A sole proprietorship gives complete control to an individual owner. It is one of the simplest structures for business expansion in the Philippines. Freelancers and self-employed professionals are both included under sole proprietorship.
Foreigners can establish a sole proprietorship in the Philippines in industries not governed by ownership equity laws. Over 40% of firms are registered as sole proprietorships in the Philippines as per 2015 data. The process to register a sole proprietorship in the Philippines is also comparatively smoother.
Now let us see how to establish a sole proprietorship in the Philippines.
Who can be a Sole Proprietor in the Philippines?
Unlike the US and the UK, the Philippines does not have the legal concept of a Limited Liability Company (LLC) or Private Limited Company. Hence, many self-employed individuals and small businesses start as sole proprietorships and then transition to domestic corporations.
You must fulfill the following criteria to establish a sole proprietorship in the Philippines –
- Be a single owner of the business
- Have a Special Investor’s Resident Visa
- Be the sole beneficiary liable to responsibilities, profits, and losses.
Note: The sector you operate in should not have foreign equity restrictions.
Benefits of Sole Proprietorship in the Philippines
When choosing a business entity for your company, you must know the advantages of the structure you choose. A fair share of tax procedures and legalities are involved in registering a new business.
Here are some benefits of setting up a sole proprietorship in the Philippines:
- You remain the sole supervisor of all your business operations
- You have complete control over the decision-making process
- There is no separate taxation for the business
- The tax rate for self-employed individuals is 8%, provided their income is less than P3,000,000)
It is cheaper to set up a sole proprietorship in the Philippines than a corporation
Documents Required for Registering Your Business in the Philippines
Anyone looking to establish a sole proprietorship in the Philippines must fill out the mandatory documentation forms for registration. Moreover, they must register at these three different government agencies:
- The Department of Trade and Industry
- Local Government Unit
- Bureau of Internal Revenue
You must submit the following documents to register a sole proprietorship in the Philippines:
- Business Name application form
- Foreign Investor’s application form
- Passport size photos
- Valid visa
- Certificate of Authority to Engage in Business
- Government-issued ID such as passport, driver’s license, National ID
- Resident Agent Appointment form
- Proof of inward remittance of Foreign Currency with Peso Conversion
- Bank certificate of deposit
- Authority to verify bank account and bank certificate of deposit
Authorities might ask for additional documents depending on the nature of your business.
Other Criteria for Registering a Sole Proprietorship in the Philippines
Be mindful of these things when registering as self-employed in the Philippines:
- All businesses must secure a mayor’s permit or municipal license from the city (where the business is located) to ensure compliance with local regulations.
- After incorporating a sole proprietorship in the Philippines, if you plan to hire more employees in the future, you must register your business with:
- Social Security System
- Home Development Mutual Fund
- Philippine Health Insurance Corporation
- You must register with the appropriate regulatory bodies according to the nature of your business/product.
How to Register a Sole Proprietorship in the Philippines?
Multiple steps are involved in setting up a sole proprietorship in the Philippines. Here’s a step-by-step guide for the same:
Register a business name:
- Decide upon a business name, one that is not already registered or trademarked,
- You can keep your own name,
- Fill out the application form on the Department of Trade and Industry website,
- Check if the business name is available,
- Pay the registration fee,
- Obtain a DTI Certificate of Registration (COR) and make a printout of the same.
Register with Barangay Office: This acts as a legal requirement to operate your business.
- Go to the Barangay Hall of your business location,
- Submit the application form along with the DTI Certificate of Registration,
- Submit address proof,
- Two valid ID proofs,
- If successful, you will get the Certificate of Business Registration.
Register in the Mayor’s Office: This helps acquire permission to operate in the local municipality.
- Go to the municipal office where you plan to set up your business
- Fill out the necessary form(s)
- Submit residency proof/lease contract (for a rented office)
- Pay the Mayor’s permit fee
- Claim the business permit and licenses
Register with the Bureau of Internal Revenue: This is crucial for managing sole proprietorship taxes in the Philippines.
- Go to the Regional District Office and fill out the BIR Form 1901
- Submit the Certificate of Registration from DTI, Barangay clearance, and Mayor’s Business Permit
- Give an address proof and Valid IDs,
- Pay the registration fees,
- Register your book of accounts,
- You will get your final Certificate of Registration.
Once you have acquired all four certificates, you can start working on the business operations.
Setting up a sole proprietorship in the Philippines can be long and time-consuming. After all, it may take months to get the relevant permits from concerned authorities. Plus, you must be well-versed with the local rules and regulations for self-employed people.
If you don’t wish to bear the burden alone, we recommend you partner with a global EOR firm like Multiplier.
With local entities in over 150+ nations, our experts can help set up your sole proprietorship in a foreign country. We can also help you onboard freelancers and manage their payroll. Our one-click payroll services will save you the hassles of taxation in foreign countries.