How to Commence Business in the Philippines: Requirements for Registration of Appropriate Company

How to Commence Business in the Philippines: Requirements for Registration  of Appropriate Company

An investor who wish to do business in the Philippines has several options on how to establish an entity that is licensed or authorized to conduct business operations and activities. The best option would depend on the investor’s intended business activities, capital and business purposes. Corporate income tax imposed on each type of entity should also be considered.

The following are the types of corporations that can be registered with Securities and Exchange Commission (SEC)

Branch Office
Representative Office
Domestic Corporation
Subsidary Domestic Corporation
Regional Headquarters (RHQ)
Regional Operating Headquarters (RHOQ)

Section 123 of the Corporation Code of the Philippines defines a foreign corporation as the one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency.

The requirements and procedure for the  licensing  of Branch Office and Representative Office are practically the same.

A Branch Office is a foreign corporation organized  and existing under the laws of its place of incorporation and is licensed to do business in the Philippines by virtue of a license issued by the SEC. A branch office can perform the business operations and activities of the foreign head office and is allowed to derive income in the Philippines.

The establishment of a branch office in the Philippines is an option to foreign companies that wish to  do business in the Philippines but do not intend to establish a domestic corporation. As a branch office, it
is a wholly owned company of the foreign  corporation.

A Representative Office  is defined as a foreign corporation that is established for purposes of information dissemination, promotion of company products and quality control of products for export. This type of foreign corporation is not allowed to render services to 3rd parties.

Distinctions between Branch  Office and Representative  Office:

Unlike the Branch Office, a Representative Office of a foreign corporation is not allowed to derive income from its operations in the Philippines. All of the Branch Office’s operational expenses must  be covered by remittances from the parent company.  While the Branch Office is subject to corporate income tax, a Representative Office is not subject to income taxes as none of its income is derived from the Philippines and is not qualified to register with the BOI or PEZA authorities.

Requirements for registration of BRANCH OFFICE and REPRESENTATIVE OFFICE

1. Application Form
SEC Form No. F-103 – for Branch Office or SEC Form No. F-104 – for Representative Office
2. Name Verification Slip
3.Authenticated copy of the board resolution that (a) authorizes the establishment of branch or representative office in the Philippines; (b) designates the resident agent to whom summons and other legal processes may be served to the foreign corporation; and (c) states that in the absence of such agent or upon cessation of its operation in the Philippines, any summons or legal processes may be served to SEC as if the same is made upon the corporation at its home office;
4. Financial Statements as of a date not exceeding one (1) year immediately prior to the application, certified by an independent CPA of the home country and  authenticated before the Philippine Consulate/Embassy;
5. Proof of Inward Remittance, such as bank certificate;
6. Resident Agent’s acceptance of appointment (not required if the resident agent is the signatory in the application form)

What is a domestic corporation?

As defined in the National Internal Revenue Code, the term “domestic”, when applied to a corporation, means created or organized in the Philippines or under its laws.

Basic Requirements  for Registration of Domestic Stock Corporation

1. Name Verification Slip  (secure online or from SEC Name Verification Unit )
2. Articles of Incorporation and By-laws;
3. Treasurer’s Affidavit; and
Joint affidavit of two incorporators undertaking to change corporate name immediately upon receipt of notice or directive from the Securities and Exchange Commission that another corporation, partnership, or person has acquired a prior right to the use of that name or that name has been declared misleading, deceptive, confusingly similar to a registered name, or contrary to public morals, good customs or public policy. (not required if the Articles of Incorporation have a provision on this commitment ).

Additional Requirements

1. Endorsement/clearance from other government agencies, if applicable.
a. For corporations with  foreign equity: Proof of remittance by non-resident aliens and foreign corporate subscribers to register their investment  with the Bangko Sentral ng Pilipinas ( BSP ) or an affidavit that they will not register their investment with the BSP
b. For corporations with more than 40% foreign equity: application form required by the Foreign Investments Act of 1991 (R.A. 7042, as amended)
c. For corporations with applications with the Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Clark Development Corporation (CDC), Cagayan Economic Zone Authority (CEZA) or other economic zones: Certificate of  Authority or endorsement from said government agencies
d. Additional requirements depending on the kind of payment of subscription.

What is a Subsidiary domestic corporation?

A subsidiary domestic corporation is a corporation organized and existing under Philippine laws, which is  either 100% owned or  or at least majority-owned by a foreign stockholder corporation. As owned by a foreign parent stockholder, the liability of the foreign parent company is only to the extent of its ownership over the subsidiary domestic corporation.

Requirements for Registration of Subsidiary Domestic Corporation

1. Name verification slip (may be secured online).
2. Articles of Incorporation and By-Laws.
3.Treasurer’s Affidavit.
4. Registration Data Sheet.

Additional Requirements :

For corporations with foreign equity, Proof of Inward Remittance by non-resident aliens and foreign corporate subscribers who want to register their investment with the BSP. For corporations with more than 40% foreign equity, submit Form F-100 (Application to Do Business Under the Foreign Investments Act of 1991).

What is Regional Headquarters (RHQ)

RHQ is defined as a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.RHQ does  not participate in any manner in the management of any subsidiary or branch office that is located in the Philippines.

What is Regional Operating Headquarters (RHOQ)
RHOQ is defined as  a branch established in the Philippines by multinational companies which are engaged in any of the following services: general administration and planning; business planning and coordination; sourcing and procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communications; and business development.

Requirements for Registration of REGIONAL OR AREA HEADQUARTERS and REGIONAL OPERATING HEADQUARTERS

1. Application Form;
2. Name Verification Slip;
3. A certification from the Philippine Consulate/Embassy or the Philippine Commercial Office or from the equivalent office of the Philippine DTI in the applicant’s home country that said foreign firm is an entity engaged in international trade with affiliates, subsidiaries or branch offices in the Asia Pacific and other foreign markets;  in case the certification is issued by the equivalent office of the Philippine DTI, the same shall be authenticated by the Philippine Consulate/Embassy;
4. A certification from the principal officer of the foreign entity that the said foreign entity has been authorized by its board of directors or governing body to establish its regional or area headquarters or regional operating headquarters in the Philippines; and
5. Endorsement of the Board of Investments (BOI).

Notes: Within 30 days from receipt of license, the following shall be submitted:

For Regional or Area Headquarters:  proof of remittance  of at least US$50,000

For Regional Operating Headquarters: proof of remittance of at least US$200,000 if not submitted with the application papers.

Summary of Minimum Investment and Tax Rates

*Corporations that are registered with the Philippine Economic Zone Authority (PEZA) are entitled to a holiday income tax and local taxes for three or eight years. After that, they are subject to 5% tax on gross income (sales less direct costs) in lieu of all local and national taxes. If investors wish to register with the Subic Bay Metropolitan Authority (SBMA) or Subic Bay Freeport Zone or  Clark Freeport Zone corporations are also subject to the special 5% tax, but are not entitled to tax holidays. Corporations that are registered in the ecozones are subject to zero rated VAT for transactions performed and delivered within the ecozones as well as on the sale or services to these enterprises.

Enterprises registered with the Board of Investments (BOI)  are likewise entitled to income tax holiday and tax credits.