Branch vs.

Subsidiary Corporation
As to Taxability
Branch
1.

Subject to income tax only on Philippine source income

2.

Profits remitted by the branch to its head office are subject to branch profit
remittance tax of 15% or 10% depending on certain tax treaties; however, if located
in a special economic zone then they are tax exempt.

3.

A branch office is not subject to documentary stamp tax (DST) simply because it
does not issue shares of stock

4.

Subject to certain conditions, overhead expenses of the Head Office may be

allocated to the Philippine branch office

5.

5. A branch is not liable to pay the 10% improperly accumulated earnings tax

Subsidiary (Domestic Corporation)

1.

Subject to income tax on worldwide income

2.

Dividends paid by a Philippine subsidiary to non-resident shareholders is subject

to 30% in general or 15% subject to certain conditions or preferential tax treaty rates.

3.

A subsidiary is liable to pay DST on the original issuance of shares of stock at the
rate of P2.00 for every P200.00 or fractional part of the par value of the shares of the
outstanding shares of stock

4.

The Philippine subsidiary is not entitled to the allocation of overhead expenses of

its parent company.

5.

A subsidiary is liable to pay the 10% improperly accumulated earnings tax.

As to its Nature
Branch
A branch office is merely an extension of the head office, thus its liabilities are
considered liabilities of the head office
Subsidiary (Domestic Corporation)
A subsidiary is a juridical entity separate and distinct from that of its parent company,
hence its liabilities are generally not regarded as the liabilities of the parent company.

As to its Capitalization

Branch
As a 100% foreign-owned entity, a branch must have a capital of at least US$200,000
unless the branch will be exporting goods or services or generating revenue from
abroad amounting to more than 60% of its gross sales it can be fully foreign owned, as
it is considered an Export Enterprise under the Foreign Investments Act. Hence, the
branch can be registered with as little as P5,000 paid up capital. However, most banks
require P25,000 P50,000 to open a corporate bank account.
Subsidiary (Domestic Corporation)
A subsidiary with more than 40% foreign equity must also have a minimum paid up
capital of at least US$200,000 unless the company will be exporting goods or services
or generating revenue from abroad amounting to more than 60% of its gross sales it can
be fully foreign owned, as it is considered an Export Enterprise under the Foreign
Investments Act. Hence, the company can be registered with as little as P5,000
paid up capital. However, most banks require P25,000 P50,000 to open a
corporate bank account.

As to the Number of Incorporators

Branch
A branch may be set up with only one (1) person who will act as the resident agent
Subsidiary (Domestic Corporation)
The establishment of a subsidiary requires at least five (5) but not more than fifteen
(15) incorporators/directors (all of whom must be natural persons) majority of whom
must be residents of the Philippines.

As to the deposit requirement of securities

with SEC
Branch
A branch is required initially to deposit with the SEC for the benefit of present and future
creditors, acceptable securities with market value equivalent to at least P100,000 plus
an annual additional deposit of 2% of the amount by which the branch offices gross
income exceeds five (5) million pesos
Subsidiary (Domestic Corporation)
Subsidiaries are not required to deposit securities with the SEC.

As to Registration Requirements
Branch

A branch is required to obtain a license to do business here in the Philippines with the
Securities and Exchange Commission (SEC). This license shall be issued by the SEC
upon compliance with the following requirements:
1.

Fill up and file the SEC Form 103 (Application of a Foreign Corporation) to
Establish a Branch Office in the Philippines). This application may be signed by any
person authorized by the applicants Board of Directors. If this is signed outside of
the Philippines, it must be authenticated by the nearest Philippine Embassy or
Consulate.

2.

Pay the SEC filing and legal research fees. For the registration of a branch with a
US$200,000 assigned capital, the SEC registration fees shall be calculated on the
basis of its converted equivalent in Philippine pesos. For an initial assigned capital of
US$200,000, the SEC registration fees may be calculated as the peso equivalent of
the following:
o

Filing Fee (US$200,000 x 1%)=US$2,000 + Legal Research fee (US$2,000

x 1%) =US$20.00 or a total of US$2,020. (this will not apply to export oriented
businesses)

3.

Remit the initial assigned capital of US$200,000 which should be remitted

separately from the registration fees. The US$200,000 shall be remitted directly to
the Treasurer-in-Trust account opened for and on behalf of the branch office;

4.

Submission of the latest audited financial statements. Such financial statements

must be authenticated by the Philippine Embassy or Consulate of the place of
execution thereof.
o

Submission of the Articles of Incorporation, by-laws or similar document

authenticated by the Philippine Embassy or Philippine Consulate.

5.

Within sixty (60) days after obtaining the license to operate, the branch office is
required to deposit marketable securities worth at least P100,000 with the SEC which
may be withdrawn upon cessation of the Philippine branchs operations

Subsidiary (Domestic Corporation)

For the establishment of a subsidiary in the Philippines, it must be registered with the
SEC. The SEC will require the following from the applicant:
1.

A corporate name which must not be similar to existing names already registered
with the SEC.;

2.

The Articles of Incorporation must provide the specific purpose or purposes for
which the corporation is being formed.

3.

As to the capital stock requirement and since the foreign equity will exceed 40%,
it must have a minimum paid up capital of US$200,000 as provided under the Foreign
Investments Act unless export oriented. For this purpose, the applicant must submit
a Certificate of Inward remittance issued by a Philippine bank on the remittance of at
least US$200,000 net of bank charges to your Philippine account;

4.

Provide the name of the subscribers to the authorized capital stock of the
corporation and the number of shares and amount subscribed by each subscriber.

5.

Provide

the

names,

nationalities,

addresses,

passport

numbers

of

the

incorporators. Under the Corporation Code of the Philippines, a corporation must

have at least five (5) but not more than fifteen (15) individual incorporators who must
own at least one (1) share in the company and majority of whom must be residents
of the Philippines.
6.

Provide the name of the Treasurer-in-Trust appointed by the subscribers.

7.

Pay the filing fee for the registration which will be approximately 0.2% of the
subsidiarys authorized capital stock, plus 1% of such SEC fee for the SEC legal
research fees and P210.00 for the registration of the subsidiarys by-laws.