Registering a One-Person Corporation for Non-VAT Businesses in the Philippines

Introduction

In the Philippines, the establishment of a One-Person Corporation (OPC) represents a significant innovation in corporate law, designed to empower individual entrepreneurs by allowing them to enjoy the benefits of corporate personality without the need for multiple shareholders. Enacted through Republic Act No. 11232, also known as the Revised Corporation Code of the Philippines (RCC), which took effect on February 23, 2019, the OPC framework simplifies business formation for sole proprietors seeking limited liability protection. This is particularly advantageous for non-VAT businesses—those with annual gross sales or receipts not exceeding the VAT threshold of PHP 3,000,000 (as adjusted under Republic Act No. 10963 or the TRAIN Law and subsequent regulations)—as it enables them to operate under a corporate structure while maintaining simpler tax compliance obligations.

An OPC is essentially a corporation with a single stockholder, who may be a natural person, a trust, or an estate. For non-VAT businesses, such as small retail operations, freelance services, or home-based enterprises, registering as an OPC offers a pathway to formalize operations, access banking facilities, and shield personal assets from business liabilities. This article comprehensively explores the legal framework, eligibility criteria, registration process, post-registration requirements, tax considerations, advantages, challenges, and best practices for establishing an OPC tailored to non-VAT entities in the Philippine context.

Legal Framework and Key Provisions

The OPC is governed primarily by Sections 115 to 130 of the Revised Corporation Code. These provisions depart from the traditional requirement of at least five incorporators under the old Corporation Code (Batas Pambansa Blg. 68), allowing a single individual to form a corporation. The Securities and Exchange Commission (SEC) oversees the registration and regulation of OPCs, ensuring compliance with corporate governance standards while accommodating the unique structure of a one-person entity.

Key legal principles include:

Corporate Personality: An OPC possesses a juridical personality separate and distinct from its single stockholder, providing limited liability wherein the stockholder's personal assets are generally protected from corporate debts (Section 116, RCC).
Perpetual Existence: Unless otherwise stated in the Articles of Incorporation, an OPC enjoys perpetual succession, surviving the death or incapacity of the stockholder (Section 11, RCC).
Nominee System: To ensure continuity, the single stockholder must designate a nominee and an alternate nominee who will manage the corporation in case of the stockholder's death or incapacity (Section 121, RCC).
Restrictions on Certain Professions: OPCs are prohibited in sectors reserved for Filipinos or requiring multiple professionals, such as banking, insurance, and certain public utilities (Section 115, RCC; see also Foreign Investments Act of 1991 or Republic Act No. 7042, as amended).

For non-VAT businesses, the OPC structure aligns with Bureau of Internal Revenue (BIR) regulations under Revenue Regulations No. 16-2005 (as amended), which classify businesses based on gross receipts. Non-VAT status applies if projected annual gross sales do not exceed PHP 3,000,000, exempting the business from the 12% VAT but subjecting it to a 3% percentage tax on gross receipts (Section 109, National Internal Revenue Code or NIRC, as amended).

Eligibility and Qualifications

Any natural person of legal age (18 years or older), whether Filipino or foreign, may incorporate an OPC, subject to nationality restrictions in regulated industries. Trusts and estates are also eligible, provided they are duly constituted under Philippine law. However, the following disqualifications apply:

Minors, incapacitated persons, or those convicted of crimes involving moral turpitude cannot serve as the single stockholder.
Foreign nationals are barred from fully owning OPCs in areas with foreign equity limits (e.g., mass media, where 100% Filipino ownership is required under the Constitution).
The single stockholder must also act as the president but may appoint themselves or others as treasurer. The corporate secretary, however, must be a Philippine resident and citizen, and cannot be the same person as the president unless the stockholder opts for a simplified structure (Section 122, RCC).

For non-VAT businesses, eligibility hinges on the nature of operations. Businesses engaged in services, trade, or professions where gross receipts are below the VAT threshold qualify. Examples include small consulting firms, online sellers with limited turnover, or artisanal crafts businesses. If the business involves VAT-exempt transactions (e.g., agricultural products under Section 109, NIRC), it may still register as an OPC without VAT obligations.

Pre-Registration Preparations

Before formal registration, prospective incorporators should undertake the following:

Business Name Verification: Use the SEC's online system (SEC i-Register) to check and reserve the desired corporate name. The name must include "OPC" at the end (e.g., "ABC Enterprises OPC") to distinguish it from other corporations (SEC Memorandum Circular No. 7, Series of 2019).
Capital Requirements: No minimum paid-up capital is required unless specified by special laws (e.g., PHP 1,000,000 for financing companies). For non-VAT businesses, a nominal capital of PHP 1.00 is permissible, reflecting the low-scale operations.
Office Address: A principal office address in the Philippines is mandatory, which can be a home address for small businesses.
Nominee Designation: Prepare an undertaking signed by the nominee and alternate, confirming their willingness to assume management roles if needed.

Step-by-Step Registration Process

Registering an OPC involves coordination with the SEC, BIR, and local government units. The process is streamlined via the SEC's electronic system (eSECURE) for faster approval.

SEC Registration:
- Prepare the Articles of Incorporation (AOI), which must include: the corporate name with "OPC" suffix, purpose clause (tailored to non-VAT activities, e.g., "retail trade of non-essential goods"), principal office, term of existence (perpetual unless specified), single stockholder details, authorized capital stock (at least one share subscribed and paid), and nominee designations.
- Bylaws are optional for OPCs but recommended for internal governance (Section 46, RCC).
- Submit documents online via eSECURE, along with a cover sheet, undertaking for nominees, and proof of payment of filing fees (approximately PHP 2,000 to PHP 5,000, depending on capital).
- SEC reviews and issues a Certificate of Incorporation within 3-5 working days if compliant.
BIR Registration:
- Apply for a Taxpayer Identification Number (TIN) and Certificate of Registration (COR) using BIR Form 1903 at the Revenue District Office (RDO) covering the principal office.
- For non-VAT status, declare expected gross receipts below PHP 3,000,000 and opt for percentage tax. Submit the SEC Certificate, AOI, and proof of address.
- Register books of accounts and official receipts/invoices. Non-VAT businesses must issue non-VAT official receipts and are exempt from e-invoicing mandates for VAT payers (Revenue Regulations No. 9-2021).
- Pay the annual registration fee of PHP 500.
Local Government Registration:
- Secure a Barangay Clearance, Mayor's Business Permit, and Sanitary Permit from the local government unit (LGU).
- Fees vary by locality but are minimal for small non-VAT operations (e.g., PHP 500-2,000 in Metro Manila).
Other Registrations:
- If employing workers, register with the Social Security System (SSS), PhilHealth, and Pag-IBIG Fund.
- For specific industries, obtain additional permits (e.g., FDA for food-related non-VAT businesses).

The entire process typically takes 1-2 weeks, with costs ranging from PHP 5,000 to PHP 10,000 for basic setups.

Post-Registration Compliance

Once registered, an OPC must adhere to ongoing obligations:

Annual Reports: Submit a General Information Sheet (GIS) and Audited Financial Statements (AFS) to the SEC annually. For OPCs with gross revenues below PHP 5,000,000, a simplified AFS suffices (SEC MC No. 28, Series of 2020).
Meetings and Records: The single stockholder acts as the board, but minutes of "meetings" (even if solo) must be kept. Maintain books of accounts as per BIR rules.
Tax Filings: File quarterly percentage tax returns (BIR Form 2551Q) at 3% on gross receipts, and annual income tax returns (BIR Form 1702) at the corporate rate of 20% or 25% (depending on gross income under Republic Act No. 11534 or CREATE Law). Non-VAT businesses cannot claim input VAT credits.
Threshold Monitoring: If gross receipts exceed PHP 3,000,000, mandatory VAT registration is required within 30 days (Section 236, NIRC).
Amendments: Changes in nominees, address, or purpose require SEC approval via amended AOI.

Failure to comply may result in penalties, such as fines up to PHP 1,000,000 or revocation of registration (Section 158, RCC).

Tax Considerations for Non-VAT OPCs

OPCs are taxed as domestic corporations under the NIRC. For non-VAT businesses:

Income Tax: Subject to 20% (if gross income exceeds PHP 5,000,000) or 25% regular corporate income tax (RCIT) under CREATE Law. Minimum Corporate Income Tax (MCIT) of 1% on gross income applies after the first three years if RCIT is lower.
Percentage Tax: 3% on gross sales/receipts replaces VAT.
Withholding Taxes: Withhold taxes on payments (e.g., 5-10% on professional fees).
Exemptions: Non-VAT OPCs may qualify for income tax holidays if registered with investment promotion agencies like the Board of Investments (BOI) for pioneer projects, though this is rare for small-scale operations.
Comparison with Sole Proprietorship: Unlike sole proprietors who may opt for 8% flat tax on gross receipts above PHP 250,000 (Section 24, NIRC), OPCs do not have this option, potentially leading to higher taxes but offset by liability protection.

Advantages of OPC for Non-VAT Businesses

Limited Liability: Personal assets are safeguarded, crucial for risk-prone small businesses.
Credibility and Growth: Corporate status facilitates loans, contracts, and expansion.
Succession Planning: Nominee system ensures business continuity.
Tax Flexibility: Non-VAT simplifies compliance, avoiding complex VAT computations.
Ease of Transfer: Shares can be sold without dissolving the entity.

Challenges and Considerations

Higher Setup and Compliance Costs: Compared to sole proprietorships, OPCs involve more paperwork and fees.
Separate Taxation: Profits are taxed at corporate level, and dividends at personal level (double taxation, though mitigated by lower RCIT rates).
Regulatory Scrutiny: SEC and BIR audits are possible; non-compliance risks penalties.
Conversion Options: Existing sole proprietors can convert to OPC via SEC application, transferring assets tax-free if compliant (Revenue Regulations No. 4-2021).
Professional Advice: Engage a lawyer or accountant to navigate nuances, especially for foreign-owned OPCs or industry-specific rules.

Conclusion

Registering a One-Person Corporation for non-VAT businesses in the Philippines offers a robust framework for individual entrepreneurs to formalize and protect their ventures under the Revised Corporation Code. By following the outlined steps and maintaining compliance, OPCs can thrive in a low-tax environment while benefiting from corporate advantages. This structure not only democratizes access to corporate benefits but also aligns with the government's push for ease of doing business, fostering economic growth at the grassroots level. For tailored guidance, consulting legal and tax professionals is essential to ensure alignment with evolving regulations.