You have various options in registering your company in the Philippines, depending on the nature of the business you intend to operate. Knowing these options before establishing your business is essential to know which one suits you best and to understand the risks you may have.
Let’s take a look at these business structures under Foreign Laws and Philippine Laws:
Under Foreign Laws
BRANCH OFFICE – Branch Office is a foreign corporation organized and existing under foreign laws that carries out business activities of the head office and derives income from the Philippines. It is required to register with the Securities and Exchange Commission (SEC).
Required Remittance: It is required to remit to the Philippines a minimum of US$200,000 as paid-in capital. The paid-in capital can be reduced to US$100,000 if the business activity involves advanced technology or the company employs at least 50 direct employees.
Tax Rate: Applicable income tax rate is 30%.
REPRESENTATIVE OFFICE – is a foreign corporation that does not drive income in the Philippines and deals directly with the clients of the Head Office. It undertakes activities such as information dissemination, acts as a communication center, and promotes company products, as well as quality control of products for export.
Required Remittance: It is required to have an initial minimum inward remittance of US$30,000 to cover its operating expenses and must be registered with the SEC.
Tax Rate: Applicable income tax rate is 0%, as it is not allowed to derive income from the Philippines.
REGIONAL HEADQUARTERS (RHQs) – RHQ is an office that undertakes activities that are limited to acting as supervisory, communication, and coordinating center for its subsidiaries, affiliates, and branches in the Asia-Pacific region. It does not derive income from sources within the Philippines. It does not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines.
Required Remittance: It is required to have a minimum inward remittance of US$50,000 to cover its operating expenses.
Tax Rate: Applicable income tax rate is 0%, as it is not allowed to derive income from the Philippines.
REGIONAL OPERATING HEADQUARTERS (ROHQs) – An ROHQ is a foreign business entity that performs qualifying services to its affiliates, subsidiaries, and branches in the Philippines. The following are the qualifying services an ROHQ may engage into:
- General administration and planning
- Business planning and coordination
- Sourcing/procurement of raw materials 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
- Business development
Required Remittance: It is required to have a minimum capitalization of US$200,000.
Tax Rate: Applicable income tax rate is 10% of the net taxable income
Under Philippine Laws
Sole Proprietorship – Is a business structure that is owned by a single individual. The owner owns all the assets and has unlimited personal liability for losses since there is no legal distinction between the owner and the business. A sole proprietorship must apply for a business name and must be registered with the DTI.
Partnership – A partnership is treated as a juridical person, having a separate legal personality from that of its members. Partnerships may either be general partnerships, where the partners have unlimited liability for the debts and obligation of the partnership, or limited partnerships, where one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions.
Corporation – a corporation is a juridical person established under the Corporation Code of the Philippines with a personality separate and distinct from that of its shareholders. It has a minimum of 5 incorporators who are usually the first directors. Every director must own at least one share of the corporation. A Corporation with at least P5,000 capital must register with SEC. A foreigner can generally own up to a maximum of 40% of the company’s shares of stocks at any given time, and Filipino Citizens must own the other 60%. There is, however, an exemption to the 40% ownership cap of foreigners under the Foreign Investments act of 1991 [Under the Revised Corporation Code, the 25% subscribed capital and 25% paid up capital is removed. The Corporation is also given perpetual term from the previous 50 years].
One Person Corporation (OPC) – An OPC is a corporation with a single stockholder, who can only be a natural person, trust or estate. Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and non-chartered government-owned and -controlled corporations may not incorporate as One Person Corporations. A natural person who is licensed to exercise a profession may not organize as a One Person Corporation to exercise such profession except as otherwise provided under special laws. An Ordinary Corporation may be converted to an OPC, and vice-versa.
Disclaimer: The contents of this article may become outdated because of changes in the rules and regulations. It does not substitute the need for professional advice.
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