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How to set up an online business in the Philippines

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E-commerce has grown exponentially in the Philippines. According to the International Trade Administration, the Philippine E-commerce market sales reached an estimated value of $17 billion in 2021. 

It’s clear: E-commerce is not just a passing trend, it’s a lucrative industry that’s here to stay.

The beauty of this digital revolution is its inclusivity. You don’t have to be a big corporation to make a big impact. 

Small merchants, in fact, contribute significantly to this growth. They offer diverse products, from handmade crafts to locally sourced goods, creating a rich and unique online marketplace.

So, you’re interested in joining this E-commerce boom. Great! But where do you start? The answer is simple: register your own online business in the Philippines.

Business registration might seem like a tedious step, but it’s a crucial one. It legitimizes your operations, gives customers confidence, and opens doors to numerous opportunities. Plus, it’s a requirement under the Philippine law.

You see, in this digital age, customers have become more savvy. They prefer to transact with registered businesses, associating it with reliability and trustworthiness. Also, a registered business can issue official receipts, which many customers appreciate for warranty or expense tracking purposes.

Moreover, registered businesses can access financial services, such as loans and credit facilities. These services are invaluable for growth and expansion.

Finally, registering your business ensures that you’re compliant with tax laws, saving you from potential legal complications down the road.

In a nutshell…

E-commerce in the Philippines is soaring, with small merchants propelling much of this growth. In this thriving ecosystem, registering your business is your passport to legitimacy, customer trust, financial opportunities, and legal compliance.

Navigating Philippine Business Laws and Business Entity Types

Now that you’ve decided to enter the bustling E-commerce landscape, it’s time to understand the legal basics. Here’s what you need to know about having an online business in the Philippines.

Philippine Business Laws

Business laws in the Philippines are designed to protect both the business owner and the consumer. 

Some key legislations include the Corporation Code of the Philippines, which details how businesses can be formed and run, and the Consumer Act of the Philippines, which safeguards consumer rights.

In the context of e-commerce, the E-Commerce Act of 2000 is particularly important. It establishes legal recognition for transactions carried out through electronic means.

Types of Business Entities in the Philippines

When registering your business, you must decide on its legal structure. The choice largely depends on your resources, the level of control you want, and how much risk you’re willing to take.

  • Sole Proprietorship: This is the simplest form, where you, as the sole owner, have complete control over the business. However, your personal assets can be used to cover business debts.
  • Partnership: This involves two or more people sharing management, profits, and losses. Each partner is personally liable for the business debts.
  • Corporation: This is a legal entity separate from its owners (shareholders). It offers liability protection, but requires more paperwork and compliance.
  • Cooperative: A group of individuals voluntarily form this entity to meet common needs. Members share both the profits and risks.

Procedures and Legal Requirements for each Business Entity

Each type of business entity has its unique registration process:

Sole Proprietorship

  • Register with the Department of Trade and Industry (DTI)
  • Then get a Mayor’s permit from the city where you’ll operate 
  • Register with the Bureau of Internal Revenue (BIR).

Partnership

  • Register with the Securities and Exchange Commission (SEC), then follow the same steps as a sole proprietorship.

Corporation

  • Also register with the SEC, then get a Mayor’s permit, and register with the BIR. 
  • Additional steps include obtaining a clearance from the Barangay hall where your business is located.

Cooperative 

  • Register with the Cooperative Development Authority (CDA), then follow similar steps as a corporation.

Choosing the right type of business entity is crucial, as it affects your liability, control, and potential growth of your business. 

How to Setup an Online Business in the Philippines

Setting up your E-commerce venture involves careful planning and execution. Ready to get started? Let’s dive in.

Step 1: Choosing the Right Business Model

The first step is choosing your business model. It’s like your game plan, defining what you’ll sell, who you’ll sell to, and how you’ll make a profit. 

In e-commerce, popular models include dropshipping, wholesaling, and manufacturing. Reflect on your resources, interests, and market trends to make the right choice.

Step 2: Registering your Business

Registration validates your business. Here are the steps:

  1. Register with the Department of Trade and Industry (DTI): Sole proprietors need to register their business names with the DTI. You can do it online through the DTI’s Business Name Registration System2.
  2. Register with the Securities and Exchange Commission (SEC): Partnerships, corporations, and cooperatives must register with the SEC. You can start the process online through the SEC’s Company Registration System3.
  3. Acquire Barangay Clearance: After SEC or DTI registration, head to your Barangay Hall. Bring your business registration documents, ID, and payment for the clearance fee.
  4. Apply for a Mayor’s Permit: Take your Barangay Clearance, along with your business registration documents and lease contract, to your local city hall. Fill out the application form, pay the fee, and await approval.
  5. Register with the Bureau of Internal Revenue (BIR): Finally, head to your local BIR office with your business registration documents and Mayor’s Permit. You’ll receive a Certificate of Registration and official receipts.

Step 3: Opening a Bank Account for the Business

Having a business bank account separates your personal and business finances. 

Banks will require your business registration documents, Mayor’s Permit, and an initial deposit. 

Research on the banks’ services, fees, and requirements before choosing the right one for you.

Step 4: Acquiring Necessary Business Permits and Licenses

Depending on your e-commerce business, you may need additional permits. For instance, if you sell food products, you’ll need a permit from the Food and Drug Administration (FDA). 

Always check relevant authorities to ensure compliance.

Step 5: Employing Staff 

Let’s navigate through the basics of employing staff in the Philippines.

Hiring Procedures and Labor Laws

Hiring in the Philippines follows a general process: 

  • job posting
  • application collection
  • Interview
  • job offer
  • contract signing

You can post job vacancies online or use a recruitment agency. When interviewing candidates, ensure that you follow fair hiring practices and avoid discriminatory questions.

Philippine labor laws, specifically the Labor Code of the Philippines, govern employer-employee relationships. It outlines terms on work hours, wages, and termination among others. 

Familiarize yourself with this law to maintain a legal and harmonious work environment.

Understanding Employee Rights and Benefits

In the Philippines, employees have specific rights and benefits mandated by law. Here’s a quick rundown:

  • Minimum Wage: You must pay your employees at least the daily minimum wage set by the Regional Tripartite Wages and Productivity Board3.
  • Overtime Pay: Employees working beyond eight hours a day are entitled to overtime pay.
  • Holiday Pay and Leave Benefits: Philippine law outlines paid holidays and provides for vacation and sick leave benefits.
  • 13th Month Pay: Employees must receive a 13th-month pay, equivalent to one month’s salary, every December.
  • Social Security System (SSS), PhilHealth, and Pag-IBIG Contributions: Employers must contribute to these government-mandated benefit programs on behalf of their employees.

Complying with these rights and benefits not only ensures legal operation but also boosts your employees’ morale and productivity. Remember, a happy team is key to a thriving business.

Step 6: Taxation and Financial Management

As your E-commerce business takes off, managing your finances becomes essential.

Overview of the Philippine Tax System

In the Philippines, taxes are a primary source of government revenue and are regulated by the Bureau of Internal Revenue (BIR). As a business owner, it’s crucial to understand the taxes you’re required to pay:

  • Income Tax: Your net income is subject to an income tax, with rates depending on your business structure. Sole proprietorships and partnerships are taxed progressively up to 35%, while corporations are taxed at 25%1.
  • Value Added Tax (VAT): If your gross sales or receipts exceed Php 3 million in a 12-month period, you’re required to pay 12% VAT2.
  • Percentage Tax: Businesses not subject to VAT are often liable to pay a percentage tax, usually ranging from 1% to 3% of your gross sales or receipts3.
  • Withholding Tax: You’re required to withhold tax from certain payments, like salaries and professional fees, and remit them to the BIR.

Basic Principles of Financial Management in the Philippines

Managing your business finances efficiently can boost your profitability and sustainability. Here are some basic principles to guide you:

  • Budgeting: Create a comprehensive budget to plan your income and expenses. It gives you a roadmap of your financial journey and helps you avoid overspending.
  • Record Keeping: Maintain accurate records of all your financial transactions. It’s not just required by law but also gives you a clear picture of your financial health.
  • Cash Flow Management: Monitor your cash flow to ensure you always have enough to cover your expenses. Remember, cash flow is the lifeblood of your business.
  • Cost Control: Regularly review your expenses and identify areas where you can reduce costs without compromising on quality or service.
  • Financial Analysis: Use financial ratios and indicators to assess your business performance and make informed decisions.

These are just the basic things you need to know when starting your own online business in the Philippines. If you need help with getting your business off the ground, then Payo is the right partner for you!

Payo is a holistic E-commerce enabler in the Philippines that can help you with all your online selling needs. Whether you’re looking for a partner to help you with Warehousing and Fulfillment, or someone to give you Advanced Remittance and provide your customers with Live Customer Support, we’re the right choice. 


Sign up with Payo today or send us a message at info@payo.asia. Let’s build your online business today!