Doing Business in the Philippines

Foreign corporations and investors that want to expand their business to the Philippines can do so by establishing a domestic corporation or a resident foreign corporation. They can own up to 100% equity if they set up domestic corporations – depending on the type of industry, target market, and capitalization. If they plan to register a resident foreign corporation, they are restricted to some extent to participate in areas of economic activity that are partially or wholly exclusive to Filipino entrepreneurs.

Although resident foreign corporations are more advantageous to establish tax-wise, since they are always considered fully foreign-owned, they can only own equity or participate in economic activities as prescribed by Philippine laws. The country’s Constitution and some specific laws mandate the implementation of the Foreign Investment Negative List (FINL) to provide the equity percentage for foreign corporations on regulated business activities and areas of investment.

Both types of entities are required to register with the Securities and Exchange Commission (SEC) and other relevant government agencies in the Philippines before they can start their business operations. Foreign corporations are required to secure a License to Do Business in the Philippines from the SEC to legally establish presence or operations in the country and be accorded the right to sue and defend their juridical entities in Philippine courts.

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Provided below are the different business entities that foreign corporations can take after obtaining a License to Do Business from SEC:

Branch Office

A Branch Office is an extension of a foreign corporation that carries out the activities of its head office from abroad in the Philippine business setting. It does not have a separate legal personality from its parent company and the laws governing its formation, existence, and dissolution are the laws of the country where its parent company was organized or established. Hence, any liabilities that it will incur are considered liabilities of the head office of its parent company.

The minimum paid-up capital requirement of a Branch Office in the Philippines is US$200,000.00 but can be reduced to US$100,000.00 if it will engage in activities involving advanced technology or will employ at least fifty (50) direct employees.

Under the Foreign Investments Act (FIA), businesses that are classified as export enterprises – those that have 60% to 100% export sales of goods or services – are exempted from paying the minimum paid-up capital requirement.

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Representative Office

A Representative Office is a local liaison office for a foreign corporation that seeks to establish a corporate presence in the Philippines without engaging in profit-generating activities. It is fully subsidized by its head office from abroad and not allowed to generate income in the Philippines. Similar to a branch office, it does not have a separate legal personality from its head office and any liabilities that it will incur are also considered liabilities of the head office.

Since none of its income can be generated in the Philippines, the parent company is required to annually remit at least US$30,000.00 to cover its operating expenses. It is also exempted from paying income and value-added taxes and cannot qualify for tax incentives from the Board of Investments (BOI) or Philippine Economic Zone Authority (PEZA).

Under Philippine laws, a representative office is only permitted to perform activities similar to or resembling the following: 1) facilitation of orders from customers or clients; 2) dissemination of information and conduct of promotional activities about company products; 3) undertaking of quality control of company products; and 4) undertaking of other related administrative activities from its head office.

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Regional Headquarters (RHQ)

A Regional Headquarter (RHQ) is defined as a foreign business entity formed, organized, and existing under any domestic law other than those of the Philippines. It can only be set up and operated by a foreign corporation that has subsidiaries, branches, affiliates, or clients in the Asia-Pacific (APAC) region.

It is accorded limited functions by Philippine laws and cannot derive income from any source in the country. Its primary purpose is to supervise, superintend, inspect, or coordinate its subsidiaries, branches, and affiliates in the region. It is, however, prohibited to manage their operations.

An RHQ is exempted from paying income and value-added taxes but can avail of tax incentives from the BOI on its local fees, importation, and employee compensation, to name a few. The parent company is required to remit a minimum of US$50,000.00 as paid-up capital and annual inward remittance to support its operating expenses.

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Regional Operating Headquarters (ROHQs)

Similar to RHQs, a Regional Operating Headquarter (ROHQ) can only be set up and operated by a foreign corporation that has subsidiaries, branches, affiliates, or clients in the APAC region. The laws that govern its formation, existence, and dissolution are also those of its parent company.

But unlike RHQs, it is allowed to derive income from the qualifying services it renders in the Philippines and actively manage the operations of its branches, affiliates, or subsidiaries in the region. Its parent company is required to deposit an initial inward remittance of US$200,000.00 as capitalization.

ROHQs are subject to a 10% income tax rate, and any income derived in the Philippines that they remit to their parent companies abroad is subject to the tax on branch profit remittances. But they enjoy a lower value-added tax rate of 10% compared to the 12% tax rate for other business entities. Moreover, the tax incentives that apply to RHQs also apply to them.

The licensing requirements for each business entity can be accessed from these links:

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Application for Tax Incentives in the Philippines

Our team of business consultants in the Philippines can advise you on how to qualify for fiscal and non-fiscal tax incentives from government agencies that are committed to assisting foreign investors and corporations on their inbound investment and market entry plans in the Philippines.

PEZA

The Philippine Economic Zone Authority (PEZA) is a government agency that promotes investments in the export-oriented manufacturing industry in the Philippines. It provides assistance and tax incentives to investors that register their business locations inside PEZA’s Special Economic Zones. A considerable number of the companies registered with PEZA are engaged in the business process outsourcing (BPO) and knowledge process outsourcing (KPO) industries.

Foreign corporations can apply for tax incentives from PEZA if they meet the eligibility requirements. To be eligible, they must establish their business locations in any of PEZA’s economic zones or engage in the list of activities that are qualified for PEZA incentives, such as the following:

• Export Manufacturing
• Information Technology (IT) Service Export
• Tourism
• Medical Tourism
• Agro-industrial Export Manufacturing
• Agro-industrial Bio-Fuel Manufacturing
• Logistics and Warehousing Services
• Economic Zone Development and Operation
• Facilities Provider
• Utilities

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BOI

The Board of Investments (BOI) provides tax breaks and other fiscal and non-fiscal incentives to registered enterprises that engage in activities identified as any of the following: 1) investment priorities; 2) promotes economic development; or 3) export-oriented (where export is more than 50% of production or 70% if the enterprise is more than 40% owned by foreign investors).

Fiscal incentives from BOI include:

• income tax holidays
• exemption from taxes and duties on imported spare parts
• exemption from wharfage dues and export tax, duty, impost, and fees
• reduction of the rates of duty on capital equipment, spare parts, and accessories
• tax credits
• additional deductions from taxable income

Non-fiscal incentives from BOI include:

• employment of Foreign Nationals
• simplification of customs procedures for imported products
• importation of consigned equipment
• privilege to operate a bonded manufacturing/trading warehouse

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CEZA

The Cagayan Economic Zone Authority (CEZA) is a government-owned and controlled corporation tasked to manage and supervise the development of the Cagayan Special Economic Zone and Freeport (CSEZFP), also known as the Cagayan Freeport.

CEZA is a leading offshore online gaming jurisdiction in Southeast Asia and is at the forefront of the development of the gaming infrastructure in the region. Gaming operators and entities operating in the freeport enjoy numerous benefits and tax incentives. CEZA has the legal authority to independently approve applications without prior acceptance from a national government agency, including the state-owned Philippine Amusement and Gaming Corporation (PAGCOR).

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Corporate and Accounting Services

After successful registration of your business entity in the Philippines, we can also provide you with the following services:

• Company Secretarial Services
• Product Registration / License Applications
• Provision of Registered Office
• Accounting and Bookkeeping Services
• Recruitment and HR Services
• Payroll Services
• Visa / Immigration Services

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How we can help you

Kittelson & Carpo Consulting, the key subsidiary of In.Corp Group in the Philippines, is a business consulting firm that assists companies in setting up and doing business in the Philippines. The firm provides services such as company incorporation and business registration, government compliance, visas and immigration, work permits and visas, accounting, payroll, and recruitment. Its clients are multinational corporations and small-and-medium enterprises from diversified industries including outsourcing and offshoring, product import and export, network marketing, recruiting, real estate, travel and accommodation, trading and manufacturing, mining, etc.