Establishing a corporate presence in the Philippines is a strategic move for foreign corporations looking to tap into the Southeast Asian market. For entities that do not wish to incorporate a separate subsidiary, the two primary options are a Branch Office or an Extension Office (often referred to as a Representative Office).
While both are extensions of the foreign head office, they differ significantly in their legal capacities and tax implications under the Revised Corporation Code and the Foreign Investments Act of 1991.
1. Defining the Entities
Foreign Branch Office
A Branch Office is an extension of the foreign corporation that carries out the business activities of the head office in the Philippines. It is allowed to generate income from sources within the Philippines.
Representative (Extension) Office
A Representative Office is a "cost center." It deals directly with the clients of the parent company but does not provide services to third parties. Its activities are limited to information dissemination, promotion of the company’s products, and acting as a communication center. It is strictly prohibited from deriving income from the Philippines.
2. Legal Requirements for Registration
Registration for both entities is handled by the Securities and Exchange Commission (SEC). The following requirements are mandatory:
A. Documentary Requirements
- SEC Application Form: F-103 (for Branch) or F-104 (for Representative Office).
- Authenticated Copies of Corporate Documents: These include the Articles of Incorporation and Bylaws of the foreign head office. They must be translated into English (if necessary) and Apostilled (or authenticated by the Philippine Consulate) in the country of origin.
- Board Resolution: A resolution authorizing the opening of the Philippine office and designating a Resident Agent.
- Audited Financial Statements: The head office's latest financial statements, similarly authenticated or apostilled.
- Certificate of Reciprocity: A certification that the laws of the foreign corporation’s country allow Philippine corporations to set up branches or offices therein.
B. The Resident Agent
A foreign corporation must appoint a Resident Agent. This can be an individual residing in the Philippines or a domestic corporation lawfully transacting business in the country. The Resident Agent is the person upon whom summons and legal processes may be served.
3. Financial Requirements: Capitalization
The minimum inward remittance requirements vary based on the nature of the entity and the target market.
| Entity Type | Minimum Inward Remittance |
|---|---|
| Representative Office | USD 30,000.00 (initial deposit to cover operating expenses). |
| Branch Office (Export-Oriented) | USD 200.00 (if 60% or more of output is exported). |
| Branch Office (Domestic Market) | USD 200,000.00 (standard). |
| Branch Office (Small/Medium) | USD 100,000.00 (if involving advanced technology or employing 50+ direct employees). |
Note: For Branch Offices, the capital must be remitted into a local bank account and a Bank Certificate of Deposit must be submitted to the SEC.
4. Post-SEC Registration Steps
Once the SEC issues the License to Transact Business in the Philippines, the entity must complete its registration with other government agencies:
- Bureau of Internal Revenue (BIR): Obtain a Taxpayer Identification Number (TIN), register books of accounts, and apply for Authority to Print (ATP) invoices/receipts.
- Local Government Unit (LGU): Secure a Mayor’s Permit or Business Permit from the city or municipality where the office is located.
- Social Agencies: Mandatory registration with the Social Security System (SSS), Philippine Health Insurance Corporation (PhilHealth), and Home Development Mutual Fund (Pag-IBIG) for employee contributions.
5. Taxation and Annual Compliance
Taxation
- Branch Office: Subject to a 25% Corporate Income Tax (CIT) on net income derived from the Philippines. It is also subject to a 15% Branch Profit Remittance Tax (BPRT) on profits remitted to the head office, unless reduced by a tax treaty.
- Representative Office: Since it does not earn income, it is generally exempt from income tax but must still file "nil" returns and pay annual registration fees.
Annual Filings
Both entities are required to file the following with the SEC annually:
- General Information Sheet (GIS): Within 30 days from the anniversary of the issuance of the license.
- Audited Financial Statements (AFS): Prepared in accordance with Philippine Financial Reporting Standards (PFRS).
- Security Deposit: For Branch Offices, the SEC requires a deposit of high-quality securities (e.g., government bonds) with a market value of at least PHP 500,000.00 (plus a percentage of gross income exceeding a certain threshold) to ensure the payment of obligations.
6. Liability Considerations
In both a Branch and a Representative Office, the foreign corporation remains the same legal entity as the Philippine office. Consequently, the liabilities of the Philippine branch are the liabilities of the foreign head office. This is a critical distinction from a Subsidiary, which provides a "corporate veil" protecting the parent company from the debts and torts of its Philippine operations.