1.

Branch Office vs Subsidiary (Domestic

Corporation)
Business Registration for Most Foreign Companies (According to Kittelson & Carpo
Consulting, known for business consulting services in the Phil.)

Foreign investors typically register and start a business in the Philippines through a Domestic
corporation or Branch Office. Either entity has advantages and disadvantages. Corporations are
more favorable in terms of administrative regulation. Branches may be more advantageous
taxwise, but cannot be used if the activities undertaken by the business are included in the
Foreign Investment Negative list (FINL) since they are considered completely foreign owned .
The FINL prescribes the Philippine equity participation necessary for various businesses
restricted from full foreign ownership by law or the Constitution. Corporations are able
accommodate the necessary Philippine equity requirements.

Most BPOs, call centers, contact centers, web development, software and other companies
involved in outsourcing or offshoring in the Philippines register a Branch Office or
Subsidiary/Domestic Corporation

As to Taxability

Branch Subsidiary (Domestic Corporation)

1. Subject to income tax only on Philippine source 1. Subject to income tax on

income worldwide 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
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

5. 5. A branch is not liable to pay the 10% 4. The Philippine subsidiary is not
improperly accumulated earnings tax entitled to the allocation of
overhead expenses of its parent

As to its Nature
Branch
A branch office is merely an extension of the head
office, thus its liabilities are considered liabilities of the and distinct from that of its parent
head office
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.
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
company.
5. A subsidiary is liable to pay the
10% improperly accumulated
earnings tax.
Subsidiary (Domestic Corporation)
A subsidiary is a juridical entity separate
company, hence its liabilities are
generally not regarded as the liabilities of
the parent company.
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.
Subsidiary (Domestic Corporation)
The establishment of a subsidiary
requires at least five (5) but not more
than fifteen (15) incorporators/directors

As to the deposit requirement of securities with SEC
Branch
A branch is required initially to deposit with the SEC Subsidiaries are not required to deposit
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 office's gross
income exceeds five (5) million pesos
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
applicant's 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:
(all of whom must be natural persons)
majority of whom must be residents of
the Philippines.
Subsidiary (Domestic Corporation)
securities with the SEC.
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
 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
branch's operations
ACCORDING TO ATTY ESTARES OF THE LEGAL DIVISION OF SEC IN DAVAO, FOR A BRANCH OFFICE, IT HAS TO BE
PROCESSED IN MANILA
Branch Office vs. Domestic Subsidiary
By Juris Bernadette M. Tomboc
There are two (2) basic modes of entry that foreign corporations
seeking to do business in the Philippines may adopt. The first one is
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
subsidiary's authorized capital
stock, plus 1% of such SEC fee
for the SEC legal research fees
and P210.00 for the registration
of the subsidiary's by-laws.
through a branch office and the other is to set up a domestic subsidiary.
Which one is better? Let us examine the legal and tax implications of
each type of business organization in weighing their advantages and
disadvantages.

Setting up a domestic subsidiary involves incorporation under Philippine

laws. By incorporation, the domestic subsidiary acquires a juridical
personality that is separate and distinct from that of its parent company.
(Sec. 2, Corporation Code) The parent company shall not be liable for the
obligations of the domestic subsidiary beyond its subscription to the
subsidiarys authorized capital stock, unless there are circumstances
that warrant the piercing of the veil of corporate fiction, such as its use
for the perpetration of fraud. From the viewpoint of taxation, the
subsidiary becomes a domestic corporation while the parent company
remains a non-resident foreign corporation. (Sec. 22 (C) and (I), Tax Code)

On the other hand, doing business through a branch office involves

the securing by the foreign corporation of a license to do business in the
Philippines. Unlike a domestic subsidiary, a branch office does not
acquire a separate juridical personality but becomes merely an extension
of its parent company. (Sec. 123, Corporation Code) The parent company
shall be liable for all of the obligations that the branch office may incur.
From the point of view of taxation, the foreign company upon obtaining a
license to do business through a branch office becomes a resident
foreign corporation (Sec. 22, (H), Tax Code) with
respect to the transactions that are effectively connected with its
business in the Philippines. Otherwise, it shall be considered a non-
resident foreign corporation with respect to transactions that are not
effectively connected with its business here.

The domestic subsidiary and its parent company, i.e., non-resident

foreign corporation, are also subject to tax separately. The domestic
corporation is subject to tax based on its taxable income from all
sources, i.e., within and without the Philippines, at the corporate tax rate
of 32%. (Sec. 27 (A), Tax Code) Its parent company, the non-resident foreign
corporation, on the other hand, is subject to tax based on its gross
income from sources within the Philippines at the same tax rate. (Sec.
28 (B) (1), Tax Code)

Subject to the provisions of an applicable tax treaty, if any, the

32% tax rate on gross income imposed on a non-resident foreign
corporation also applies to dividend income that it receives from a
domestic corporation. However, the dividend tax may be reduced to 15%
if the government of the country in which the parent company resides
shall reduce the tax that it shall impose on the receipt of the said
dividends by an amount that will at least equal the amount of tax
equivalent to the 17 percentage points, i.e., 32% minus 15%, waived by
the Philippine government. (Sec. 28 (B) (5) (b), Tax Code)
 In contrast, a branch office is subject to tax based on its taxable
income from sources within the Philippines at the rate of 32%. (Sec. 28
(A) (1), Tax Code) Branch profit remittances to the parent company, if they
are effectively connected with its business in the Philippines (considered
as income earned as a resident foreign corporation), are subject to the
branch profit remittance tax of 15%. Other income that is not effectively
connected with the business of the branch office (considered as income
earned as a non-resident foreign corporation) may either be subject to
the provisions of the applicable tax treaty, if any, or taxed at the gross
amount at the rate of 32%.

In summary, therefore, it may be more advantageous for a foreign

investor company to set up a domestic corporation for purposes of
limiting its potential legal liability. For tax purposes, however, the
decision must take into consideration whether there is an applicable tax
treaty that can reduce the rate of tax on dividends received by a foreign
company from a domestic corporation to 15% or less. Otherwise, it may
be more advantageous for tax purposes to set up a branch office. Another
tax advantage of setting up a branch office is that it may be allowed to
deduct a ratable portion of the expenses and other deductions of its
parent company from its taxable income from the Philippines if these
expenses and deductions are effectively connected with its business
being conducted here. (Sec. 42 (B) (1), Tax Code)

2.

Registration of a Domestic Corporation in

the Philippines
Registering a corporation requires a minimum of 5 incorporators, each of whom must be
actual persons that must hold at least a single share in the company. Majority of the
incorporators must be Filipino residents. A Corporation may have between 5 and 15
directors (or trustees if a non-stock corporation), each of whom must hold at least one
qualifying share of stock. Majority of the directors (or trustees) must be Philippine
residents. All Domestic Corporations (those incorporated in the Philippines) obtain their
license from and are registered with the Securities and Exchange Commission. The SEC
will require a prospective Corporation to reserve and register a name, submit proposed
Articles of Incorporation and By-Laws which are compliant with the requirements of the
Corporation Code of the Philippines, and meet the minimum capitalization requirements
pertaining to the industry or business the it is engaged in.

Under the Foreign Investment Act , the minimum paid-up capital requirement for a
corporations considered Domestic Market Enterprise (DME) or one whose foreign equity
exceeds 40% is US$200,000, which amount must be remitted into the Philippines. The
registration requirements do not apply to export-oriented enterprise or involve advance
technology and will employ at least 50 employees.

Stock Corporation

100% Filipino Equity

Documentary requirements

Bank Certificate showing paid in capital

Articles of Incorporation and By-laws

Treasurer's Affidavit

Registration Data Sheet

Endorsements / Clearances from other government agencies (if applicable)

60% Filipino, 40% Foreign Equity

Documentary Requirements

Bank Certificate showing paid in capital

Articles of Incorporation and By-laws

Treasurer's Affidavit

Registration Data Sheet

Endorsements/Clearances from other government agencies (if applicable)

More than 40% Foreign Equity

Documentary Requirements

Form F-100

Articles of Incorporation and By-laws

Treasurer's Affidavit

Bank Certificate showing paid in capital

 Proof of Inward Remittance by non-resident aliens and foreign corporate
subscribers who would like to register their investment with the Central Bank of
the Philippines.

Non Stock Corporation

Income or profit generated by this type of corporation cannot be distributed as dividends

to its officers or members but shall be used for its operations and for the purpose in which
the company was incorporated.

Examples of activities of Non-stock Corporations

Religious

Foundations

Associations

Charitable

Civic service

Fraternal

Cultural

Educational

Chambers (Amcham, Cancham, et al)

Any combination of the above mentioned

Documentary Requirements

Bank Certificate showing paid in capital

Articles of Incorporation and By-laws

Treasurer's Certificate

Registration Data Sheet

3. Can a subsidiary domestic corporation be 100 percent foreign owned?

 Yes as long as it is wholly for export

4. May all the incorporators be foreigners considering that it will only be engaged in buying fish
and exporting them?
YES

5. It is still necessary that majority of the incorporators should be residents of the Philippines
despite being a local corporation

6. May foreigners be President, CEO, Vice-President, COO, Treasurer, or Chief of Financial Officer
and corporate secretary of the corporation?
YES, as long as it is 100% foreign owned, otherwise, it will be a violation of the Anti-dummy law