A Guide to Starting a Micro Business in the Philippines

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Published — April 3, 2019

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Related article: The Barangay Micro Business Enterprise (BMBE)

Republic Act No. 9178, otherwise known as, Barangay Micro Business Enterprises (BMBEs) Act of 2002, gives small-scale entrepreneurs the opportunity to start their businesses even with little capital. The said law recognizes that these small-scale entrepreneurs can help with the problem regarding much-needed employment and somehow alleviate poverty because they are given the chance to do business on their own, without having to deal with higher costs. It encourages growth with the setting of a micro business which can later turn into big enterprise.

Section 3 of Republic Act No. 9178, otherwise known as, Barangay Micro Business Enterprises (BMBEs) Act of 2002, provides:

“Barangay Micro Business Enterprise refers to any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, shall not be more than Three Million Pesos (P3,000,000.00).”

The most common type of micro business is sari-sari store. Almost every corner in the Philippines have one. Other examples of micro businesses are laundry shops, computer shops, printing shops, and canteens. It must still be noted that their total assets shall not exceed Three Million Pesos (P3,000,000.00) to be considered as BMBE to be qualified for the incentives provided by law.

Further, Section 4 of Department Administrative Order No. 01, Series of 2003, or the Implementing Rules and Regulations of R.A. No. 9178 states that any person, natural or juridical, cooperative or association, may be considered as BMBE and apply for registration provided the following qualifications are met:

1. Have an asset size of not more than Three Million Pesos (P3,000,000) excluding land, before applying for BMBE registration; and
2. Engaged in the business activities as defined in Sec. 2(b) of the IRR.

The term “asset” refers to all kinds of properties, real or personal, owned by BMBE and used for the operation of its business. It may be simplest things like the tables, chairs, cabinets, and devices used by the BMBE owner for its business.

Registering as BMBE

            An applicant for BMBE registration shall submit the duly filled up application (BMBE Form 01) in triplicate, signed by the owner or manager of said BMBE applying for registrationat the Office of the Treasurer of the city or municipality which has jurisdiction over the principal place of business of the BMBE (Section 3 of Department Administrative Order No. 01, Series of 2003, or the Implementing Rules and Regulations of R.A. No. 9178).

The City or Municipal Treasurer, as the case may be, will evaluate the application. It shall be processed within fifteen (15) working days upon submission of complete documents, otherwise, the BMBE shall be deemed registered. The Office of the Treasurer will then issue a Certificate of Authority effective for a period of two (2) years, renewable for a period of two (2) years for every renewal (Section 5, IRR of R.A. No. 9178).

As a general rule, the Local Government Units (LGUs) shall issue the Certificate of Authority promptly and free of charge. However, they may charge a fee not exceeding One Thousand Pesos (P1,000) as administrative costs for registering and monitoring of the BMBEs (Section 7, IRR of R.A. No. 9178).

Incentives and Benefits

The following are the incentives, and benefits provided under R.A. No. 9178:

1. All BMBEs shall be exempt from tax for income arising from the operations of the enterprise The LGUs are encouraged either to reduce the amount of local taxes, fees and charges imposed or to exempt BMBEs from local taxes, fees and charges (Section 7 of R.A. No.9178).

Though, the BMBEs are exempt from income taxes, they are still liable for value-added taxes, percentage taxes, and other local taxes which may be imposed upon them. They are still required to file their Income Tax Return. Section 4 (b) of the Tax Reform for Acceleration and Inclusion Law (TRAIN Law) or R.A. No. 10963 provides that self-employed individuals and/or professionals whose gross sales or gross receipts and other non-operating income which does not exceed the Value-Added Tax (VAT) Threshold of Three Million Pesos (Php3,000,000) shall have the option to avail of an eight percent (8%) tax in lieu of the graduated income tax rate. This is favorable to BMBEs because it means lower tax to pay and simplified computation.

2. The BMBEs shall be exempt from the coverage of the Minimum Wage Law: Provided, that all employees covered under this Act shall be entitled to the same benefits given to any regular employee such as social security and healthcare benefits (Section 8 of R.A. No.9178).

BMBEs are exempt from strict compliance with the Minimum Wage Law. They can set a wage lower than that provided by law considering that they are small-scale businesses hence, the law is lenient. Nonetheless, the benefits given to regular employees such as SSS, and Philhealth benefits must still be given to them.

3. Section 9 of R.A. No. 9178 provides that the Land Bank of the Philippines (LBP), the Development Bank of the Philippines (DBP), the Small Business Guarantee and Finance Corporation (SBGFC), and the People’s Credit and Finance Corporation (PCFC) shall set up a special credit window that will service the financing needs of BMBEs registered in accordance with the above-cited law, and consistent with the Bangko Sentral ng Pilipinas (BSP) policies, rules and regulations. The Government Service Insurance System (GSIS) and Social Security System (SSS) shall likewise set up a special credit window that will serve the financing needs of their respective members who wish to establish a BMBE.

Those who plan to set up a micro business can get help from the abovementioned agencies and entities for their financing needs. Special Credit Window for each agency are available to cater to the financial concerns of small-scale entrepreneurs to help them get started. However, to avail of all the incentives, and benefits mentioned above, the BMBE must be registered.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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