Regional Operating Headquarters (ROHQ) shall mean a foreign business entity which is

allowed to derive income in the Philippines by performing qualifying services to its affiliates,
subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign
markets.

...The regional operating headquarters may engage in any of the following qualifying services:

- 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.

Corporate Tax study

Expat tax study

ROHQ

a. 10% income tax on taxable net income instead of the 30%/25% on income;

b. 12% value-added tax;

c. 15% branch profit remittance tax;

d. Tax and duty free importation of training materials and equipment, and importation of motor
vehicles; and

e. Exemption from all kinds of local taxes, fees, or charges.

Expatriates

a. Multiple entry visa to expats, their spouse and children under certain conditions;

b. Travel tax exemption of expats and their dependents upon certification of the BOI;

c. Tax and duty free importation of personal and household effects ;

d. 15% withholding tax on compensation of managerial and technical alien employees instead of
the 25% or 5-32%. Apply also to Filipino citizens holding the same positions.

Licensing. In order to operate and ROHQ in the Philippines, it is required to secure a License
with the securities and Exchange Commission (SEC). For the purpose, endorsement by the
Board of Investments (BOI) shall be submitted to the SEC along with the other requirements.
Likewise, registration with the BIR, and other government agencies are required for the ROHQ.

Non Fiscal Incentives for Expats

Special Multiple Entry Visa
Expatriates, including spouse and unmarried children below 21 years old will be issued this type
of visa
Multiple entry visa will be processed within 72 hours from submission of documents to the
Bureau of Immigration
Valid three (3) years extendible for another three (3) years
Exempt from securing Alien Certificate of Registration (ACR) from the Department of Labor and
Employment (DOLE)
Tax and duty-free importation of used household goods and personal effects
Travel tax exemption
Personnel and their dependents

VAT impact study

ROHQs are subject to 12% VAT, 10% corporate income tax and 15% branch office profit
remittance when profit remitted to parent company

Local business tax impact

Exemption from all kinds of local taxes, fees, or charges except real property tax on land
improvements and equipment;

Reporting relationship impact (ROHQ to the entities it will service)

Profit repatriation cost impact

TIP employees moving to the ROHQ entity the propriety and advisability (or not) of it

Withholding tax of 15% on compensation applicable to both alien and Filipino executives holding
managerial and technical positions. (Revenue Regulation 11-2010)*

Filipino employees must have a gross annual taxable income of at least PHP975,000.

Tax Savings on Regional Operating Headquarters

An ROHQ is actually a foreign corporation that is licensed to do business in the Philippines to

strictly engage in the above specific and limited services. It shall offer its services only to its
affiliates, branches or subsidiaries, as declared in its registration with the SEC. It shall not
directly and indirectly solicit or market goods and services whetheron behalf of their mother
company, branches, affiliates, subsidiaries or any other company. In same manner, it cannot
directly or indirectly engage in the sale and distribution of goods and services of its mother
company, branches, affiliates, subsidiaries or any other company.

How Tax Savings Operates

The above strict and limited operations of an ROHQ has a tax purpose. To my mind, tax savings
is the end view of the restrictions and hereunder are the material tax considerations for the use
of ROHQ: Special income tax rate of 10% of their taxable income.

As compared to a Philippine branch tax at 30%, ROHQ structure is a 20% advantage. Special
alien employee tax of 15% based on gross compensation applicable to managerial or technical
alien employees of ROHQ. An employee is normally taxed at 5-32% of taxable net income after
deducting personal exemptions allowed under certain conditions p50,000.00 basic personal
exemptions, and P25,000.00 personal exemptions for every qualified dependent child up to four
or maximum of P100,000.00 in a year).

This is a final withholding tax and the expatriate employee may no longer need to file annual
income tax return. 15% special alien tax applies to Filipinos holding similar managerial or
technical positions as that of expat employees. For the purpose, the tax authorities Bureau of
Internal Revenue (BIR) provides the following requirements under Revenue Regulations No. 11-
2010 issued on October 26, 2010

1. Position and function test as a managerial or technical employee by actual exercise of such
nature of work and not simply by designation of position in ROHQ
2. Compensation threshold test where gross annual taxable income of at least P975,000.00
(US$22,674.42@P43/US$) or approximately P81,250 (US$1,889.53@P43/US$) a month.

3. Exclusivity test or that the employee must be exclusively an employee servicing a single
ROHQ.

4. Filing of BIR Form No. 1947 for declaration. (Click to view Form)

15% branch profit remittance tax upon remittance of the operational income derived from
Philippine sources by the ROHQ to its head office abroad. While this may be of similar rate to
inter-corporate dividend tax of non-resident foreign corporation, this, does not require a tax
treaty relief (TTRA) from the International Tax Affairs Division (ITAD) Ruling from the BIR. Other
tax implications of ROHQ would be similar to the rest. It is subject to 12% VAT for services
rendered in the Philippines, and zero-rating for services to related party clients abroad under
certain conditions. ROHQ Registration in the Philippines After having learned of the above tax
savings and advantages, your next move is to make a complete registration of an ROHQ in the
Philippines. Since ROHQ is a foreign corporation licensed to do business in the Philippines, you
need to choose a parent company with affiliates, subsidiaries or branch office in the Asia pacific
region. Some uses a Hong Kong company, or a Singaporean company for ease of set-up
perhaps. But you can use one from other foreign countries of choice.

Hereunder are the common registration requirements:

1. Name verification slip with the name of the foreign corporation hyphenated with Philippine
regional operating headquarters. P40.00 for every 30 day reservation up to ninety (90) days,
subject to extension;

2. Endorsement from the Board of Investments;

3. Certification from the Philippine Consulate/Embassy or from Philippine Commercial Office, or

from the equivalent office of the DTI in the foreign country that said applicant is an entity
engaged in the international trade with affiliates, subsidiaries or branch offices in the Asia Pacific
region and other foreign markets; and

4. Authenticated certification from the principal officer (e.g. secretarys Certificate) of the foreign
company to the effect that the foreign company had been authorized by its Board of Directors or
governing body to establish ROHQ in the Philippines, appointing a resident agent, and
authorizing opening a treasurer-in-trust account (TITF) account in the Philippines and appointing
an authorized representative for the purpose;

5. Initial capitalization and remittance of US$200,000 or its Peso equivalent evidenced by

Certificate of Inward Remittance and Certificate of Bank Deposit from the bank where the TITF
account has been opened;

6. Appointment of resident agent to act as the point person for formal communications in the
Philippines.
Upon approval and release of the License to Do Business in the Philippines by the SEC,
registration with the following agencies would follow:

Bureau of Internal Revenue (BIR) for tax compliance registration;

Business Permits and Licenses from the Local Government Unit (LGU) of location;

Social Security System registration for mandatory social security benefits of its employees;

Philippine Health Insurance Corporation (PHIC or PhilHealth) for mandatory health benefits of
its employees;

Home Development Mutual Fund (HDMF) for mandatory housing benefits of its employees
Foreign investments registration with the Central Bank of the Philippines, if applicable.

Summary

The above discussion would mean that if the intended market of services of the proposed entity
is related parties abroad, ROHQ is a good choice because of its income producing nature from
its services and the tax perks attached to it. Process may take a while, approximately thirty (30)
days from date of SEC approval and release of License to do Business.