Living and Investing in the Philippines:

Living: Cost of living is relatively low in the Philippines compared to Western countries. Expatriates can enjoy a comfortable lifestyle with affordable housing, healthcare, and a variety of leisure activities.

Political Overview:

President serves as both the head of state and the head of government.

Legal System:

Provided by Exceed Executive Concierge

• Sources of Law:

The Philippines is a unitary presidential constitutional republic with a multi-party system. The The legal system of the Philippines is based on a combination of civil law and common law traditions. The country’s legal framework is influenced by Spanish, American, and indigenous laws. Three separate and independent branches: the Executive, the Legislative, and the Judicial.

The Philippines adopted a civil law system established by laws passed by the legislature, with the 1987 Constitution as the fundamental law of the land. Secondary authoritative sources of law are the decisions issued by the Supreme Court, implementing rules and regulations issued by regulatory authorities (such as the Securities & Exchange Commission [SEC], Department of Trade and Industry [DTI], and Philippine Competition Commission [PCC], among others), and the executive orders issued by the Office of the President

• Court System:

The Philippine court system is composed of the Supreme Court, lower courts, and special courts.

The Supreme Court is the highest judicial body in the country.

Investments:

The Philippines offers investment opportunities in various sectors such as real estate, tourism, business process outsourcing, and manufacturing. Foreign investors are encouraged to explore the country’s Special Economic Zones for tax incentives and other benefits. 

Doing Business in the Philippines:

Registration with the SEC or the DTI is required before an entity can do business in the
Philippines. While the Revised Corporation Code does not define the term “doing business”, Republic Act No. 7042, as amended, otherwise known as the Foreign Investments Act of 1991 (FIA) enumerates certain activities that are deemed to constitute “doing business” in the Philippines

The FIA is the primary governing law on foreign investments in the Philippines. The FIA was further amended in 2022 to liberalize restrictions on foreign investments in recognition of the benefits of the increased capital and introduction of new technology, and the effects of global and regional economies in the Philippine economy. The Philippines adopted a policy to attract, promote, and welcome foreign investments as a supplement to Filipino capital and technology.

As a rule, there are no restrictions on foreign investments, except in restricted activities as provided in the Constitution and applicable laws. These restricted activities are outlined in the Foreign Investments Negative List promulgated and updated by the Office of the President. Eight (8) main types of business vehicles may be registered in the Philippines. The business vehicles may be categorized as domestic or foreign:

1. Domestic Entities. Subject to the restrictions on foreign direct investments, foreign nationals may organize and register the following business types under and in accordance with Philippine laws:
2. Sole Proprietorship: which is owned by, and registered in favor of, only one (1) individual who must register with DTI. A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the business.
3. Partnership: a partnership has its legal personality separate and distinct from that of its partners. A partnership may either be a (1) general partnership, where the partners have unlimited liability for the debts and obligation of the partnership, or (2) limited partnership, where one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions.
4. One Person Corporation (OPC): The OPC consists of a single stockholder who is also the sole director and president. The single stockholder may likewise be appointed as the treasurer, provided that he submits a bond, renewable every two (2) years to the Securities and Exchange Commission (SEC). The OPC has a separate legal identity from the single stockholder, which allows the businessman to limit his liability in the conduct of his business, and to gain complete control and authority to manage his business affairs without the need to seek consensus and approval from a board of directors or stockholders. capital requirement.
5. Corporation: A corporation has a legal personality separate and distinct from that of its stockholders. The Philippines recently revised its Corporation Code to ease the requirements to incorporate. Among others, the Revised Corporation Code now (i) allows corporate entities as incorporators, (ii) reduces the number of incorporators to at least two (2) from the previous minimum requirement of five (5) individual incorporators, (iii) allows perpetual corporate term, and (iv) removed the minimum subscribed and paid-up Foreign Corporations. Foreign corporations may likewise seek to register with the SEC and obtain a license to transact as a:

• Branch office: As an extension of a foreign corporation, the branch office carries out the business activities of the foreign head office. It has no separate legal personality from the foreign head office. Consequently, any liability incurred by the branch is a liability of the head office.
• Representative Office: A foreign corporation may likewise establish a representative office in the Philippines to perform limited activities, such as information dissemination, act as a communication center and promote company products, as well as quality control of products for export. The representative office may not derive any income from the Philippines.
• Taxation: Headquarters: The foreign corporation may also establish either a Regional or Area Headquarters (RHQ) or Regional Operating Headquarters (ROHQ) in the Philippines:
  

1. 1. RHQ: An RHQ acts as an administrative branch of a foreign company, and shall principally serve as a supervision, communications and coordination centre for the foreign company’s subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets. As an administrative branch, the RHQ may not earn or derive income in the Philippines.
   2. ROHQ: The ROHQ is allowed to derive income in the Philippines. However, it only performs qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and other foreign markets, particularly in General administration and planning; Business Business development. planning and coordination; Sourcing/procurement of raw materials and components; Corporate finance advisory services; Marketing control and sales promotion; Training and personnel management; Logistics services;
      Research and development services, and product development; Technical support and maintenance; Data processing and communication; and Other developments and opportunities for investors: Fintech Industry, real estate industry, healthcare industry, energy industry, defence and security industry.
      The Philippine government imposes two types of taxes: national and local tax. National taxes or internal revenue taxes are governed by Republic Act No. 8424, otherwise known as the “National Internal Revenue Code of 1997”, and its amendments (Tax Code). The Bureau of Internal
      Revenue (BIR), the country’s taxing authority, issues circulars to clarify and interpret the Tax Code, and rules and regulations prescribing the guidelines for its implementation. On the other hand, local taxes are levied and collected by Local Government Units (LGUs), such as provinces, cities, municipalities, and barangays. The local taxes are imposed by ordinances issued by the relevant Sanggunian of the LGUs. A taxpayer identification number (TIN). The BIR likewise requires registration of an enterprise’s books of account, sales invoices, and official receipts.

Income Tax: A citizen and a domestic corporation are taxable on all income derived from sources within and outside the Philippines. On the other hand, non-resident citizens, and foreign individuals and corporations, whether or not engaged in trade or business in the Philippines through a branch office, are taxable only for all income sourced within the Philippines. The income tax rate in the Philippines depends on the tax status of the income recipient. Citizens and resident foreign individuals (Non resident aliens engaged in trade or business within the Philippines are generally subject to the same tax rate) are tax at a graduated tax rate of 0% (for annual income not exceeding P250,000) to 35% of taxable income. Non-resident foreign individuals not engaged in trade or business in the Philippines are tax at 25% of gross income.

Domestic corporations and resident foreign corporations are tax at 25% on taxable income. However, for domestic corporations with net taxable income not exceeding Five Million pesos (P5,000,000) and total assets not exceeding One Hundred Million (P100,000,000), excluding the land on which the particular business entity’s office, plant and equipment are situated, twenty percent (20%) income tax rate will apply. Non-resident foreign corporations are tax at 25% of gross income. Profits of a Philippine branch, which are remitted to the head office are generally subject to the branch profit remittance tax at the rate of fifteen percent (15%) of the total profits applied or earmarked for remittance without any deduction for the tax component thereof. The fifteen percent (15%) tax will be withheld by the branch and paid to the BIR.

Withholding tax: Registered taxpayers may be appointed as withholding tax agents for income received by certain payees. This includes withholding tax on compensation received by employees. The rate depends on the taxable income of each employee which could go up to thirty-five percent (35%) maximum rate. Other withholding taxes may be applicable depending on the nature of the transaction and the payee. Withholding tax rates vary from one percent (1%) to fifteen percent (15%) of the payment. The withholding agent’s remittance of the withholding tax to the BIR is required before the related expense may be claimed as allowable deductions for purposes of computing the income tax.

Dividends tax: Dividends received by a domestic corporation or resident foreign corporation from a domestic corporation are exempt from tax. However, those received by a nonresident foreign corporation from a domestic shall be subject to a final withholding tax either 10% or 15%.

Capital Gains Tax (CGT) : Imposed on transfer of shares not traded I the stock exchange at the rate of 15%of the net capital gains realized during the taxable year, maybe exempt under applicable tax treaty and/or under certain conditions.

Documentary Stamp Tax (DST) :Is due upon documents, instruments, loan agreements and papers that is incidental to acceptances, assignments, sales and transfers of obligations, right or property.

Value Added Tax (VAT): VAT is generally imposed on the sale of goods and services, barter or exchange of goods or properties, as well as importation in the Philippines. Generally, VAT is at twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, or the gross receipts derived from the sale of services, including the lease of properties.

For imported goods, VAT is imposed on the total value used by the Bureau of Customs (BOC) in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, provided that where the customs duties are determined based on the quantity or volume of the goods, VAT is based on the landed cost plus excise taxes, if any. A VAT taxpayer may use the VAT on its purchases (Input VAT) as a credit against its VAT on the sale of its goods and services (Output VAT). However, if the taxpayer’s gross annual sales and/or receipts from sales or lease of goods or properties, or the performance of service do not exceed P3,000,000.00 in a taxable year, such taxpayer may opt to register as a non-VAT taxpayer, and be subject to percentage tax of three percent (3%) of its gross sales and/or receipts, instead of VAT. Certain transactions are subject to zero percent (0%) VAT, in which case, the taxpayer is entitled to a refund of unused Input VAT paid on purchases related to the zero-rated transaction. Sales may also be exempt from VAT.

Local Tax: Local Government Units (LGU) in the Philippines are likewise granted authority to levy taxes as their own source of revenue, subject to certain limitations. The local taxes are distinct and separate from the national taxes collected by the BIR. Among others, LGUs impose business tax and real property tax within their jurisdictions. Under the Local Government Code (LGC), municipalities and cities may impose business tax on persons engaged in trade or commercial activity regularly as a means of livelihood or to profit. The type of business subject to local business tax and the rate thereof shall depend upon the local tax ordinance enacted by the concerned local Sanggunian.

Immigration:

The Philippines has various visa options for tourists, expatriates, investors, and retirees. Immigration laws and regulations are set by the Bureau of Immigration, under the Department of Justice.

1. 9(d) Treaty Trader or Treaty Investor : This visa is available only if the foreigner is a national of a country with which the Philippines has in place an agreement for the admission of treaty traders or investors, specifically (1) the United States of America, (2) Japan, and (3) Germany.
2. 9(g) Pre-arranged Employment Visa (Commercial Visa) : This is a working visa that allows employers/proprietors in the Philippines to employ foreign nationals with skills, qualifications, and experience that may be short in supply in the Philippines. working visa under the oversight of the Department of Justice. and investments are maintained
3. Special Non-Immigrant Visa (47(a)(2) Visa) : The 47 (a) 2 visa is a special category of
4. Special Investor’s Resident Visa (SIRV) under Executive Order 226 or the Omnibus Investment Code of 1987: The Special Investor’s Resident Visa (SIRV) entitles the holder to reside in the Philippines for an indefinite period as long as the required qualifications
5. Special Resident Retiree’s Visa (SRRV) : The SRRV is for active/healthy principal retirees 50 years old and above; and must deposit of at least US$20,000.00 in any of the designated banks (non-convertible to long term lease investment or condominium purchase) of the Philippine Retirement Authority (“PRA”).
   Special Visa for Employment Generation (“SVEG”) : This visa is founded on public interest, particularly on an aspect of employment generation for Filipinos
6. Special Investor’s Resident Visa under EO 63 or the Law Granting Incentives to Foreign Investment in Tourist-Related Projects and Tourist Establishments and for Other
   Purposes: This visa is given as an incentive and part of the enhancement of international tourism through the acquisition or operation of tourist establishments and tourist related projects in our country and by the infusion of capital therein by foreign investors
7. Special Visas Issued by Economic Zones : Subic and Clark Special Economic Zone under Republic Act 7227 or the Bases Conversion and Development Act of 1992.

Education System:

The Philippines has a diverse education system with both public and private institutions. Education is compulsory up to the secondary level, and higher education is offered by universities and colleges. Formal education in the Philippines generally spans 16years: six years of primary school, four years of lower secondary education, two years of upper secondary education, and four years of tertiary education. The media of instruction in all levels are English and Filipino, as stated in the Philippine Bilingual Education Policy (BEP)

Healthcare System:

The healthcare system in the Philippines includes public and private healthcare facilities. Major cities have well-equipped hospitals, and the government provides healthcare services through the Philippine Health Insurance Corporation (PhilHealth). Healthcare services in the Philippines vary from basic clinics to advanced medical facilities in urban areas.

Transportation:

travel within the country.
Transportation in the Philippines includes a mix of modes such as jeepneys, buses, tricycles, taxis, and ride-sharing services. Major cities have airports, seaports, and a network of roads for The Philippines is rich in natural resources such as minerals, forests, marine resources, and geothermal energy. Sustainable management of these resources is crucial for economic development and environmental conservation.