Tests of doing business and penalties for unregistered entities considered as doing business in the Philippines

1) What is considered doing business without registration?

There is no specific definition of “doing business” in the Corporation Code of the Philippines. However, under the Foreign Investments Act, doing business without registration includes foreign entities engaged in continuous, profit-oriented activities, or a continuity of business dealings in the Philippines, without a license from the Securities and Exchange Commission.

2) What are the key indicators of doing business?

There are two primary tests that determine whether a corporation is doing business in the Philippines. These are the substance test and the continuity test. The substance test considers a corporation doing business when it shows an intention to engage in commercial activity in the Philippines, while the continuity test considers acts done on a continuous and regular basis. If the corporation has no transactions and no continuous dealings in the Philippines, it is not considered doing business therein.

3) What are the legal consequences of doing business without registration?

A foreign corporation doing business in the Philippines without the required license does not acquire legal personality to sue before Philippine courts, although it may still be sued. Additionally, an individual or entity operating without proper registration may be subject to administrative fines, cease-and-desist orders, and other sanctions imposed by government agencies regulating the line of business involved.

4) What is the penalty amount in 2025?

There is no penalty solely for the lack of business registration as a general rule. However, one of the requirements for registration of companies is registration with the Bureau of Internal Revenue (BIR) for the payment of taxes. Failure to register with the BIR can result in penalties, including a fine of not less than  PHP 5,000 but not more than PHP 20,000, in addition to possible surcharges, interests, and other penalties for related violations. The tax rates for unregistered foreign entities doing business is likewise punitive, based on gross income, and significantly higher (e.g. income tax is 25% of the gross income). Other government agencies may also impose separate penalties for non-compliance with their respective regulations depending on the business activities involved.

5) Is criminal liability possible?

Generally, the lack of business registration alone is not a criminal offense. There is no specific provision in law that criminalizes merely doing business without registration. However, since the business is unregistered, criminal liability may arise from related offenses, such as tax evasion, owing to its failure to pay taxes, criminal liability under social security laws, for failure to remit mandatory employee contributions to government agencies in case of businesses hiring Filipino employees, since the business is unregistered. Criminal charges may also attach if falsification or false declarations occur in the process of compliance with different permits.

6) Who identifies unregistered business activity?

Unregistered business operations may be discovered by government agencies responsible for regulating or monitoring business activities in the Philippines, including but not limited to the Bureau of Internal Revenue, Securities and Exchange Commission, Department of Trade and Industry, local government units, Food and Drug Administration, and Bangko Sentral ng Pilipinas. Identification may arise from inspections, audits, complaints, or inter-agency referrals.

7) What should be done if the activity is already ongoing without registration?

If the business is already operating without proper registration, the appropriate course of action is to immediately register the entity doing business in the Philippines by securing the necessary SEC/DTI registration, BIR registration, local business permits, and other licenses or clearances required for the nature of the business. Voluntary compliance may help mitigate penalties and demonstrate good faith.

8) What obligations arise after registering a business?

After registration, the business assumes continuing obligations such as BIR tax registration compliance, filing tax returns and payment of taxes; payment of mandatory dues to the national government; annual renewal of business permits with the local government unit; compliance with labor standards for businesses with employees, and submission of required SEC reports for corporations and partnerships. Regulated industries may also be required to maintain and renew specific licenses and submit additional periodic reports.

9) From what income level must an individual register as an entrepreneur?

There is no income threshold for requiring business registration. An individual must register once they are considered as doing business in the Philippines.

Authors: Krisanto Karlo Nicolas, Eufelia Rembelle Simbol