Starting A Business In The Philippines: What are the Corporate Business Entities?

Posted by Maria Katrina dela Cruz

Feb 18, 2020 4:00:44 PM

With the profitable potential the Philippines offers, foreign investors start their businesses in the local market by incorporating a new domestic firm or by acquiring a license from the government.

Starting a business in the Philippines

Related: Investing In The Philippines: A Guide In Starting Your Business

 

Types of Corporate Business Entities in the Philippines

Both domestic and foreign corporations operating in the Philippines undergo registration at the Securities and Exchange Commission (SEC) and other corresponding government agencies for legal documents. 

For foreign business owners, there are four entity structures you can establish offshore:

  1. Branch Office
  2. Representative Office
  3. Regional Headquarters
  4. Regional Operating Headquarters

 

Branch Office

Branch offices are considered an extension of foreign corporations overseas. It expands the operations of the head office into the local office, and are also allowed to generate income inside and outside the Philippines. They are guided by the juridical laws of the parent company’s country, which means the liabilities it incurs are considered liabilities of the head office.

Registering a branch office in the Philippines begins with the appointment of a resident agent who will receive summons and legal processes from SEC. This allows the government to have jurisdiction over the foreign business. 

Securing a license is a business requirements in the Philippines.To obtain a license to do business in the Philippines, foreign corporations are asked to submit the following documents:

  • Accomplished SEC F-103 Form
  • Secured Name Verification Slip
  • Authorized Board Resolution for the creation and establishment of the foreign branch office in the Philippines
  • Audited Financial Statements (AFSs) of the parent company
  • Authenticated copies of the Articles of Incorporation and By-Laws of the parent company (or equivalent)
  • Certified remittance of minimum paid-up capital to local bank
  • Obtained licenses and clearances from necessary government offices (if applicable)

 

Representative Office

Foreign businesses can also opt to establish a representative office in the Philippines. 

Acting as a local liaison of the head office, a representative office directly coordinates with clients of the parent company. It is tasked to facilitate client concerns, disseminate information, promote the company’s services, and the like. 

The parent company fully subsidizes its representative office without generating income in the Philippines. They are not allowed to offer their services to third parties and are not subject to income tax, provided that they do not earn funds in the local market. PEZA and BOI incentives are also excluded from the registration of the representative office. 

Representative offices are not fully operational until they secure a business license. To obtain one, they need to submit the following requirements:

  • Form F-104
  • Name verification slip
  • Authenticated copy of the board resolution authorizing the establishment of the office, designating the resident agent, and stipulating that in the absence of the agent summons may be served to the SEC
  • Financial Statements of a date not exceeding 1 year immediately prior to the application certified by an independent CPA from the home country
  • Affidavit of solvency
  • Authenticated Articles of Incorporation
  • Proof of inward remittance
  • Registration Data Sheet
  • Resident Agent’s acceptance of appointment

 

Regional headquartersRegional Headquarters

Regional headquarters (RHQ) are established to oversee a foreign firm’s affiliates, subsidiaries and branches in the Asia-Pacific (APAC) region and other markets that are not allowed to operate nor derive income from any source in the Philippines. 

RHQs function as an administration and communication office for the mother company. Some conditions such as sourcing products, training employees, and research conduct are allowed under Philippine laws. 

Like other foreign corporations, RHQs are subject to submit all necessary business requirements to commence their operations in the Philippines.

  • Name verification slip;
  • Certification by the Philippine Consulate/Embassy or the Philippine Commercial Office or from the equivalent office of the Philippine Department of Trade and Industry (DTI) in the company’s country of origin verifying that said foreign corporation is engaged in international trade with subsidiaries, branches or affiliates in the Asia-Pacific (APAC) region and other foreign markets; and in case the certification is issued by the equivalent of the DTI, the same shall be authenticated by the Philippine Consulate/Embassy;
  • Certification from the Principal Officer of the foreign corporation verifying that it is authorized by its Board of Directors or governing body to establish an RHQ in the Philippines;
  • Proof of inward remittance of US$50,000.00 as paid-up capital and annual support for operating expenses;
  • Registration Data Sheet;
  • Endorsement or clearance from appropriate government agencies (if applicable)
  • Endorsement from the Board of Investments (BOI)
  • Latest authenticated financial statements 

Unlike a representative office, RHQs are eligible for tax incentives and other government benefits such as the following:

  • Exemption from corporate income tax;
  • Exemption from branch profits remittance tax;
  • Exemption from value-added tax;
  • Sale or lease of goods and property, and services to the RHQ are zero-rated;
  • Exemption from all kinds of local taxes, fees, or charges imposed by a local government unit, except real property tax on land improvements and equipment;
  • Tax and duty-free importation of equipment and materials for training and conferences needed and solely used for the RHQ functions, and which are not locally available, subject to prior BOI approval;
  • Importation of a brand new motor vehicle but subject to payment of taxes and duties.

 

Regional Operating Headquarters 

If an RHQ is not allowed to generate income in the Philippines, a Regional Operating Headquarter (ROHQ) extends the establishment of the mother company to perform services to the affiliates, subsidiaries or branches in the APAC region. 

ROHQs can do corporate finance advisory, marketing control, sales promotion, logistics services and the such, given that they perform the services only to their affiliates and subsidiaries in the Philippines as declared in the foreign company registration with SEC.

To secure a license, the foreign company must submit the following documents to the SEC:

  • Board Resolution authorizing the creation and establishment of the RHQ/ROHQ in the Philippines;
  • Audited financial statements of the parent company;
  • Authenticated copy of the Articles of Incorporation and By-Laws (or equivalent);
  • Certification that the foreign company is an entity engaged in international trade with affiliates, subsidiaries or branch offices in the Asia Pacific and other foreign markets; and
  • Certification of inward remittance for minimum paid-up capital: (200,000 USD one-time remittance for ROHQ.)

Philippine ROHQs can avail the below incentives:

  • Subject to preferential income tax rate of 10% on taxable income;
  • Exemption from all kinds of local taxes, fees or charges imposed by a local government unit, except real property on land improvements and equipment;
  • Tax and duty free importation of equipment and materials for training and conferences needed and solely used for the ROHQ functions, and which are not locally available, subject to prior Board of Investments (BOI) approval;
  • Importation of a brand new motor vehicle but subject to payment of taxes and duties.

 

Multinational companies interested in starting a business in the Philippines may consider establishing either a branch office, representative office, RHQ or ROHQ, whichever may fit their business. 

D&V Philippines can help your firm select, establish, and register here in the local market without the hustle of the offshoring journey. Read our guide Getting your Business In- A Startup’s Gateway to the Philippines to know how we can help your company get started in the country.

D&V Philippines solutions for local startups

Topics: Business in the Philippines

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