A Philippine Branch Office is an extension of a foreign corporation that is allowed to generate income from the Philippines.

Because of its structure as an extension, a Branch Office shares liability with its parent and is limited to its parent’s nature of business.

However, a Philippine Branch Office does have advantages such as a simpler administrative structure and taxes only on Philippine-sourced income.

Additionally, its profit remittance tax is only 15%. Let’s go through some of a Branch Office Advantages and Disadvantages below.

Branch Office Philippines: Major Points

• A Branch Office in the Philippines is 100% owned and controlled by its foreign owner
• A Philippine Branch Office has the same nature of Business as its foreign owner
• A Branch Office is not a separate entity from its foreign parent so the foreign parent is liable for all the debts and obligations of the branch office
• Branch Office Capitalization is USD 200,000 or USD 100 if export-oriented. It can be more if retail or less if an approved technology company.
• A Resident Agent who lives in the Philippines must be appointed. This Resident Agent can be a citizen, a foreigner or a domestic corporation

• Branch Office taxes on income are 25% for income generated in the Philippines
• Branch Office taxes also include 12% VAT on purchases and must withhold taxes on employee compensation ranging from 20% to 35%
• A Branch Office Tax of 15% or less depending on remittances to the parent company on double tax treaties is possible
• The branch can be 100% foreign owned if it is not subject to foreign ownership restrictions on the negative list

I’ll go through each major area of a Philippine Branch Office in detail – from control to liability to taxes.

I’ll also explain the process of how to open a branch office in the Philippines at the SEC below.

A Branch Office in the Philippines is 100% Owned by the Foreign Company

As an extension of a foreign corporation, a Branch Office in the Philippines is 100% owned and controlled by the foreign company.

If the ownership of the foreign company is 100% owned by foreign nationals, then there are certain industries that the Branch Office cannot enter into.

These restrictions should be considered from the get-go when setting up a business in the Philippines as these industries are restricted for Philippine nationals.

These foreign ownership restrictions are listed in the negative list.

The negative list is revised every 2 years or whenever applicable industry-specific laws are changed.

Let’s go through the detailed list below.

Industries for which no foreign ownership is possible are:

• mass media
• practice of professions
• retail with less than a capital of Php 25M
• cooperatives
• security agencies
• small scale mining
• marine resources
• cockpits
• nuclear weapons biological and chemical weapons and firecrackers and pyrotechnic devices.

Industries limiting foreign equity to 25%, 30% to 40% are:

• Private recruitment (25% foreign ownership)
• Construction of defense structures (25% foreign ownership)
• Advertising (30% foreign ownership)
• 40% foreign ownership for Infrastructure projects, Exploration and dev’t of natural resources, private land, public utilities, educational institutions except those that do not form part of the formal education system, rice and corn, contracts for government-controlled entities, deep sea commercial fishing vessels, and private radio news networks, arms and munitions and items that require Philippine National Police clearance, dangerous drugs, gambling and bathhouses, micro and small domestic enterprises with less than USD 200,000 of capital, micro and small domestic enterprises with less than USD 100,000 of capital must have advanced technology as defined by the DOST or are endorsed as a startup by the DTI, DOST, DICT which must have 15 employees

What if the branch office in the Philippines is an extension of a foreign company organized abroad and is 60% owned by Filipinos?

In that case, it may enter into these industries (as per amendment RA 8179 March 28, 1996).

 

A Branch Office in the Philippines has the same nature of Business as its parent

As a Philippine Branch Office is just an extension of the foreign parent.

So, it has the same business lines and nature of the business that the parent does.

If the Philippine Branch Office is expected to be in a different line of business, then a domestic corporation must be set up.

 

A Branch Office in the Philippines does not limit liability

A Branch Office is just an extension so its liabilities can be passed onto its parent.

So, if the Branch enters into a loan, the parent is liable for the loan.

A limited liability company’s equivalent in the Philippines is a domestic company – however, a domestic company is taxed on total income whereas a branch office in the Philippines is only taxed on local income.

Limited Liability thus – as always – comes with a higher price.

A Corporate Lawyer in the Philippines should be involved from the beginning so that liability and branch office taxation concerns can be addressed before opening a branch office in the Philippines.

The Capitalization of a Branch Office in the Philippines is USD USD 100 and up

A Philippine Branch Office capitalization is USD 200,000 if it will generate income in the Philippines or forms a Small Medium Enterprise.

However, a Branch Office can be capitalized for as little as USD 100 if it is wholly export-oriented.

Furthermore, the Branch Office capitalization must be USD 500,000 if it decides to go into retail.

A lot depends on what the Branch Office in the Philippines will do.

Note –

If the foreign company does not wish to generate income in the Philippines and have the Branch Office act as a cost center, it may be better to consider a Representative Office.

If the foreign company wishes to generate income in the Philippines and wishes to limit liability, a domestic company may be better – even though there may be more taxes.

The type of structure chosen has an effect on liability, taxes, and initial minimum capitalization so it is important to choose wisely.

And it is always important to provide full information to our corporate lawyers so that they can help you.

 

SEC Requirements for Branch Offices include a Resident Agent

One of the SEC Requirements for Branch Offices is the Resident Agent.

A Branch Office’s advantage over a domestic corporation is that it is simpler administratively – as an extension of an already existing corporation, it does not need a full board.

Instead, the only thing that a Branch Office needs is a Resident Agent.

Resident Agent Requirements Philippines:

• Resides in the Philippines
• Receives notices on behalf of the non-resident entity
• Can be an individual or domestic corporation in the Philippines
• A domestic corporation in the Philippines must be of good standing as certified by the SEC and also must have sound financial basis.

A board resolution must be executed appointing the Resident Agent and the Resident Agent must accept.

The corporation should indicate in its agreement with its Resident Agent that service on the Resident Agent is equivalent to service upon the officers of the foreign corporation.

Note that a Resident Agent must also sign other documents.

One of these is the SSS Registration form. SSS is the Social Security System that all employers must contribute to for their employees.

So, a Resident Agent has several responsibilities.

Replacing a Resident Agent requires another Board Resolution must be created. The replacement must be reported to the SEC along with the name and SPA of the new Resident Agent.

SEC Requirements for Branch Offices require a Resident Agent at all times.

Without a Resident Agent, the Philippines cannot gain jurisdiction over the company as it is essentially a foreign entity.

Without jurisdiction, the Philippine Branch Office may not be able to ask for redress under Philippine laws should a court matter come up.

 

Philippine Branch Office Address

Another one of the SEC Requirements for Branch Offices is an address.

Some will put a temporary address first just so that they can start the process of opening a branch office in the Philippines.

This is fine.

However, it is very advisable to have the temporary address in the same BIR Revenue District Office (RDO) and Local Government Unit that the permanent office is expected to be.

Changing an address can be lengthy and time-consuming.

Among others, it requires:

• An amendment to the articles of incorporation
• If the RDO is different and you have already undergone BIR Branch Registration, a transfer to a new BIR RDO may incur a BIR audit of the books.
• A transfer to a new LGU can incur unexpected expenses

While a corporate lawyer in the Philippines can help if you are transferring from one RDO to another, the best advice is to stay within the same RDO and LGU to avoid unnecessary work or an audit.

Branch Office Philippines: Taxation

Taxation of a Branch Office in the Philippines is an important consideration.

How to open a branch office in the Philippines should be a secondary consideration to whether or not you should be opening a branch office in the Philippines.

(Admittedly, branch office taxes can get complicated. Always consult with a corporate lawyer in the Philippines to be sure.)

Taxes for Branch Office Philippines:

• 25% Income taxes on Philippine sourced income based on taxable income less allowable deductions (or 20% depending on the size of the company) Note that if the tax basis for income taxes is not necessarily accounting income.
• 2% Minimum Corporate Income Tax (1% until Jun 2023) of gross income
• 12% VAT
• Withholding tax for employee compensation of 0% to 35% depending on income
• Other withholding taxes
• Philippine Branch Office Tax for Profit Remittance is 15%
• Philippine Branch Offices can claim a share of head office expenses subject to certain conditions

This is just a basic overview of Branch Office Taxes in the Philippines, which should serve as a starting point for your discussion with a Corporate Lawyer in the Philippines.

SEC Requirements for Branch Office in the Philippines

The process of how to open a branch office in the Philippines will require several documents.

Branch Office Philippines: SEC requirements

• SEC Application Form No. F-103
• Name verification slip
• Authenticated and audited the latest financial statements of parents with certification from an independent CPA. Financial ratios are required to be 1:1 for the current ratio, 1:1 for the solvency ratio, and 3:1 for debt to equity as of 1 year ago
• Authenticated certified copies of the Articles of Incorporation
• Authenticated and certified copy of the Board of Resolution from the parent company establishing the branch office and designating a Resident Agent
• Resident Agent acceptance of appointment
• Certificate of Inward Remittance and Certificate of Bank Deposit of USD 200,000.00 or applicable capitalization requires a Board Resolution to open a Bank Account authenticated as well
• Endorsement from appropriate government agencies as applicable

This list of SEC Requirements for Branch Offices looks straightforward.

The difficulty and cause of delay in setting up a business in the Philippines are often related to the fact that these documents must be authenticated in the foreign parent’s country. It must also be translated to English if in another language by a certified translator.

So, the process of authenticating documents can take a long time.

Authenticating the documents can be either authentication itself or apostille.

If apostille, note that each country processes apostille in a slightly different way.

If the country is not part of the Hague Convention on Apostille, then authentication is needed.

Authentication may require that the signatories go to the PH embassy to sign and then consular the document – this can take time.

And this must be done for all documents for use in the PH created abroad such as Board Resolutions and the like.

Now, another common issue is the Audited Financial Statements (AFS).

In a country where Audited Financial Statements are required, the audited financial statements for the year prior should be submitted.

It must be audited by an independent CPA.

Furthermore, it must be apostilled and authenticated.

If the AFS exceeds the one-year requirement, submit the latest AFS that is available and Unaudited Financial Statements not exceeding one year signed by an officer of the foreign parent.

Now, if the country does not require Audited Financial Statements, submit Unaudited Financial Statements not exceeding one year.

Also, an authenticated certification from corporate legal counsel or by an officer of the responsible regulatory institution would be needed, with the law attached.

Note that getting the law is in itself a process.

If you have gathered all these SEC requirements for a branch office, then you are in a good place to start setting up a business in the Philippines.

 

SEC Process for How to Open a Branch Office in the Philippines

The actual process of how to open a branch office in the Philippines takes 2 or so months, from the moment that the documents are filed to when the SEC Registration is complete.

SEC Branch Registration Philippines: Process

1. Assess requirements with a corporate lawyer in the Philippines to determine the optimal structure, taxation, and cash repatriation.

 

2. Gather documents from the foreign company. This can take time.

 

3. Fill up the application form online and the desired name in the SEC system

 

Upload notarized documents if the name is available and there are no issues.

 

If there is an issue with the name, an appeal can be lodged.

If there is an issue with the corporate information, the SEC will notify.

4. Pay the Registration fee

The registration fee is 1% of the actual inward remittance of the corporation. This must not be less than Php 3,000

5. Submit hardcopy documentary requirements and proof of payment to SEC Main or an SEC Branch Office

 

6. SEC Certificate of Registration is released.

 

7. Post Registration Requirements exist. BIR Branch Registration Requirements must be filed with BIR, as well as the SSS, Pagibig, Philhealth and LGU enrollment.

 

These are significant enrollments and must be completed. These can also take some time to complete.

 

The issue that frequently comes up in setting up a business in the Philippines such as a branch is generally that the preparation of the SEC requirements takes some time.

Yes, it is a checklist.

However, preparing the documents and authenticating them can take some time.

For example, a country may not be part of the Apostille convention and may not have a PH embassy.

This may require traveling to another country where a PH embassy is located just to authenticate and consulate the documents.

In addition, translation of foreign documents may be needed.

Sometimes getting the attachment showing that audited financial statements are not required may be difficult.

These can all slow things down.

It’s really best to consult with a corporate lawyer in the Philippines.

This way time can be saved and the correct structure for what the company should be doing is undertaken.