ENTREP 4 - PROGRAMS AND POLICIES ON ENTERPRISE DEVELOPMENT

Entrepreneurship Department
1st Semester, A.Y. 2021-2022

What is an enterprise?
An enterprise, also known as business, is the undertaking of activities associated with the production, sale or
distribution of products or services. A business enterprise can be operated as a sole proprietorship, partnership,
corporation, limited liability company or other type of business association. Whatever the structure, an enterprise is a
for-profit entity.

The Need for Entrepreneurs

According to some economic theory, entrepreneurs are not needed in perfectly competitive markets. In
perfectly competitive markets, all business people would have perfect knowledge and thus there would be no risk
attached to economic transactions. Of course the world, and competitive markets, are imperfect places. Entrepreneurs
can generate profits with business enterprises that launch new products or services, or exploit the market in a new way.

Creating a Business Enterprise

A business enterprise does not have to be on the scale of Microsoft, Apple or Amazon. A business enterprise can
be run by a single individual or can refer to a small company with a handful of employees. The distinction of an
enterprise is that it is a for-profit venture. The business enterprise exists to make money providing customers with
products or services. If you have an idea for a business enterprise, formalize it by creating a detailed business plan in
writing. A business plan will give structure to the essential elements of your enterprise. It's a necessary document if you
want to attract investors or secure financing. After you've selected a name and location for your business enterprise, you
need to register your business (see the attached Guide on How to Register Your Business Name in the Philippines)

Manage and Grow Your Enterprise

Managing your business enterprise encompasses a wide range of activities, including hiring and managing
employees, handling financial operations and paying taxes, staying legally compliant, keeping abreast of industry trends,
being vigilant about cybersecurity and being prepared for emergencies. The complexity of any of these activities
depends on the type and size of your business. When you're ready to grow your business enterprise, you'll need to plan
for considerations like securing more funding, adding employees, expanding locations, building a bigger customer base
and developing new products and services.

BELOW ARE THE FIVE STAGES OF BUSINESS GROWTH EVERY COMPANY GOES THROUGH:
1. Development stage
If you decide your business idea is worth developing, the next step is to put together a business plan. A good
business plan is one that sets the course of a business lifespan. Every successful business runs on a constantly reviewed
set of plans, which ensures that it continues to meet its needs. This also helps the business spot new measures for
strategic growth. After a review, key target areas are identified, then the business plan is revisited, and this becomes the
milestone for the next iteration of the plan. A continuous business cycle enables the entrepreneur to maximize their
chances of success. Business plans are also a vital tool for entrepreneurs seeking outside investment. At this stage,
entrepreneurs should be asking themselves the following questions:
Does this concept/product/idea fill a need in the market?
Will it be acceptable in the market?
How do I establish a business structure?
Will this idea yield me any profits?

2. Start-up stage
Business at this stage is extremely risky and stressful, and many entrepreneurs pull out. The actual budget may
even exceed what was originally allocated. Challenges at the start-up stage include:
Raising money/seeking investments
Hiring staff
Managing expectations from sales and cash reserves
 Establishing customer base and market presence
Managing accounts

3. Growth stage
Companies that reach the growth stage have overcome the intense start-up stage and are now generating
revenue and growing their client base. While profits have increased, however, competition is catching up. But if you
really want to scale your business, you should focus first on fine-tuning your business model by identifying ways to
improve operational efficiencies and improve profitability before thinking of expanding through inculcating
methodologies such as sales and marketing models. Entrepreneurs looking to grow their businesses efficiently need to
start by analyzing their key profit/business drivers, then come up with strategies to grow these profit drivers with the
least costs. Challenges at the growth stage include:
How to deal with increasing customers and revenues
Streamlining operations
How to deal with the market competition
Increasing profit volume
Companies that partner with a professional employer organization (PEO) grow 7-9% faster.

4. Expansion stage
Characterized by a new season of growth and increasing distribution channels, businesses in the expansion stage
are faced with the need to gain a bigger market share as well as looking for ways to stream in new revenues and profit.
This stage calls for a streamlined plan and research before moving into new markets. Challenges at the expansion space
include:
The increasing market competition
Acquiring competitors
Addition of stock as well as services
Expansion of the already existing entity
Companies that partner with a PEO are 50% less likely to go out of business.

5. Maturity stage
When a company reaches the maturity stage, the idea that was just a thought is now dominating and has stable
profits thanks to the strategies you came up with during the four previous stages. This stage relies on a financial source
to help overcome the challenges and keep the business up on its booming record. Although maturity is the final business
growth stage, it isn't where you want your business to stay. Companies that languish in the maturity stage might still be
growing, but in a sluggish manner. If this is the case, you may need to go back to the drawing board to see how to get
your business back in the expansion stage, or think of an exit strategy. Here you need to go back to the drawing board
and think of an exit strategy. Here's what entrepreneurs whose companies are in the maturity stage are focused on:
How long the business can maintain and manage a negative cash flow
Expanding the business
If necessary, finding and executing an exit strategy

Entrepreneurship in the Philippines

The 1987 Philippine Constitution, Article XII, Section 1 states that “Entrepreneurship is an engine of economic
growth”. R.A. No. 9501 or the Magna Carta for Micro, Small and Medium Enterprises, Section 2 and R.A. No. 9178 or the
Barangay Micro Business Enterprise Act of 2002 provides the following:

Enterprise By asset size By number of employees

Micro Up to 3,000,000 pesos 1-9

Small 3,000,001-15,000,000 pesos 10-99

Medium 15,000,001-100,000,000 pesos 100-199

Large 100,000,001 and above 200 and above

 Micro, small and medium enterprises (MSMEs) are the backbone of the PHL’s economy since they serve as
critical drivers of our economic development, particularly in fostering growth, employment, and income. The
government, as it continues to put its economic plan in place is an indication of recognizing the importance of MSMEs in
our country. Armed with this mission, effective and efficient actions such as implementation of policy provisions is
essential to carry out the plans in addressing, sustaining and expanding the programs and services of the MSMEs which
will undoubtedly contribute to the country’s GDP and growing labor force.
With the renewed thrust of recognizing MSMEs as substantial contributor to our country’s economic growth and
employment, improved and innovative initiatives from the government have been crafted including convergence of
available development resources and coordination among stakeholders to ensure MSMEs’ sustainable growth and
accelerate the achievement of our country’s economic goals. Among the initiatives of the government is the DTI’s 7Ms
which aims to help Filipinos to set up their own business and be smarter entrepreneurs. With the planned projects in
attaining the seven-point strategy that includes Mindset, Mastery, Mentoring, Markets, Money, Machines, and Models
of Business, the Department of Trade and Industries hopes that these ways can make a difference in the market which
will consequently contribute to the larger cause of sustaining the Filipino entrepreneurship revolution (Department of
Trade and Industry, 2018b).

2019 MSME STATISTICS

A. Number of Establishments
The 2019 List of Establishments of the Philippine Statistics Authority (PSA) recorded a total of 1,000,506 business
enterprises operating in the country. Of these, 995,745 (99.5%) are MSMEs and 4,761 (0.5%) are large enterprises. Micro
enterprises constitute 89% (891,044) of total MSME establishments, followed by small enterprises at 10% (99,936) and
medium enterprises at 0.5% (4,765).

B. Sectoral Distribution
The top five (5) industry sectors according to the number of MSMEs in 2019 were: (1) Wholesale and Retail
Trade; Repair of Motor Vehicles and Motorcycles (462,492); (2) Accommodation and Food Service Activities (144,024);
(3) Manufacturing (115,387); (4) Other Service Activities (65,918); and (5) Financial and Insurance Activities (46,100).
These industries accounted for about 83.35% of the total number of MSME establishments.

C. Geographical Spread of MSMEs

Majority of the MSMEs can be found in the National Capital Region (NCR) with 202,011 (20.2%) business
establishments, Region 4-A (CALABARZON) with 148,017 (14.8%), Region 3 (Central Luzon) with 115,877 (11.6%), Region
7 (Central Visayas) with 70,227 (7%), and Region 6 (Western Visayas) with 61,513 (6.1%). These top five (5) locations
accounted for about 59.7% of the total number of MSME establishments in the country. Regional concentration of
MSMEs is largely associated with economic activity and population size.

D. Employment
Together, these MSMEs generated a total of 5,510,760 jobs or 62.4% of the country’s total employment. The
micro enterprises produced the biggest share (29.8%) closely followed by small enterprises (25.2%) while medium
enterprises were far behind at 7.4%. Meanwhile, large enterprises generated a total of 3,315,575 jobs or 37.6% of the
country’s overall employment.

In terms of regional distribution, majority of the jobs are generated by MSMEs in the National Capital Region
(NCR) with 1,538,106 jobs; followed by MSMEs in Region 4-A (CALABARZON) with 797,399; Region 3 (Central Luzon) with
586,508; Region 7 (Central Visayas), 431,056; and Region 6 (Western Visayas), 307,831.

By industry sector, MSMEs in the Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles sector
generated the most number of jobs with 1,984,227 followed by Accommodation and Food Service Activities (805,081),
Manufacturing (747,114), Financial and Insurance Activities (307,316), and Education (303,314).
E. Sales and Census Value-Added
In terms of value added, the MSME sector contributed 35.7% of the total with manufacturing contributing the
largest share of 6.87%. Wholesale and retail trade and repair contributed 6.58% followed by financial intermediation
with a share of 6%.

Within the sector, small enterprises accounted for the largest share of 20.5%. Medium enterprises followed with
a share of 10.3% while micro enterprises registered a share of 4.9%. Among small enterprises, wholesale and retail trade
and repair contributed the most with a share of 4.07% followed by manufacturing with a share of 3.82% while financial
intermediation was next with a share of 3.35%.

For medium enterprises, manufacturing accounted for the biggest share of 2.77% followed by electricity, gas
and water with a share of 1.92% and financial intermediation with 1.87%. For micro enterprises, wholesale and retail
trade and repair represented the largest contribution of 1.73%.

F. Exports Contribution of MSMEs

MSMEs account for 25% of the country’s total exports revenue. It is also estimated that 60% of all exporters in
the country belong to the MSME category. MSMEs are able to contribute in exports through subcontracting
arrangement with large firms, or as suppliers to exporting companies. (Data Source: Philippine Statistics Authority (PSA))

Planning and Implementation of SME Policy

The Small and Medium Enterprise Development Council (SMEDC) is the main organization that sets and
deliberates on small and medium enterprise policy. There are 8 council members representing government
organizations and 4 private sector representatives. The government representatives are the Directors General of NEDA
(National Economic Development Agency), DTI (Department of Trade and Industry), the Department of Science and
Technology, the Department of Agriculture, the Department of Environment and Natural Resources, as well as the
President of SBGFC (Small and Medium Business Guaranteed Finances Corporation) and the Chairman of the Central
Bank Financing Committee, while the private sector representatives are drawn from representatives of the Luzon,
Visayas, and Mindanao business world, and a representative from the private banking industry. This committee meets at
least once a month, and the Chairman is the DTI Director General, while the BSMED (Small and Medium Enterprise
Development Office) from the same Ministry serves as the secretariat.

The small and medium enterprise policy DTI SME Core Group include 1) Branch Small and Medium Enterprise
Development (BSMED) (small and medium enterprise policy and program planning and adjustment), 2) Small and
Medium Enterprise Guaranteed Funding Corporation (SBGFC) (financial services), 3) Philippine Trade Training Center
(PTTC) (small and medium enterprise research), 4) Philippine Product Development and Design Center of the Philippines
(PDDCP) (design development), and 5) Cottage Industry Technology Center (CITC) (research/use of facilities). In addition,
DTI related agencies that support small and medium enterprises include 1) Bureau of Product Standards, 2) Bureau of
Trade Regulations and Consumer Protection, 3) Bureau of Export Trade Promotion, 4) Bureau of Domestic Trade, 5)
Board of Investment, 6) Center for International Trade Expositions and Missions, and 7) Philippine International Trading
Corporation.

At the regional level, implementation of policies for the development of small and medium enterprises are
carried out by the DTI Regional Offices (16 offices) and Provincial Offices (79 offices). About 15 - 20 employees are in
each regional office of the DTI, but only about one third of these are involved with the development of small and
medium enterprises. These regional DTI offices operate under the auspices of the Regional Operation Group (ROG). In
addition, in 2004 there were 101 small and medium enterprise centers (SME Center) around the country. These SME
Centers were all established by the DTI after 1996. Most of them are set up inside the DTI regional offices, but some are
in the local Chamber of Commerce or Local Government Office. The role of these SME Centers is to provide information,
arrange seminars, etc., and offer business advice through SME counselors, but due to budgetary and human resource
limitations many of these areas are not functioning. In addition to this, the DTI in the end of the 1990s also set up seven
small and medium enterprise production centers (SME Production Center) for ceramics, marble, basket weaving,
furniture, etc., but of these, three were closed down due to funding difficulties, and the remaining four are not
functioning effectively. (Figure 4 shows the local level organizational chart of the DTI in relation to small and medium
enterprises.)

Financial Support for SME Policies

Regarding fiscal expenditures in connection with small and medium enterprise policy, no data has been
collected to show the scale of the budget. Taking the costs related to small and medium enterprise development from
the budgets of each of DTI, The Department of Science and Technology, the Department of Labor and Employment, the
Department of Agriculture, the Department of Environment, and Natural Resources, although some assumptions need
to be made, we can see that the DTI BSMED do not constitute all of the expenditure in this area. The DTI BSMED have a
staff of 35 people.

Other (SME Promotion Programs)

The following are Support Programs for Small & Medium Enterprises from Ministries other than DTI.
1) Department of Science and Technology (DOST)
・SME Technology Upgrading Program
・Technology Business Incubator Program
2) Department of Labor and Employment (DOLE) - National Wages and Productivity Commission
・Small and Medium Enterprise Manager Training
・SME Productivity Improvement Program
3) Department of Agriculture (DA)
・Agri-Business Marketing Support Service
4) Department of the Environment and Natural Resources (DENR)
・Environmental Regulations Clearance Program
5) Department of Internal Affairs and Local Government (DILG and Local Government and the LGUs)
・Maintenance of Business Environment for Regional SME, Skill Training.

In addition, the following government agencies are involved in the development of small and medium enterprises.

1) UP-ISSI (Institute for Small Scale Industries at the University of the Philippines) Providing Corporate Management and
Entrepreneurial Training programs in cooperation with the Small Enterprise Research and Development Foundation)
2) TLRC (Technology and Livelihood Resource Center) Providing Livelihood and Skill Training Course
3) DAP (Development Academy of the Philippines) Providing a Management Program for the Improvement of Business
Performance of Small and Medium Enterprises

Financing
(Loans)

The majority of government financial institution loans to small and medium enterprises are provided by the
Development Bank of Philippines (DBP), Land Bank of Philippines (LBP), and the Small Business Guarantee Finance
Corporation (SBGFC). The Philippine Development Bank offers wholesale loans to commercial banks (industrial finance
such as ISSEP, IGLF, etc.), and also offers policy based retail financing to small and medium enterprises such as it
“Industrial Pollution Control Loan Project” and “Female Entrepreneur Loan Program”. On the other hand, the Land Bank
services regional industry, and offers micro credit to farmers and fishermen.
The Small Business Guaranteed Finance Corporation (SBGFC) was established in January 1991 attached to the
Department of Trade and Industry, for the purpose of reducing the risk to financial institutions of loans to small and
medium enterprises. After this, it expanded the scope of its operations, and merged with the Guarantee Fund for Small
and Medium Enterprises (GFSME), and is currently known as the Small Business Corporation (SBC). The SBC 1) offers
wholesale loans to small and medium enterprises, 2) guarantees credit, 3) offers wholesale micro financing, and 4)
provides retail loans to small and medium enterprises. In 2006, it had 657.7 million peso in wholesale loans, 134.4
million peso in credit guarantees, and 673 million peso in micro financing.
 In addition, there is the SULONG (The SME Unified Lending Opportunities for National Growth) program, which
was developed by the Prime Minister in December 2002 for small and medium enterprise lending. This program
aggregates the strength of seven government financial institutions on the behalf of small and medium enterprises, and
its members are the Development Bank (DBP), Land Bank (LBP), SBC, Quedan & Rural Credit Guarantee Corporation
(QUEDANCOR), Philippine Export-Import Credit Agency (PHILEXIM), National Livelihood Support Fund (NLSF), and the
Social Security Fund (SSS). With these government financial institutions being united in this way, loan application
processes are simplified, and another feature is the fact that interest rates are the same, at 9% for short term, 11.25%
for mid term (less than 3 years), and 12.75% for long term (3 - 5 years) (these interest rates were as of June 2003). The
SULONG program, as long as it doesn’t go against prudential regulations, makes access to its system liberalized to offer
rural, thrift, and commercial banks government financial institutional wholesale loans and guarantee programs. Since it
began offering loans in 2004, up to 2007, this SULONG program has surpassed its loan target by more than 7.9%. It has
119.9 billion peso in loans, to 65,083 small and medium enterprises, employing 1.9 million people.

(Credit Guarantee System)

SBC provides a credit guarantee service to Philippine’s 45 financial institutions (20 commercial banks, 15 thrift
banks, and 10 rural banks). In 2002, it had provided credit guarantees for 42 loans, worth a total of 118 million peso.
However, this amount is only 17% of its annual target. Commercial banks make up 50% of these loans, followed by thrift
banks with 35% and the remaining 15% are from rural banks. Further, by 2006 the amount of guaranteed credit had
stayed steady at just around 134.4 million peso. It is believed that the lack of advertising of the credit guarantee system,
together with the low level of understanding of small and medium enterprise entrepreneurs are a reason for this poor
performance.

(Capital Access through Share Issue)

The market to offer funds to small and medium enterprises by share issues through venture capital or unquoted
shares etc. is undeveloped at this point. In 2000, an SME board was added to the Philippine Stock Exchange, but a
variety of problems has severely restricted the number of listed companies.

Tax System
Tax incentives for small and medium enterprises are restricted to the tax exemption for companies registered as
Barangay Micro Business Enterprises under the Barangay Micro Business Enterprise Act of 2002 (RA9178). Also, regional
governments are encouraged to exempt Barangay Micro Business Enterprises from regional tax and fees.
In addition to this, there are some tax incentives for the export industry, investment in special economic zones
or underdeveloped regions, or investment in priority fields through an investment priority plan, but these are not limited
to small and medium enterprises.

Provision of Information, Human Resource Training, Environment, Consulting, Advice, etc.

In 1996, technical support from the Netherlands helped establish the University of Philippines - Institute for
Small-Scale Industries (UP-ISSI), which provides training programs for managers, supervisors, and technical staff to
strengthen the management ability of small and medium enterprise entrepreneurs. This Institute also offers programs of
capacity building to trainers, regular staff, consultants, and bank staff from the financial institutions and NGO that
support the small and medium enterprise sector. In 2006, the Institute had 24 regular training programs and 59 special
training programs, and had trained 2,147 people. With APEC, a qualification authorization system is being established to
be accepted throughout APEC countries as SME counselors, including with CIDA from Canada.
In conjunction with UP-ISSI, the Department of Trade and Industry BSMED is creating teaching materials to
develop the abilities of SME counselors that offer management advice to micro, small and medium enterprises in
regional areas, and is also creating manuals for business counselors, as well as providing training beginning with centers
in priority areas. Also, from 2007 JICA have begun to offer support with a view to establishing a small and medium
enterprise diagnosis system, and Japanese consultants are strengthening the SME centers and training SME counselors.
The National Wage and Productivity Commission (NWPC), under the auspices of the Department of Labor and
Employment, is also providing training and consulting to improve the productivity of small and medium enterprise
entrepreneurs, managers, supervisors, and employees.

Support for Obtaining Management Resources for Existing Small & Medium Enterprises
 In order to support the strengthening of productivity and competitiveness of small and medium enterprises to
lead to technological innovations, the Department of Science and Technology have implemented a program known as
SET-UP: Small Enterprise Technology Upgrading Program. The aim is to provide support for technology development and
transfers to help resolve issues facing small and medium enterprises such as improvements in quality, personnel
training, production cost reduction, and waste treatment, etc. Also, the PTTC (Philippine Trade Training Center) is
conducting research into IT, obtaining ISO certification, and HACCP (food safety).
New Business/Venture Support
(Franchise Program)
PITC (Philippine International Trade Corporation) are in charge of programs to support the start up of businesses
through introducing investors looking to invest in Philippine businesses, especially people from the Philippines that have
worked overseas, to franchise opportunities (especially restaurants).

(Developing Venture Capital)

The government implemented a venture capital system in the 1970s based on the US Small Business Investment
Companies Program, which was established to find venture capital from commercial banks and investment businesses,
but there haven’t yet been any success stories arising from this program. Understanding the importance of venture
capital at the seed capital stage, the “Small and Medium Enterprise Development Plan 2004 - 2010” made it one of its
strategies to establish a venture capital fund for small and medium enterprises. The government is investigating the
possibility of directly supplying seed money into a venture capital fund, and offering tax exemptions or loan guarantees
(against seed capital or losses), and thereby participating in the private sector for capital. The same plan also
investigated the establishment of a government fund to assist in the setting up of new businesses. The government
continues to investigate the establishment of preferential tax treatment while also tackling the simplification of the
approval process for the complicated venture capital fund approvals.

(Maintaining a Stock Market for Ventures)

Since the small and medium enterprise board was established in the Philippine Stock Exchange in 2000, only two
companies had listed as of 2004. The standards for small and medium enterprises to be listed are ① authorized capital
of between 20 and 100 million peso, ② paid in capital of at least 25% of authorized capital, ③ at least one year of net
operating profits, and ④ stock issued of at least 20% of authorized capital, etc.
Problems include 1) most small and medium enterprises do not understand the merits/demerits of listing, 2)
many don’t know of the existence of the small and medium enterprise board at the stock exchange, 3) there are not
enough consultants that recommend listing, and 4) there are no success stories from small and medium enterprises that
have listed, etc.

Promotion of Fair Dealing and Maintenance of Markets for SMEs

As a matter of policy, the government is in a position where it interferes as little as possible in private sector
business activities, but the government is operating under the framework of social responsibility in encouraging private
businesses through relevant authorities to take initiative and operate more efficient businesses. The following laws are
aimed at creating a competitive environment by making sure of a level playing field for businesses.
1) The Fair Trading Act sets out the boundaries to protect business activities and also the interests of consumers.
2) The liberalization of retailing (Republic Law RA8762) abolished the Republic Law RA 1180, whereby retail activities
were limited to businesses that were wholly owned by Philippine businesses or individuals. Under the Republic Law RA
8762, while there are a few restrictions, foreigners are now able to open retail businesses. This is expected to lead to a
more efficient and competitive retail sector.
3) Under the Republic Act RA6977 (Amended by RA8289), registered small businesses were granted the right to a 10%
share in all government procurement and services. The Alternative Dispute Resolution Directive of 2004 encourages the
use of agents, conciliation, and mediation to resolve disputes, instead of the prolonged, money wasting litigation.

Regional SME Policies

1) One Town, One Product Movement
In her inaugural speech in June 2004, President Arroyo announced her “10 Point Agenda”, and the first point of
this agenda was a plan to increase loans to small and medium enterprises by three times, and to develop 1 - 2 million
hectares of farm land to develop an agri-business industry that would employ 6 - 10 million people within 6 years. In
order to accomplish this directive, in December 2004 the “OTOP: One Town One Product” movement was developed.
The main areas of support were to be in 1) product development and design, 2) training in skills and business start-up, 3)
marketing support, and 4) implementation of appropriate technologies, and the government has come together at both
the national and regional levels to support the combining of small and medium enterprises and foreign workers into the
OTOP movement. The basic process for the OTOP program is 1) select a product or service, 2) obtain the necessary funds
for production, 3) add a local brand, 4) sell the selected product nationally, or export the product.
The following government organizations are involved in this movement. 1) Local governments, 2) DTI Regional
Branch Offices, 3) PTTC: Philippine Trade Training Center (human resource training, business start-up training), 4)
Cottage Industry technology Center (skill training), 5) Technical Education and Skills Development Authority (skill
training), 6) DTI Bureau of Export Trade Promotion (marketing), 7) DTI Bureau of Domestic Trade (marketing), 8)
Department of Tourism (marketing), 9) Product Development and Design Center of the Philippines (product
development), and 10) Department of Science and Technology (product development).

2) Trade Fairs and Domestic Caravan

DTI opens sample domestic fairs for regional small and medium enterprises. These are typically opened together
with training seminars for small and medium enterprise entrepreneurs, and design advice etc. The domestic caravan is a
seminar program aimed at increasing the competitiveness of small and medium enterprises, and is being held in regions
all around the country.

3) Other
Under the 1991 Local Government Code, some government functions shifted to the regional governments. One
of these is industry development, although the main activities that moved to the regional governments include roads,
education, and health care infrastructure reform.

Supporting the Internationalization of Small & Medium Enterprises

The DTI Bureau of Export Trade Promotion has 1) trade information support group, 2) market strategy consulting
group, and 3) product survey/strategy group, and each of these groups provide information to foreign markets and
buyers and provide advice on export strategies and market strategies. The Bureau has established an online trade
information system (http://tradelinephil.dti.gov.ph), which has a directory of exporters and profiles and other
information about products and markets. Large enterprises are also able to make use of the services of the Bureau of
Export Trade Promotion, but small and medium enterprises make up about 99% of their work.
The Philippine International Trading Corporation offers consulting and services to improve the international
competitiveness of Philippine products (particularly products of small and medium enterprises). They offer information
to Philippine manufacturers about raw materials, and also offer support about export procedures and exporting specific
products. Also, the Philippine Trade Training Center (PTTC) offers training and seminars for small and medium enterprise
exporters about export management, product quality and productivity, environmental management, food safety, e-
business, and e-commerce, etc., and also offer support to exhibitors at overseas trade fairs etc.
Further, the Center for International Trade Expositions and Missions (CTEM) develops and participates in
domestic and international trade fairs, with a mission to promote the export of Philippine products, including assisting in
the development of Philippine brands and designs.

Employment/Labor Policies for SMEs

Under the Barangay Micro Business Enterprise Act of 2002 (RA9178), businesses registered as Barangay micro
enterprises receive special dispensations for minimum wage regulations

Support for SME Organizations and Networks

The Philippine Chamber of Commerce and Industry (PCCI) has a SME Committee, with a Vice Chairman in charge
of small and medium enterprises. The current Vice Chairman is Mr. F.R. Floro, who has more than 30 years experience
working with the development of small and medium enterprises, and he is also a member of the Small and Medium
Enterprises Committee. The PCCI has about 1,000 full members and about 20,000 affiliate members. However, about
half of these are small and medium enterprises. The role of the PCCI for small and medium enterprises is to lobby the
government for reforms in the business environment, and to effect policy and the development of laws.
Development Policies for Small Scale Enterprises
The Barangay Micro Business Enterprise Act of 2002 (RA9178) is an example of a small scale enterprise measure.
The aim of this law is to reduce poverty and perform rural development, and to support micro enterprises in the
informal sector (temporary exemptions for business income tax, special dispensations against minimum wage
regulations, government agency loans, technical assistance from government organizations, etc.).

Safety Net
Under the Small Business Charter (RA6977, amended by RA8289), the Small and Medium Enterprise
Development Committee can take preventative measures against bankruptcy through the foundation of a mutual aid
system for destitute companies, and also has the authority to take measures such as in relation to insurance in the case
of serious disasters. Also, this committee has the authority to direct government agencies in their interaction with small
and medium enterprises in relation to offering tax exemptions of tax incentives in accordance with the Omnibus
Investment Act or other laws.

Other
The following foreign organizations are assisting in the development of small and medium enterprises in
Philippines.
1) Japan
① JBIC Two Step Loan for Small and Medium Enterprises, in conjunction with the Philippine Development Bank The two
programs of the ASEAN-Japan Development Fund (AJDF) and the Industrial & Support Services Expansion Program
(ISSEP) provide fixed capital in a country for a long period of time, when supply of funds is difficult, and they also 1)
provide development and training for small and medium scale enterprises, especially in the manufacturing industry, and
2) improve funding ability for small and medium enterprises of private sector financial institutions. More specifically,
they receive introductions from the Philippine Development Bank (PDB), and invest in small and medium enterprise end
users through Participating Financial Institutions (PFIs), in a two step loan system. The AJDF had lent about 30.084 billion
yen in 1991, and ISSEP lent 22.5 billion yen in 1994.
② JICA’s Philippine Small and Medium Enterprise Development Planning Support Program A master plan survey was
carried out between January 2003 and March 2004. This report was the basis for the Philippine Small and Medium
Enterprise Development Plan 2004 - 2010.
③ JICA DTI-SME Counselor Resource Training Project (Implementation of a Small and Medium Enterprise Diagnostic
System) Providing training for about 65 SME counselors in 5 SME centers. Offering assistance from January 2007 to
December 2009.

2) GTZ (German Technology Cooperative Enterprise)

① Under a tie-up with TESDA (Technical Education and Skills Development Authority) under the Department of Labor
and Employment, a “Double Education Promotion Program” was created in 1966, to promote and train skilled workers.
A training facility was purchased for 7 million dollars.
② Private Sector Development Program Offering a small and medium enterprise and business development service
(BDS) worth 5 million dollars since 2004. In joint venture with the Philippine Chamber of Commerce.
③ GTZ-SMEDSEP (Program for Small and Medium Enterprise Development by GTZ for Continuous Employment)
Participates with UP-ISSI and rural and thrift banks providing loans to small and medium enterprises to provide training,
with a goal of further promoting financing for small and medium enterprises. Cooperative agreement signed in June
2007. Mainly to offer guidance in relation to the transfer from collateral based loans to information based loans. Also, in
addition to the German Development Bank (KfW) offering wholesale funds for small and medium enterprises to SBC,
they are also providing micro financing for micro enterprises.

3) CIDA (Canadian International Development Agency)

① Private Enterprise Accelerated Resources Linkage (PEARL)
② Promoting Participation in Sustainable Enterprises (PPSE) Technological leadership and consulting services are the
main focus. CIDA is placing its emphasis on supporting micro enterprises in Mindanao and Visayas.

4) Asian Development Bank (ADB)

 Using a Japanese Special Fund, in 2003 the ADB provided technological support (400,000 dollars) for the
promotion of Philippine small and medium enterprise funding. This mainly involved the review of 1) Prudential
regulations of the central bank for loans to small and medium enterprises, 2) Small Business Charter, 3) business
development service necessary for small and medium enterprises, and 4) organization and management of government
financial institutions. The 2004 SULONG program was one of the fruits of this support.

5) Other
US: Together with its anti-terrorism campaign, USAID joined with the Mindanao Chamber of Commerce to implement a
regional business development project to promote the development of the Mindanao economy. The Davao Business
Center, run by the Davao Chamber of Commerce is one of the fruits of this work.

Financial Issues
Under the SULONG program, which was implemented in 2003 to expand funding available to small and medium
enterprises from participating government financial institutions, such reforms as borrowing procedures and evaluation
standards, uniform interest rates, etc. have been implemented, but many loan evaluations are still based on a collateral
system, and such areas as project profitability and personal credit are not being given due importance.
In addition to the government financial institutions, the major national financial institutions generally leave loan
evaluation decisions to the evaluation department at the head office, and the protracted nature of these evaluations are
one of the reasons why customers miss payments and investment opportunities, and is a reason why small and medium
enterprises hesitate to borrow from banks. Also, since the fund base of SBGFC is small, the loan and credit guarantee
system for small and medium enterprises is not operating effectively, and therefore the issues surrounding obtaining
funds for small and medium enterprises have still not been resolved. Direct investment in small and medium enterprises
is also not developed, and in the future some effort will need to be made to activating the SME board in the Stock
market.
With regard to the requirement under the “Small Business Charter” for private sector financial institutions to
provide a certain level of funding to small and medium enterprises (must provide 6 % of their net loan portfolio to small
businesses and 2% to medium businesses), currently (on a total loan basis), the requirements are being exceeded by a
large degree. According to SBC, as of March 2002, 15.3% of lending from commercial banks was to small businesses, and
9.8% to medium enterprises. However, the Asian Development Bank (Technical Assistance, December 2002) has stated
that “the validity of this proportion of lending at each financial institution is questionable”. This is because this
requirement affects the ability of the banks to determine loans on the basis of risk evaluations, which has the effect of
degrading the quality of the bank’s loan portfolio, which is a barrier to the flow of funds to small and medium
enterprises. Also, since it is problematic for small scale thrift and rural banks to lend to small and medium enterprises
that are not their regular customers, they are not able to accomplish their responsibilities with regard to lending, which
means that they must pay fines to the central bank, and these fines are then passed on as operating costs. All of this
means that the “Small Business Charter” requires re-evaluation.
Banks react negatively regarding loan applications from small and medium enterprises that lack a clear business
plan or appropriate financial statements. Because the risk of lending to customers such as those is high, this increases
the cost of financing such a loan, while it has no effect on increasing the ability of small and medium enterprises to
obtain funding. Also, with the increased likelihood of the entry of the Business Development Service (BDS) nationally,
this should have a large effect on reforming the access of small and medium enterprises to funding. On this point, a
support system between the providers of business development services and bank loan managers is essential. Also, the
lack of credit records is another preventative factor for small and medium enterprise financing. The SBC, who provide
credit guarantees, need to construct a credit information system that is available to all banks, based on any credit
information that can be obtained for small and medium enterprises.

Management Issues
Many businesses start with private individuals or families, and naturally the management activities are left to
the family. Also, based on the condition of financial statements, many of these companies have fallen into
underdeveloped management practices. Management consulting and seminars are good to help modernize
management or technology, but based on the restrictions of its budget and employees, the organization that should be
accomplishing this regionally, the SME Center, are not effectively providing leadership in management or technology.
Currently Japan is supporting in the establishment of a small and medium enterprise diagnostic system and in the
training of counselor at the SME Center, and the results of these efforts will be interesting in the future.

Statistical Issues
The collection and of basic statistical information and the analysis of the needs of small and medium enterprises,
which should form the basis for policy decisions regarding small and medium enterprises are inadequate. Statistics
about places of work in the Philippines are collected by the NSO (National Statistics Office), which conducts
① 5 yearly CPBI (Census of the Philippines Business and Industry) censuses,
② annual ASPBI (Annual Survey of the Philippines Business and Industry), and
③ quarterly QSPBI (Quarterly Survey of the Philippines Business and Industry).
The most recent census figures (1999 data) are from 2000. The NSO announced in 2006 that it will send out
questionnaires in May 2007 for another census. The 2006 census should clarify the latest economic and business
information which will be useful for policy planning and market strategy decisions. However, since it appears that the
NSO census data is taking 5 years to be released, it will be difficult to use any of this in policy. In addition to the NSO, the
following organizations also release business and office statistics.
① SEC (Stock Exchange Commission) Data Businesses (including partnership), branches, liaison offices, and NPO
must register with the SEC, and this data can be used.
② DTI Provincial Office Data Private companies must register a Business Name for their Provincial Office with
the DTI, and this registration data can be used.
③ Local Government Data All Business Offices must register with the Local Government in order to obtain a
Business License, and this data can be used.
Of these data, the NSO business statistics, and the Regional Government Business License Database are
considered the most reliable. However, these databases do not contain information about businesses that have become
bankrupt, or that have stopped business activity, and this is a problem. The BSMED in the DTI use the DTIs Business
Name Registration Database. This has the broadest coverage, but is only renewed about every 5 years. Also, for the
formulation of policy proposals, the BSMED has an original database of small and medium enterprises. As of January
2008, this covered 12,000 companies, and is expected to be increased to cover about 80,000 in the future.

Issues for Implementation of Small & Medium Enterprise Policies

① Although various measures, systems, and organizations have been prepared for the development of small and
medium enterprises, the basic problems of lack of budget and lack of staff still exist. Because of this, and since the scope
and depth of programs is limited, many programs end without satisfactory results. Even though there are several
government organizations providing business development services (BDS) for the development of small and medium
enterprises, problems still exist such as 1) there are insufficient funds, and the amount of funds per case is too small, 2)
support activities are duplicated, and 3) the speed of implementation is too slow. If the budgetary and staffing problems
cannot easily be fixed, it is vital to reorganize and consolidate services and select and concentrate on strategic fields.
② Appropriate Training for Staff and Counselors dealing with Small & Medium Enterprises.
③ Support services are concentrated in metropolitan areas. These must be disseminated into the regions. Also,
regional government systems to assist in the development of small and medium enterprises are inadequate. There
should be a shift from centralized to decentralized authority.
④ A government agency such as a Department of Small and Medium Enterprises should be established to completely
and expertly plan, manage, implement and monitor policies for small and medium enterprises. Currently the SMED
Council oversees the adjustment and implementation of policies, and adjustments inside the DTI are carried out by the
SME core group. However, although both have an office, they are more ad hoc organizations than independent and
permanent organizations with their own staff.
 HOW TO REGISTER A BUSINESS IN THE PHILIPPINES: THE ULTIMATE GUIDE
Miguel Antonio Dar II, CPA
Last Updated on 05/20/2021 by FilipiKnow

What are the benefi ts of registering your business  in the Philippines?
1. Tax Returns are proof of income.
These are documents that certify your ability to pay. If you have applied for a loan, a credit card, or rented a
condominium, you may have encountered this type of document. Tax returns are a great way to say that you are earning
regularly and are capable of paying your obligations. 
2. Secures reputati on as a legiti mate business.
When dealing with other businesses or big clients, it is almost mandatory to provide a certificate of registration. This will
allow you and other businesses to determine whether the other party is a legitimate business and is not just a scam. 
3. Hassle-free transacti on with other legiti mate businesses.
If you ever dealt with ‘colorum’ businesses, you know how much of a hassle that is. The tax code requires businesses to
list all their suppliers and compile all receipts pertaining to their transactions in order to claim business expenses 2. If you
are not registered, you cannot issue valid receipts and in turn, this will jeopardize your customer’s ability to claim their
payments as a valid expense. This is one of the reasons why some businesses avoid dealing with unregistered suppliers. 
4. Low-interest loans and other government benefi ts.
For all businesses: 
The government provides free seminars for registered businesses as long as they provide the required documents. For
example, the BIR gives free tax briefing for new registrants to allow them to know all their responsibilities as a business
owner. The DTI also provides free seminars, like this, which allow business owners to learn from other successful
entrepreneurs on what to do, where to get suppliers, when to expand, etc. The DTI also provides free services like logo
making, branding, and consultations with professionals. 
For BMBEs3: 
BMBE qualified businesses that are also employers are exempted from the Minimum Wage Law. This means that they
can legally pay their employees a lower amount allowed by law. However, it is still required that the BMBE shall pay a
reasonable amount to its employees and provide them with social security benefits (SSS and PAG-IBIG) and mandatory
healthcare (PhilHealth). 
5. Avoid unnecessary penalti es and avoid the risk of getti ng jail ti me.
Failure to register your business and timely filing of your tax returns are considered crimes. Yes, if you neglect your
responsibilities as a taxpayer, you may risk getting imprisoned. This is the most common form of tax evasion and is
punishable by a fine of between Php 5,000 and Php 20,000, and up to 2 years in jail. Fortunately, the BIR has made a
compromise that the taxpayer has the option to just pay a specified amount instead of being imprisoned. Needless to
say, the amount will make a dent in your pockets. 
Who are exempt from registering their business?
1. Those who are earning income exclusively from an employer-employee relationship (Salaries or Wages);
2. Those who are earning exclusively from passive income (i.e. Pensions, Dividends from Domestic Corporations,
Interests from Bank Deposits, etc.);
3. Those who are employees but at the same time earning passive income; and
4. Those who are not earning any income from any source.
 
HOW TO REGISTER YOUR BUSINESS IN THE PHILIPPINES:
Step 1: Choose your business structure.
A. Sole Proprietorship (Self-employed Individuals/Professionals).
This shall include all businesses owned by only one person, including freelancers and professionals. If you are planning to
sell home-made food, clothes, medical paraphernalia, or want to raise money from digital advertising by blogging and
vlogging, registering as a sole proprietor is beneficial because it usually has lower taxes and fewer regulations to comply
with. However, a sole proprietorship does not distinguish its owner from the business, i.e. any transaction made by the
business reflects on the owner of the business. So if you have excess liabilities in your business, your creditors can sell
your personal belongings to compensate. 

B. Corporati ons and Partnerships.

Any business with more than one owner belongs to this group. The main benefit of creating a corporation or a
partnership is that the business can have more funds to operate and expand since there is more than 1 investor. This will
also make business management more flexible since you and your co-owners can share responsibilities based on your
strengths. However, the catch is that corporations and partnerships are heavily regulated and are taxed more than
sole proprietors. They are generally taxed at a regular income tax rate of 30 percent and any transfer of wealth from the
corporation/partnership to its owners is also taxed at a dividend rate of 10 percent. They also have additional operating
requirements, and different attachments when filing their returns. 

Choosing the best business structure for you.

Determining which business structure works for you depends on your intention, ability to be compliant with different
regulations, risk appetite, and your capacity to produce capital for your business. 
1. Sole proprietorship/Self-employed professional – these are for people who want an easy way to own a
business without worrying too much about highly technical laws. If you have the capital to set up and run a business,
this is the best business structure for you. 
2. One-person Corporation – these are for people who want the prestige of owning a corporation with the benefit
of becoming the only one responsible for decision-making while also securing your personal assets from
creditors. Related: What is the difference between a one-person corporation and sole proprietorship?
3. Domestic Corporation – these are for people who want to create a large-scale enterprise since this business
structure enables them to have more than 5 investors. Every industry leader creates a domestic corporation that
allows them to gather more capital for expansion purposes. 
4. General Partnership – If you cannot create a business on your own due to lack of capital but also do not want
the added responsibility of a corporation, then this may be the best business structure for you. This will allow the
owners to gather more capital by inviting more partners into the business while limiting the number of requirements
when dealing with government agencies. Keep in mind that taxation is the same for all corporations and
partnerships. 
5. Others – there are other business structures available for new registrants like General Professional Partnerships,
Resident Foreign Corporations, and Cooperatives. However, their taxation and management are almost the same as
the other four. 
 
Step 2: Register your business name and/or corporate name.
A. DTI (For Self-employed individuals) .
Applying for a business name is required for all business owners that wish to use names other than their birth name for
their business. Businesses, by default, must be named after the owner (e.g. Juan Dela Cruz), so if you want to name your
business “Aling Dolly’s Online Shop”, then you are required to apply for business name registration with the DTI.
However, you may skip this step if you are a freelancer or a professional, whose income solely comes from providing
services.
B. SEC (For Corporati ons and Partnerships) .
Business name registration is different for corporations and partnerships. Instead of DTI, you have to do the registration
with the Securities and Exchange Commission or SEC. For more information about SEC business name registration, click
here.
 
Step 3: Apply for a certi fi cate of registrati on with the BIR .
All businesses are required to register with the BIR. This will allow taxpayers to pay their tax dues and enjoy the benefits
of a legit business. The general process to register is as follows:
1. Accomplish BIR Form 1901 for sole proprietors or BIR Form 1903 for corporations/partnerships;
2. Submit the filled-out forms together with the requirements to the RDO where your business is located;
3. Pay the corresponding registration fee; and
4. Claim the Certificate of Registration on the scheduled date.  
Read More: How to Register Business with BIR: An Ultimate Guide

Step 4: Apply for a business permit .

It is best practice to secure a business permit from the Local Government Unit (LGU) governing the city where your
business is situated before starting your business. 
To apply for a business permit/mayor’s permit, you must:
1. Secure all documents as required by your LGU;
2. Have your location assessed by the local fire department;
3. Pay the corresponding assessment fees; and 
4. Claim the mayor’s permit on the scheduled date. 
Learn More: How to Get Business Permit in the Philippines: An Ultimate Guide
 
Additi onal requirements if you have employees.
Any business with employees must register with the DOLE, SSS, PhilHealth, and PagIBIG.
Fortunately, the whole process may be done in Philippine Business Registry (PBR) kiosks which are available in selected
DTI and SEC offices. Meaning, if the kiosks are available, you may register all these employer IDs in one setting. 
Steps:
1. Accomplish PBR Form;
2. Submit to the DTI Teller together with 1 photocopy of SEC Certificate (if applicable). Bring the original copy for
verification;
3. Pay the corresponding fee; and 
4. Claim Employer Registry Numbers (SSS, PhilHealth, and PagIBIG).
 
Other Government Licenses.
Some businesses are required to secure special licenses from the government. This allows the government to keep track
and regulate the products/services that these businesses are selling to the market. 
1. Food and Drug Administration (FDA) – when involved in the manufacture, importation, exportation, sale,
offering for sale, distribution, transfer, promotion, advertisement and/or sponsorship of the following products in the
Philippines:
1. Drugs;
2. Pharmaceuticals;
3. Medical devices;
4. Cosmetics;
5. Processed Food;
6. Toys;
7. Child care articles;
8. Veterinary products; and
9. Household/urban pesticides.
2. Bangko Sentral ng Pilipinas (BSP) – when dealing with finance companies like banks, pawnshops, and money
service businesses. 
3. Securities and Exchange Commission (SEC) – when dealing with investment companies.
 
What are the penalti es if I did not register my business?

Based on RMO 7-2015 (For All Businesses)

Failure to Register 20,000

 1,000 to
Failure to keep/preserve records required by law or regulations
50,000

Failure to have books of accounts audited and have the financial statements attached to the income tax 3,000 to
return certified by an independent CPA duly accredited by the BIR 25,000

Failure to make, file, or submit the complete quarterly Summary Lists of Sales and Purchases-Local &
Imported (SLSP), the Annual Alpha List of Payees and/or Employees subjected to withholding taxes, or 1,000 to
supply correct and accurate information therein at the time or times required by the Tax Code, as amended, 25,000
or other existing rules and regulations

1,000 to
Failure to submit any other attachments required by law
25,000

1,000 to
Failure to submit tax returns on time
25,000

1,000 to
Failure to withhold or remit withheld taxes at the time required by law or regulations
25,000

Failure or refusal to issue receipts or sales or commercial invoices; issuing receipts invoices not truly 10,000 to
reflecting and/or containing all information required therein or using multiple or double receipts or invoices 50,000

Based on SEC Scale of Fines series of 2005 (For Corporations Only)

500 to
Late filing of General Information sheets and Audited FS
5,000

1000 to
Non-filing of GIS and AFS
10,000

500 to
Material Deficiency of AFS
4,000

Late Filing of Stock and Transfer Books 2000

 
How much is the total cost of business registrati on in the Philippines?
For Sole Proprietors.

DTI: In Pesos

Registration of Business Name 200.00

Documentary Stamp Tax 30.00

GCASH Transaction Fee 10.00

LGU:  
 Business Permit Fees -including sanitary and fire license 5,000.00

BIR:  

Annual Registration Fee 500.00

Documentary Stamp Tax 30.00

Registration of Books of Accounts 800.00

Sales Invoice/Official Receipts (BPI/BPR) 30.00

Total Estimated Cost of Registration 6,600

Note: 
1. For Professionals and Non-Licensed Professionals, you may skip the DTI Registration and secure a Professional
Tax Receipt (for licensed) or an Occupational Tax Receipt (for non-licensed) from your City Hall. 
2. The business permit fee may vary depending on your LGU. 
For Partnerships.

Articles of Partnership 2,000

Legal Research Fee (1% of Articles Fee) 20

Name Registration 100

Documentary Stamp Tax on registration 30

Application with LGU

Estimated Application Fee (all permits) 5,000

Application with BIR

Registration Fee 500

Sales Invoices 30

Documentary Stamp Tax 30

Books of accounts 1,000

Total Estimated Cost of Registration 8,980

For One Person Corporati ons.

Filing Fee (1/500 of authorized capital) 2,000

Legal Research Fee (1% of Filing Fee) 20

 Name Registration 100

Documentary Stamp Tax on registration 30

DST on original issuance of shares (1% of issued) 5,000

Application with LGU

Estimated Application Fee (all permits) 5,000

Application with BIR

Registration Fee 500

Sales Invoices 30

Documentary Stamp Tax 30

Books of accounts 1,000

Total Estimated Cost of Registration 13,710

The amounts are be based on the following:
1. Authorized Capital of Php 1,000,000.
2. Estimated shares to be issued once you invested cash and inventory – 500,000.
3. Application fee of LGUs shall include all necessary permits (e.g. Fire fee, sanitary, etc.) 
4. DST on original issuance will be charged once the shares are actually received by the shareholder/s. 
For Corporati ons.
It shall be computed as the total cost of registration of OPC plus registration of By-Laws and Registration of stock worth
Php 1000 and Php 150, respectively, which brings the estimated cost of registering domestic corporations to Php 14,860.
 
How long does it take for me to register my Philippine business?
 Sole Proprietor – DTI and BIR Registration may be done within 1 to 2 business days; LGU Registration may take
up to 6 weeks. 
 Corporations and Partnerships – SEC registration may take 1 to 10 business days while BIR Registration may be
done within 1 to 2 business days; LGU Registration may take up to 8 weeks.
 
How to Start Your Business Right.
Starting your business right is just as important as having your business registered. Understanding your duties and
responsibilities is essential for minimizing penalties and ensuring the continuity of operations.
1. Understanding obligati ons of a business owner.
a. Renewal of permits.
 Annual Registration Fee – paid annually to the BIR using BIR Form 0605 
 Employer’s Number (SSS, PhilHealth, PagIBIG) – these do not expire, however, you are required to update your
information if the business changed ownership, place of business or created a new branch. 
  Business Permits – Mayor’s Permit and the supplementary licenses given by the LGU are likewise renewed
annually. These are paid together with the local business tax. 
 Official Receipts/Sales Invoices – The authority to use the BIR printed receipts (BPR/BPI) expires after a year
while Principal Receipts/Invoices printed by authorized printers expires after 5 years. 
b. Employer’s Responsibilities.
 Pay salaries/wages on time;
 Provide benefits to employees;
 Pay overtime;
 Pay night shift differential when total employees exceed 5 persons; and
 Others as required by law and regulations. 
 2. Understanding tax returns.
 Income Tax – this is filed using BIR Form 1701 series for sole proprietors or BIR Form 1702 series for
corporations/partnerships. 
 Other Percentage Tax – This is filed using BIR Form 2551Q by businesses who are not subject to VAT and did not
avail of the 8% preferential rate. 
 Value-Added Tax – This is filed using the BIR Form 2550 series by businesses who are mandated to pay VAT. 
 Expanded Withholding Tax – This is filed using BIR Form 0619 series and the 1601 series by businesses who are
required to withhold taxes i.e. Corporations, Top Withholding Agents, Online Sellers, etc. 
 Local Business Tax – This is a requirement for renewing your City Hall business license. The rate depends on
your municipality. 
3. Basic computati on of taxes.
Tax dues are now automatically calculated when using eBIR Forms and eFPS. However, it’s still important to know what
amounts belong to each component, since failure to include or exclude certain items may be subject to severe penalties.
These are the main components used in all tax returns: 
 Gross Sales – This shall include all earnings for the period without any deductions aside from sales discounts and
sales returns. 
 Gross Receipts – This shall include all cash receipts for the period without any deductions. 
 Non-operating income – This shall include gains from sale of properties that are not considered as inventory.
(i.e. Sale of Land, Dividend Income from Foreign Corporations etc.)
 Net Purchases – This shall include all purchased inventory for the period. This is particularly important for VAT
taxpayers. 
 Cost of Goods Sold – This is the cost of goods sold for the period. 
 Gross Income – This is computed as Gross Sales plus non-operating income less cost of goods sold. 
 Itemized Deductions – These are the only business expenses allowed by the BIR to be deducted from the Gross
Income.  
 Taxable Income – This is computed as Gross Income less Itemized Deductions. This is generally the tax basis for
income tax. 
4.  File tax returns on ti me.
The following is a summary of the deadlines for businesses using the calendar year:

Tax Type BIR Form to be used Deadline

Income Tax – Sole Proprietor BIR Form 1701Q May 15 (1st QTR)

  BIR Form 1701Q August 15 (2nd QTR)

  BIR Form 1701Q November 15 (3rd QTR)

BIR Form 1701 or BIR Form

  April 15 of the following year (4th QTR)
1701A 

Income Tax – Corporations

BIR Form 1702Q May 15 (1st QTR)
(Calendar Year)

  BIR Form 1702Q August 15 (2nd QTR)

  BIR Form 1702Q November 15 (3rd QTR)

 BIR Form 1702RT or
  April 15 of the following year (4th QTR)
1702EX

Quarterly – On or before the 25th following the

Other Percentage Tax BIR Form 2551Q
end of the quarter

Monthly – On or before the 20th of the following

Value Added Tax BIR Form 2550M
month

Quarterly – On or before the 25th following the

  BIR Form 2550Q
end of the quarter

Monthly – 10th day of the month following the

Expanded Withholding Tax BIR Form 0619E or 0619F
payment 

BIR Form 1601EQ or

  Quarterly – On or before the end of the quarter.
1601FQ

Annually – On or before January 20 of the following

Local Business Tax  
year

5. Keeping your books of accounts.

According to the tax code 4, all businesses are required to record their transactions using registered books of accounts.
This enables the company to complete account information returns to be attached to its tax returns and helps certified
public accountants to create the audited financial statements required by the SEC and BIR. 
6. Att achments.
One of the most common mistakes by new businesses is that they do not attach the required documents to their tax
returns and they are surprised when they receive letter notices since they didn’t even know that these are important. 
According to the tax code and the current revenue regulations, the following must be submitted together with their
corresponding tax returns:
  Audited Financial Statements (AFS) – Under the Section 232 of the tax code, taxpayers whose sales exceed Php
3,000,000 shall have their books of accounts audited by a CPA. They shall also attach a copy of the audited FS in their
annual income tax return.  
 Account Information Return (AIF) – If your sales for the year did not exceed Php 3,000,000, you still need to
submit an Account Information Return detailing the balances of your assets, liabilities and equity and a comparative
income statement. This shall be filed using BIR Form 1701-AIF if you are a sole proprietor   or 1702-AIF if the business
is a corporation/partnership. However, this is not required for businesses that used OSD or the 8% preferential
rate. Related Article: Which should I choose: Itemized Deduction or Optional Standard Deduction?
 Statement of Management’s Responsibility5 – this shall signify the liability of the owner/managers of the
company in the event that the financial statements and tax returns filed are fraudulent or false. This shall be
attached to the annual income tax return.
  BIR Form 2304 – Otherwise known as Certificate of Income Payment Not Subject to Withholding Tax, this
document shall be given to you by your customers who are engaged in business but did not withhold tax on their
payments. This must be given to you on or before January 31 of the following year. The certificate shall be attached
to the annual income tax return.
  Quarterly Alphalist of Payees (QAP) – This shall contain all the names of payees included in your 1601EQ and
1601FQ returns. This shall be attached to the 1601EQ and 1601FQ returns.
 Summary List of Sales (SLS) – This is the complete list of all your customers. Fortunately, the BIR is only strict
with the requirements when the taxpayer is transacting with other businesses. A CTA case allowed the usage
of “various customers” when the customer is an individual. This shall be filed together with your monthly and
quarterly VAT returns.
 Summary List of Purchases (SLP) – This is the complete list of all your suppliers. The BIR is extremely strict when
it comes to implementing this requirement. The format, form of document, etc. must be followed exactly as the BIR
intended. This must be filed together with your VAT Returns. This is the same with SLI except this only includes local
suppliers.
 Summary List of Importation (SLI) – Likewise, if you import any goods used in your business, you need to list
those suppliers. This is the same with SLP except this only includes foreign suppliers.  
7. Issuance of valid invoices/receipts on transacti ons including online based payments.
Under the tax code6, for every transaction exceeding Php 100, the business must issue a sales invoice (for sale of goods)
or an official receipt (for sale of services).
It does not matter if the customer asks for a receipt, it is your obligation to issue a proof of payment, otherwise you may
face penalties. For online-based payments, BIR allows the seller to scan and issue the receipts to the buyer
electronically7.
Related: How to Reduce Your Taxes Legally if You Own a Business
 
Frequently Asked Questi ons.
1. I’m an online seller/Youtuber/blogger. Do I need to register my business?
Yes. As long as you intend to continuously earn income from these businesses.
RMC No. 55-2013 states that there is no distinction between online businesses and businesses with physical stores.
This means that you are required to comply with the same obligations as an ordinary business (i.e. Registration,
payment of taxes, bookkeeping, etc.) 
 
2. I’m earning from Google Adsense which is based internati onally. Do I sti ll need to report that
income?
Based on the existing jurisprudence8, as long as you are earning within the Philippine Jurisdiction you must be taxed
under Philippine laws.
Therefore, as long as your content is made in the Philippines, or your product is sold within the Philippines, or
you’re providing service from your home (as a freelancer) then you are considered as earning within the PH.
Related Article: Situs of Taxation: How to Know Which is Taxable and Which is Not Taxable
 
3. What if the foreign company already taxed my income? Should I sti ll register my business?
Yes. Withholding tax by your employers/customers does not exempt you from registering your business. You are still
required to report your income in your tax returns and pay the corresponding tax dues.
 
4. What can I do with the withheld tax?
You may claim them as tax credits. This lowers the tax due equal to the amount they withheld subject to a  few
requirements. 
 
5. I earn less than Php 250,000 a year, do I sti ll need to register my business?
Yes. There is nothing in the law that exempts businesses earning lower than Php 250,000 annually from registering their
business.
It is a common misconception that as long as you have 0 income tax due, you are not required to register. Remember,
there are other taxes that a business must pay i.e. Value-Added Tax, Expanded Withholding Tax, and Local Business Tax.
 
6. If I failed to register my business previously, is there a way to register without incurring penalti es?
With the rise of online businesses, the BIR acknowledges that the layperson is not always up-to-date on recent tax
legislation. That’s why new registrants, online sellers, and businesses with physical stores alike, were given the
opportunity to legalize their business9 before September 30, 2020, without incurring any penalties.
However, they are still encouraged to report their past earnings and pay the corresponding tax due. 
To illustrate: 
Juan created an online store to sell clothes on the Facebook Marketplace in 2018. He earned a total of Php 500,000
during the last 2 years of operations. 
Before RMC 60-2020, he would’ve been penalized for non-registration and non-filing of tax returns in the amount of Php
20,000 and Php 38,500, respectively. He is also liable for the Php 70,000 tax due he should’ve paid.
 This means that if Juan had been audited by the BIR, he would have been jailed unless he paid Php 128,500 or about
25% of his total earnings. 
Thanks to the current circular, if he pays the Php 70,000 and registers his business properly with the BIR, he is now
exempted from the penalties.
Computation: 
Penalty for non-registration = 20,000
Income Tax Due = 55,000 based on the graduated rates of 2018 and 2019
Other percentage tax = 15,000*
Surcharge for non-filing of tax = 70,000*25%
Interest for non-filing of tax = 70,000*12%*2.5 years
 
7. I’m done with the business registrati on.  When can I start operati ng?
It is recommended to operate once you’re registered with all relevant government agencies i.e. DTI/SEC, BIR, and LGU.
But since the LGU permits take a long time to process, some municipalities allow businesses to operate once the
business has already received the Certificate of Registration from the BIR. 
 
8. Do I need to hire an accountant for the business registrati on (and beyond)?
There are many factors to consider when deciding whether or not to hire a certified public accountant (CPA).
The only time when you are really required to hire a CPA is when you need to submit Audited Financial Statements.
Apart from that, the decision boils down to the fact of whether or not you can handle the legal implications of your day
to day operations, making sure that there are no unreported relevant transactions.
 
9. What is the diff erence between a trade name and a business name?
A Trade Name is the company’s legal name. If it is a sole proprietor, then the trade name is the owner’s birth name.
Business Names, on the other hand, allow businesses to alter their trade names when transacting with other parties.
Think of it as a pen name for authors. Without business names, the Philippines will be flooded with unique, albeit
ridiculously named businesses.
For example, Juan Dela Cruz is a freelance copywriter. His default trade name is “Juan Dela Cruz”. If he exclusively
provides services, he is not required to register with the DTI since service providers can use their trade names as their
business name. However, if he owns a sari-sari store, he must register a business name that accurately describes the
store i.e. “Juan’s Sari-sari Store”.
 
References.
1. Manuel, P. (2020). BIR orders online businesses to register, declare past transactions and pay taxes by end-July.
Retrieved 22 July 2020, from https://www.cnnphilippines.com/business/2020/6/10/BIR-online-sellers-businesses-
register-July-31.html
2. National Internal Revenue Code (1997), Section 34(A) and Section 34(K)
3. RA 9178 or Barangay Micro Business Enterprises (BMBEs) Act of 2002, Section 8
4. National Internal Revenue Code (1997), Section 232
5. BIR Revenue Regulations No. 3-2010 and Securities Regulation Code (SRC) Rule 68
6. National Internal Revenue Code (1997), Section 237(A)
7. Revenue Memorandum Circular No. 550-2013
8. National Internal Revenue Code (1997), Section 42(A) and Commissioner of Internal Revenue vs. British Overseas
Airways Corporation (BOAC) and Court of Tax Appeals (1987)
9. Revenue Memorandum Circular No. 92-2020
 INTELLECTUAL PROPERTY RIGHTS OF THE PHILIPPINES

The Philippines adheres to the Paris Convention for the Protection of Industrial Property Rights, the Berne
Convention for the Protection of Literary and Artistic Works, the Patent Cooperation Treaty, the TRIPS Agreement and
the WIPO Copyright Treaty, among others. In this light, intellectual property such as copyright, trademark, patent, utility
model, industrial design are protected in the Philippines. The governing law is Republic Act No. 8942, otherwise known
as the Intellectual Property Code of the Philippines.

Trademark – most commonly take the form of brand names, logos and slogans.
Copyright – primarily protects original expression in literary, dramatic, musical and artistic “works”. This includes things
such as novels, software, plays, films, songs, paintings, photographs and sculptures.
Patent – protects new inventions.
Utility models - similar to patents, protect new technical inventions through granting a limited exclusive right to prevent
others from commercially exploiting the protected inventions without consents of the right holders.
Industrial design - as any composition of lines or colors or any three-dimensional form, whether or not associated with
lines or colors; provided that such composition or form gives a special appearance to and can serve as pattern for an
industrial product or handicraft. Simply put, it is that aspect of a useful article which is ornamental or aesthetic.
Generally, industrial designs are important for handicrafts, jewelry, mobile phones, packaging materials, furniture,
electrical appliances, accessories, boxes, architectural structures and other products.

Registration of applications for trademark, patent, utility model, industrial design and patent cooperation treaty
applications are filed with the Philippine Intellectual Property Office (IPO). On the other hand, copyright applications are
deposited with the IPO pursuant to an agreement with the Philippine National Library.

Since the Philippines is a signatory to numerous treaties protecting intellectual property rights, claims of

convention priority or priority dates are acknowledged and respected, provided that they are claimed within twelve (12)
months from the date of the earliest foreign application (for patents and utility models) or within six (6) months from
the date of the earliest foreign application (for trademarks and industrial designs).

The term of protection for trademark, patent, utility model, industrial design and patents under the Patent
Cooperation Treaty (“PCT”) are as follows:
TRADEMARK – Ten(10) years and may be renewed for periods of ten (10) years each
PATENT – Twenty (20) years from filing date of the application
UTILITY MODEL – Seven (7) years from filing date of the application without renewal
INDUSTRIAL DESIGN – Five (5) years from filing date of the application and may be renewed for not more than two (2)
consecutive periods of five (5) year each
PATENT UNDER THE PCT – Twenty (20) years from the international filing date of the application

Modern markets are not anymore limited to local consumers. Businesses are becoming global and cater to both
local and foreign markets. As a result thereof, trademarks, brand name, trade secrets, inventions and designs are
exposed to a larger market. Hence, the need to secure protection for these intellectual properties. 

(Nicolas & De Vega Law Offices is a full service law firm in the Philippines.  You may visit us at the 16 th Flr., Suite 1607 AIC
Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at
+632 4706126, +632 4706130, +632 4016392.)
NOTE: ALL ACTIVITIES WILL BE PROVIDED IN THE GROUP CHAT. PLEASE READ THIS MODULE!

GOD BLESS 