In the last two decades, the Philippines has emerged as a top offshore destination for companies across the world. In fact, major companies like IBM and Amazon run their BPO (Business Process Outsourcing) operations from the Philippines.
Wondering why these companies offshore to the Philippines or how to do it for your own business?
In this article, we’ll share a 3-step process to register an offshore company in the Philippines. We’ll also cover the key benefits of offshoring to the Philippines and highlight five tips to help you out.
This article covers:
(click on the links to jump to the relevant section)
- 5 Successful Offshore Companies in the Philippines
- 5 Key Benefits of Offshoring to the Philippines
- 3 Steps to Register an Offshore Company in the Philippines
- 5 Tips for Smooth Offshore Operations in the Philippines
Let’s get started.
5 successful offshore companies in the Philippines
Offshoring is when a company moves some of its business operations to a different country, such as India or the Philippines, to save money.
Depending on their needs, companies may choose any of these two offshoring models in the Philippines:
- Traditional offshoring
The parent company may start a subsidiary or a branch office and hire an in-house team. This offshore company is also known as the offshore captive center of the parent company.
- Offshore outsourcing
Alternatively, a parent company may choose to outsource its business operations to an outsourcing service provider in the Philippines.
Before we further discuss the benefits of offshoring to the Philippines, let’s explore five popular companies that run a successful offshore business in the country:
1. Accenture
Accenture is an Ireland-based multinational company that offers services in various fields like BPO, artificial intelligence, digital marketing, etc.
It is one of the first companies to move its BPO operations to the Philippines.
Today, it offers services like Accenture Strategy, Accenture Consulting, Accenture Digital, etc., through its offices in Cebu City, Manila, and Quezon City with over 50,000 employees.
2. JP Morgan Chase and Co.
JP Morgan is a global leader in financial services and has clients in more than 100 countries.
Headquartered in New York, USA, it started operations in the Philippines in 1961 with a representative bank in the Philippines. It has an office in Makati City in the Metro Manila region.
3. Amazon
Amazon is an American multinational company that offers products and services in e-commerce, cloud computing, digital streaming, etc. In 2018, Amazon opened its first customer service office in Cebu City, with plans to gradually increase the workforce in the coming years.
4. Macquarie Group Ltd.
Headquartered in Sydney, Australia, Macquarie Group offers various services like asset management, banking, and financial consulting.
In 1990, it was incorporated as Macquarie Capital Securities in the Philippines, with its office in Makati City.
5. IBM
International Business Machines (IBM) Corporation is an American technology and consulting company with its headquarters in Armonk, New York. IBM offshores its customer service operations to the Philippines through call centers in Metro Manila and Cebu City.
5 key benefits of offshoring to the Philippines
There’s a massive surge in foreign companies looking to offshore their operations to the Philippines. Let’s explore why it’s a top choice for major companies:
1. Excellent infrastructure
The Philippines has significantly ramped up its internet infrastructure in the last few years.
Major telecom players like PT&T and Globe Telecom offer 24/7 high-speed internet across major business cities like Manila, Cebu, Davao, etc. Faster connectivity ensures that offshore companies can run their operations smoothly and manage their teams well.
Moreover, excellent transport, water, and power infrastructure only add to the Philippines’ image as a top-choice offshoring destination.
2. Cost-effectiveness
One of the biggest reasons foreign businesses choose to offshore in the Philippines is the overall cost benefits.
The low cost of living in the Philippines means that average salaries are also less than in countries like the United States, Australia, United Kingdom, Hong Kong, and Singapore.
Additionally, professionals in the Philippines are highly skilled and motivated. This ensures high quality of service at affordable rates.
3. Cultural advantages
The Philippines had been an American colony for nearly 50 years. As a result, Filipinos easily understand western culture and standards. This means the country is a natural fit for most offshore companies from the US and Europe.
Additionally, English is an official language in the Philippines besides Filipino.
Most Filipino professionals have a good command of the English language and speak with a neutral accent that’s easy to understand. This is a key reason behind the massive success of the BPO industry in the Philippines.
Moreover, Filipinos are often easy to work with. They have a reputation for a strong work ethic and being hardworking and dependable. These cultural traits make the Filipino workforce an offshore employer’s dream.
4. Favorable laws
The favorable laws and policies in the Philippines help offshoring businesses flourish.
BPO and other outsourcing industries, which are leading contributors to the Philippine GDP, benefit greatly from such pro-business laws.
For example, the Philippine Economic Zone Authority (PEZA) manages special economic zones. Businesses set up in these zones enjoy tax benefits and other forms of investment assistance.
The Data Privacy Act (2012) protects all forms of information, especially sensitive customer data crucial for BPO and other IT services.
5. Economic stability
The Philippine economy has been largely stable, recording 5-6% growth rates in the last few years, even during economic slowdowns.
This stability ensures that the country is rated highly for its investment potential by many global credit rating agencies. It instills confidence among foreign businesses to invest in the country.
It also helps the local outsourcing industry attract more business from foreign clients and helps them scale rapidly.
3 steps to register an offshore company in the Philippines
If you’ve made a decision to start a traditional offshore business in the Philippines, you’ll first need to register your company.
Here’s a 3-step process to go about it:
Step 1: Choose a company structure
The first step is to choose an appropriate company structure from the many options available.
However, before finalizing a business structure, you must weigh in factors like:
- The scale of your business operation(s).
- The number of owners and their respective authorities.
- The level of protection required against business and personal risks.
Each type of business structure has a different capital requirement, tax structure, and registration charges.
Let’s explore some of the common options for foreign companies:
A. Domestic corporation
- It’s similar to a subsidiary.
- It can be 100% foreign-owned or in partnership with a local business.
- It’s subject to 30% corporate income tax on the net income.
- The minimum capital requirement may vary from PHP 5,000 – USD 200,000.
- The company must appoint 5-15 directors.
- It also needs to maintain mandatory posts like Corporate Secretary and Corporate Treasurer.
B. Branch office
- It’s 100% foreign-owned.
- The minimum capital requirement may vary from PHP 5000 – USD 200,000.
- It’s subject to 30% corporate tax on the net income.
- Does not need to maintain directors.
- The company must assign an agent (Filipino or Philippine resident) as a point of contact.
C. Representative office
- It represents a parent company from abroad.
- It’s usually set up to assist the parent company’s clients in the Philippines.
- It requires operational capital of USD 30,000 to be registered.
- It’s not authorized to earn income or subject to income tax.
- The company needs to maintain an agent (Filipino or Philippine resident) as a point of contact.
- The company must report to the Bureau of Internal Revenue (BIR) periodically.
Step 2: Assess your options for government incentives
The Philippines’ pro-business approach means that there are several incentives offered to foreign investors.
The Philippine Economic Zone Authority (PEZA) offers tax incentives and investment assistance to a wide category of industries.
For example, PEZA offers Income Tax Holiday (ITH) (an exemption from corporate income tax for four to six years) to enterprises engaged in IT and IT-related services such as:
- Software development.
- Business process management.
- Offshore customer service.
- IT (Information Technology) research and development.
- Content development for internet and media, web and graphic design, etc.
The Philippine Board of Investments (BOI) is another agency that grants incentives like tax holidays and other concessions to foreign businesses planning to invest in the country.
An offshore company, especially a startup, must carefully assess all such incentive options to maximize its cost savings.
Step 3: Register your company with the authorities
The final step to setting up an offshore company in the Philippines is to register your company with various government authorities. The entire process takes roughly two to three months.
Here are some key steps:
- You must first approach the Securities and Exchange Commission (SEC) to initiate the process and get your company’s name approved.
- Then, you must register with the Local Government Units (LGUs) to get the necessary permits.
- Next, submit the required documents along with the registration fee and finish all application processes thereafter. You’ll receive the Certificate of Incorporation after your application is successfully processed and approved.
- Lastly, register your existing employees with services and agencies like Social Security System, Philippine Health Insurance Corporation, etc.
5 tips for smooth offshore operations in the Philippines
It’s clear that offshoring your business operations to the Philippines has some amazing benefits.
But how can you maximize the benefits of this transition?
Here are five awesome tips that can help you get the most out of your offshore operations in the Philippines:
1. Do your research
Starting an office under the jurisdiction of a different country can often present some unpredictable scenarios. It’s important to do thorough research before you take the leap.
It’ll not only prepare you for any potential risk factors but also help you make informed decisions and seize the opportunities at the right time.
What should you know?
Start by understanding the laws and regulations that govern offshore businesses in the Philippines.
It’ll help you:
- Know the incorporation process.
- Avail government tax benefits.
- Do a cost-benefit analysis and make accurate financial estimates.
- Protect your intellectual property, etc.
- Protect your financial assets through an offshore bank account.
Additionally, it’s important to do careful research before finalizing a city and location for your office or production space.
The capital city Manila (on the island of Luzon), Cebu, and Davao are well-established hubs for the BPO industry. BPO and KPO (Knowledge Process Outsourcing) companies occupy a large percentage of office space in these cities.
If you are planning to start a BPO company in the Philippines, it makes sense to choose these cities for their existing infrastructure.
However, Manila and Cebu may also be relatively expensive. In that case, you could consider setting your company in other fast-growing regions like Palawan, Negros, etc.
2. Build a solid team
It’s always a great idea to devise a country-specific recruitment and training strategy when hiring an offshore staff that comprises mostly local talent.
A better understanding of the Filipino culture will help you reach out to a wider talent pool across the country. It also enables you to find ways to impart the necessary job skills in a much quicker and effective way.
Alternatively, you may partner with an offshore staffing company in the country that helps you hire and manage human resources.
3. Connect with your team
Hiring a solid team is one part of the job. It’s also important to connect with your team and keep them motivated.
Take time to visit your office and interact with your staff periodically. Ask them about their aspirations and grievances. Make an effort to learn more about Filipino culture.
If you can’t travel to the Philippines, engage your employees through other means, such as virtual meetings. You’ll be surprised how a simple gesture like this can significantly boost your team’s morale and productivity.
4. Manage your offshore team with the right tools
Managing your offshore team remotely can become challenging — especially when there’s a time zone difference.
Delegating tasks, monitoring projects, and ensuring your team stays productive during work hours can be a hassle. But not when you choose the right software tool.
For example, an employee productivity management tool like Time Doctor can help you:
- Track your team’s work hours accurately.
- Monitor their productivity and project progress through insightful reports.
- Set productivity ratings for apps and websites to measure productivity effectively.
- Process your offshore team’s salaries and bill service providers with integrated payroll management.
- Use the powerful Chrome extension to monitor time and productivity across your favorite apps.
5. Partner with an offshore outsourcing company
Traditional offshoring to the Philippines may not be for everyone.
If you aren’t keen on registering a new company but still want to reap the benefits of outsourcing, you may partner with a Philippine outsourcing company.
Post the massive boom in the country’s BPO sector, there’s a surge in companies offering IT outsourcing services to clients from the US and Europe. These outsourcing service providers have expertise in areas such as:
- Business process management.
- Manufacturing setups.
- Staffing solutions.
- Back-office operations like customer support, accounting, and payroll services.
Offshoring service providers usually have their own talent pool so that a client doesn’t have to build a team from scratch or hire foreign nationals.
For example, outsourcing companies like Cloudstaff, Outsourced, StaffVirtual, etc., provide specialized IT services to help foreign companies run their operations hassle free.
Wrap up
The Philippines’ strategic location (near the South China Sea), economic stability, and pro-business policies make it an excellent offshoring destination. It has become a global hub for the BPO industry in the last two decades.
But with all the offshoring benefits on offer, a new company may still face a hard time making the transition.
Don’t worry. You can use the steps and tips we covered here to make your offshore journey to the Philippines a breeze.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.