Foreign Business - Trade And Travel Journal

A foreign company has three options to consider if they want to set up a business in the Philippines. The kind of set up will determine the amount of taxes that will be paid and the fees that will be charged upon registration.

The first option is to set up a domestic corporation. A domestic corporation is the Philippines’ version of a subsidiary and it can either be Filipino or foreign-owned. Depending on the target market and ownership structure, capitalization may vary from P100,000 to US$200,000. A domestic corporation is authorized to earn income and is currently subject to 30% corporate income tax on net income. The corporation has to maintain a minimum of five to 15 directors and a few mandatory officers like the Corporate Secretary and Corporate Treasurer.

The second option is to register a branch office and have it 100% foreign owned so long as it can provide the required operating capital of US$200,000. This can be lowered to US$100,000 if it meets the Securities and Exchange Commission’s (SEC) conditions when it comes to activities and target market. A branch office does not need to maintain a board of directors but needs to assign a resident agent who should be a Filipino or a Philippine resident. This resident agent will act as the branch office’s special point of contact. It is authorized to earn income and is subject to 30% corporate income tax.

The third option is to set up a representative office which represents a parent company from abroad. A representative office usually hires local employees to assist the parent company’s clients in the Philippines to disseminate information and to establish a local presence from the parent company. The parent company should prepare US$30,000 operating capital for the representative office to be registered. A representative office only needs to maintain a resident agent who must be a Filipino or a Philippine resident to transact on their behalf.  While it is not authorized to earn any income and is therefore not subject to any income tax, a representative office will still be required to submit mandatory periodic reports to the Bureau of Internal Revenue (BIR).

Once this has been settled, the foreign entity can proceed to the SEC first to initiate the registration process. Here are the steps that need to be taken:

  1. Have the proposed name approved. If the proposed name is allowed by the system, the reservation and confirmation notice is printed and given to the business owner. A fee of P100 will be charged for reservation of the name which is valid for 30 days.
  2. Submit requirements at the Corporate and Partnership Registration Division (CPRD). Pay the filing fee. For a branch office, the filing fee is equivalent to 1% of the annual inward remittance of the corporation converted into Pesos but not less than P3,000. Representative office is 1/10 of 1% of the actual inward remittance of the corporation converted in peso but not less than P2,000. Area or Regional Headquarters are charged P5,000. Regional Operating Headquarters, on the other hand, are charged 1% of actual remittance but not less than 1% of Peso equivalent of US$200,000 at the time of remittance. Foreign non- stock corporations are charged P3,000. In addition to the registration fee, entities have to pay a Legal Research Fee equivalent to one percent (1%) of the filing fee but not less than P10.
  3. After paying the fees, file the application with the Corporate Registration and Monitoring Department (RMD) Receiving Unit. Upon receipt of the application, CPRD staff generates the license bearing the applicant’s license number and corporate tax identification number. The CPRD Assistant Director reviews the application and forwards it for approval of CRMD director.
  4. After a few weeks, present official receipt to CRMD Releasing Unit to get Certificate of Incorporation.
  5. Secure business permit with the local government unit of business location.
  6. Registration with the Social Security System, Philippine Health Insurance Corporation and Home Development Mutual Fund is mandatory and will proceed independent of the above.

 

Need help in registering your foreign business in the Philippines? DJKA Business Services can help.

About the Author:

Anne Ruth Dela Cruz is a seasoned writer who has interests in health, wellness and business start ups. She has also dabbled in corporate communications and public relations. A mother of four, Anne also loves videoke sessions and reading a good book. My posts appear on: NegosentroWorld Executives DigestExecutive ChroniclesGet Health Access, and Trade & Travel Journal.

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