Setting up An E-commerce Business In The Philippines

According to Statista, the Philippines is now the second-fastest growing e-commerce market worldwide. Key factors that have contributed to the growth of e-commerce in the country are the increasing internet penetration, rising middle class, and purchasing power.

In this article we will cover the legal framework and step-by-step process to start an e-commerce business in the Philippines. 

Legal Requirements for Starting an E-commerce Business in the Philippines

Under the Internet Transaction Act of 2023, it is mandatory to register your business in the Philippines with the Department of Trade and Industry (DTI) or Security and Exchange Commission (SEC), regardless of whether you have a physical shop or just selling online. If you plan to register a sole proprietorship, you need to register with the DTI, while partnerships and corporations are under the SEC. 

The act also covers both Business-to-Business (B2B) and Business-to-Consumer (B2C) transactions, ensuring that online merchants comply with local regulations regardless of their operational structure. 

Aside from DTI or SEC registration, you also need to obtain all the necessary licenses to operate an online business in the Philippines. Without these permits, businesses are prohibited from conducting online sales, including on big e-commerce platforms like Lazada or Shopee. 

Here are local permits you need to acquire before your e-commerce business is fully operational: 

1. Barangay Clearance – Required from the local barangay where the business operates.
2. Mayor’s Permit – also known as a Municipal or City Business permit, this document is issued by the local government unit (LGU). It is necessary to legally operate a business within a specific locality. 
3. Bureau of Internal Revenue (BIR) Registration – obtain a Tax Identification Number (TIN) to ensure tax compliance and obligations, including income tax and value-added tax (VAT) if applicable. 
4. FDA License to Operate (LTO) and Product Registration Certificate – Necessary if your company is selling regulated products such as food, drugs, or cosmetics.
5. DOLE Registration – Required if hiring employees, ensuring compliance with labor laws.
6. Import License –  in case you are planning to import and sell  foreign goods in the Philippines. 

Emerhub provides comprehensive support for obtaining all the necessary licenses and permits. We will guide you through the entire SEC or DTI registration process, and help obtain all the necessary permits in compliance with consumer protection laws in the country. 

How to Start Selling Online in the Philippines

Step 1. Choose the Right Legal Entity for Your E-Commerce Business

Choosing the right legal entity for an e-commerce business in the Philippines is crucial since it impacts various aspects of operations, taxation, and compliance with local laws. Here are suitable legal entities for e-commerce businesses in the Philippines:  

1. Sole Proprietorship: suitable for individuals with small ecommerce operations as it is easy to establish and requires minimum regulatory compliance. However, sole proprietors have unlimited liability. Meaning the owner is personally responsible for all the business’s debts and legal obligations.
2. One-Person Corporation: A one-person corporation, also referred to as OPC in the Philippines, is a popular alternative to sole proprietorships for e-commerce businesses because of its ease of setup and limited liability. Individuals who want to start an online business in compliance with local laws, but without risking their personal assets, choose this option. 
3. Partnership: If you are starting your ecommerce business with one or more partners, another appropriate option is to register a partnership business with the DTI. Partners in this business share profits and responsibilities. However, like sole proprietorships, partners are jointly liable for debts and could risk personal assets. 
4. Corporation: For sellers planning to establish large-scale e-commerce operations in the Philippines, the most popular choice is setting up a corporation. While it has certain additional compliance requirements compared to other legal entities, it also offers advantages such as tax incentives, liability protection, and more.

If you are unsure about which legal entity might be most appropriate for you, it is advisable to talk to our local experts. We will guide you through the process and handle the necessary registrations on your behalf.

Step 2: Secure Necessary Licenses and Permits

After registering with the DTI or the SEC, you must obtain a Barangay Clearance from your local barangay and a Mayor’s Permit from your local government unit (LGU) to legalize your operations.

Depending on your business, you may need to secure additional product and activity specific licenses such as FDA LTO or import license as mentioned earlier. 

Finally, register with the Bureau of Internal Revenue (BIR) to acquire a Tax Identification Number (TIN) and ensure compliance with tax obligations.

Step 3: Open Your Business Bank Account

To receive payments from customers or partners such as Shopee, you will need to set up a business bank account. A business bank account separates your business expenses from your personal expenses and is often required by ecommerce business partners such as delivery companies, online payment service providers, etc to work with them. 

To open a corporate bank account for your ecommerce business, you will need the following documents: 

1. Completed bank application form 
2. SEC Registration Certificate
3. Corporate By-Laws
4. Notarized Board Resolution authorizing account opening
5. Valid government-issued IDs for authorized signatories (two IDs required)
6. TIN issued by the BIR

Opening a corporate bank account in the Philippines may take 5-10 business days. Once approved, you will receive your account details and can begin using your account for business transactions. 

Step 4: Register on E-Commerce Marketplace (Optional)

To start selling your products, you can either register with major e-commerce platforms or start your website according to your branding and products.

If you plan to use existing platforms instead of your own, the most popular marketplaces in the Philippines include Shopee, Lazada, Carousell, Zalora, Temu, and a few others. 

Keep in mind that these platforms have their own requirements to be able to sell your products through them and charge a service fee/ commission rate. However, they also enable you to benefit from their existing customer base instead of worrying about starting from scratch. 

There’s also an option to sell on social media like Facebook Marketplace and TikTok.

You can choose the option that works best for you based on your planned business activities.

Step 5: Logistics and Delivery for Your Customers

Finally, you will need to find delivery partners to deliver your products to your customers. While existing marketplaces can fulfill that on your behalf, you can also partner with established couriers like J&T Express, LBC Express, and NinjaVan for efficient delivery options.

Tax Obligations for E-commerce Businesses  in the Philippines

As part of the establishment process on your e-commerce business in the Philippines, registering with the BIR is crucial for tax compliance. Your TIN is your company’s personal identifier that allows you to file tax returns, pay your tax obligations to the government, and claim tax benefits and exemptions. 

Here is a brief overview of corporate tax obligations for online businesses: 

Tax Type	Payment schedule	Details
Income Tax	– Monthly – On or before the 15th day of the following month – Quarterly – On or before the 25th day after the close of each taxable quarter – Annual – On or before April 15 of the following year	– 25% for corporations – 20% for micro and small businesses with income ≤ PHP 5 million
VAT	– Monthly – On or before the 20th day of the following month – Quarterly – On or before the 25th day of the month following the end of the quarter.	– 12% (if gross sales exceed PHP 3 million) – If you’re earning below this threshold may opt not to register but must comply with VAT regulations if they exceed this limit during the year
Withholding Tax	On or before the 10th day of the following month (for remittances made to online sellers)	1% on gross remittances exceeding PHP 500,000 annually

If you have employees under your payroll, you are also required to make mandatory contributions to social security and health insurance systems for your employees such as PhilHealth, SSS, and Pag-IBIG fund.

Start Your E-Commerce Business in the Philippines with Emerhub

If you are planning to start your e-commerce business in the Philippines, Emerhub can help. From company registration to licenses and corporate bank account, our local experts will handle the entire process on your behalf, ensuring timely approvals.

For more details, fill out the form below and we will put you in touch with one of our local experts.