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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Zero MD 