The Philippines is among the fastest growing economies in the world. Businesses are coming in fast to take advantage of the favorable business climate, the young workforce, and the modernizing technology and infrastructure.

However, establishing your presence in the Philippines can go either two-ways; via a branch office or a domestic subsidiary. This infographic will help you decide which will suit your goals more in coming to the Philippines.

Branch vs Subsidiary: Starting a Business in the Philippines

Branch vs. Subsidiary

1. Nature

Branch

  • Extension of the head office
  • Assets and liabilities of the branch are also that of the head office

Subsidiary

  • A juridical entity from parent company
  • Assets and liabilities are generally not regarded as that of the parent company
2. Incorporation

Branch

  • Can be set up with only one person who will act as resident agent

Subsidiary

  • Needs at least five incorporators (but not more than fifteen); all should be natural persons with the majority residing in the Philippines

3. Capitalization

Branch

  • As it is a part of a foreign entity, a branch must have a capital of at least USD 200,000

Subsidiary

  • If foreign equity is <40%, a Proof of Inward Remittance by non-resident aliens and foreign corporate subscribers who want to register their investments with the Central Bank of the Philippines

(If the company will export goods or services, or generate 60% or more of its gross sales abroad, it is considered an Export Enterprise under the Foreign Investments Act of the Philippines. Entities can be registered with as low as PhP 5,000.)

4. Securities Deposit Requirement with the SEC


Branch

  • Initial deposit securities amounting to at least PhP 100,000 is required and an additional annual deposit of 2% of the amount by which the branch office income exceeds PhP 5 million.

Subsidiary

  • No requirement to deposit securities with the SEC.
5. Taxability


Branch

  • Income tax only based on income from the Philippines
  • Branches do not issue shares of stock and are not subject to the Documentary Stamp Tax
  • Profits remitted to the branch are subject to branch profit remittance tax of 15% or 10% depending on tax treaties (tax-exempt if located in a special economic zone).
  • Not liable to pay the 10% improperly accumulated earnings tax

Subsidiary

  • Worldwide income is subject to income tax
  • Dividends by Philippine Subsidiary to non-resident shareholders are subject to 30% in general or 15% subject to certain conditions or existing tax treaties
  • A subsidiary is liable to pay the Documentary Stamp Tax on the original issuance of shares of stock at the rate of 2.00 for every 200 or fractional part of the par value of the shares of the outstanding shares of stock
  • A subsidiary is liable to pay 10% improperly accumulated earnings tax.