Foreign investors seeking to establish a substantial commercial presence in the Philippines typically choose between two primary structures: (1) a Branch Office of a foreign corporation or (2) a 100% Foreign-Owned Domestic Corporation (commonly called a subsidiary). Both allow complete foreign ownership and control in sectors open to foreign investment, but they differ profoundly in legal personality, liability exposure, taxation, capital treatment, governance, and strategic suitability.
This article exhaustively compares the two structures under current Philippine law as of December 2025 (Revised Corporation Code, Foreign Investments Act as amended, CREATE Act, 12th Foreign Investment Negative List, SEC rules, BIR regulations, and established jurisprudence).
1. Legal Personality and Separate Juridical Existence
Branch Office
- Mere extension of the foreign parent corporation
- No separate juridical personality
- Considered a “resident foreign corporation” doing business in the Philippines
- All contracts, obligations, and liabilities are directly those of the head office
- Parent company’s worldwide assets are exposed to Philippine creditors (unlimited liability)
100% Foreign-Owned Domestic Corporation (Subsidiary)
- Separate and distinct juridical personality from its shareholders
- Domestic corporation incorporated under the Revised Corporation Code (RA 11232)
- Liability of shareholders limited to their capital contribution
- Philippine creditors can only reach the subsidiary’s assets, not the parent’s global assets
This is the single most important difference. Subsidiaries are overwhelmingly preferred by multinational companies precisely because they ring-fence Philippine risks.
2. Allowed Activities and Foreign Ownership Restrictions
Both structures are subject to the same Foreign Investment Negative List (FINL):
List A (Constitution or statute-based restrictions)
- Mass media (0%)
- Practice of licensed professions (0–40% depending on profession)
- Retail trade with paid-up capital < USD 2,500,000 (0%)
- Small-scale mining (0%)
- Private security agencies (0%)
- Cockpits (0%)
- Etc.
List B (public policy/SME protection)
- Commercial deep-sea fishing (up to 40%)
- Contracts for construction of defense-related structures (up to 40%)
- Sauna/massage parlors (up to 40%)
- Etc.
In activities not appearing in either List A or List B, 100% foreign ownership is allowed in both structures.
Consequently, there is no sector where a branch is allowed but a 100% foreign-owned subsidiary is prohibited, or vice versa. The restrictions apply equally.
3. Registration Authority and Process
Branch Office
- Licensed by the Securities and Exchange Commission (SEC) as a foreign corporation doing business in the Philippines (Sec. 123–134, Revised Corporation Code)
- Application is for a “License to Do Business”
- Typical processing time: 4–12 weeks
- Must appoint a Resident Agent (individual resident or domestic corporation) who accepts service of summons on behalf of the foreign corporation
100% Foreign-Owned Subsidiary
- Registered with the SEC as an ordinary domestic stock corporation
- No “license to do business” requirement because it is already a Philippine national
- Can be a One Person Corporation (OPC) or regular stock corporation
- Corporate Secretary must be a Philippine citizen and resident (Sec. 25, RCC)
- No mandatory Resident Agent requirement (unless all directors are non-residents and the SEC requires one)
4. Minimum Capitalization Requirements
Domestic Market Enterprises (sell >40% of goods/services to the Philippine market and foreign equity >40%)
- Both structures: USD 200,000 minimum paid-up capital
- Reducible to USD 100,000 if:
(a) activity involves advanced technology (as certified by DOST), or
(b) directly employs at least 50 Filipinos
Export-Oriented Enterprises (≥60% export, or 100% export for PEZA-registered)
- Both structures: No minimum capital requirement
Additional Requirement for Branches Only
- The USD 200,000 (or USD 100,000) must be inwardly remitted and converted to Philippine pesos (BSP-registered)
- Within 120 days from license issuance, the branch must deposit with the SEC acceptable securities (government bonds or shares) worth at least PHP 500,000 (or higher depending on capitalization) for the protection of local creditors (SEC Memorandum Circular No. 8, series of 2013, as updated)
Subsidiaries have no securities deposit requirement.
5. Governance and Management
Branch
- No board of directors required in the Philippines
- Managed directly by the head office or through appointed branch manager(s)
- Resident Agent mandatory
Subsidiary
- Must have a Board of Directors (minimum 2 for OPC, 5–15 for ordinary stock corporation)
- Majority of directors need not be Philippine residents
- Corporate Secretary must be a Filipino citizen and resident of the Philippines
- Annual stockholders’ meetings and board meetings required
6. Taxation Comparison
| Aspect | Branch Office | 100% Foreign-Owned Subsidiary |
|---|---|---|
| Regular Corporate Income Tax (RCIT) | 25% (20% if qualified small corp) | 25% (20% if qualified small corp) |
| Minimum Corporate Income Tax (MCIT) | 2% of gross income (applicable) | 2% of gross income (applicable) |
| Branch Profit Remittance Tax | 15% on all profits remitted to head office (reduced by treaty) | None |
| Dividend Withholding Tax | Not applicable | 15% on dividends to non-resident foreign parent (reduced by treaty; 0% if reinvested and BOI-registered under certain conditions) |
| Tax on capital repatriation | Generally none (but remittance of assigned capital may trigger BPRT if considered profit) | None (sale of shares subject to 15% CGT on net gains) |
| Local Business Tax | Based on gross receipts (same) | Based on gross receipts (same) |
| VAT / Percentage Tax | Same | Same |
Key strategic implication: Subsidiaries can retain earnings indefinitely without triggering the 15% remittance/dividend tax, whereas every peso sent back to the parent from a branch incurs the 15% BPRT (even if the remittance is for reimbursement of expenses, unless properly documented as cost recharge without markup).
7. Liability Exposure
Branch: Unlimited. Philippine courts can go after the parent’s worldwide assets (Georg Grotjahn GMBH & Co. v. Isnani, G.R. No. 109272, 1994).
Subsidiary: Limited to corporate assets. Piercing the corporate veil is possible but extremely rare and requires proof of fraud or alter ego.
8. Ownership of Real Property
Both structures are prohibited from owning private land (Art. XII, 1987 Constitution – corporations with >40% foreign equity cannot own private lands).
Both may:
- Lease private land for 50 years, renewable once for 25 years (99 years total for special economic zone projects)
- Own condominium units (up to 40% of the total units in a project)
- Own buildings on leased land
No practical difference.
9. Repatriation of Capital and Earnings
Both require BSP registration of the foreign investment to guarantee repatriation rights.
Branch:
- Profits: subject to 15% BPRT
- Capital reduction/repatriation: requires SEC approval and proof that creditors are protected
Subsidiary:
- Dividends: 15% withholding tax (or treaty rate)
- Capital repatriation (via share redemption or sale): no tax if at original value; 15% capital gains tax on gains
10. Incentives Eligibility (BOI, PEZA, etc.)
Both structures are equally eligible for fiscal incentives (income tax holiday, duty-free importation, VAT zero-rating on local purchases, etc.) provided the activity is pioneer or preferred.
PEZA historically registered more subsidiaries than branches, but branches are accepted.
11. When Investors Choose Each Structure
Branch Office is preferred when:
- The engagement is short-term or project-specific
- Parent wants to avoid Philippine corporate governance formalities
- Immediate full remittance of profits is desired (despite 15% BPRT)
- Parent is in a jurisdiction with a favorable tax treaty that significantly reduces BPRT (e.g., Netherlands, Japan, USA treaties can reduce to 10% or 0% in certain cases)
100% Foreign-Owned Subsidiary is overwhelmingly preferred when:
- Long-term presence is intended
- Significant assets or employees will be in the Philippines
- Risk isolation is critical
- Earnings will be reinvested locally for growth
- Parent wants to avoid the 15% tax on every remittance
In practice, more than 85% of new foreign investments entering the Philippines since 2015 have chosen the subsidiary form (based on consistent SEC and BOI annual reports).
Conclusion
While both structures grant identical foreign ownership rights in open sectors, the 100% foreign-owned domestic corporation is superior in almost every material respect: limited liability, no branch profit remittance tax, no securities deposit, simpler governance for non-residents, and greater flexibility in retaining and reinvesting earnings.
The branch office survives mainly for temporary projects, specific tax-treaty planning, or when the parent company’s internal policy prohibits creating separate legal entities.
For virtually all long-term investments in the Philippines, the 100% foreign-owned subsidiary is the clear winner under Philippine law.