How to Circumvent Hefty Customs Tax and Start Your eCommerce Business Right

Afable Medical Center, Olongapo City by Zero Mella MD – Due to the popularity of my previous post “200% Custom’s Tax: Only in the Philippines,” I feel my readers deserve a much needed primer to eCommerce in the Philippines.

History of the Post 200% Custom’s Tax

I was, much probably like you are now, a newbie in eCommerce back in 2010. I had 2 projects at that time; one was in the US and one in the Philippines. I was technical advisor and President of the US-based project and I designed the website and was responsible for contacting US-based suppliers and establishing internet presence. I was also in the meantime, an investor in the Philippine-based project to which my partner does not want me to take part in any of the operations.

I am, of course a licensed medical doctor so before I get any more comments about this, just read on. How I got into ecommerce is a lengthy discussion and worth another post.

The US-based project faltered not because the business model was flawed. We had irreconcilable administrative issues as my foreign partner was laid off in his previous job due to the current economic depression. We decided to shut the corporation down.

The Philippine based operation was also flawed in that we had no business model and it was just a sideline gig for my friend. He purchased his very first stock and it was stopped by customs. The post “200% custom’s tax…” was me flaming about the incident. It was alright for us to be taxed far more than an established business entity would be taxed but 200% is very ridiculous.

What customs probably didn’t tell you?

So it also happened to you, didn’t it, or is bound to happen which is why you are reading this post. You throw your fist in the air and curse customs for being unfair. It sucks I know. They keep throwing nationalistic reasons for imposing the tax and they are often not easily negotiable.

What they are not telling you is that you can circumvent the tax if you are doing the proper way of doing business. Now why won’t they tell you that? Because they are not obligated to tell you that and quite sadly, it will destroy their business.

The question of the best mail courier?

Is it FedEx, DepEx, EMS, USPS, DHL and what have you? The answer is quite simple and shocking…

None.

All are monitored by Bureau of Customs and all the mail couriers mentioned do a bad job as being your broker.

So customs got the best of me and I overpaid my items

You’re in luck actually. What happened in “200% Custom’s tax” opened a door for me. It opened the door for eCommerce in the Philippines for me. How? Because the first rule of ecommerce is…

Find a reliable supplier

If you got all your items you paid for in the internet and not one item less, you just won yourself a responsible and honest supplier. You’ll probably go, so what? Let me tell you about Linda…

I met Linda in the forums of Alibaba (a website) and she promised to sell me ASUS laptops for 200 dollars a piece that were selling at 400 to 500 dollars at that time. That’s a huge margin! I contacted my partner in the US and I told him we hit a jackpot. I could easily use his credit card and buy 5 of those items as a starting stock. We gave her an order form and she gave us instructions for payment. And then it hit me…

If it’s too good to be true, it probably is…

Linda was a scam and I found her victims on another forum. She would provide you Chinese documents of her business. Since, you’re not Chinese you can’t read them. You’ll find a website, you’ll find an address, and you’ll find that she is 100% Alibaba Certified Trusted Seller. But what she will be sending you is a box of used shoes with a tracking number.

I contacted her and demanded I talk to her personally. I used the contact numbers in her website and all of them were not working. She stopped emailing me. And I learned my lesson. We almost got scammed.

Even if you got “scammed” by customs, it was worth it. Charge it to experience.

Setting up an internet presence

Back in 2010, Facebook was an easy platform but frequent revisions of Facebook made it hard for us to market. You’ll find that true today. The idea is just to be noisy. Beg your friends for forgiveness if you will be spamming their news feed but its business. If you’re not social, you won’t make it. Multiply is the currently promoted market but if you keep relying on it, you’ll find yourself behind. I can’t tell you much about how I’m being noisy but since you’re here at my blog, I think it’s effective. I paid a lot to find out how to go about internet marketing so I’m not that ready to divulge all my company secrets. The idea is to find customers. If you’re good at it, you can beat any physical mall. And that’s the beauty of ecommerce.

Establishing a business entity

Do I have to? Yes. Can’t I just be a quiet millionaire? No, unless you want to end up in jail. Why establish a business? Why all the trouble?

Because it is the only way to circumvent or lessen your custom’s tax. This was the very first thing we did in my US-based project because US regulations were very strict. We had a US business mentor and he told us that this was important. Hey, little did I know that the same should also apply in the Philippines. Forgive me, I have no business background then.

Brokers will only do business with other businesses. Banks, lenders, and other B2B’s will likely do the same. Set yourself up a sole proprietorship if you don’t want to bother with too much red tape. But the best business entity is still a corporation. News Flash: you don’t need an MBA to set up a corporation. You just need four other like-minded persons like you to start with. It’s long and lengthy but it can save you millions of tax cash. How? I’m a doctor LOL but I understand the relationship of corporations and net income tax. Maybe another post.

The “import license”

It’s not an actual license but a document that you give to your broker entitling your business to import certain materials from another country. The last amount we used up for this was 15 thousand pesos. Consider it an investment. You’ll probably say but I’m not a doctor, I can’t save that much. I have millionaire neighbors in Las Piñas who started with nothing and was able to get into business and make it. 15 thousand pesos are worth pennies if you get this right. Be imaginative and have some balls.

This is the very big trade secret I am willing to impart to you. Instructions for this certificate of import will be given to you by your elected broker. You should shop around brokerage or cargo companies. They are happy to help you even if you’re a start-up. If they see you have a BIR, DTI, Business Permit, and/or SEC documentations, they’ll know you’re serious about this gig and are probably in it for a long period of time. You see if you succeed in your business, they’ll succeed in theirs.

I had my friend and broker do this for our business, so I can’t tell you the details of the long process (i.e. you filing for the import documents, instead of your broker).

This is when you will learn the truth about customs tax: some items are subject to international trade agreements and have NO CUSTOMS TAX. Philippines signed this agreement. Your suppliers will have to provide you a fax about a certificate of origin to apply for this agreement.

The process of eCommerce

Your customers see an item they want to buy. They buy it from you with whatever payment method you prefer. You contact your supplier and order that item. You ship that item to the foreign office of your elected cargo company. The cargo company contacts your broker. Your broker handles customs with his kung-fu. The customs don’t bother you anymore. Your broker forwards the item to you. You mail it to your customer. The customer gets it and is happy. She tells you that she is happy and you become a whole person and a net profit richer.

That’s what you are getting into. And that’s how to do eCommerce in the Philippines.

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21 thoughts on “How to Circumvent Hefty Customs Tax and Start Your eCommerce Business Right

  1. Hi! Thank you for the blog. This is really helpful for starting small business. Can I still have an import license if I register my business as sole proprietorship?

  2. hi i currently have the same problem,i order online a 3 dresses and customs over charge my packege,the 2 dresses worth of £15 each so it cost £30 ,and the shipping cost £13 each and cost to me of £26 in phils peso 2 dresses worth of 3,600 pesos and another 1 dress the price is £10 and shipping is £13 ,convert to phils peso all i have paid is about 4,900 pesos,it was my 1st time i order online and i was very excited ,last feb 11 2015 DHL deliver the packege it was only 1 dress in the plastic bag,i was shock cuz it should be 3 in 1 packege and i didn’t expect they will charge me very high,the 1 dress cost 1,800 with shilpiing and they want me to paid the same as 1,800 PHP,omg i was shock,i ask DHL if wheres my another packege and why it was only one ?they said its only 1 i was shock again and i didn’t pay my packege yet cuz it was 200% the price of dress my packege still in DHL and im wondiring when they said it was customs charge cuz they have my packege already ,is anyone could help me if it was frm DHL cheating on me? or in the customs,plz help,and BTW my goods i order is highly branded from UK and until now im not sure if the 2 dresses is lost

  3. Our company is set up in SBMA, engaged in Engineering Services. Though we are not into eCommerce, however often we do get shipments from our business partner in the US such as tshirts, calling cards, blue prints, equipments etc. As simple as these items are,we are being taxed heavily when it reached the Customs. I am in charged of all these and it is quite stressful to constantly coordinating with FedEx with all the extra charges, we are certified tax exempted though but other charges is quite sizeable. Would hiring a broker or a cargo company applies the same with us?

    • Yes. I would suggest the cargo forwarder at the back of Subic Bay International Hotel. They were very corteous and most companies inside the SBMA are their clients. I forgot the name but they are the only one at that location.

  4. Can I ask how much it costs you? from establishing a corporation to hiring a broker?

    Im planning to have an apparel business but i have no clue…

    • My business is actually defunct since last year but I’ll give you an idea anyway. 5 years ago, a lawyer-CPA asked me for Php 20,000 to set-up a corporation hassle-free. Dunno if that’s the rate today, but I didn’t take it. We spent Php 5,000 for the SEC payments, fare, and food. When she said it was a hassle to do it by yourself, she wasn’t kidding. The headaches are really worth Php 20,000.00 because of the lines and all the corrections at the SEC for the articles of incorporation and stuff.

      I used my then residence as an address to save much. BIR and other needed stuffs, we didn’t get because my business partner decided to forego all those stuffs. Brokers are paid by commission. We never paid the broker upfront although that may not be in your case. In the end because we forego all the necessary stuff, the business broke down and my relationship with my partner faltered. Don’t make the same mistake I did and build a strong foundation. The cost can be as high up as Php 100,000.00 if you want to hire some people to get all those headaches and stress out of the way of your entrepreneurial spirit. But it can be as low as Php 5,000 to Php 10,000 if you can take all the “hassle.”

    • Dropshipping is when the supplier ships the product directly to your client with receipt that contains your price and bir number.

      The client pays you, you pay the supplier but the product never touches your hands.

  5. Hi. Last year, my boyfriend asked his brother to send BB Cream from Korea to Philippines (Cebu). There were 40pcs of BB cream sent here, but those BB creams were for Christmas presents. The officer from the Cebu post office asked him a certain amount (which I can’t remember) but they settled with Php2000. I couldn’t do anything since he already got the package, and I didn’t have much information about the “tax” that those officers were talking about. Honestly, I was shocked that they asked for money. Is eCommerce applicable in this case?

  6. I am starting a small business using my personal account.. After reading your blog i think you are the right person to ask about starting an online biz.. Ya think I’m doing it well if I post on my facebook some pre-order products and purchase ordered items in a little amount (4-10 items)? How much you think the Philippine custom charge me for these items (make-ups, clothing from china, perfumes etc.) Do I have to apply for an import license for this? Provided that I have no capital and I am just relying on my credit card that has a low credit limit..

  7. Ya think I should do this even if I just want to start a small clothing online business? BTW, I’m also a doctor. And I salute you for finding a source of income other than milking your patients- which I cannot do as well, that’s why I’m here.🙂

    • It’s hard to be in business with a medical degree. Find a partner who can sell. It’s easier to avoid degrading eyes if you place yourself as an investor.
      Medicine is also a business, but its more personal and tailored. You are right, some doctors do milk patients irregardless of socioeconomic status. Sad but true.
      As for your business, push it to existence. 9 out of 10 business startups fail but if you hit that one jackpot, you’re set for life.

  8. Hello there i’m also trying to set up an import export business. I’m not sure if I understood by what you mean by “shop around brokerage or cargo companies.” what do you mean by that? Thanks

    • There are different cargo companies at the airport or you may find some at the yellow pages. They offer different rates and are open to small business like you. Find one that offer the best rates for your business and the ones that provide standard procedures needed for import and export.

  9. This is truly what I call straightforward Philippine e-Commerce 101. I was almost at the verge of turning away from this business after so much stories of horrendous fees imposed by Philippine Customs unreasonably. I feel I will be able to get back on track in this direction after reading your article. Cheers to you!

  10. Pingback: 200% Customs Tax, Only in the Philippines! | Open.For.Consult!

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