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The consumer

Consumer Profile
The Philippines has a population of around 109,180,000 (July 2020 est.) and a population growth rate of 1.52% (CIA, 2020 est.). The dominant religion is the Roman Catholic one, with 80.6%, followed with the Protestant one 8.2% (includes Philippine Council of Evangelical Churches 2.7%, National Council of Churches in the Philippines 1.2%, other Protestant 4.3%). Muslims represent 5.6% of the population. There are 1.01 men per woman.

The median age is 24.1 years. 32.4% of the population is aged 14 years or under, 19.1% of the population is between 15 and 24 years old, 37.3% of the population is between 25 and 54 years old, 6.1% of the population is between 55 and 64 years old and 4.9% of the population is 65 years or older.
47.4% of the population lives in urban areas; the rate of urbanisation is 1.99% annually. The population is concentrated near good farmlands; highest concentrations are northwest and south-central Luzon, the south-eastern extension of Luzon and the islands of the Visayan Sea, particularly Cebu and Negros; Manila is home to one-eighth of the entire national population.

The average household size is 4.7 people, 5% of the household count only one person, 26% of the household count 2 or 3 people, 37 % of the household count 4 or 5 people and 32% of the household count 6 people or more.
The major urban areas are Manila with 13,482 million inhabitants, Davao, with 1,745 million inhabitants, Zamboanga, with 894,000 inhabitants and Antipolo with 837,000 inhabitants.
98.2% of the population can read and write. Recent education reforms have sought to boost enrolment levels, graduation rates and mean years of schooling in elementary and secondary education, and to improve the quality of higher education. Many of these reforms were adopted against a backdrop of declining educational standards in the Philippine education system during the first decade of the 21st century.
23% of the population work in agriculture, 20% in industry and 57% in services (World Bank, 2020 est.).
Purchasing Power

The GDP per capita (PPP) is estimated at USD 9,277 (World Bank, 2019) growing from USD 7,180 five years earlier. The Gini index in the Philippines is 44.4 (World Bank, 2015 est.), placing the country on the 45th spot worldwide. The average salary in the Philippines is estimated at PHP 15,200, whereas the country has daily minimum wage rates that vary from region to region, ranging from PHP 290 to PHP 537 a day. The wages are set by tripartite regional wage boards located in every region.

According to the latest edition of the Family Income and Expenditure Survey published by the Philippine Statistics Authority, the average annual family income of Filipino families is approximately PHP 267,000 in 2018. In comparison, the average annual family expenditure is PHP 215,000; hence, Filipino families have savings of around 52,000 in a year, on average.

The Philippines ranked 16th out of 153 countries in terms of gender equality, according to the World Economic Forum (WEF) Global Gender Gap Report 2020, ranking as the first Asian country. However, the country ranked 8th in the previous edition, and has been losing ground on gender pay equality in recent years.

Consumer Behaviour
The Philippines is a youthful and vibrant consumer market with strong growth potential. The shopping experience is important to Filipino consumers, who visit malls not only to make purchases but also as a family or social activity. Aspiring Filipino middle-class consumers see shopping in modern retail as a representation of urban lifestyle. But at the same time the Filipino consumer does not like ostentatious expenditure, gives priority to his family life and is rather conformist and spontaneous. Advertising has helped increase consumer culture by portraying physical attractiveness and material goods as a gateway to happiness and success.

Online shopping is becoming more and more popular among young Filipinos, Philippine consumers enjoy visits to retail stores in which they are able to touch and feel the product, and value the services throughout the shopping process. Filipinos are among the most socially conscious consumers in the world. 86% of them are willing to pay extra for products and services that come from companies committed to positive social and environmental impact.

Younger consumers have also helped drive considerable growth of internet and mobile internet retailing. The increasing number of single-person and smaller households is boosting demand for compact household items. Low-income households tend to buy products in lower volumes or weights, even though these are more expensive than larger packs. Use of collaborative platforms such as Airbnb and Uber is trending in the country over the past few years.
Consumer Recourse to Credit
According to figures from Bangko Sentral ng Pilipinas (BSP), credit cards’ penetration rate in the country is at 8%, and Filipino credit card users pay anywhere between 18% to 54% in finance charges for transactions made on these short term loan facilities. Due to the high interest rates and the difficult economic situation caused by the COVID-19 pandemic, the central bank’s Monetary Board approved an interest rate cap: from November 2020 credit card users will soon be required to pay no more than 2% monthly — or 24% annually — on this type of debt.
At the same time, in the country e-money accounts rose by 22% to 33 million in 2018, including five million active e-wallets and 28 million prepaid cards linked to e-money (latest data available).
Results of the BSP Consumer Expectations Survey (CES) showed that the monthly amortization of debt per capita for the fourth quarter of 2019 declined to PHP 2,941 from PHP 4,248 in the previous quarter. Nevertheless, consumer credit outstanding balance increased substantially in 2020 across all consumer credit categories, although consumer credit gross lending declined substantially during 2020 as the uncertain economic environment that has emerged in the wake of the COVID-19 pandemic has placed considerable pressure on the household finances of huge numbers of Filipinos.
Growing Sectors
Takeaway or pre-cooked food products, technology (smartphones, tablets and accessories) are growing sectors.
Consumers Associations
Consumers Union of the Philippines
 

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Importing & Distributing

Import Procedures
All imported articles invite import taxes, even those having been previously exported (except special mention envisaged in the Tariff and Customs Code or another regulation). The entry form must be filled in at the Customs Office in the 30 days following the unloading of the last package, failing to do which amounts to abandonment of the goods and ipso facto confiscation of the cargo.
The importation of certain commodities is regulated or prohibited. Imports are classified as follows:

  • Freely Importable Commodities;
  • Regulated Commodities;
  • Prohibited or Banned Commodities, see the list here


The importation status of any commodity (whether prohibited, regulated, or freely importable) may be checked/verified with the Bureau of Customs (BOC), the Bureau of Import Services (BIS) of the Department of Trade and Industry (DTI). The Department of Agriculture (DA) may verify the importation status of agricultural products, as well as indicate whether a Minimum Access Volume (MAV) Import Certificate is required, such as for the importation of swine, chicken, etc.

Import documents required for shipments to the Philippines include:

  • Commercial invoice/Pro forma invoice;
  • Bill of lading (for sea freight) or air waybill (for air freight);
  • Certificate of origin (if requested);
  • Packing list;
  • Special certificates/import clearance/permit depending on the nature of goods being shipped and/or requested by the importer/bank (see below);
  • Commercial Invoice of Returned Philippine Goods.

Documents as may be required by rules and regulations, such as:
- Import Permit or Clearance, if the commodity is regulated
- Authority to Release Imported Goods
- Copy of an Advance Ruling, if the ruling was used in the goods declaration
- Load Port Survey Reports or Discharge Port Survey Reports for bulk or break bulk importations
- Document evidencing exemption from duties and taxes, if applicable
- Others, e.g., Tax Credit Certificate or Tax Debit Memo, if applicable

Specific Import Procedures
Some products such as animals, plants, foodstuffs, medicines, chemicals, etc. require a special certificate. For a full list of prohibited/restricted imports, click here.
Tariff-Rate Quotas (TRQs) still remain on a number of sensitive products such as corn, poultry meat, pork, sugar and coffee. Minimum Access Volumes (MAV) have been established for these commodities.
Distribution channels
The retail industry in the Philippines continues to rely heavily on traditional grocery stores and general trade, as the geographical conformation of the country makes it impossible for modern retailing to serve many areas. The Philippine retailing market benefited from improving economic conditions in 2019, with the easing and stabilising of inflation and the rise in consumer purchasing power resulting from a reduction in personal income tax. According to data from USDA, sales of the Philippine food retail sector in 2019 amounted to around USD 50 billion, with modern retail accounting for half the total.

There is increasing competition between formats such as discounters and hypermarkets, and convenience stores and supermarkets. Rapid growth in retail sales are creating new opportunities for imported food and beverage products, already widely recognised by Philippine consumers. Modern retail markets such as supermarkets, hypermarkets and convenience stores (including 'minimarts) have become more essential especially to those living in Metro Manila and other large cities as customers demand more convenience and flexibility. These modern markets have expanded both in urban and rural areas, close to residential and commercial communities. Actually, they are usually cleaner, more comfortable, spacious and well-maintained. Moreover, supermarkets offer a wider range of choices for consumers, including both perishable and non-perishable goods. Wet markets retain an advantage in fresh product, including meat and seafood, but especially fresh fruit and vegetables.

Furthermore, retailers increasingly adopted multi-channel strategies in order to take advantage of the growing consumer demand for the convenience provided by e-commerce, and particularly mobile e-commerce. This is particularly true since the start of the COVID-19 outbreak, which prompted a growing number of middle- to upper-income consumers to shift to home delivery of grocery items. Based on interviews with the key players, 25 to 30% of their shoppers have shifted to online platforms (USDA).
Distribution market players
Domestic players continue to dominate the rankings in the Philippine retailing market. However, in 2019, the House of Representatives approved a bill that eased the way for foreign retailers to enter the market. Three supermarket chains dominate the Philippines food retail scene, but account for only one-fifth of total sales, as traditional retail establishments still account for the majority of sales.

  • SM Markets is the market leader, and counts on 1,190 outlets. It operates under the brands/formats SM, WalterMart, Alfamart, and Savemore
  • PureGold is the second brand in terms of sales, with 380 outlets nationwide.
  • Robinsons, which has more than 500 outlets and has strengthened its network of grocery stores, as well as supermarkets.

Other supermarket chains include Metro Retail, Super8, WalterMart, AllDay Supermarket, and warehouse clubs such as S&R Membership Shopping and Landers Superstore.

Retail Sector Organisations
Supply Chain Management Association of the Philippines (DMAP)
Philippine Retailers Association
Department of Trade and Industry

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Operating a Business

Type of companies

The Corporation is a joint-stock company.
Number of partners: Minimum 5 shareholders, at least 3 shareholders must be Philippine.
Capital (max/min): PHP 5,000.
Click here for details.
Shareholders and liability: Liability is limited to the amount contributed.
Sole Partnership is a single-member company
Number of partners: Only 1 person
Capital (max/min): No minimum capital.
Shareholders and liability: Liability is unlimited.
General Partnership
Number of partners: Minimum 2 partners
Capital (max/min): PHP 3,000.
Shareholders and liability: Liability is unlimited.
Limited Partnership
Number of partners: Minimum 2 partners
Capital (max/min): PHP 3,000.
Shareholders and liability: Liability is limited to the amount contributed.
 
Setting Up a Company Philippines (the) East Asia & Pacific
Procedures (number) 13.0 7.3
Time (days) 33.0 29.7

Source: Doing Business - Latest available data.

 

Cost of Labour

Minimum Wage
The minimum wage varies according to the type of activity. The full list from the National Wages and Productivity Commission can be consulted here.
Average Wage
Gross average monthly wage: PHP 8,990 (source: ILO, 2016, lastest available data).
Social Contributions
Social Security Contributions Paid By Employers: Employers’ maximum contribution for each employee is PHP 1,600 per month for Social Security System (SSS), varying according to the income class of the employee.
For Home Development Mutual Fund (HDMF) and Philippine Health Corporation (PHIC), the maximum monthly deductions are PHP 100 and PHP 550, respectively.
Social Security Contributions Paid By Employees: 4.13% for old age-invalidity insurance and 1.25% for health-maternity insurance.
 

Intellectual Property

National Organisations
The organization responsible for the protection of intellectual property in the Philippines is the Intellectual Property Office of the Philippines.
Regional Organisations
Harmonization within the ASEAN and the APEC.
International Membership
Member of the WIPO (World Intellectual Property Organization)
Signatory to the Paris Convention For the Protection of Intellectual Property
Membership to the TRIPS agreement - Trade-Related Aspects of Intellectual Property Rights (TRIPS)
 

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Tax Rates

Consumption Taxes

Nature of the Tax
VAT (Value-Added Tax)
Tax Rate
12%
Reduced Tax Rate
Certain items are zero-rated, including export sales; sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations (conditions apply); services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of total annual production; transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country; sale of power or fuel generated through renewable sources of energy, etc.
A 3% sales tax on gross sales or receipts also applies to persons who are not VAT-registered because their annual sales or receipts do not exceed PHP 3 million.
Other Consumption Taxes
Excise taxes are levied on wines and spirits, beer, cigarettes and tobacco products, lubricating oils and grease (including similar preparations and additives), processed gas, waxes, denatured alcohol, cinematographic films, saccharine, coal and coke, cars, non-essential goods (jewellery, yachts and other pleasure vessels), mineral products, naphtha and other similar products of distillation, asphalt, and petroleum and other fuel products.
In addition to real estate taxes, local governments impose a tax on nearly all businesses operating within their jurisdictions. Rates vary but are usually a small percentage of gross annual sales.

On top of the regular customs duty, an additional 10% tax is levied on imports of crude oil and refined petroleum products in order to finance the fund to fight the COVID-19 epidemic.

 

Corporate Taxes

Company Tax
The rate is 25% on net income but there are some preferential rates and exemptions (educational institutions and non-profit hospitals: 10%)
Tax Rate For Foreign Companies
A foreign corporation that is duly licensed to engage in trade or business within the Philippines is referred to as a "resident foreign corporation".
The Philippines adopt the United Nations Model Convention (together with the OECD model) to identify a permanent establishment.
Capital Gains Taxation
Capital gains are generally subject to ordinary income tax rates. Capital gains arising from the sale of unlisted shares are subject to a withholding tax of 15% (for foreign corporations, a rate of 5% applies on the first PHP 100,000 of gains, and 10% on gains in excess of PHP 100,000) while those resulting from the sale of listed shares are taxed at a rate of 0.6% of the gross selling price (conditions apply). Capital gains from the sale of bonds, debentures, or other certificates of indebtedness with a maturity of more than five years are exempt from tax. Capital gains from the sale of real estate used for non-commercial purposes are subject to a final withholding tax of 6% of the highest of the sale price or fair value.
For further details, consult the dedicated page on the website of the Bureau of Internal Revenue.
Main Allowable Deductions and Tax Credits
Corporations can choose between itemised deductions or an optional standard deduction computed at 40% of gross income.

Bad debts are deductible expenses when written-off (conditions apply). The allowable deduction for interest expense is reduced by an amount equal to 33% of interest income that is subject to final tax. Start-up expenses are deductible when incurred.
Charitable contributions can normally be deducted up to 5% of taxable income, although those made to certain institutions are 100% deductible, subject to conditions.

A Philippine corporation can claim a deduction for royalties, management service fees, and interest charges paid to foreign affiliates, provided such amounts are equal to what it would pay an unrelated entity, and the appropriate withholding taxes are withheld and remitted. A resident foreign corporation is allowed to claim allocated head office expenses as a deduction (conditions apply). To be deductible, entertainment, amusement, and recreation expenses should not exceed 0.5% of net sales for taxpayers engaged in the sale of goods or properties, or 1% of net revenue for taxpayers engaged in the sale of services.

Special deductions are allowed for certain businesses (e.g. insurance, mining, petroleum, and real estate investment trust).

Net operating losses can be carried forward up to three years unless the company enjoys a tax incentive or a tax exemption. Losses cannot be carried forward in the case of a significant change in the ownership structure of the company. The carryback of losses is not permitted.
Taxes can generally be deducted, except for corporate income tax, donor's taxes, taxes imposed by authorities of any foreign country.

Other Corporate Taxes
Local authorities impose local business taxes, which are generally based on the gross sales or gross receipts of the prior year (the rate varies depending on the location but generally shall not exceed 3%), and real property taxes, which are levied annually on the basis of a fixed proportion of the value of the real property (rate up to 1% for real property located in a province and 2% if located in a city).
A local transfer tax on real property is levied at a rate of 0.5% to 0.75% on the gross sales price or the fair market value of the property (whichever is higher) upon the transfer or sale of the property.
A final tax of 35%, payable by the employer, is imposed on the grossed-up monetary value of fringe benefits granted by the employer to managerial or supervisory personnel (including holiday and vacation expenses, housing, foreign travel expenses, expense accounts, vehicles of any kind, household personnel, interest on loans at lower than market rates, membership dues for social and athletic clubs, educational assistance, insurance). An improperly accumulated earnings tax of 10% is imposed on improperly accumulated income (corporate surplus accumulation).
Gratuitous transfers of property are subject to a donor’s tax at 6% of the fair market value of the property at the time of the donation (for the amount in excess of PHP 250,000).
A documentary stamp tax (DST) is payable at varying rates on several documents and transactions.
Social security contributions are composed of the Social Security System (SSS - capped at PHP 2,155/month), Home Development Mutual Fund (HDMF - generally up to PHP 100/month), and Philippine Health Corporation (PHIC - generally up to PHP 900/month).
Other Domestic Resources
Bureau of Internal Revenue
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
List of double tax agreements signed by the Philippines
Withholding Taxes
Dividends: 0 (resident company)/10% (resident individual)/15% (if the country of the foreign corporate recipient allows a tax credit of 15%; otherwise 20%)/20% (non-resident individual engaged in a trade or business)/25% (non-resident individual engaged in a trade or business)
Interest: 20% (paid to a resident individual or a non-resident individual engaged in a trade or business)/25% (non-resident individual engaged in a trade or business)
Royalties: 20% (resident corporation)/30% (non-resident corporation)/20% (individuals)/10% (royalty payments to individuals from books, literary works, and musical compositions)/25% (non-resident individual engaged in a trade or business).

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