Step-by-Step Guide to Setting Up a Sole Proprietorship in the Philippines

A sole proprietorship gives complete control to an individual owner. It is one of the simplest structures for business expansion in the Philippines. Freelancers and self-employed professionals are both included under sole proprietorship. 

Foreigners can establish a sole proprietorship in the Philippines in industries not governed by ownership equity laws. Over 40% of firms are registered as sole proprietorships in the Philippines as per 2015 data. The process to register a sole proprietorship in the Philippines is also comparatively smoother. 

Now let us see how to establish a sole proprietorship in the Philippines. 

Unlike the US and the UK, the Philippines does not have the legal concept of a Limited Liability Company (LLC) or Private Limited Company. Hence, many self-employed individuals and small businesses start as sole proprietorships and then transition to domestic corporations.

You must fulfill the following criteria to establish a sole proprietorship in the Philippines – 

• Be a single owner of the business
• Have a Special Investor’s Resident Visa
• Be the sole beneficiary liable to responsibilities, profits, and losses.

Note: The sector you operate in should not have foreign equity restrictions.

When choosing a business entity for your company, you must know the advantages of the structure you choose. A fair share of tax procedures and legalities are involved in registering a new business. 

Here are some benefits of setting up a sole proprietorship in the Philippines:

• You remain the sole supervisor of all your business operations
• You have complete control over the decision-making process
• There is no separate taxation for the business 
• The tax rate for self-employed individuals is 8%, provided their income is less than P3,000,000) 

It is cheaper to set up a sole proprietorship in the Philippines than a corporation

Anyone looking to establish a sole proprietorship in the Philippines must fill out the mandatory documentation forms for registration. Moreover, they must register at these three different government agencies:

• The Department of Trade and Industry
• Local Government Unit 
• Bureau of Internal Revenue 

You must submit the following documents to register a sole proprietorship in the Philippines: 

• Business Name application form
• Foreign Investor’s application form
• Passport size photos 
• Biodata
• Valid visa 
• Certificate of Authority to Engage in Business
• Government-issued ID such as passport, driver’s license, National ID
• Resident Agent Appointment form 
• Proof of inward remittance of Foreign Currency with Peso Conversion
• Bank certificate of deposit 
• Authority to verify bank account and bank certificate of deposit

Authorities might ask for additional documents depending on the nature of your business.

Be mindful of these things when registering as self-employed in the Philippines: 

• All businesses must secure a mayor’s permit or municipal license from the city (where the business is located) to ensure compliance with local regulations. 

• After incorporating a sole proprietorship in the Philippines, if you plan to hire more employees in the future, you must register your business with:

• Social Security System
• Home Development Mutual Fund
• Philippine Health Insurance Corporation

• You must register with the appropriate regulatory bodies according to the nature of your business/product.

Multiple steps are involved in setting up a sole proprietorship in the Philippines. Here’s a step-by-step guide for the same: 

Register a business name: ‍

• Decide upon a business name, one that is not already registered or trademarked,
• You can keep your own name,
• Fill out the application form on the Department of Trade and Industry website, 
• Check if the business name is available, 
• Pay the registration fee,
• Obtain a DTI Certificate of Registration (COR) and make a printout of the same.

Register with Barangay Office: This acts as a legal requirement to operate your business.

• Go to the Barangay Hall of your business location,
• Submit the application form along with the DTI Certificate of Registration,
• Submit address proof,
• Two valid ID proofs, 
• If successful, you will get the Certificate of Business Registration. 

Register in the Mayor’s Office: This helps acquire permission to operate in the local municipality.

• Go to the municipal office where you plan to set up your business 
• Fill out the necessary form(s)
• Submit residency proof/lease contract (for a rented office) 
• Pay the Mayor’s permit fee
• Claim the business permit and licenses

Register with the Bureau of Internal Revenue: This is crucial for managing sole proprietorship taxes in the Philippines.

• Go to the Regional District Office and fill out the BIR Form 1901 
• Submit the Certificate of Registration from DTI, Barangay clearance, and Mayor’s Business Permit
• Give an address proof and Valid IDs, 
• Pay the registration fees, 
• Register your book of accounts, 
• You will get your final Certificate of Registration.

Once you have acquired all four certificates, you can start working on the business operations.

Setting up a sole proprietorship in the Philippines can be long and time-consuming. After all, it may take months to get the relevant permits from concerned authorities. Plus, you must be well-versed with the local rules and regulations for self-employed people. 

If you don’t wish to bear the burden alone, we recommend you partner with a global EOR firm like Multiplier. 

With local entities in over 150+ nations, our experts can help set up your sole proprietorship in a foreign country. We can also help you onboard freelancers and manage their payroll. Our one-click payroll services will save you the hassles of taxation in foreign countries.