How to Register an Offshore Outsourcing Business in Philippines

Benefits over traditional offshoring

Setting up an offshore team in the Philippines requires significant investment. It may as well be one of the more time consuming strategies to implement. Despite the tedious process, its successful implementation means overcoming the drawbacks of traditional offshore outsourcing and offering the best compromise in cost savings and control.

Having your own team reduces the limitations otherwise binding the company – mainly its provider’s methods and capabilities. You gain the capability to define standards and operating procedures within the offshore team including operating hours, employee training and more importantly corporate culture.

Operating hours can be tailored to work around the main headquarter’s schedule. As long as it is clearly defined in every job offer and properly compensated, employees will have no problems with it. Filipinos are adaptable and resilient, hence why many offshore outsourcing businesses flourish in the country.

The talent pool in the Philippines consists primarily of undergraduate degree holders. With proper training programs, they can easily attune to global business concepts and ideas.

From kindergarten up until university, educational institutions placed emphasis on the English language on top of the local Filipino language. The constant learning and use of English in day to day affairs improved language proficiency and comprehension to more than acceptable levels on a global scale.

The fact that the offshore team is an extension of your business, control will be the least of your worries. Even minute processes can easily be fine tuned to meet expectations. Monitoring and tracking are equally convenient to implement.

Once the groundwork has been laid and the offshore team is successfully established, companies can enjoy exceptional returns indefinitely with minimal work. Operating the offshore business can be as easy as liaising with a third party provider.

Registration Process and Requirements

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Registering an offshore outsourcing company is easy, but time consuming. EnterPH can guide you through the process and offer end-to-end solutions so you don’t need to navigate through the difficulties of dealing with Philippine government agencies. We cover all steps so you can focus on your business strategy.

1. Choosing the appropriate company structure
2. Evaluating government incentives: PEZA or BOI
3. Registration with government agencies

Choosing the appropriate business structure

An offshore outsourcing business starts with choosing an appropriate company structure. A myriad of options are available for an outsourcing business, including but not limited to sole proprietorship, partnership, domestic corporation or a resident foreign corporation (e.g., branch office).

A corporation is the ideal offshore company structure. It limits shareholder liability and is subjected to more favorable tax laws versus a sole proprietorship. Setting up as a corporation also gives more credibility if you do decide to offer services to other foreign entities. Notably, the BPO sector is one area where foreigners can have 100% ownership.

Evaluating Government Incentives: PEZA or BOI

The Philippine Economic Zone Authority (PEZA), is an incentive granting agency that provides investment assistance to foreign investors, primarily for the purpose of encouraging investment in the Philippines. IT is one of the several industries that PEZA provides incentives to. This includes enterprises engaged in software development and application, IT-enabled services, content-development for Internet and other media, business process outsourcing (BPO), as well as IT research and development.

Among the many sought after incentives granted to IT enterprises is the income tax holiday (ITH) (i.e., exemption from corporate income tax for four to six years). After the lapse of the ITH, PEZA-registered IT enterprises will be subject to 5% gross income tax (in contrast to the regular corporate income tax of 30%).

Foreign investors will also be granted permanent residency status upon initial investment of USD 150,000 to any sustainable local enterprise. However, it is important to note that PEZA-registered IT enterprises should derive 70% of its revenues from clients abroad to remain eligible for PEZA incentives.

Similarly, the Philippine Board of Investments (BOI) is also an incentive granting agency that focuses on promoting investments in developing industries. One of the BOI’s preferred industries is the IT-Business Process Management which covers contact centers, artificial intelligence and data science/analytics services, back-office services, software development and other related IT services. Benefits of BOI registration include availment of income tax holiday and the ease of employing foreign nationals.

The decision regarding the appropriate agency to register under would ultimately depend on the specific activities of the offshore outsourcing company whether they fall under the eligible activities of each agency and whether the benefits provided by PEZA outweigh the cost of locating in a PEZA IT Park or building.

Registration with Government Agencies

In the Philippines, corporations and partnerships are registered with the Securities and Exchange Commision (SEC), while sole proprietorships are registered with the Department of Trade and Industry (DTI).

While it is indeed easier and less costly to register sole proprietorships, owners are susceptible to higher liabilities than corporate shareholders. A sole proprietor can be liable to the creditors of its business, even beyond its contributed capital. In contrast, the shareholders’ liabilities are limited to their capital contribution.

Further, corporations are subject to a fixed income tax rate (30% regular income tax, ITH, or 5% gross income tax). Individuals, on the other hand, are exposed to schedular tax rates that may go as high as 35%. As such, a corporation is preferred over a sole proprietorship.

The offshore company has to be registered with several government agencies. The business name should be secured and certain documentary requirements (e.g., articles of incorporation, by-laws, treasurer’s affidavit) must be submitted to the SEC.

Apart from the SEC, the corporation is also required to register with the Bureau of Internal Revenue (BIR) to obtain its Tax Identification Number, and to apply for authority to print receipts. The BIR would require the usual corporate documents such as articles of incorporation, the company’s books of accounts, and sample of official receipts/invoices.

The corporation is also required to obtain a mayor’s permit from the city or municipality where its principal office is located. The mayor’s office requires the articles of incorporation, SEC registration documents, and the occupancy permit.

Apart from the local government, the corporation is also required to register with several social institutions, namely the Social Security System (SSS), Philhealth, and Pag-IBIG. These social institutions provide medical insurance and housing loan credit lines to its registered members. Generally, these institutions require the corporation’s SEC documents together with reports and records about the employer-corporation and its employees.

Establishing an offshore outsourcing business should not be a time consuming affair. Avoid the bureaucracy and the unknown in dealing with foreign agencies and processes. Partner with EnterPH – your team of Philippine business experts. Register your business now!