Philippine Business Registration Guide

BUSINESS CONSULATION

Need help in:

Accounting, Auditing, Taxations, Bookkeeping, Legal Business Issues, Business Compliance, Business Registration, Incorporation, Business Process Outsourcing Call us or email your questions , our Accountant (CPA), Lawyer, Business Consultant will help you.

Make an Appointment

Philippine Business Registration Guide

REGISTER YOUR BUSINESS IN THE PHILIPPINES

A foreign company may register their business in the Philippines by one of several methods. Each form has its own requirements, characteristics and features that may either be viewed as an advantage or disadvantage, depending on the Company’s business goals and growth plan.

A) REPRESENTATIVE OFFICE, What is representative office?

B) BRANCH, What is the tax on branch profit remittances?

C) DOMESTIC SUBSIDIARY, What is domestic subsidiary?

D) REGIONAL HEADQUARTERS, What is a RHQ and what are the activities it can engage in?

E) REGIONAL OPERATING AREA HEADQUARTERS, What is a ROHQ and what are the activities it can engage in?

What are the funding requirements for a RHQ and a ROHQ?

What are the taxes applicable and incentives available to a RHQ/ROHQ?

REPRESENTATIVE OFFICE

A representative office promotes the products and/or services of the Company it represents, but cannot conclude contracts with local entities on behalf of its parent Company. Such contracts must be directly entered into between the Company's head office and the local entity. Its activities are limited to the promotion and dissemination of information about the Company’s products and/or services.

By the nature of the activities allowed by a representative office, it cannot derive income from the Philippines. The test of whether an office is a representative office or not is whether it derives income from its operations.

Some of the acceptable activities of a representative office are the following:

a.) dissemination of foreign market information;

b.) promotion for the export of Philippine products especially nontraditional products;

c.) acting as a message center or a communication center between interested parties and the head office;

d.) promotion of products presently being distributed in the Philippines;

e.) to render, assist and give technical know-how and training to existing and future customers of the Company’s products;

f.) to provide and facilitate better communication and contact between its head office and affiliated companies on one hand and present and future customers on the other;

g.) to inform potential customers of price quotations of the head office and affiliated companies;

h.) to conduct and make surveys and studies of the market, economic and financial conditions in the Philippines; and

i.) attend to the needs of end-users of its products in the Philippines advising them on the proper care and maintenance of their equipment and communicating to its head office problems that call for consultations.

Capital Requirement

The amount initially to be remitted is at least Thirty Thousand US Dollars (US$30,000.00). Thereafter, an inward remittance of such amount as may be necessary for operating expenses.

Taxes

A representative office has no income from operations and, there has no income tax liability.

Expenses

No allocation can be made to the representative office since the representative office obtains no income from the Philippines with which to offset the expenses with.

Deposit Of Securities

No deposit of securities with any entity is required.

*Establishment and Registration Costs

a.) The filing fee equivalent to l/10 of 1% of the funds actually remitted to the Philippines;

b.) Legal research fee of 1% of the filing fee; and

c.) Minimal amount of fees for post-incorporation government permits such as the mayor’s permit, tax identification number, Bureau of Internal Revenue (“BIR”) registration, and registration of books of account and Certificate of Registration with the Bureau of Domestic Trade.

BRANCH

A foreign corporation may set up a branch in the Philippines by obtaining a license to transact business. A branch, like a representative office, is an extension of the foreign corporation (i.e., incorporated and existing under foreign laws), but may engage in exactly the same activities as its parent company. However, existing nationality requirements with respect to certain industries must be observed.

Since a branch office is a mere extension of its parent corporation, the branch does not have a personality separate and distinct from its parent company. A branch office may, therefore, conclude sales contracts with local entities in its own name, and in general, engage in income producing activities in the same manner as its parent company. Further, the parent corporation may be held responsible for any liability of the branch in excess of its investment.

Capital Requirement

The required minimum assigned capital is Two Hundred Thousand US Dollars (US$200,000.00). (Republic Act No. 8179). This amount of required minimum assigned capital may be reduced to One Hundred Thousand US Dollars (US$100,000.00) if advanced technology as determined by the Philippine Department of Science and Technology is involved or the business directly employs at least fifty (50) employees.

Taxes

A branch is taxed only on net income derived from Philippine sources at a rate of 30%. In lieu of the above-mentioned normal corporate income tax rate, beginning the fourth (4th) year immediately following the year of the commencement of its operations, a branch or a domestic corporation will be subject to the minimum corporate income tax (MCIT) of two percent (2%) of gross income if such MCIT is higher than the corporation’s taxable income computed using the 30% rate. The term gross income is defined as (i) gross sales less sales returns, discounts and allowances and cost of goods sold, or (ii) gross receipts less sales returns, allowances, discounts and cost of services. Any excess MCIT over the normal corporate income tax may be carried forward for the three (3) immediately succeeding taxable years and credited against the normal corporate income tax. The Secretary of Finance may suspend the imposition of the MCIT on any corporation which suffers losses on account of prolonged labor dispute, because of force majeure, or because of legitimate business reverses. The remittance of profits made by a branch to its head office is subject to a tax of 15%. However, if the branch receives income in the form of dividends, interest or rentals, among others, which are not effectively connected with the conduct of its trade or business in the Philippines, such income when remitted to the head office abroad shall not be considered as branch profits and no branch profits tax is further required to be paid.

Expenses

For purposes of taxation of the income of the branch office the parent foreign corporation can allocate to its branch a proportional part of its expenses, losses, interest payments and similar expenses relating to the conduct of business in the Philippines.

Liabilities

A foreign corporation which does business through a branch is liable for all damages and/or other liabilities which may be incurred by its branch. Theoretically, the assets of the home office may be made to answer for the liabilities incurred by the branch.

Deposit of Securities

A branch is required by law to deposit government securities with actual market value of One Hundred Thousand Pesos (P 100,000) with the Securities and Exchange Commission (“SEC”) within sixty (60) days from issuance of the SEC license, and thereafter, additional securities worth 2% of the amount by which the gross income of the branch exceeds Five Million Pesos (P5,000,000).

*Establishment and Registration Costs

a.) The filing fee equivalent to 1% of the assigned capital of the branch.

b.) Legal research fee of 1% of the filing fee; and

c.) Minimal amount of fees for post incorporation government permits such as the mayor’s permit, tax identification number, Value Added Tax and Withholding Tax Agent’s Registration if applicable, BIR registration of books of account and Certificate of Registration with the Bureau of Domestic Trade.

DOMESTIC SUBSIDIARY

A subsidiary is a corporation which, while incorporated and existing under Philippines laws, is either wholly-owned or at least majority owned by a foreign “parent” corporation. It is therefore a domestic (Philippine) corporation but is considered foreign in that it is owned by a foreign corporation. The advantage of a subsidiary over a branch office is that a subsidiary has a separate and distinct juridical personality from its parent corporation, so that the liability of the parent corporation to creditors of the subsidiary is limited to its shareholdings in the domestic subsidiary. The parent foreign corporation is thus fully protected from the liabilities of the subsidiary in excess of its shareholdings in such subsidiary. Nationality requirements with respect to certain industries must be observed.

Capital Requirement

The required minimum paid-up capital is Two Hundred Thousand US Dollars (US$200,000.00). (Republic Act No. 8179). This amount of required minimum paid-up capital may be reduced to One Hundred Thousand US Dollars (US$100,000.00) if advanced technology as determined by the Philippine Department of Science and Technology is involved or the business directly employs at least fifty (50) employees. The minimum paid up capital of US$200,000.00 does not apply to enterprises that export sixty percent (60%) or more of its output or domestic purchases.

Taxes

A subsidiary is also liable for tax at the same rate of 30% on its entire net income, both from sources within and without the Philippines, or the MCIT, whichever is higher (see discussion on “Branch”). The remittance of dividends by a subsidiary to its foreign “parent” corporation is, generally, taxed at 30%. This, however, may be reduced to 15% where the country in which the foreign “parent” corporation either: (a) grants a tax sparing creditÂ or (b) does not at all impose any tax on such dividends received.

Likewise, the reduced rate of 15% is applied when the laws of the country of domicile of the foreign “parent” corporation does not tax at all any dividends received (Commissioner of Internal Revenue v. Wander Philippines, Inc., 160 SCRA 573). Some of these countries include Hong Kong, Bermude and the Cayman Islands (BIR Rulings Nos. 126-83, dated 8 July 1983; 45-85, dated 22 March 1985; 17985, dated 9 October 1985, 208-89 dated September 28, 1989; and 111-88 dated March 11, 1988).

Expenses

The parent company of a subsidiary cannot pass on to its subsidiary any portion of such expenses since the subsidiary is a separate and distinct entity.

Liabilities

The subsidiary’s liabilities are separate and do not become the liabilities of its foreign “parent” corporation because of its separate juridical personality. Recovery for damages and/or liabilities is limited to the capital and assets of the subsidiary in the Philippines. The foreign corporation is thus completely shielded from the liabilities of its subsidiary.

Deposit of Securities

No deposit of securities with any entity is required.

*Establishment and Registration Costs

a.) Filing fee is 1/5 of 1% of the authorized capital stock or the subscription price of the subscribed capital stock whichever is higher but not less than P1,000.00

b.) Legal research fee of 1% of the filing fee;

c.) By-Laws fee of P510.00; Stock transfer book P470.00

d.) Documentary stamp tax for the issuance of shares equivalent to P2.00 for every P200.00 par value of shares issued; and

e.) Minimal amount of fees for post incorporation government permits such as the mayor’s permit, tax identification number, Value Added Tax and Withholding Tax Agent’s Registration if applicable, BIR registration of books of account and Certificate of Registration with the Bureau of Domestic Trade.

REGIONAL HEADQUARTERS

A Regional Headquarters of a multinational company is an administrative branch which principally acts as a supervision, communications and coordination centre for the subsidiaries, branches or affiliates of a multinational company in the Asia-Pacific Region. It is not allowed to do business or earn income from the host country, unlike a branch or subsidiary. Neither does it deal directly with the clients of the parent company, unlike a representative office, when it undertakes such activities as information dissemination and promotion of the company’s products for export.

Capital Requirement

The amount of not less than Fifty Thousand US Dollars (US$50,000) or its equivalent in acceptable foreign currency must be remitted annually. However, the amount required to be initially remitted is at least Thirty Thousand US Dollars (US$30,000.00).

Taxes

It will not be subject to income tax provided it will not earn or derive income from the Philippines and merely act as a supervisory, coordination and communication center for its affiliates, subsidiaries or branches in the Asia-Pacific Region and other foreign markets. They are also exempted from the value-added tax local licenses, fees and dues, duties on importation of training materials

Expenses

All its expenses are financed by the head office or parent company. The foreign firm should remit into the Philippines the entire amount necessary to cover the operations of its Regional Headquarters in the Philippines but not less than $50,000.00 annually or its equivalent in acceptable foreign currencies. The foreign executives of the regional headquarters should each receive salaries and compensation in the Philippines equal to at least $ 1,000.00 a month.

Liabilities

Its liabilities, like its expenses, are to be shouldered by the Parent Company.

Deposit of Securities

No deposit of securities with any entity is required.

*Establishment and Registration Costs

a.) filing fee for an application with SEC though the One Stop Action Centre of the BOI – P5,000.00;

b.) fee payable after issuance by the SEC of the certificate of registration -P2,020.00; and

c.) BOI requirement of inward remittance of at least US$50,000-00 a year for operating expense.

d.) BOI Filing fee of P4,500.00

REGIONAL OPERATING HEADQUARTERS

A regional operating headquarter of a multinational company is a branch office established in the Philippines engaged in any one 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 communication; and business development.

The concept of a regional operating headquarter was recently introduced by the Tax Reform Act of 1997 and the government agencies concerned are currently formulating rules and guidelines on the establishment and operation of such entities.

Under the Tax Reform Act of 1997, regional operating headquarters shall pay a tax of ten percent (10%) of their taxable income.

*Establishment and Registration Costs

a.) The filing fee equivalent to 1% of actual inward remittances

b.) Legal research fee of 1% of the filing fee; and

What is a RHQ and what are the activities it can engage in?

Republic Act (R.A.) No. 8756 (amending the Omnibus Investments Code of 1987, and approved on November 1999), defines RHQ as an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade which principally serves as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets and which does not earn or derive income in the Philippines.

The activities of the RHQ are limited to acting as a supervisory, communications and coordinating center for its subsidiaries, affiliates and branches in the region.

It is neither allowed to derive any income from sources within the Philippines and to participate in any manner in the management of any subsidiary or branch office it might have in the Philippines nor to solicit or market goods and services whether on behalf of its mother company or its branches, affiliates, subsidiaries or any other company.

What is a ROHQ and what are the activities it can engage in?

ROHQ is a foreign business entity which is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets as follows:

-General administration and planning;

-Business planning and coordination;

-Sourcing/procurement of raw materials and components;

-Corporate finance advisory services;

-Marketing control and sales promotion;

-Training and personnel management;

-Logistics services;

-Research and development services and product development;

-Technical support and maintenance; and

-Data processing and communication

A ROHQ is prohibited from offering qualifying services to entities other than its affiliates, branches or subsidiaries as declared in its registration with the Securities and Exchange Commission (SEC). Neither is it allowed to directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company.

What are the funding requirements forÂ a RHQ and a ROHQ?

The initial funding requirement for a RHQ of a multinational corporation is US$50,000. Within 30 days from receipt of the SEC certificate of registration, the multinational corporation must submit a certificate of inward remittance from a local bank showing that it had remitted US$50,000. It must also annually remit at least US$50,000 or its equivalent in other foreign currency within 30 days from anniversary date of its registration to cover its operations in the Philippines.

A ROHQ is required to initially remit the amount of US$200,000 or its equivalent in other foreign currencies. Within 30 days from receipt of its certificate of registration, the multinational corporation must submit to the SEC a certificate of inward remittance from a local bank showing that it had remitted US$200,000.

What are the taxes applicable and incentives available to a RHQ/ROHQ?

RHQs are exempt from income tax and VAT while their purchases of goods and services and lease of goods and property are zero rated. On the other hand, ROHQs are subject to 10% preferential rate on taxable income and are subject to 10% VAT.

RHQs and ROHQs are granted the following incentives:

1.) Exemption from all kinds of local taxes, fees and charges except for real property tax on land improvements and equipment;

2.) Tax and duty free importation of training materials and equipment; and

3.) Importation of motor vehicles subject to the payment of corresponding taxes and duties.

Expatriates of RHQs and ROHQs are entitled to the following incentives:

1.) Multiple entry special visa, including those of spouses and unmarried children below age 21;

2.) Withholding tax of 15% on salaries, wages, annuities, and other emoluments of expatriates;

3.) Travel tax exemption; and

4.) Tax and duty free importation of personal and household effects.

Filipinos occupying managerial and technical positions in RHQ and ROHQ of multinational companies shall be taxed at 15% of their gross income. This rate will be applicable even in the absence of an alien executive in the organization. Filipino executives of RHQs and ROHQs governed by Book III of Executive Order No. 226 may opt to be taxed either at 15% of gross income or at the regular tax rates of 15% to 30% of their taxable income.

*Establishment and Registration Costs are subject to change based on the prevailing rates

SEC. 28 of the Philippine Tax Code. Rates of Income Tax on Foreign Corporations. –

(A) Tax on Resident Foreign Corporations. –

(1) In General. – Except as otherwise provided in this Code, a corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be subject to an income tax equivalent to thirty-five percent (35%) of the taxable income derived in the preceding taxable year from all sources within the Philippines: provided, That effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%), and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).

In the case of corporations adopting the fiscal-year accounting period, the taxable income shall be computed without regard to the specific date when sales, purchases and other transactions occur. Their income and expenses for the fiscal year shall be deemed to have been earned and spent equally for each month of the period.

The reduced corporate income tax rates shall be applied on the amount computed by multiplying the number of months covered by the new rates within the fiscal year by the taxable income of the corporation for the period, divided by twelve.

Provided, however, That a resident foreign corporation shall be granted the option to be taxed at fifteen percent (15%) on gross income under the same conditions, as provided in Section 27 (A).

(2) Minimum Corporate Income Tax on Resident Foreign Corporations. – A minimum corporate income tax of two percent (2%) of gross income, as prescribed under Section 27 (E) of this Code, shall be imposed, under the same conditions, on a resident foreign corporation taxable under paragraph (1) of this Subsection.

(3) International Carrier. – An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its ‘Gross Philippine Billings’ as defined hereunder:

(a) International Air Carrier. – ‘Gross Philippine Billings’ refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided, That tickets re-validated, exchanged and/or endorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided, further, That for a flight which originates from the Philippines, but transshipment of passenger takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine Billings.

(b) International Shipping. – ‘Gross Philippine Billings’ means gross revenue whether for passenger, cargo or mail originating from the Philippines up to final destination, regardless of the place of sale or payments of the passage or freight documents.

(4) Offshore Banking Units. – The provisions of any law to the contrary notwithstanding, income derived by offshore banking units authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with offshore banking units, including any interest income derived from foreign currency loans granted to residents, shall be subject to a final income tax at the rate of ten percent (10%) of such income.

Any income of nonresidents, whether individuals or corporations, from transactions with said offshore banking units shall be exempt from income tax.

(5) Tax on Branch Profits Remittances. – Any profit remitted by a branch to its head office shall be subject to a tax of fifteen (15%) which shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof (except those activities which are registered with the Philippine Economic Zone Authority). The tax shall be collected and paid in the same manner as provided in Sections 57 and 58 of this Code: provided, that interests, dividends, rents, royalties, including remuneration for technical services, salaries, wages premiums, annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits, income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines.

(6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. –
(a) Regional or area headquarters as defined in Section 22(DD) shall not be subject to income tax.
(b) Regional operating headquarters as defined in Section 22(EE) shall pay a tax of ten percent (10%) of their taxable income.

(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. –

(a) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes, Trust Funds and Similar Arrangements and Royalties. – Interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines shall be subject to a final income tax at the rate of twenty percent (20%) of such interest: Provided, however, That interest income derived by a resident foreign corporation from a depository bank under the expanded foreign currency deposit system shall be subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income.

(b) Income Derived under the Expanded Foreign Currency Deposit System. – Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit system units, including interest income from foreign currency loans granted by such depository banks under said expanded foreign currency deposit system to residents, shall be subject to a final income tax at the rate of ten percent (10%) of such income.

Any income of nonresidents, whether individuals or corporations, from transactions with depository banks under the expanded system shall be exempt from income tax.

(c) Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange. – A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation except shares sold or disposed of through the stock exchange:

Not over P100,000 is 5%
On any amount in excess of P100,000 is 10%

(d) Inter-corporate Dividends. – Dividends received by a resident foreign corporation from a domestic corporation liable to tax under this Code shall not be subject to tax under this Title.

(B) Tax on Nonresident Foreign Corporation. –

(1) In General. – Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraph (C) and (d): Provided, That effective 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).

(2) Nonresident Cinematographic Film Owner, Lessor or Distributor. – A cinematographic film owner, lessor, or distributor shall pay a tax of twenty-five percent (25%) of its gross income from all sources within the Philippines.

(3) Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals. – A nonresident owner or lessor of vessels shall be subject to a tax of four and one-half percent (4 1/2%) of gross rentals, lease or charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime Industry Authority.

(4) Nonresident Owner or Lessor of Aircraft, Machinery and Other Equipment. – Rentals, charters and other fees derived by a nonresident lessor of aircraft, machinery and other equipment shall be subject to a tax of seven and one-half percent (7 1/2%) of gross rentals or fees.

(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. –

(a) Interest on Foreign Loans. – A final withholding tax at the rate of twenty percent (20%) is hereby imposed on the amount of interest on foreign loans contracted on or after August 1, 1986;

(b) Inter corporate Dividends. – A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57 (A) of this Code, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference between the regular income tax of thirty-five percent (35%) in 1997, thirty-four percent (34%) in 1998, and thirty-three percent (33%) in 1999, and thirty-two percent (32%) thereafter on corporations and the fifteen percent (15%) tax on dividends as provided in this subparagraph;

(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. – A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange:

Not over P100,000 is 5%
On any amount in excess of P100,000 is 10%

If you need assistance to register your business in the Philippines, please email or call us and our associates will be glad to assist you for any clarifications

Click here, if you need more information about Philippine Business Registration