind of business that you want to venture in terms of ownership and business structure

Here are some of the legalities of a business in the Philippines:

1. Register your business

There are three types of business ownership, and there are two offices that process the registration of your business based on ownership. For sole proprietorship, register with the Department of Trade and Industry (DTI).

For partnerships and corporations, the Securities and Exchange Commission (SEC) can accommodate your registration. It is in this process that you will register your business name.

You may visit DTI’s website to know more about registering your business and read some references that may be useful for your journey as the next successful entrepreneur. For partnerships and corporations, you may access the SEC’s website.

2. Secure a Mayor’s business permit

The local government unit of the place where you want your business to operate is responsible for processing your business permit.

Some cities or municipalities may have quite different requirements and processes from the others in registering your business. You should inquire first for the town or district where your business belongs so you can prepare the necessary documents and other requirements.

Mayor’s business permit is the document that will give you the license to operate in the city or municipality of your choice and payment of your local business taxes. If you are venturing into a food cart business, here is some information about the taxes that you need to pay.

Among the basic requirements that you may need to prepare for your business permit are the following:

  • DTI Business Name Certificate for a sole proprietorship, SEC Articles of Partnership or SEC Certificate of Incorporation
  • Barangay Clearance/ Permit
  • Authorization letter of the owner with ID
  • Contract of Lease or Land Title / Tax Declaration
  • Sketch of Location
  • Occupancy Permit
  • Location Clearance
  • Public Liability Insurance
  • Community Tax Certificate (Cedula)
  • Fire Permit
  • Sanitary Permit
  • There are  other additional documents or permits the city or municipality may require from you

You must have an understanding of the annual Mayor’s Permit fees.  It will vary according to your business industry, and the preceding year’s gross sales (if you have been operating for years already) will be used as a basis to calculate the amount of tax you need to pay. Usually, it can be less than 1% to 3% or more. 

If you have just started with your venture, the initial tax for the year will be calculated on the capital investment or paid-up capital, contract of lease , and size of office. 

3. Register with the Bureau of Internal Revenue (BIR)

Once you secured all the documents and permits, the next registration you will do is with the Bureau of Internal Revenue. 

Entrepreneurs must have a Taxpayer Identification Number (TIN), which can be obtained from the Revenue District Office (RDO) within the registered location of the business.

There are two types of BIR forms. The kind of form that you will fill out will depend on your business structure. Form 1901 is for those people who are self-employed, single proprietors, or professionals, while Form 1903 is for partnerships and corporations. 

You mustn’t miss registering with BIR to avoid being considered as a tax evader. BIR, like the Mayor’s Business Permit, has its own set of documents that you need to comply with to complete your registration.

The three most important documents you need to have are the (a) Certification (based on your business structure), (b) Contract of Lease or Land Title, and (c) Mayor’s Business Permit. Take note that these three important documents have also their own set of requirements you need to comply with before obtaining them. 

Once you have accomplished all the documents that are required from you for BIR, you will then have the license to issue official receipts and invoices, register your book of accounts and pay the national internal revenue taxes, like income tax, value-added tax (VAT) or percentage tax, withholding tax, etc.)

4. Register with the SSS, PhilHealth and Pag-Ibig Fund

You need to register with the three government agencies, such as SSS, PhilHealth, and Pag-Ibig. If you are hiring employees to help you with your business, then you have to register them to the aforementioned government agencies. These three agencies collect from the business owners and the employees for monthly contributions. 

These agencies offer various assistance to the employees. Social Security System or SSS provides health and retirement benefits from the employees’ monthly contributions. They can also take out small loans. Paying for SSS is mandatory for all employees who are 60 years old and below.

On the other hand, the Philippine Health Insurance Corporation (PhilHealth) provides financial assistance when employees get sick.

Lastly, the Home Development Mutual Fund (PAG-IBIG Fund) allots various housing loans. The three agencies deduct the salaries of the employees and mandate the employers to pay for their share for each employee to complete the monthly contributions.

5. Special or other requirements

Additional requirements may be asked from you according to the kind and nature of the business that you want to operate. For example, businesses like banks, financing companies, lending companies, pawnshops, money changers, money remittance business, and other financing institutions are required to be registered with the Bangko Sentral ng Pilipinas (BSP).

If you plan to open a school or offer training or educational programs, then you have to work and comply with the Department of Education (DepEd) and Commission on Higher Education (CHED). Businesses that may sell food products, you have to register with the Bureau of Food and Drugs (BFAD).

It is best to research more on what government agencies you have to work with considering the kind of business you will soon venture. 

It is significant to take note that legalizing your business in the Philippines does not only stop at the meeting, obtaining and submitting the required documents, and permits. To ensure a safe, legal, and law-protected business, you have to consistently follow all the government laws, rules and regulations implemented. 

This will protect you as well as your employees from the legal issues and concerns you might face since the registration, operation, and until cessation. 

Operating an unregistered business may impose risks and unfavorable consequences. Failure to accomplish the registration process in BIR and pursued to operate the business can lead to legal sanctions. 

It will incur fines, penalties, and worst-case scenario—closure. Without the necessary permits needed to operate can lead the BIR or the City Hall to impose cessation or closing of your business. 

That is why it is very crucial to comply with all the laws implemented. According to BIR regulation, you may be charged for a criminal penalty with a “fine not less than P5,000 but not more than P20,000 and imprisonment of not less than six months but more than two years”. 

The settlement fees depend on the location of the business. For cities, it may be up to P20,000, while in first-class municipalities may be at P10,000, second-class municipalities at P5,000, and third-class municipalities at P2,000. 

Attempting to get away from the penalties or sanctions by abandoning the business is not a wise decision because there are regulations and due process for the proper closure of a business. By doing so, this situation may leave a permanent mark on your record available at the LGU or BIR. 

Always remember that all business permits should be prominently displayed in every location where the business is transacted. Keep everything legal and correct. 

The processes and necessary requirements that you may need to start a business can be mind-blowing. Franchising can make the work less to do, but it can still give you the results that you want to achieve—own your time while working for your passion in the business industry.

It is a highly-regulated industry, thus diminishing your business conundrum.  There is a set of expected issues with readily available solutions to address such problems immediately. 

Franchise Market Philippines has a list of various business industries that you may choose from and start living your dreams and be an entrepreneur you imagined to become. 

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