The Philippines is an ideal country for U.S.-based companies looking to expand internationally. Their economy has consistently been among the fastest growing in the ASEAN region, making it one of the quickest growing markets globally. With a highly proficient English-speaking population that’s eager to work abroad and collaborate with foreign businesses, the Philippines’ workforce thrives in global services and trade.
Overall, the nation boasts an educated workforce, a strategic business location, a steadily expanding infrastructure and a highly developed, business-friendly economy with practically unlimited opportunities for companies looking to expand there.
In this guide, we outline what you can expect if your business is considering expanding into the Philippines. We cover:
- Top 4 reasons to do business in the Philippines
- Top 3 challenges of doing business in the Philippines
- FAQs about expansion in the Philippines
It’s also important to note that the Philippines and the United States have maintained diplomatic relations based on a historical relationship, shared values, and commitment to democracy and human rights since 1946. As a result, a robust trade and investment relationship exists between the two nations, with over $18.9 billion in goods and services traded in 2020. In addition to being the Philippines’ third-largest trading partner, the United States ranks among the top foreign investors in the country.
Top 4 reasons to do business in the Philippines
Set at the junction of eastern and western businesses, the Philippines is at the heart of Asia’s fastest-growing region and is thus a critical point of entry into the ASEAN market and a gateway to international shipping for European and American companies. In addition, several notable financial centers are located nearby, including Singapore, Tokyo, Hong Kong, Taipei, and Bangkok.
Strategically located in the Indo-Pacific, the Philippines is vital to U.S. national interests. The U.S. government’s strategic focus on the region and its decades-long ties with the Philippines present significant opportunities to support an Indo-Pacific partnership based on democratic values and free trade while advancing the Philippines’ quest for self-sufficiency.
The Philippines and several other countries across the world have signed free trade agreements that cover trade in goods and services, government procurement, investment, competition, intellectual property, business, and sustainable development. Furthermore, as part of the 2010 ASEAN Trade in Goods Agreement (ATIGA), all Common Effective Preferential Tariff/ASEAN Free Trade Area (CEPT/AFTA) commitments relating to trade in goods were consolidated to establish a single market and production base, which allows free circulation of goods across the ASEAN region, a significant element of the ASEAN Economic Community.
A free trade agreement is designed to boost trade between two or more nations allowing goods and services to cross borders without government tariffs, quotas, subsidies, or prohibitions. This is particularly important for businesses looking to expand to the Philippines, as increased trade offers the following advantages:
- Improved economic growth
- Foreign investments
- Productive business environment
Unlimited business opportunities
The ASEAN Free Trade Agreement (AFTA) has integrated Asia’s economies into one giant market, making the Philippines an ideal location for businesses that want access to this market. It has enhanced and primed various areas for investors while also allowing customers to choose from a wide range of products. Over the years, trade and investment events have influenced the country’s industrialization process. Additionally, the Philippines has signed treaties, trade agreements, and memoranda of understanding with more than 35 countries across the globe. Today, the Philippines has adopted a multitrack liberalization approach, making it one of AFTA’s top choice countries.
Additionally, the government’s ‘Build! Build! Build! (BBB) Program’ aims to improve various areas including industry and trade, disaster mitigation, social and tourism, and transportation and highways. This program makes the Philippine economy open to new innovations and ideas that might help further develop its infrastructure and attract foreign businesses.
Access to Talent
Among the Philippines’ most compelling advantages to foreign businesses looking to expand there is its large pool of highly educated local talent. As one of one of the world’s largest English-speaking countries, the nation has a literacy rate of 97.5%, with over half a million university graduates entering the workforce each year. This coupled with an extremely business-friendly environment makes workers in the Philippines extremely adaptable. This is part of the reason why the Philippines has traditionally been the location of choice for U.S., Australian, and British companies seeking to employ offshore talent.
Top 3 Challenges of Doing Business in the Philippines
The Law Favors Employees
Labor laws in the Philippines favor employees over management, and companies cannot simply dismiss underperforming employees at will. In addition, severance and 13th-month payments are mandatory.
Overall, these laws have contributed to higher morale and a lower turnover rate among Filipino employees than their foreign counterparts.
Constitutional and Legal Limitations for Foreign Entrepreneurs
Despite numerous government incentives, some foreign business owners hesitate to consider the Philippines an investment destination due to restraints on foreign ownership of land. However, according to the Foreign Investment Act of 1991, they can own a percentage of a corporation that owns the land, and most businesses are allowed to be 100% foreign-owned.
Various regulations restrict the sale of specific products based on registration requirements, product standards, and labelling requirements, and some products require special licensing and permits before shipping. The following information must appear on the labels of all domestically sold consumer goods, regardless of whether they were manufactured locally or imported:
- Registered trademark
- Accurate and listed brand or trade name
- Registered commercial name and address of the manufacturer, importer, or repacker of the product
- Standard active components
- Net quality of contents, regarding the weight
- Country of manufacture, if the product is imported.
For more information, check out the list of products subject to compulsory certification and additional statistics on labelling/marking requirements.
FAQs about expansion in the Philippines
What are the different types of employment?
- Permanent Employment – According to the Philippine Labor Code, employees recruited to undertake duties that are typically necessary or desirable for the employer’s usual business are considered regular or permanent employees.
- Fixed-Term Contracts – An employee hired for a specific project or undertaking that has a set completion or termination date when employment begins.
- Temporary Employment – Per the Philippine Labor Code, temporary workers are casual workers who perform seasonal work. Specifically, laborers hired for a single season are considered temporary workers.
What are the retirement requirements for employees?
In the Philippines, social insurance includes three programs:
- Social Security System (SSS)
- Home Development Mutual Fund (HDMF)
- National Health Insurance Program (NHIP)
It is mandatory for both employers and employees to contribute to the Social Security System (SSS). Employees contribute to the Social Security Program (SSP), while employers contribute to both the Social Security Program (SSP) and the Employees’ Compensation Program (ECP).
What are the Philippines’ tax rates?
- Corporate Tax Rate: The standard corporate tax rate is 25%.
- Value Added Tax (VAT): The standard VAT rate in the Philippines is 12% and applies to most goods and services.
What are the data privacy requirements?
The Data Privacy Act of 2012 (DPA) regulates the collection and use of personal data.
Do I need a legal entity?
It is not mandatory and may be in a company’s best interest to determine whether the risks of establishing a legal entity outweigh the rewards. Other options are available for companies wanting to conduct business in the Philippines that do not require a legal entity.
With our Philippines PEO services, you can hire and pay employees in the Philippines without establishing a legal entity. You simply select the candidate you want to hire, and we handle:
- Hiring and Onboarding
- Employment Contracts
- Recruitment and Staffing
- HR Compliance
- Global HR and HR Software
- Employee Benefits
- Global Payroll
- Global Mobility
Global Upside, a Safeguard Global company, can help businesses expand into the Philippines by offering talent acquisition, human resources, accounting, payroll, tax, incorporation, and professional employer organization (PEO)/employer of record (EOR) services. Our comprehensive solution offers a one-stop shop for establishing businesses, maximizing operations, and complying with Philippine laws and regulations.