Simone Lawson
The retail business in the Philippines is a rapidly growing market that offers significant opportunities for investors and businesses. It is driven by a large, young, and consumer-oriented population, robust economic growth, and technological advancements. The country's legal framework, including the 1987 Constitution, provides the overarching structure for commerce and industry, encouraging entrepreneurship and protecting private property rights. The Retail Trade Liberalization Act (RTLA) and foreign investment regulations shape the market for foreign retailers and investors, while local businesses must navigate registration, licensing, taxation, and regulatory requirements. With a variety of retail formats and a dynamic consumer base, the Philippines' retail sector is an attractive destination for expansion and investment.
| Characteristics | Values |
|---|---|
| Legal framework | A blend of civil law traditions, statutory enactments, and administrative regulations |
| Registration | Required with the Department of Trade and Industry (DTI) for sole proprietorships or the Securities and Exchange Commission (SEC) for corporations |
| Permits | Barangay Clearance and Mayor’s Permit |
| Tax compliance | Compliance with Bureau of Internal Revenue (BIR) requirements, including value-added tax (VAT) registration and quarterly tax filings |
| Labor regulations | Compliance with the Labor Code, including a minimum wage of PHP 645/day in Metro Manila and benefits like social security and health insurance |
| Foreign ownership | Limited in certain industries |
| Business structure | Sole proprietorship, partnership, or corporation |
| Intellectual property | Registration with the Intellectual Property Office of the Philippines (IPOPHL) for trademark protection |
| Retail business definition | A place of business where merchants sell products or services to individual consumers for personal use |
| Examples | Department stores, convenience stores, supermarkets and hypermarkets, and online retail |
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What You'll Learn
Foreign investment and ownership
The Retail Trade Liberalization Act (RTLA) sets the minimum investment requirement for foreign retailers at USD 500,000, with a per-store investment requirement of USD 200,000. Retail trade enterprises with capital of less than USD 500,000 are typically reserved for Filipino citizens. Foreigners intending to engage or invest in the retail trade sector in the Philippines must register with the Securities and Exchange Commission (SEC) or the Department of Trade and Industry (DTI) and comply with the minimum paid-up capital requirements. Failure to maintain the required paid-up capital can result in penalties or restrictions on future trading activities.
The Philippines allows full foreign ownership in specific sectors, such as insurance adjustment, lending, financing, and investment companies. However, foreign investors are generally prohibited from owning stock in such enterprises unless the investor's home country offers reciprocal rights to Filipino investors. Foreign banks are permitted to establish a limited number of branches and can own up to 100% of the voting stock of locally incorporated subsidiaries. Ownership caps apply to foreign non-bank investors, limiting their aggregate share in domestic commercial banks and thrift/rural banks.
The Philippines publishes the Foreign Investment Negative List (FINL) every two years, outlining sectors where foreign investment is restricted. The 2022 FINL banned foreign ownership and participation in mass media (except recording and internet businesses), small-scale mining, private security agencies, utilisation of marine resources, ownership and operation of cockpits, and the manufacturing of specific weapons and explosives. The 2022 PSA amendments, however, allowed 100% foreign investment in select public services, including railways, airports, and expressways.
The country's regulatory environment can be unclear, and corruption remains a challenge. The Philippines is committed to improving its investment climate and sustaining economic growth. The 2021 Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act standardised incentives across investment promotion agencies, and the country offers advantages such as free trade zones and an educated, English-speaking workforce.
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Business registration
The Philippines presents a thriving business environment with a projected economic growth of 6.1% in 2025, making it an attractive prospect for companies looking to expand. The country's legal framework encourages entrepreneurship and protects private property rights, providing guidelines for foreign equity participation and economic development.
The business registration process in the Philippines can be complex, with requirements varying depending on the type of business entity and structure. Here is a step-by-step guide to registering a business in the Philippines:
Step 1: Choose a Business Structure
The first step is to choose the appropriate business structure. The three most common forms for small enterprises in the Philippines are:
- Sole Proprietorship
- Partnership
- Corporation
Step 2: Register Your Business Name
Register your company name with the Securities and Exchange Commission (SEC). If you have documents signed abroad, they must be Apostillized or authenticated by the Philippine embassy/consulate of the country where they were signed.
Step 3: Obtain Required Licenses
Corporations in the Philippines are characterised by the nationality of their stockholders, and registration requirements and investment restrictions will depend on their ownership status. Special or secondary licenses may be required if the corporation operates in partly nationalised or restricted industries.
Step 4: Register with the Barangay Office
After registering your business name, head to the barangay office where your business is located to obtain and complete the required application form. Present the following documents along with your application:
- Proof of Address (Contract of Lease or Certificate of Land Title)
- Proof of Identification
- Articles of Incorporation/Partnership
- Treasurer's Affidavit
Step 5: Claim Your SEC Certificate of Registration
After processing, claim your official SEC Certificate of Registration, which marks the formal establishment of your business.
Step 6: Comply with Taxation Requirements
Register your book of accounts and receipts/invoices, ensuring compliance with Bureau of Internal Revenue (BIR) guidelines. Claim your Certificate of Registration (BIR Form 2303) to establish your business within the taxation framework.
Step 7: Open a Bank Account
Opening a corporate bank account is important for managing funds and tracking investments. Tetra Consultants can assist with opening a bank account within four weeks of incorporation.
By following these steps, you can successfully register your business in the Philippines, ensuring compliance with the country's legal and regulatory requirements.
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Tax compliance
The 1987 Philippine Constitution provides the legal framework for commerce and industry in the country. It encourages entrepreneurship, protects private property rights, and outlines guidelines for foreign equity participation and economic development. The Retail Trade Liberalization Act of 2000 (RTLA) is another important piece of legislation that shapes the legal landscape for retail businesses in the Philippines.
When it comes to tax compliance, the Bureau of Internal Revenue (BIR) is the key authority. The BIR has issued several regulations and requirements to ensure proper tax compliance, especially for online sellers and businesses. Here are some key considerations for tax compliance in the context of retail businesses in the Philippines:
Registration and Permits
All individuals or entities conducting business in the Philippines, including those with physical stores, online businesses, or digital platforms, must register with the BIR. This includes obtaining a Tax Identification Number (TIN) and registering at the Revenue District Office (RDO) with jurisdiction over the place of business. The BIR Certificate of Registration (CoR) must be displayed visibly at the business premises or kept on hand for those without a fixed address. Late registration may result in fines.
Tax Returns and Payments
Registered businesses must comply with tax return filing requirements and pay applicable taxes. This includes filing proper tax returns and remitting taxes on time. Lessors and sub-lessors of commercial establishments are responsible for ensuring that their tenants are properly registered with the BIR and compliant with invoicing requirements.
Compliance for Online Sellers
With the increasing popularity of e-commerce, the BIR emphasizes the importance of tax compliance for online sellers. This includes businesses selling through digital platforms, e-marketplaces, e-retail, streaming, content creation, and other online activities. Online sellers must ensure compliance with regulatory requirements, particularly concerning their tax obligations.
Compliance for Privilege Stores
Privilege stores in the Philippines refer to temporary stalls or outlets set up in public places for short periods or special events. Privilege store operators must register with the BIR, obtain a TIN, and comply with specific tax obligations, such as withholding tax on lease payments and filing income tax returns.
Tax Reform and Compliance
The Philippines has also undergone tax reforms, such as the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which came into effect in 2018. These reforms aim to simplify and optimize the tax system, making it easier for businesses to comply with their tax obligations.
Overall, tax compliance is a critical aspect of operating a retail business in the Philippines. Entrepreneurs must stay updated with the latest tax regulations and work closely with tax professionals to ensure they meet their tax obligations.
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Labor standards
The Labor Code of the Philippines is the primary source of employment law in the country. It establishes labour practices and employment standards, encompassing hiring, working conditions, wages, and employee benefits, to protect workers' rights. The Code sets forth the legal standards for wages, working hours, benefits, and conditions of employment. It also ensures that employees promptly receive benefits in work-related disability or death.
The Labor Code provides specific provisions for domestic workers, known locally as "Kasambahay", covering their rights and welfare. It also ensures that regular employees are entitled to full benefits and job security, including the right to unionize and receive employer-contributed social, health, and welfare benefits.
The Labor Code defines various types of employment, including regular/permanent, casual, seasonal, and project-based employment. Regular employees perform activities that are necessary or desirable to the business/trade of the employer and cannot be terminated without just cause. Casual employees perform tasks that are not part of the employer's regular business and are only occasional or temporary. Seasonal employees work during a particular time or season and can expect to be reinstated when their services are needed again. Project-based employees are hired for a specific project, and their employment ends once the assigned work is completed.
The Labor Code also prohibits discrimination against women and people who complain about their wages or join a union. There is a separate Anti-Age Discrimination in Employment Act that encourages hiring based on abilities rather than age and ensures equal treatment in terms of salary, benefits, promotion, and other opportunities, regardless of age.
In addition to the Labor Code, other laws protect employees' rights to organize and engage in collective bargaining to protect their interests, including wages, working conditions, and terminations. Employees in rank-and-file and supervisory positions have the right to organize, join, and assist labor unions to establish collective bargaining agreements (CBAs) with their employers. CBAs must include agreed-upon terms and conditions of employment, including wages and hours of work, and must not fall below the minimum standards stipulated by law.
Other labor standards in the Philippines include the right to holiday pay, separation pay, and service charges. Employees are also entitled to paid leave, including Service Incentive Leave (SIL) and maternity and paternity leave.
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Consumer protection laws
The Philippines' legal framework for retail businesses involves civil law traditions, statutory enactments, and administrative regulations that govern the formation, registration, and operation of businesses. The 1987 Constitution provides an overarching framework for commerce and industry, encouraging entrepreneurship, protecting property rights, and guiding foreign equity participation.
The Retail Trade Liberalization Act of 2000 (RTLA) and the Twelfth Regular Foreign Investment Negative List (RFINL) are key legislative components in the retail sector, with the latter stipulating "no foreign equity" in retail trade enterprises with paid-up capital of less than PHP25,000,000. Foreign retailers must register with the Securities and Exchange Commission (SEC) or the Department of Trade and Industry (DTI) and comply with minimum paid-up capital requirements to avoid penalties or restrictions on future trading activities.
The Consumer Act of the Philippines (Republic Act No. 7394), effective since July 15, 1992, is the principal law for consumer protection. This Act aims to protect consumer interests, promote their general welfare, and establish standards of conduct for businesses. The Act is enforced by various agencies, including the Department of Health, the Department of Agriculture, and the Department of Trade and Industry (DTI), which plays a central role in consumer protection and coordinates with the ASEAN Consumer Protection Committee (ACCP).
The Consumer Protection and Advocacy Bureau (CPAB), operating under the DTI, is another key body that safeguards consumer interests and ensures businesses adhere to established standards. The Act also underscores the importance of educating consumers to facilitate informed choices and the proper exercise of their rights, as well as providing adequate avenues for redress.
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Frequently asked questions
A retail business is a place where merchants sell products or services to individual consumers for personal use. Retail businesses can be brick-and-mortar stores, online, or both.
The first legal requirement is the act of registration with the SEC or DTI, with compliance with the minimum P25M paid-up capital, reciprocity, and per-store investment of P10M.
Retail businesses can be classified as either traditional or modern. They can also be classified based on the types of goods they sell, such as hardline retailers, soft goods or consumables retailers, and food and grocery retailers.
The Philippine legal framework is characterized by a blend of civil law traditions, statutory enactments, and administrative regulations that shape how businesses are formed, registered, and operated. The 1987 Constitution provides the overarching legal framework for commerce and industry in the country, encouraging entrepreneurship and protecting private property rights.
