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Starting a Business in the Philippines: Branch vs. Subsidiary

Starting a Business in the Philippines: Branch vs. Subsidiary

The Philippines has recently enacted several legislative changes that have improved its business climate and economy, particularly with regards to foreign investment.
 
So, if you’re a foreign investor looking to establish your start-up business in the Philippines, there are two ways to go about it: registering as a branch office or as a domestic subsidiary.
 

Subsidiary (domestic corporation)

 
A subsidiary is a domestic corporation that has 50% or more of its voting stock owned by a foreign parent corporation. However, it is considered a separate juridical entity from its parent corporation, so its liabilities will not be regarded as liabilities of the parent corporation.
 
Characteristics include
 

  • Being subject to Philippine law requirements on corporate structure. Like all stock corporations, subsidiaries must not have more than 15 incorporators who are natural persons of legal age.
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  • Being liable for income tax on worldwide income. As a domestic corporation, any subsidiary with foreign equity is taxable at 30% of its net income from all sources within and outside of the Philippines. It is also liable to pay Documentary Stamp Tax (DST) on the original issuance of shares of stock and the 10% improperly accumulated earnings tax.
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  • Having dividends taxed at 30% or less. The gross amount of dividends remitted by a subsidiary to its foreign parent company is taxed at 30%, but it can be reduced to 15% depending on the country where the parent corporation is domiciled.

 
Registration requirements
 
Registering a subsidiary requires filing for incorporation with the Securities and Exchange Commission (SEC), where you will need to submit the following documents:
 

  • Name verification slip
  • Articles of Incorporation
  • Corporate by-laws
  • Treasurer’s affidavit
  • Certificate of Inward Remittance issued by a Philippine bank
  • An accomplished SEC Form F-100 (Application to Do Business Under the Foreign Investments Act)

 
For more details about registering with the SEC, you can check out our guide here.
 

Branch office

 
A branch office is an extension of the head office or foreign corporation, with whom they share all their assets and liabilities.
 
But in terms of registration, branch offices are neither required to have a separate board of directors or officers from the head office, nor bound to the rules and regulations applied to the creation, formation, organization, and dissolution of domestic corporations.
 
Characteristics include
 

  • Appointing a resident agent. Foreign corporations are required to assign one resident agent who will be responsible for all the legal processes, summons, and proceedings involving the branch office.
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  • Having a license to do business from the SEC. Branch offices are also required to obtain a license to do business from the SEC before executing any business operations in the country.
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  • Being exempt from some corporate tax payments. Although a branch office is subject to a 30% income tax rate on income from within the Philippines, any profits remitted to the head office can be at the rate of 10% to 15%, depending on certain tax treaties, or completely exempt if located in a special economic zone. They are also not liable to pay for the DST or the 10% improperly accumulated earnings tax.
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  • Being required to deposit securities with the SEC. In accordance with the Securities Regulation Code, the SEC requires branch offices to deposit securities with a market value of at least PHP 500,000, as well as additional securities equivalent to 2% of the branch office’s gross income if it exceeds PHP 10 million for that fiscal year.

 
Registration requirements
 
When you register a branch office for your corporation in the Philippines, you need to submit the following requirements to the SEC.
 

  • SEC Form 103 (Application of a Foreign Corporation to Establish a Branch Office in the Philippines), signed by any person authorized by the Board of Directors
  • Proof of Inward Remittance such as a bank certificate
  • Latest audited financial statements of the corporation
  • Authenticated Articles of Incorporation, by-laws, and other official documents

 

Reminders on minimum capital stock

 
Since branch offices and subsidiaries fall under both the Revised Corporation Code and the Foreign Investments Act, they are required to have a paid-up capital of USD 200,000.
 
Take note that this paid-up capital can go higher or lower, depending on the industry and percentage of exported products or services. Most Philippine banks also require PHP 25,000 to PHP 50,000 to open a corporate bank account.
 
With our legal expertise and access to local business resources, the FilePino team can help you establish the best start-up business in the Philippines. Call us at +1.806.553.6552 or send us an email at info@filepinostg.wpengine.com. You can also send us a message here.