Forms of Business Organizations for Foreign Investors

Foreign companies may do business in the Philippines by establishing any of the following forms of business organizations: (i) regional headquarter, (ii) regional operating headquarter, (iii) representative office, or (iv) branch.

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A regional head quarter or RHQ must be endorsed by the Board of Investments to the Securities and Exchange Commission (SEC). It also needs to be registered with the SEC for its legitimate existence. It must have an annual minimum inward remittance of at least USD 50,000. One condition for approval relates to its functions, which must be relevant to (i) supervisory role, (ii), communication, or (iii) coordination. Another condition is that it does not earn income in the Philippines.

A regional operating headquarter or ROHQ, like the RHQ, must also be endorsed by the Board of Investments to the SEC. Also like the RHQ, it must be approved and registered with the SEC. It must have a minimum inward remittance of at least USD 200,000. The condition for approval and registration in terms of function is that it must perform qualifying services to its affiliates, subsidiaries, and branches. The second condition is that it earns income from such qualifying services. The income earned is subject to 10% tax.

A representative office needs SEC registration as a representative office. It is an extension of the personality of its mother company. Its activities are limited only to liaison work between mother company and its clients. It does not derive income. A representative office must have an initial minimum inward remittance of USD 30,000 to cover its operating expenses.

A branch is a foreign corporation organized and existing under foreign laws that carries out business activities of the head office and derives income from the host country. A branch needs SEC registration as a branch. It carries out the business activities of the parent company. It must have an assigned capital from the head office of at least USD 200,000, which can be reduced to USD 100,000 subject to conditions. These conditions are: (i) the activity involves advanced technology, or (ii) the company employs at least 50 direct employees.

The Foreign Investments Act provides an exception to the USD 100,00 and USD 200,000 capital requirement. This exception is applicable for businesses that are classified as export enterprises. An export enterprise is one which has 60% export sales. It is immaterial whether these are sales of goods or sales of services. These enterprises include foreign-owned branches in the Philippines that function as an outsourcing operation.

Respicio Law & Co. can help foreign companies do business in the Philippines.