Individual Assignment Online Presentation 2.pptx

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1. THE DIFFERENCE BUSINESS TYPES OF THE PHILIPPINES AND INDONESIA Prepared by: ADRIAN A. ORNOPIA MBA-NT Student Chapter 1 Part 2 Individual Assignment Online Presentation 2

2. “Never start a business just to make money, start a business to make a difference.” - MARIE FORLEO

3. Business Types of the Philippines Local and foreign investors can conduct business in the Philippines by registering any of the following business entities:  S ole proprietorship Partnership Corporation Cooperative Registering a corporation, has two options: incorporating a new domestic company or obtaining a license for a foreign company to operate in the Philippines .

4. Sole Proprietorship It is a business structure owned by an individual who has full control/authority of its business and owns all the assets, personally owes answers to all liabilities or suffers all losses but enjoys all the profits to the exclusion of others.  Filipino-owned Sole Proprietorship Foreign-owned Sole Proprietorship  – contrary to common belief, foreign entities can set up sole proprietorships in the Philippines as long as they meet the  minimum capital requirement  of US$ 200,000.00 and their proposed business activities do not fall under the areas of investment listed in the  Foreign Investment Negative List  (FINL) as partially or wholly restricted to foreign entities

5. Partnership Under the Civil Code of the Philippines, a partnership is treated as juridical person, having a separate legal personality from that of its members. Partnerships may either be general partnerships, where the partners have unlimited liability for the debts and obligation of the partnership, or limited partnerships, where one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. It consists of two or more partners. A partnership with more than Peso 3,000 capital must register with the Securities and Exchange Commission (SEC). General Partnership  – a business arrangement where two or more people, usually referred to as  general partners , agree to share among themselves all assets, profits, and financial and legal liabilities of the business; the general partners can take part in the daily management of the partnership and each has unlimited liability for the actions of the partnership, including the actions of other partners Limited Partnership  – a type of partnership where the partners, usually referred to as  limited partners , are only held liable to the extent of their investment in the partnership; unlike general partnerships, the limited partners have no management authority or input towards the operations of the company

6. Corporation It is composed of juridical persons established under the Corporation Code and regulated by the SEC with a personality separate and distinct from that of its stockholders. The liability of the shareholders of a corporation is limited to the amount of their share capital. It consists of at least five to 15 incorporators, each of whom must hold at least one share and must be registered with the SEC. Minimum paid up capital is Peso 5,000. A corporation can either be stock or non-stock company regardless of nationality. Such company, if 60% Filipino - 40% foreign-owned is considered a Filipino corporation; if more than 40% foreign-owned, it is considered a domestic foreign-owned corporation. Stock Corporation  – a corporation with capital stock divided into shares and authorized to distribute to the holders of such shares, dividends or allotments the profits of the business based on equity of shares Non-Stock Corporation  – a corporation that neither generates profit nor issues shares of stock to its members, and could have any of the following purposes:

7. Cooperative In the Philippine legal framework, this defines as autonomous and duly registered associations of persons with a common bond of interest who have voluntary joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of risks and benefits. Credit Cooperative  – promotes and undertakes savings and lending services to create funds and grant loans for productivity and financial assistance among its members Consumer Cooperative  – primary purpose is to procure and distribute commodities to both members and non-members Service Cooperative  – engages in service-oriented activities such as medical, dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication, and other such activities

8. Producers Cooperative  – undertakes joint production, for agricultural or industrial purposes Cooperative Bank  – organized for the primary purpose of providing a wide range of financial services to cooperatives and their members Multi-Purpose Cooperative  – combines two or more of the business activities listed above

9. Business Type of Indonesia Indonesia’s government has sought to simplify the corporate establishment process through Government Regulation in Lieu of Law No. 2 of 2022, which has amended several aspects of the corporate establishment process and norms of doing business in Indonesia. Based on the Investment Coordinating Board of the Republic Indonesia Regulation No. 4 of 2021 (BKPM Reg 4/2021), the minimum capital requirement for a foreign investment company or PT PMA shall be a total investment of at least10 billion rupiah (US$696,000). Previously, the minimum capital requirement for a PT PMA was 2.5 billion rupiah (US$167,065).

10. There a five (5) common types of business entities in Indonesia Perseroan Terbatas (PT) Private-owned enterprises (BUMS) Sole proprietorship (UD) Representative office Subsidiary company

11. Perseroan Terbatas (PT) It is a limited liability company. A PT is a legal entity whose capital is divided into shares. The owner’s personal assets are protected if the company faces any financial issues, as the shareholder’s liabilities are limited to the number of unpaid shares in the capital of the company. Shares can be easily sold, and changes in the ownership and shares can be done without needing to dissolve the company. There are two types of PT in Indonesia: Local PT company; and Foreign-owned PT PMA company.

12. Private Owned Enterprises Private-owned enterprises or Badan Usaha Milik Swasta (BUMs) can be categorised into three types: 1. Firma /Firm (FA) - is a form of a private-owned entity and can be established by two or more Indonesian individuals. 2. Commanditaire Vennootschap (CV) - is a limited liability partnership and there are two types of partners: 1) active partners who provide capital and run the business; and 2) silent partners who only provide capital. 3. Limited company (PT) - a general form of incorporation that limits the amount of liability undertaken by the company's shareholders .

13. Sole Proprietorship (UD) Sole proprietorships or Usaha Dagang is the simplest form of company in Indonesia as it requires only one person to run the business. There is no legal difference between the owner and the sole proprietorship.

14. Representative Office A representative office in Indonesia is suitable for foreign companies who want to explore the Indonesian market and can only conduct market research, promotional activities and act as buying or selling agents for the foreign parent company. The license for this company will expire after two years and needs to be renewed in order to carry on business in Indonesia. There are three types of representative offices in Indonesia: Foreign representative office; Foreign construction representative office; and Foreign trade representative office.

15. Subsidiary Company Subsidiary companies in Indonesia are set up as limited liability companies, and if the parent company is a foreign company, the most appropriate type would be a foreign-owned company (PT PMA). Subsidiary companies are a separate legal entity. Business owners establish a subsidiary company to gain access to the Indonesian market. It is also considered as a tax resident and will be taxed at a corporate tax rate of 25%.

16. Basic process of putting up the business including cost implication in the Philippines 1. Deciding the business structure: The first step is deciding which business structure would be perfect for your own business in the Philippines considering the different business types. The specific costs will vary depending on the type of business you are starting, but you can expect to pay anywhere from PHP 5,000 to over PHP 100,000 for these expenses. 2. Tax obligations:  Business owners must know the tax obligations that apply to the various business entities. There are specific costs of taxes to be paid as imposed by the issuing government agencies.

17. 3. Registering the business name:  Registering a business name is essential for setting up a company in the Philippines. 4. Selecting an office address: The company’s registration requires a business address for conducting operations. 5. Opening a bank account with a minimum deposit: Business owners must open a bank account with a minimum of PHP 5,000 by providing proof of identification and business incorporation.

18. Basic Tax Environment in the Philippines Taxation in the Philippines governed by the following Republic Acts: The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act) Tax Reform for Acceleration and Inclusion (TRAIN) Law Article VI, Section 28 of the Constitution; The National Internal Revenue Code; and Local Government Code of 1991.

19. Tax structure The country imposes a territorial tax system, meaning only Philippine-sourced income is subject to Philippine taxes.

20. Corporate income tax From July 2020 to 2022, foreign companies will be eligible for a reduced corporate income tax (CIT) rate of 25 percent, down from the regular rate of 30 percent. The reduction in the headline CIT rate was passed by the CREATE Act, which also stipulates the further reduction of the CIT rate by one percent per year to finally reach 20 percent in 2027 for foreign companies. Domestic micro, small, and medium-sized companies will directly benefit from a preferential rate of 20 percent (businesses with taxable income of up to PHP 5 million (US$89,270) and not exceeding PHP 100 million (US$1.7 million). The CIT of 25 percent is levied on net income on all sources. Non-resident companies are taxed only on their Philippine-sourced income. Domestic companies are taxed on their worldwide income.

21. Minimum corporate income tax A minimum corporate income tax (MCIT) of two percent is imposed on the gross income of both domestic and resident foreign corporations, on an annual basis. It is imposed from the beginning of the fourth taxable year immediately following the commencement of the business operations of the corporation. The MCIT is imposed when the standard 20 percent CIT is lower than the two percent MCIT on the company’s gross income. Any excess of the MCIT over the normal tax may be carried forward and credited against the normal tax for the three immediately succeeding taxable years.

22. Withholding tax Dividends Dividends distributed by a resident company are subject to withholding tax at 25 percent; those distributed to non-residents are taxed at 15 percent, provided the country of the non-resident recipient allows a tax credit of 15 percent. The withholding tax may be reduced under an applicable tax treaty. Interest Interest paid to a non-resident is subject to a 20 percent withholding tax unless otherwise stipulated under a tax treaty. Royalty Royalty payments made to a domestic or resident company are subject to a final withholding tax of 20 percent. A 25 percent withholding tax is levied on royalty payments to non-residents.

23. Fringe benefits tax Fringe benefits granted to supervisory and managerial employees are subject to a 35 percent tax on the grossed-up monetary value of the fringe benefit. Under new income tax regulations, fringe benefits mean any good, service, or other benefit granted in cash or in kind, other than the basic compensation, by an employer to an individual employee.

24. Branch profit remittance tax Branches of foreign companies in the Philippines, except those registered with the Philippine Economic Zone Authority, are subject to income tax at the rate of 30 percent of their income derived within the Philippines. A 15 percent branch profit remittance tax (BPRT) is levied on the after-tax profits remitted by a branch to its head office. After-tax profits remitted by a branch do not include income items that are not effectively connected with the conduct of its trade or business in the Philippines. 

25. Improperly accumulated earnings tax Income accumulated by closely held corporations with the purpose of avoiding tax attracts an improperly accumulated earnings tax (IAET) of 10 percent. The closely held corporation may refer to companies wherein at least 50 percent of the capital stock or voting power is owned directly or indirectly by not more than 20 individuals. The tax base of the 10 percent IAET is the taxable income of the current year plus income exempt from tax, income excluded from gross income, income subject to final tax, and the amount of net operating loss carry-over deducted. 

26. Personal income tax The Philippines implements a progressive personal income tax rate of up to 35 percent. The TRAIN Act, which was passed at the end of 2017, stipulated provisions to reduce personal income tax on all taxpayers except those in the highest income bracket. Taxpayers in all income brackets below PHP 8 million (US$142,900) will therefore see between a two and five percent reduction in personal income tax rate from January 1, 2023, onwards.

27. Value-added tax The 12 percent value-added tax (VAT) rate is imposed on most goods and services that have achieved actual gross sales of over PHP 3 million (US$53,562).

28. Basic process of putting up the business including cost implication in the Indonesia Several guidelines grace the employer’s journey to start a business in Indonesia, and they vary concerning the type of company. 1. Choose a business structure Employers have to choose a business structure to get a clear idea of the formalities to pursue. 2. Reserve a name Reserving your company’s name is the first step in registering a company in Indonesia.  The foreign company must reserve its name with the Ministry of Law and Human Rights (MOLHR). The company’s name and legitimacy are governed by the Government Regulation No. 43 of 2011. The regulation provides legal protection to the user of the company name, thus preserving the company’s name officially.

29. The  company registration requirements  depend on the owners of the Indonesian company. The minimum share capital related to  starting a company in Indonesia   depends on the size of the company and spans between 3,700 USD and close to 38,000 USD for local limited liability companies. In the case of foreign-owned companies, the minimum amount of money required implies an investment plan worth at least 1,2 million USD. Out of these, at least 25% of the amount must be deposited as an initial share capital.

30. 3. Approval related to the Articles of Association The Articles of Association is similar to a manual to do business. The Articles of Association (AOA) takes the form of a document and stipulates procedures and rules for businesses to follow. Before starting a business in Indonesia, it is essential to understand these rules.  4. Approval of Company After submission, the MOLHR will review the application. The MOLHR will notify the employer if the application is approved within 14 days. The foreign firm can start doing business in Indonesia as an LLC. This approval lawfully permits the company to carry out business.

31. 5. LLC domicile Next, the business must get a domicile registered from the respective Sub-district office. Since the Indonesian government offers more autonomy and legislation for local administrative institutions, approvals for a domicile or a formal address. 6. Tax Registration Number A tax registration number is obtained from the local tax office.

32. 7. Registration with the MOHLR The notary submits the application to the MOLHR to register the company. The notary acts as a proxy for the founding shareholders. 8. Securing Ministry of Trade Approval (MOT) Once the MOLHR provides approval, the business should seek approval from the Ministry of Trade. This should be carried out in the office of the MOT based in the region of the business’ formal address .

33. 9. Publication Once the aforementioned approvals are secured, the Articles must be submitted to the State Printing Office. The registration is then published  in the State Gazette. This process has to be carried out by the notary. Such a process would be carried out 14 days from approval.

34. Basic Tax Environment in Indonesia Indonesia’s parliament approved the Harmonized Tax Law (HTL) or Law No. 7/2021, which overhauls the country’s existing tax structure. Changes include an increase in the value-added tax (VAT) rate, a new carbon tax, scrapped plans to reduce the corporate income tax (CIT), and changes to the topline personal income tax (PIT) rate. The new law aims to optimize tax revenue collection and compliance amid state revenues already battered to cover the costs caused by the pandemic, although some business groups have questioned the timing of the tax hikes, considering that economic recovery is still fragile. The bill could generate up to 250 trillion rupiah (US$17.5 billion) in tax revenue, equivalent to 1.5 percent of GDP.

35. Corporate taxation Corporate income tax in Indonesia  is set at a basic rate of 22 percent for the 2022 fiscal year. There are several facilities given to businesses regarding the CIT if they fulfill the following conditions:  Companies that are listed on the stock exchange that offer the minimum requirement of 40 percent of total share capital are subjected to a three percent tax cut from the standard rate; Companies that have an annual turnover of 50 billion rupiah (US$3.5 million) are eligible for a 50 percent tax cut from the standard rate, which is imposed proportionally on the part of the gross turnover of up to 4.8 billion rupiah (US$336,000); and Companies with gross turnover of no more than 4.8 billion rupiah (US$336,000) are subject to a 0.5 percent tax on total turnover.

36. Value-added tax Value-added tax in Indonesia  is imposed on the provision of services or the transfer of taxable goods. VAT rates are set out below: 11 percent imposed on most manufacturers, retailers, wholesalers, and importers from April 2022 and 12 percent by 2025; Export of tangible and intangible goods is subject to zero percent VAT; and The export of services is subject to zero percent VAT.

37. The government’s negative list sets out all the goods and services that are non-taxable. These include among others – mining or drilling products, basic food commodities, food and drink served in hotels, restaurants, restaurant, stalls, and money, gold bullion and securities. insurance services, religious services, arts and entertainment services, non-advertising broadcasting services, medical health services, financial services, and educational services.

38. Personal income tax Expatriate workers need to know that personal income tax (PIT) in Indonesia is determined through a self-assessment scheme. The country has adopted a worldwide income taxation system, meaning that individuals considered Indonesian tax residents pay tax to the government on the income they earned in Indonesia, and also on income, they earned from abroad, unless there is an applicable double tax agreement.

39. Non-resident taxpayers will only be liable to pay PIT for the income they earn in Indonesia unless the country in which they are a tax resident has an applicable tax treaty with Indonesia. In these cases, the taxpayer might not pay any tax in Indonesia or pay a reduced amount. Given these tax treatments, it is important for expatriate workers to understand their tax liabilities in Indonesia. It is advisable to use the services of registered local tax advisors to help determine which tax law regime will be applicable along with any exemptions that may bring. 

40. Online References: https://www.3ecpa.co.id/resources/why-choose-indonesia/doing-business-in-indonesia-vs-philippines/ https://incorporation.ph/incorporation-options/#:~:text=Local%20and%20foreign%20investors%20can,%2C%20partnership%2C%20corporation%20or%20cooperative . https://www.tradechakra.com/economy/philippines/types-of-business-entities-in-240.php https://ntrc.gov.ph/images/journal/2021/j20210910a.pdf https://www.aseanbriefing.com/news/limited-liability-company-indonesia-set-up-process/ https://indonesia.acclime.com/guides/business-structures/ https://www.investopedia.com/terms/l/limited_company.asp#:~:text=A%20limited%20company%20(LC)%20is,way%20of%20investments%20or%20commitments . https://www.usemultiplier.com/philippines/company-registration https://www.tripleiconsulting.com/how-much-money-need-start-business-in-philippines/ https://www.aseanbriefing.com/news/a-guide-to-taxation-in-the-philippines/ https://www.usemultiplier.com/indonesia/company-registration https://companyformationindonesia.com/#:~:text=The%20company%20registration%20requirements%20depend,for%20local%20limited%20liability%20companies . https://www.aseanbriefing.com/news/a-guide-to-taxation-in-indonesia/