Incentives to regional headquarters based in the Philippines

Incentives to regional headquarters based in the Philippines

Thanks to the Asean Economic Community (AEC), setting up a regional headquarters in the Philippines allows investors to participate in one of the world’s fastest-growing economies while also enjoying easier access to other promising countries in the region.

Launched in 2015, AEC seeks to transform Asean’s ten member-states into a single market and production base. Policymakers have started eliminating tariffs, harmonizing rules, and relaxing restrictions. With Asean poised to become the world’s fourth-largest economy by 2030, investors that enter the market at this stage are expected to reap the most benefits moving forward.

Moreover, multinationals whose regional headquarters are based in the Philippines are entitled to a number of government incentives depending on the nature of activities they engage in.

Regional Operating Headquarters (ROHQ)

Philippine law defines ROHQs as companies that carry out the following “qualifying services” for their own affiliates, subsidiaries or branches in the Philippines and abroad:

  • 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;

  • Data processing and communication; and

  • Business development.

ROHQs are allowed to derive income from these services, but note that they can only perform these services for their own affiliates, subsidiaries or branches. Soliciting or marketing any good or service, even on behalf of their mother company, branches, affiliates, subsidiaries, or any other company, is also prohibited.

ROHQs are subject to a 10% income tax, which is lower than the prevailing 30% corporate income tax rate. But any income derived from Philippine sources that is remitted to the parent company abroad is subject to the tax on branch profit remittances. ROHQs also enjoy a lower value added tax (VAT) rate of 10% versus the prevailing 12%.

Regional or Area Headquarters (RHQ)

Meanwhile, RHQs are companies that “supervise, superintend, inspect or coordinate its own affiliates, subsidiaries or branches” abroad. They cannot derive any income from local sources, manage any subsidiary or branch office they might have in the Philippines, or solicit or market goods and services, even on behalf of their mother company, branches, affiliates, subsidiaries, or any other company.

RHQs are exempt from paying the income tax and VAT. The sale or lease of goods and property, and the rendition of services to RHQs are also subject to 0% VAT.

Incentives available to ROHQ and RHQ

The following incentives apply to both ROHQ and RHQ:

  • Exemption from all kinds of local taxes, fees, or charges imposed by a local government unit except real property tax on land improvements and equipment;

  • 15% withholding tax on compensation income for foreigners affiliated with the company; local employees performing managerial or technical functions with a gross annual taxable compensation of at least PhP 975,000 may also enjoy this lowered rate;

  • Tax and duty free importation of equipment and materials for training and conferences used solely for their functions as ROHQ or RHQ, and which are not locally available;

  • Tax and duty free importation of personal and household effects of foreigners affiliated with the company;

  • Multiple-entry visas for foreign personnel, their respective spouses, and unmarried children under 21 years old; and

  • Travel tax exemption for foreign personnel and their dependents.

Tax reform

The current administration is proposing a comprehensive tax reform package, which may affect these tax rates and incentives. Filepino is closely monitoring this initiative.

Further Reading:
Republic Act No. 8756
Bureau of Internal Revenue-Revenue Regulations No. 11-2010
Department of Finance Tax Reform Website