In the landscape of Southeast Asian commerce, the Philippines presents a compelling case for foreign expansion. For a foreign corporation looking to establish a permanent presence, the Subsidiary Company is often the preferred vehicle. Unlike a Branch Office, a subsidiary is a domestic corporation organized under Philippine law, possessing a legal personality separate and distinct from its foreign parent company.
This guide outlines the legal framework, capital requirements, and procedural steps for foreigners to successfully incorporate a subsidiary in the Philippines.
1. Legal Framework and Ownership Structure
The primary legislation governing incorporation is the Revised Corporation Code of the Philippines (Republic Act No. 11232). Under this law, a subsidiary is treated as a domestic entity, even if 100% of its shares are owned by a foreign parent.
Ownership Limits and the Negative List
While the Philippines has significantly liberalized its economy through the Foreign Investments Act (RA 7042, as amended by RA 11647), certain sectors remain restricted. Foreigners must consult the Regular Foreign Investment Negative List (FINL), which categorizes activities into:
- List A: Reserved for Filipino citizens by mandate of the Constitution (e.g., Mass Media, Small-scale Mining).
- List B: Restricted for reasons of security, defense, risk to health and morals, or protection of local small-and-medium enterprises (e.g., Surveillance, Firearm manufacturing).
Key Note: If the business activity is not on the FINL, 100% foreign ownership is generally permitted.
2. Capitalization Requirements
The minimum paid-in capital for a subsidiary depends on its intended market orientation:
Domestic Market Enterprises (DME)
If the subsidiary intends to sell goods or services within the Philippines and has more than 40% foreign equity, it is classified as a DME.
- Minimum Capital: US$200,000.00.
- Reduced Capital: This may be lowered to US$100,000.00 if the enterprise:
- Involves advanced technology (certified by the Department of Science and Technology); or
- Employs at least 15 direct Filipino employees.
Export-Oriented Enterprises
If the subsidiary exports at least 60% of its goods or services, the high capital threshold is waived.
- Minimum Capital: Generally as low as PHP 5,000.00, though higher amounts are recommended to cover initial operational costs.
3. Structural Requirements: The Board and Officers
Under the Revised Corporation Code, the requirements for the governing body have been modernized:
- Incorporators: Can be between one (1) and fifteen (15) individuals. A One Person Corporation (OPC) is now available for a single foreign natural person or a single corporate entity.
- Board of Directors: Directors do not need to be Filipino citizens or residents, but they must each own at least one share of the company’s stock.
- Mandatory Officers:
- President: Must be a director; no citizenship or residency requirement.
- Corporate Secretary: Must be a Filipino citizen and a resident of the Philippines.
- Treasurer: Must be a resident of the Philippines (can be a foreigner with a valid ACR I-Card).
- Compliance Officer: Required for corporations vested with public interest.
4. Documentary Requirements for SEC Registration
The Securities and Exchange Commission (SEC) is the primary regulatory body. To incorporate, the following are required:
- Name Reservation: Approval of the proposed corporate name via the SEC’s online portal.
- Articles of Incorporation (AOI) and Bylaws: Outlining the company’s purpose, principal office address, and internal rules.
- Treasurer’s Affidavit: A sworn statement by the elected Treasurer certifying the amount of capital subscribed and paid.
- Bank Certificate: For DMEs, a certificate of inward remittance of the US$200,000 (or US$100,000) capital is often required.
- SEC Form F-100: The specific application form for corporations with more than 40% foreign equity.
- Authentication/Apostille: If the parent company’s board resolution or constitutional documents are executed abroad, they must be apostilled in the country of origin.
5. The Registration Process Flow
The path to legal operation involves multiple government agencies.
| Step | Agency | Output |
|---|---|---|
| 1. Incorporation | Securities and Exchange Commission (SEC) | Certificate of Incorporation |
| 2. Local Licensing | Barangay and Local Government Unit (LGU) | Barangay Clearance and Mayor's/Business Permit |
| 3. Tax Registration | Bureau of Internal Revenue (BIR) | Tax Identification Number (TIN) and Certificate of Registration (COR) |
| 4. Employer Registration | SSS, PhilHealth, and Pag-IBIG | Employer ID Numbers for mandatory benefits |
6. Post-Incorporation Compliance
Registration is only the beginning. To maintain "Good Standing," a subsidiary must:
- File General Information Sheets (GIS): Submitted annually to the SEC within 30 days of the annual stockholders' meeting.
- File Audited Financial Statements (AFS): Stamped by the BIR and submitted to the SEC.
- Maintain Corporate Books: Including a Stock and Transfer Book (STB) to record share issuances and transfers.
- Tax Compliance: Monthly, quarterly, and annual tax filings (VAT, Withholding Tax, Income Tax) are mandatory regardless of whether the company is currently earning.
By adhering to these requirements, foreign investors can leverage the Philippines' strategic location and talented workforce while ensuring their subsidiary remains legally shielded and operationally sound.