The Philippines maintains a generally open policy toward foreign investment, subject to the Foreign Investments Act (Republic Act No. 7042, as amended by R.A. 8179 and further liberalized by R.A. 11647 in 2022), the Revised Corporation Code (R.A. 11232), and the current Foreign Investment Negative List (FINL, Executive Order No. 18, series of 2022, as may be updated).
Foreign investors intending to engage in business activities that allow 100% foreign equity have two primary vehicles: (1) establishing a Branch Office (an extension of the foreign parent company), or (2) incorporating a Wholly Foreign-Owned Corporation (a domestic stock corporation with 100% foreign equity, commonly referred to as a “100% foreign-owned subsidiary” or WFOE).
Although both structures permit full foreign ownership and control in allowed sectors, they differ fundamentally in legal personality, liability, taxation, remittance of profits, regulatory requirements, operational flexibility, and exit mechanics. The table and detailed discussion below provide a comprehensive comparison under current Philippine law as of December 2025.
| Aspect | Branch Office | Wholly Foreign-Owned Corporation (Subsidiary) |
|---|---|---|
| Legal Personality | No separate juridical personality; merely an extension of the foreign parent company. | Separate and distinct juridical personality from its shareholders. |
| Liability | Parent company is 100% liable for all obligations and liabilities of the branch. | Liability of shareholders limited to their subscribed capital; corporate veil applies. |
| Allowed Activities | Only activities that allow 100% foreign equity under the FINL. Cannot engage in partially restricted activities. | Can be structured with up to 100% foreign equity in allowed activities; can also be used for partially restricted activities by allocating Filipino equity if desired (but not required for wholly foreign-owned). |
| Minimum Paid-Up Capital | Generally US$200,000 if selling to the domestic market. Reduced to US$100,000 if: (a) involves advanced technology (DOJ opinion required), or (b) employs at least 50 direct employees. Export-oriented branches (100% export) or domestic market branches with no foreign exchange requirement: no minimum. | Same as branch: US$200,000 / US$100,000 rule applies when foreign equity exceeds 40%. If ≤40% foreign equity, minimum P5,000 only (but irrelevant for wholly foreign-owned). |
| Additional Capital for Retail Trade | Retail trade enterprises with foreign equity require paid-up capital of at least US$2,500,000 (R.A. 8762). | Same requirement applies. |
| Registration Authority | Securities and Exchange Commission (SEC) – License to Do Business in the Philippines. | SEC – Articles of Incorporation and By-Laws registration. |
| Required Deposit with SEC | Must deposit acceptable securities worth at least ₱500,000 (increased by SEC MC No. 14-2018 from previous ₱100,000) with the SEC as a condition precedent to license issuance. Additional deposit required if assigned capital exceeds ₱3,000,000 up to ₱500,000 maximum. | No securities deposit required. |
| Resident Agent | Mandatory (Philippine resident or domestic corporation) upon whom processes may be served. | Mandatory only if no resident director; otherwise, the corporation itself may be served. |
| Corporate Income Tax | 25% on net taxable income from Philippine sources (CREATE Act rate for resident foreign corporations). | 25% on net taxable income (domestic corporation rate under CREATE Act). |
| Branch Profit Remittance Tax (BPRT) | 15% on profits remitted (or deemed remitted) to the head office, unless tax-sparing or treaty rate applies. | No BPRT. Dividends paid to non-resident shareholders are subject to 30% final withholding tax (or lower treaty rate), but only when actually declared and paid. |
| Local Business Tax | Based on gross revenue, same as domestic corporations (up to 3% depending on locality). | Identical treatment. |
| Repatriation of Profits | Profits may be repatriated only upon registration of inward remittance with BSP and payment (or advance payment) of 15% BPRT. Deemed remitted if not reinvested. | Dividends may be freely repatriated after BSP registration of the original investment, payment of dividend tax, and proof that the corporation has no deficit. No deemed remittance rule. |
| Repatriation of Capital | Capital may be repatriated only upon cessation of operations in the Philippines and approval of a withdrawal plan by SEC and BSP. | Capital reduction or sale of shares requires only SEC approval (for reduction) or simple share transfer. Much simpler and faster. |
| Books of Account | Must be kept in the Philippines; head office books are not sufficient. | Must be kept in the Philippines. |
| Financial Statements Submission | Must submit both branch F/S and worldwide audited F/S of parent company annually to SEC. | Only the subsidiary’s own audited financial statements are required. |
| Governance | Managed by the parent company; no board of directors required in the Philippines (though a resident agent and branch manager are needed). | Requires a board of directors (at least 2 incorporators, majority resident), corporate officers, and annual stockholder meetings. |
| Name Requirement | Must use the exact name of the foreign parent with the word “Philippine Branch” or similar. | May use any name not identical or confusingly similar to existing corporations (subject to SEC approval). |
| Termination / Withdrawal | Requires SEC approval of a withdrawal plan, publication, tax clearance, and BSP approval for capital repatriation. Process typically takes 6–18 months. | Voluntary dissolution under the Revised Corporation Code (shorter or longer form). Generally faster and less onerous than branch withdrawal. |
| Suit Against the Entity | Suits are filed against the foreign parent company (through the resident agent). | Suits are filed against the corporation itself. |
| Advantages | Faster setup (typically 4–8 weeks); no need for board meetings or local directors; direct control by head office; no dividend declaration formality. | Limited liability; easier profit repatriation (no BPRT); easier exit; more acceptable to lenders and counterparties who prefer dealing with a Philippine entity; easier to sell the business (share sale). |
| Disadvantages | Unlimited liability of parent; BPRT burden; more onerous annual reporting (parent worldwide F/S); securities deposit; more difficult and expensive to close. | Slightly longer incorporation (6–10 weeks); need to maintain board and hold meetings; dividend tax (though often lower effective rate than BPRT due to timing and treaty benefits). |
Practical Considerations in Choosing Between the Two Structures
Tax Efficiency
Most multinational tax advisors now prefer the subsidiary structure because the 15% BPRT is imposed on profits whether or not actually remitted (deemed remittance rule), whereas dividends are taxed only when declared. With proper tax planning and use of tax treaties, the effective tax rate on repatriated earnings is frequently lower for subsidiaries.Financing and Counterparty Perception
Philippine banks and suppliers generally prefer lending to or contracting with a domestic corporation rather than a branch of a foreign entity due to limited liability and clearer enforcement of security interests.Exit Strategy
Selling a Philippine business structured as a subsidiary is significantly easier (simple share transfer) than winding down a branch (which requires full liquidation and repatriation approval).Regulatory Scrutiny
Branches are subject to stricter SEC monitoring (securities deposit, parent financial statements, additional capital surcharges). Subsidiaries, once incorporated, are treated essentially as domestic corporations.Recent Liberalization (R.A. 11647, March 2022)
The amendments to the Foreign Investments Act, Public Service Act (R.A. 11659), and Retail Trade Liberalization Act have opened more sectors to 100% foreign ownership (e.g., telecommunications, shipping, airlines, railways, tollways). Both structures benefit equally from these changes, but the subsidiary form is increasingly preferred for new greenfield investments.
Conclusion
While a Branch Office offers simplicity and speed of entry, the Wholly Foreign-Owned Corporation (subsidiary) has become the overwhelmingly preferred vehicle for long-term investment in the Philippines due to its limited liability, lower effective repatriation tax burden, easier exit, and greater operational and financing flexibility. The choice ultimately depends on the investor’s time horizon, risk tolerance, tax planning objectives, and intended exit strategy. In practice, the vast majority of new 100% foreign investments since 2020 have adopted the subsidiary form.