The demand for outsourcing has grown even stronger, especially in the Philippines. Factors such as competitive pricing structures, manpower and skills shortages, and the introduction of next generation models and assets encourage more foreign investors to put up offshore companies in the country. Building an offshore company does make a lot of sense yet the whole process can be overwhelming. If you want to know how to successfully establish an offshore company in the Philippines, then read on to get vital information:
The Various Benefits of Setting up an Offshore Company in the Philippines
A significant investment is needed to establish an offshore company in the Philippines. The entire process can be tedious yet, once you’ve accomplished it then you’ll also reap several benefits. Let’s go over some of the amazing benefits of having your own offshore firm:
1. Accelerates company growth
Since you have highly skilled people to support you then you can focus more on growing your business. Startups also can also build their company with fewer distractions.
2. Reduces labor costs
When you establish your offshore business in the Philippines, you can save as much as 70% on staffing costs. Not to mention, the more employees that you hire, the more you save money.
3. Significant increase in revenue
Since you have substantially reduced the costs each month without compromising the quality of your product or service, then you’ll notice a huge increase in your profits almost immediately.
4. Improves customer service
You can easily increase your manpower because it’s much cheaper than hiring employees from your country. In addition, you are enhancing your product delivery which translates into higher customer satisfaction levels.
As for working in different time zones, you can tailor your operating hours to synchronize with your main office’s schedule. You just have to clearly indicate it in the job offer and pay fair wages to avoid issues. Filipino employees are highly adaptable and resilient which is why numerous offshore companies chose to invest in the country. Business owners who built offshore companies will continue to gain massive profits and enjoy more benefits as their business grows.
How to register your offshore company in the Philippines
Once you have decided to put up an offshore firm in the Philippines, you’ll then have to register your company. The following are the steps that you should do:
1. Select a company structure
You must start by choosing the company structure that is appropriate for your outsourcing business. Here are some factors that you need to consider:
- The number of owners as well as their respective authorities.
- The scale of the business operation.
- The level of protection that’s required in terms of personal and business risks.
There are different options available for offshore companies, including but not limited to sole proprietorship, partnership, domestic corporation, or a resident foreign corporation (e.g., branch office). Remember, each type of business structure differs in capital requirement, tax structure, and registration charges. Let’s discuss some of the common options for foreign businesses:
Domestic corporation
- This can be fully owned by a foreigner or in partnership with a local company.
- The minimum capital requirement varies from $ 100 – $ 200,000.
- It’s subject to a 30 % corporate income tax on the total net income.
- It must have 5-15 appointed directors within the company.
- It has to maintain mandatory posts such as Corporate Treasurer and Corporate Secretary.
- It’s also similar to a subsidiary.
Representative office
- The company is required to report to the Bureau of Internal Revenue (BIR) periodically.
- It’s not authorized to earn income nor is it eligible for income tax.
- It represents a parent company located outside of the Philippines.
- It’s put up to assist the clients of its parent company in the Philippines.
- It’s required to have an operational capital of $ 30,000 to be registered.
- The company also needs to appoint a Filipino agent as its point of contact.
Branch office
- It doesn’t need to maintain directors.
- The company must have a Philippine resident to act as its point of contact.
- The minimum capital can vary from $100 – $ 200,000
- This is 100% foreign-owned.
- It’s also subject to 30% corporate tax on the total net income.
It’s highly recommended to choose corporation as your offshore company structure. It not only limits shareholder liability but it’s also subjected to more beneficial tax laws compared to a sole proprietorship. It also gives you more credibility should you decide to offer services to other foreign businesses. Also, take into consideration that the BPO industry is one area where foreigners are allowed to have 100% ownership.
2. Determine your options for various government incentives
The country offers different incentives to foreign businesses and you should take advantage of them. The Philippine Economic Zone Authority (PEZA) provides investment assistance and grants tax incentives to a wide category of industries. For instance, it offers Income Tax Holiday (ITH) – an exemption from corporate income tax for 4 to 6 years to companies belonging to the IT sector or providing IT-related services like:
- Information technology research and development
- Web and graphic design, content development for media and web, and etc.
- Offshore customer service and business process management
- Software development
Another agency that offers incentives such as tax holidays and other concessions to foreign investors is the Philippine Board of Investments (BOI). Offshore companies must take advantage of the various incentive options so they can further save on costs.
3. Register your offshore company with the authorities
The last step to establishing your offshore company is to register it with different government agencies. Do note that the whole process can take 2-3 months. Take note of these vital steps:
- Visit the Securities and Exchange Commission (SEC) so you can initiate the process and have your company’s name approved.
- You also have to register with Local Government Units (LGUs) to procure the necessary permits.
- Submit all the necessary documents and pay the registration fee and accomplish all application processes thereafter. Once your application is successfully processed and approved you’ll then receive the Certificate of Incorporation.
- Don’t forget to register all your employees with services and agencies such as Home Development Mutual Fund or Pag-IBIG, Philippine Health Insurance Corporation, Social Security System, and etc.
Now that you know how to establish an offshore company in the Philippines, then you can start the process. Take note of all the crucial information in this guide as you build your own offshore empire.