E-commerce is defined in the Philippines as purchasing goods and services through “computer-mediated networks”; essentially, if you buy anything online, be it physical goods or services like deliveries or loans, you’re participating in e-commerce.
It exploded in popularity due to the quarantine mandates during the pandemic, with research showing an increase of 265% in just four years, with worldwide e-commerce sales going from $2.3 trillion in 2017 to $4.88 trillion in 2021. This makes it a very attractive venture for start-up enterprises that don’t have the necessary resources for an onsite location.
Specific requirements must be fulfilled before starting an online shop that focuses on e-commerce. Suppose you want to create an e-commerce business. In that case, you’ll need a business permit from a legitimate local government unit, register with the Securities Exchange Commission (SEC) for a corporation or partnership, or Department of Trade and Industry (DTI) for a sole proprietorship, and Bureau of Internal Revenue (BIR). Additional registrations may also be needed with the following government agencies:
- Bangko Sentral ng Pilipinas (BSP)
- Intellectual Property Office of the Philippines (IPOPHL)
- Department of Health (DOH)
- Food and Drug Administration (FDA)
- Department of Agriculture (DA)
- National Privacy Commission (NPC)
Restrictions on Foreign Equity
While the Philippines does not entirely prohibit foreign investment, there are still restrictions depending on the business activity and industry. Following the mandates of the Foreign Investments Act of 1991 (FIA), as amended by Republic Act 11647 on March 2, 2022, the government regularly issues a Foreign Investment Negative List (FINL), which documents the industry restrictions in terms of maximum capital investment and foreign participation. You may refer to our FINL article regarding these amendments for more information.
Generally, foreigners can invest about 40% equity in domestic businesses. This equity cap can be raised if said business pays a minimum paid-up capital of USD200,000. Afterwards, these foreign business owners are allowed full ownership of the domestic market enterprise.
Under the amended Retail Trade Law, retail is also a possible venture for foreigners if they fulfil the requirements:
- Minimum paid-up capital of PHP25,0000,000, to establish a 100% foreign owned company
- Additional PHP10,000,000 minimum per store if it involves opening physical stores.
E-commerce payment solutions, foreign exchange administration and merchant acquiring services requirements
- Payment Solutions
E-commerce businesses may use any of the following payment solutions for their transactions:
- electronic wallets and electronic money, which is regulated digital wallets approved and registered with the BSP
- bank-to-bank transfers
- payment gateways such as Paymaya, for the authentication and processing of payments of online transactions
- cash upon delivery
- credit and debit cards
All these listed payment solutions require prior BSP registration after the SEC or DTI registration.
- Foreign exchange
The Philippines allows for cross-national merchants or e-commerce transactions. The Philippine peso can be quickly converted to other international currencies with all the different payment options, authentication procedures, and processing.
Because of this, the peso can be used in e-commerce platforms that aren’t physically in the country.
However, one must be aware of e-commerce platforms that aren’t validly licensed since their lack of presence in the country can give you no viable platform to air your concerns if the service or product provided is subpar.
- Merchant Acquiring Services
The BSP primarily regulates all debit/credit card operations and transactions. These include merchant acquiring services or the process by which an entity accepts and facilitates and facilitates the processing of credit transactions/ payments for a merchant. But for an online payment system to operate in the Philippines, it must first be incorporated or registered with the SEC or DTI and, once approved, acquire authority from the BSP.
The e-Commerce industry in the Philippines is supported and protected by the Philippines’ Cybercrime and Data Privacy Laws. The NPC oversees the country’s Data Privacy Law and urges any establishment operating locally to designate data privacy officers for the security of their online-based business.
The NPC ensures that the country complies with essential international privacy agreements such as the European General Data Protection Regulation and APEC Cross Border Privacy Rules. E-commerce businesses are expected to follow the same security rules and standards utilised by these organisations.
Data protection requirements
All business owners of e-commerce-based establishments in the Philippines must process their personal data following the Data Privacy Act (DPA) mandates of 2012. This also applies if the data processing is done in the Philippines or if the processing relates to the personal data of a citizen or Filipino resident.
The processing requires a personal information controller (PIC) and personal information processor (PIP) to adhere to the principles of transparency, legitimate purpose and proportionality in the processing and collecting personal data.
For the sake of transparency, the PIC must appraise the data subjects of the description of the personal data to be processed, purpose/s of processing (including direct marketing and profiling), basis of processing, scope and method of processing, recipients to whom the personal data may be disclosed, the existence of rights of data subjects, and contact details of the PIC’s Data Protection Officer.
Data processing is consent-based; thus, data subjects need to be consulted and their consent obtained before collecting their personal data or as soon as practicable and reasonable.
E-commerce platforms can use any collected personal data to conduct data analytics for marketing and advertisement purposes, provided the data subjects consent to these purposes.
Consumer protection requirements
Whilst the Philippines has no law specific to online transactions for consumers using e-commerce, the Joint DTI-DOH-DA Administrative Order No. 01 or the Rules and Regulations for Consumer Protection is a transaction covered by the Consumer Act of the Philippines through Electronic Means under the E-Commerce Act adds particular business requirements.
The Administrative Order mandates retailers, sellers, distributors, suppliers, or manufacturers engaged in E-commerce with consumers to adopt fair and reasonable business practices and reiterate their obligation to comply with existing consumer protection laws and regulations.
Additionally, online business owners must provide the following to their consumers:
A.) Information about the retailers, sellers, distributors, suppliers, or manufacturers engaged in E-commerce. This is mainly to identify them, which information would include the following, among others:
- Registration details with DTI or SEC.
- Name/s of their owners, directors, or officers.
- Their principal geographical address.
- Their contact details.
- Other relevant local or foreign government registration/license numbers, such as Tax Identification Number.
B.) Information about the products or services.
E-commerce owners are required to give information about their products or services that will provide:
- fair, accurate, clear, and easily accessible information describing the products or services offered for sale.
- fair, accurate, straightforward, and easily accessible information sufficient to enable consumers to make informed decisions about whether to enter the transaction.
- such other information that allows the consumers to maintain an adequate record of the information about the products and services offered for sale.
C.) Information about the consumer transaction.
E-commerce owners are mandated to provide sufficient, clear, accurate and easily accessible information about the transaction's terms, conditions, and costs. Some of the information would include:
- Price tag of the product or service and the applicable currency, as well as applicable costs like delivery, shipping charges, and taxes, among others.
- Payment mechanisms that are reliable, easy to use and offer security that is appropriate for the transaction and details of payment terms
- Terms of delivery
- Details about any available warranties and guarantees, among others.