Its rapidly growing economy and strategic location make the Philippines a great business destination. Now wonder foreign investors are keen to start a business in the Philippines. Add the country’s competitive and talented workforce, abundant resources, and sound economic policies to that, and you have an attractive business environment both for local and foreign entrepreneurs.
Investing in the Philippines has vast potential in terms of financial rewards. The cost of doing business in the country is relatively low, and, more importantly, is a great value proposition for companies, hence the possible high returns.
However, like any other investment venture, foreign investment in the Philippines must be done with careful and strategic planning. A thorough understanding of the country’s laws, administrative system, and business culture is highly needed to increase your chances of success.
Before investing, seek expert advice not only on the things you should do but also with the things you should NOT do. Be wary of the following costly investing mistakes that some foreign investors in the Philippines make:
1. Unclear field of industry and business activities
Before diving into the world of foreign investment, it’s important to determine the field of the industry you want to enter, as well as all the business activities that you will engage in. This will not only ease the process of registering your business but also helps you determine your business classification to navigate foreign equity restrictions better.
Registering a business in the Philippines, or in any country, could be a long and tedious process especially if your documents are incomplete. Having a clear grasp of your industry allows you to identify and obtain the necessary documents for business registration quickly.
Additionally, it will help you determine the business incentives available to you. Your consequent business endeavors will follow smoothly once you have clearly identified your field of industry and the full scope of your business activities.
2. Illegal nominee arrangements, a.k.a. “dummies”.
Arranging a nominee agreement might be a convenient way to get away with complications or hasten your business registration, but it is also a practice laden with risks. A nominee arrangement might seem to be a cost-effective way to start your business, but the risk involved would eventually burden you with additional costs and undesirable situations in the future, which, may include criminal prosecution for violation of the Philippine Anti-Dummy law. Your nominee, for instance, could demand additional payment or worse, run away with all your assets.
Secure your investment by not engaging in unsafe or unreasonable nominee arrangements. It is best to get into a properly structured nominee arrangement with a reputable business consultancy company to safeguard your business registration, as well as your assets.
3. Not hiring professional agents or business consultants for registration
Starting your own business in the Philippines calls for an expert in the local law. To guarantee that your business registration will go smoothly, hire a competent agent or business consultant who will help you set up the necessary licenses, permits, and visas legally and completely. Some might regard this as an unnecessary extra cost, but in the long run, this will help you avoid costly mistakes as you register your business.
Hire a service provider who has substantial experience and know-how in the field. Ask feedback from previous customers, if necessary, and make sure that you keep track of your agent or consultant’s progress.
4. Not knowing about the business incentives for foreign investors
Business incentives can have a significant impact on your investment. Thus, you should be in the know of the various incentives available to you so that you can use these to your advantage.
The Philippine government provides a range of business incentives to attract and sustain foreign investors. These incentives can serve as your guidepost as you determine the industry you want to invest in, as well as the location where you want to set up your business.
Note that these incentives have substantial benefits that can help cut your costs and enhance your returns.
5. Failure to comply with taxation rules
A complete understanding of the country’s taxation law is critical to the success of a foreign investment. Foreign investors must be knowledgeable of the local taxation laws not only to avoid penalties but more importantly, to enable efficient management of taxes.
Registering for tax is one of the most important steps in starting your business, and failure to comply with taxation rules has serious legal repercussions. Non-compliance with tax rules will not only warrant penalties but also deter you from availing significant VAT refunds or credits and tax relief.
6. Not learning the local business culture
Setting up a business offshore entails an understanding of the local business culture. As you learn and adapt to the local culture eventually, you get a better idea on how to establish your own corporate culture.
Learning the business environment and familiarizing yourself on how the locals work can also help you strategize your business activities and pursue your business efforts.
Starting a business in a foreign country may seem like a difficult and complex process. While it is not a simple endeavor, it can be done smoothly and successfully as long as you do strategic planning and ample preparation.