Employer Of Record in the Philippines

The Philippines country facts

The Republic of the Philippines is an archipelagic country with over 7,640 islands. It is situated in the Pacific Ocean just below Southeast Asia. The Philippines is a multinational state with diverse cultures and the city of Manila is its capital.

The country is considered an emerging market with great progress in the service and manufacturing industries with an official language of Filipino and English. English is widely spoken, even in remote areas and the greater part of the population is Christian. Because of previous colonization, people in the Philippines are influenced by Spain, Japan, and the United States but the Philippines became an independent country in 1946. Despite this it is also a member of the United Nations, the World Trade Organizations, and the Association of Southeast Asian Nations.

The Philippines has a large pool of young citizens which makes its workforce malleable and dynamic. It also has a strong consumer base and many major cities which are Quenzon City, Manila, Davao City, Caloocan, Cebu City, Zamboanga City, and Taguig.

The economy

The Philippines have experienced a recent strong and rapid economic growth. The service economy makes up 60% of the GDP. An important part of the workforce is its ability to act as a center for outsourcing businesses but many Filipinos work abroad and send money home. The Agricultural sector employs about 25% of the workforce, with rice, corn, and coconut making up most of the important crops. The country also exports textiles, minerals, and electronic products. This country also has its own currency, the Philippine peso (PHP).

Small and medium enterprises

Small and medium enterprises (SMEs) account for 99.6% of all companies and employ 60% of the workforce. There are 952,969 SMEs and 4,651 large companies in the country 88% of whom currently operate at the micro level. The main SME industry sectors are wholesale and retail, motor vehicle repair, food services, manufacturing and financial activities.

Starting a business

Each year, there are about 13 thousand new businesses opening in the country, and that has been the case for the last 15 years. The typical business structures provided are partnerships and corporations. To begin, you will need to search the name of your business in the Business Name Registration Site to make sure it’s not already taken. You will apply for a company incorporation where you will need to provide a copy of your passport and a special investor residence visa. You will need to provide your bylaws, pay a fee, and provide proof of payment. You will then receive a Taxpayer Identification Number. You will need to register your business with the Bureau of Internal Revenue. Some businesses are not open to foreigners, so it is important to contact the business registration office. Finally, you will need to register with the Social Security System and the Home Development Mutual Fund.

Payroll

The employee contributions are 4% for the Social Security System, 1-2% for the Home Development Mutual. Fund, 1.75% for the Philippine Health Insurance Corporation and 225 PHP per month for the Provident Fund. The employer’s contributions are 8% for the Social Security System, 1.75% for the Philippine Health Insurance Corporation, 2% for the Home Development Mutual Fund, and 425 PHP per month for the Provident Fund. To summarize, the employee pays about 7.75% of her income and the employer pays 11.75% to government support schemes.

Tax advantages

Under the CREATE law, you can benefit from an Income Tax Holiday (ITH) for 4 to 7 years. You can subsequently pay a flat 5% income tax for the next 10 years. Additional deductions include 10% for buildings, 20% for machinery and equipment, 50% for labor expense, 100% for Research and Development, 100% for training, 50% for domestic input, and 50% for power expense. You can also benefit from a VAT exemption on importation.

Human Talent
It is estimated that there are 1.2 million unemployed people in Honduras providing a large pool for employers to draw from. Low wages and the need for good jobs make Honduras attractive for outsourcing.

Renewable Energy

The Philippines creates 26.44% of its energy from renewable technology. The country wants to increase its renewable energy technology to 50% and reduce its carbon emission by 70%, all by 2030. There is a good opportunity for growth using solar, wind, geothermal and biomass. The country is highly invested in renewable technologies for a simple reason: it is vulnerable to the effects of climate change because of its geography.

Business Culture

Filipinos have been greatly influenced by the western culture and the Christian religion. Incredibly, the Filipino people are the third largest group of people who speak proper English.

• Quite Relaxed
  You will find them much more relaxed than their Asian counterparts. They prefer face-to-face meetings instead of email or zoom meetings and socialization is very important and you should expect lengthy introductions.
• All About Hierarchy
  They will still honor the business hierarchy which will help you decide the proper decision maker.
• Physical Contact
  They typically shake hands and at times will pat you on the arm.

Food Culture

Fish, rice, and vegetables are staple foods. Food preparation is based on Japanese, Spanish, and Chinese cultures and Filipinos traditionally eat with their hands.
You will find Filipino cuisine to be full of flavor. They will readily use garlic, ginger, coconut, and onions. Vegetables are also essential. They are often steamed or stir-fried. They love beer and will readily eat flan. A favorite dish is “Adobo” which is a mixture of stewed meat, soy sauce, peppercorn and bay leaves served on rice.

Population

The population of the Philippines is 109 million. Beside English and some Spanish, the most spoken languages are Tagalog and Cebuano. Most Filipinos descend from Malaysia but there are many different ethnic groups and the urban population is about 47% and the literacy rate in the country is 99.08%.

They are very resilient people who are also confident spenders, for those reasons, the United States in particular has enlisted the help of its workforce on many fronts. In fact, the Filipino people are known for their problem- solving skills and the city of Manila is predicted to become one of the next world centers for innovation.

Geography

The Philippines is the world’s fifth largest island country. It is situated in the western Pacific Ocean. It has three main islands: Luzon, Mindanao, and Visayas and is about 500 miles from the coast of Vietnam. The most populated city is Quenzon, but the capital is Manila.

The islands are primarily made up of mainly volcanic rock, these mountain ranges follow a north to south direction. There is relatively little volcanic activity on this island country, but many rivers which are the Cagayan, Agno, Pampanga, Pasig, Bicol, the Mindanao, and Agusan. The climate is tropical and the many mountains and valleys are still heavily forested and home to thousands of beautiful flowers.

• Makati City
  This city is considered the “wall street” of the Philippines, and a center of commerce. There are many young professionals in the city, and it is ahub for tourists. This is the number one business location for ambitious start-ups because of its economic stability.
• Quezon City
  This city has been voted the most business friendly local government unit in the country, and is an ideal location for young entrepreneurs. Schools, business centers and residential establishments are found here and this city has a potential for fun, convenient and culinary businesses. Furthermore, the government has set up a one stop shop to easily complete the process of registering and establishing a business in one hour.
• Cebu City
  This is a top tourist destination, and the country’s biggest trading capital. This is home to several I.T. businesses and international outsourcing offices. But there are many other successful businesses in the area. Also, the top universities and colleges are in this area, so there is a high population of students. Owners of goods and services can benefit from its booming travel industry and growing tourist population.
• Davao City
  This city just set the record for the biggest number of businesses brought into the area. Igt is the safest city in the country, and has a stable economy with political sectors that boost investor confidence. This city has a rich amount of natural resources and convenient accessibility to transport. This is a great city of agriculture, mining, fishing, palm oil and tourism.

General Highlights

What you need to know about employing personal in the Philippines:

Laws and Agencies that regulate labor relationships

The Philippines follows The Labor Code which is a law that governs employment practices and relations. It was enacted in 1974 and prescribes laws for hiring, termination, work conditions, hours and overtime, bene- fits, and guidelines for unions and collective bargaining.

Key Tax and Labor Authorities

Labor Contracts

Annual Taxable Income 

Foreigners are called resident aliens and are taxed the same way as regular residents. This taxation is done at the source of the income, sometimes at a 15% base before any other deductions. In 2022 income tax rates will be further reduced, except for those earning above 8 million pesos.

Corporate Tax Rates

Corporate tax rate or CIT applies to domestic corporations. The Corporate Recovery and Tax Incentives for Enterprises Act (the “CREATE Law”) of March 2021 lowered the corporate income tax to 25% and the imposition of MCIT was reduced from 2% to 1% from 1 July 2020 to 30 June 2023.

The Law also provides a lower corporate income tax of 20% for corporations with net taxable income not exceeding PHP5 million and with total assets not exceeding PHP100 million. This excludes land on which the corporation’s office, plant and equipment are placed.

Public Holidays

The Labor Code provides for public holidays that are observed in St Kitts and Nevis.

Termination

Other forms of compensation upon termination include:
Severance pay is called separation pay and is equivalent to half a month’s salary for every year the employee has been in service. This depends on how the employee was terminated