Foreign Corporation

The foreign corporation’s head office must prove its legal existence in its country of origin, as
well as its financial solvency and authorization to set up in the Philippines. The appointment of a
resident agent in the Philippines who will be in charge of receiving summons and legal processes
is also required by law. This allows the SEC and other entities to obtain jurisdiction over the
foreign company.

A foreign corporation is an entity formed, organized, or existing under any laws other than those
of the Philippines and whose laws allow Filipino citizens and corporations to conduct business in
its country or state of origin.

Failure of a foreign corporation to obtain a license to do business will bar the entity from filing
suit, although it can be sued, in Philippine courts.

No foreign corporation transacting business in the Philippines without a license, or its

successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may
be sued or proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.

By: Atty. Enrique V. dela Cruz, Jr.[1]

Foreign corporations planning to do business in the Philippines can choose to either

establish a representative office, a branch, a subsidiary o r an independent domestic
corporation. Which mode should they choose? It depends on the nature of the
operations and the purpose of the investment in the Philippines.

Representative Office

Under Philippine law, a representative office is a foreign corporation allowed to do

business in the Philippines, but without deriving any local income. [2] A
representative office is fully subsidiz ed by its head/foreign office and deals directly
with the latter’s clients by disseminating information, acting as a communication
center, conducting surveys and studies of the Philippine market, or promoting and
ensuring the quality of the company’s produ cts and services. Therefore, a
representative office in the Philippines is actually an extension of a corporation’s
foreign/head office. Accordingly, the foreign/head office is liable for the liabilities
of the representative office. The test of whether an office is a representative office
or not, is whether it derives income from its local operations.
A representative office may be established with only one (1) person who will act as
the resident agent.

A representative office is considered a non -resident foreign corporation not engaged

in income-generating business in the Philippines and is, therefore, not subject to the
corporate income tax[3] and value-added tax (“VAT”) directly due upon it. [4] This
substantially reduces the tax upon a representative office compared to a P hilippine
corporation, whether a subsidiary or an independent corporation, because the latter
is subject to income taxes and VAT.

However, if the representative office remits technical service fees to foreign/head

office, said fees shall be considered roya lties subject to the thirty percent (30%)
corporate income tax, which should be withheld and remitted to the Bureau of
Internal Revenue (“BIR”) by the representative office. [5]

If the functions of the proposed entities are generally income -generating, they
cannot be registered as representative companies. However, if it is proven that the
entities that is sought to be established in the Phi lippines will provide services only
to foreign clientele, such that all contracts and transactions will be solely between
the foreign/head office and its foreign clients outside the Philippines, and said
entities will not derive any income from the Philipp ines, then such entities may be
registered as representative offices.

Note that an inward remittance of a minimum amount of US Dollars: Thirty

Thousand (US$30,000.00) is required for the registration of a representative
office.[6] An application for registration as a representative office with the SEC
requires the following documents:

1. SEC Form F-104;

2. Name Verification Slip;
3. Authenticated copy of a Resolution by the foreign corporation’s Board of Directors:
 Authorizing the establishment of a representative office in the Philippines;
 Designating a resident agent; and,
 Stipulating that in absence of such agent or upon cessation of business in the
Philippines, any summons for the company may be served to SEC as if the same is
made upon the company at its home office.
4. Financial Statements of the foreign corporation for the immediate preceding year at the
time of filing of the application, certified by an independent certified public accountant in
the place of its principal office;
5. Authenticated copies of the foreign corporation’s Articles of Incorporation;
6. Proof of inward remittance of a minimum amount of US Dollars: Thirty Thousand
(US$30,000.00), such as bank certificate;
7. Resident agent’s acceptance of appointment (if not signatory in the application form); and,
 8. Affidavit executed by the foreign corporation’s president or resident agent stating that the
company is solvent and in sound financial condition.

Note that all documents executed abroad should be authenticated by the Philippine
Embassy or Consular Office at or nearest the place of execution. The registration of
a representative office will take at least one (1) month from submission of th e
complete documentary requirements with the SEC.

Branch Office

Like a representative office, a branch office is an extension of the foreign/head

office, and does not acquire a separate juridical personality from the latter. [7] Thus,
the liabilities of the branch are considered liabilities of the foreign/head office.
Also, a branch office may be set up with only one (1) person who will act a s the
resident agent

From the point of view of taxation, the foreign corporation, upon obtaining a
license to do business through a branch office, becomes a resident foreign
corporation.[8] A branch office is, thus, subject to income tax at a rate of thirty
percent (30%) on income from within the Philippines. [9] However, profits remitted
by the branch to its head office are subject to branch profit remittance tax, if they
are effectively connected with its business in the Philippines, at the rate of fifteen
percent (15%) or ten percent (10%) depending on certain tax treaties; however, if
located in a special economic zone, then they are tax exempt.

A branch office is not subject to documentary stamp tax (“DST”) simply because it
does not issue shares of stock. A branch is also not liable to pay the ten percent
(10%) improperly accumulated earnings tax. Subject to certain conditions, overhead
expenses of the foreign/head office may be allocated to the branch office. [10]

As a fully foreign-owned entity, a branch must have a capitalization of at least US

Dollars: Two Hundred Thousand (US$200,000) [11], unless the branch will be
exporting goods or services or generating revenue from abroad amounting to more
than sixty percent (60%) of its gross sales. It can be fully foreign owned, as it is
considered an Export Enterprise under the Foreign Investments Act. [12]

Hence, the branch can be registered with as little as Philippine Pesos: Five
Thousand (PhP5,000.00) as paid up capital. However, most banks require
Philippine Pesos: Twenty-Five to Fifty Thousand (PhP25,000.00 – PhP50,000.00) to
open a corporate bank account.
Note that a branch is required initially to deposit with the SEC, for the benefit of
present and future creditors, acceptable securities with market value equivalent to at
least Philippine Pesos: One Hundred Thousand (PhP100,000.00) plus an annual
additional deposit of Two Percent (2%) of the amount by which the branch office’s
gross income exceeds Philippine Pesos: Five Million (PhP5,000,000.00).

An application for registration of a branch office with the SEC requires the
following documentary requirements:

1. SEC Form 103 (Application of a Foreign Corporation to Establish a Branch Office in the
Philippines). This application may be signed by any person authorized by the applicant’s
Board of Directors.
2. Proof of inward remittance of a minimum amount of US Dollars: Two Hundred Thousand
(US$200,000.00) such as bank certificate. The initial assigned capital shall be remitted
directly to the Treasurer-in-trust account opened for and on behalf of the branch office,
spate from any remitted filing fees.
3. Latest audited financial statements of the foreign corporation.
4. Authenticated Articles of Incorporation, By-laws or similar documents of the foreign
corporation.

Note that all documents executed abroad should be authenticated by the Philippine
Embassy or Consular Office at or nearest the place of execution. SEC filing and
legal research fees for the above application will amount to at least US Dollars Two
Thousand Twenty (US$2,020.00).

Within sixty (60) days after obtaining the license to operate, the branch office is
required to deposit marketable securities worth at least Philippine Pesos: One
Hundred Thousand (PhP100,000.00) with the SEC, which may be withdrawn upon
cessation of the Philippine branch’s operations.

Subsidiary Corporation

A subsidiary is defined as a corporation more than fifty percent (50%) of the voting
stock of which is owned or controlled directly or indirectly through one or more
intermediaries by another corporation, which thereby becomes its parent
corporation.[13] A subsidiary is a juridical entity separate and distinct from its
parent company;[14] hence, its liabilities are generally not regarded as the
liabilities of the parent company.

If the parent corporation is a foreign one, the subsidiary automatically comes under
the provisions of the Foreign Investments Act, thereby necessitating a minimum
paid-up capital of at least US Dollars: Two Hundred Thousand
(US$200,000.00).[15] However, if the subsidiary involves advanced technology as
determined by the Department of Science and Technology or employs at least fifty
(50) direct employees, then the minimum paid -in capital may be reduced to at least
US Dollars: One Hundred Thousand (US$10 0,000.00).[16]

In addition, like a branch office, if the subsidiary will be exporting goods or

services or generating revenue from abroad amounting to more than sixty percent
(60%) of its gross sales, it can be fully foreign owned, as it is considered an Export
Enterprise under the Foreign Investments Act. [17] Thus, the subsidiary may also be
registered with as little as Philippine Pesos: Five Thousand (PhP5,000.00) as paid
up capital. However, most banks require Philippine Pesos: Twenty -Five to Fifty
Thousand (PhP25,000.00 – PhP50,000.00) to open a corporate bank account.

A subsidiary is a domestic corporation[18] and is, thus, liable for income tax at the
rate of thirty percent (30%) of its net income from all sources within and without
the Philippines.[19] Its parent corporation remains a non-resident foreign
corporation[20] and is subject to income tax, at the same tax rate, based on its gross
income from sources within the Philippines.[21] A subsidiary is liable to pay DST
on the original issuance of shares of stock at the rate of Philippine Pesos: Two
(PhP2.00) for every Philippine Pesos: Two Hundred (PhP200.00) or fractional part
of the par value of the shares of the outstanding shares of stock.[22] It is also
liable to pay the ten percent (10%) improperly accumulated earnings tax. [23]

The remittance of dividends by a subsidiary to its parent corporation is, generally,

taxed at thirty percent (30%) pursuant to the foregoing.

However, this may be reduced to fifteen percent (15%) if the country wherein the
parent corporation is domiciled either: (a) grants a tax -sparing credit[24]; or (b)
does not at all impose any tax on such dividends received. [25]

Like any Philippine corporation, a subsidiary requires at least five (5), but not more
than fifteen (15), incorporators and/or directors, all of whom must be natural
persons and majority of whom m ust be residents of the Philippines.[26]

Registration is effected by filing an application with the SEC, accompanied by the

following documents:

1. Name Verification Slip. Note that we have already reserved the corporate names in your
behalf.
2. Articles of Incorporation, which must indicate the following:
 The name of the corporation;
 The specific purpose or purposes for which the corporation is being incorporated;
  The place where the principal office of the corporation is to be located, which must
be within the Philippines;
 The term for which the corporation is to exist, not exceeding fifty years;
 The names, nationalities and residences of the incorporators, which must be natural
persons;
 The number of directors or trustees, which shall not be less than five (5) nor more
than fifteen (15), majority of whom must be residents of the Philippines;
 The names, nationalities and residences of persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified;
 The name of the Treasurer of the corporation who shall act as such until the first
regular Treasurer is duly elected and qualified (“Treasurer-in-trust”);
 The date of the annual meeting of the stockholders;
 The amount of its authorized capital stock in lawful money of the Philippines, the
number of shares into which it is divided, and in case the share are par value shares,
the par value of each;
 The names, nationalities and residences of the original subscribers, and the amount
subscribed and paid by each on his subscription, and if some or all of the shares are
without par value, such fact must be stated;
 Note that the Corporation code requires at least twenty-five percent of the
corporation’s authorized capital stock must be subscribed, and at least twenty-five
percent (25%) of the total subscribed stock must be paid.
3. By-laws;
4. Treasurer’s Affidavit;
5. Certificate of Inward remittance issued by a Philippine bank on the remittance of at least
US Dollars: Two Hundred Thousand (US$200,000.00), net of bank charges, to the
subsidiary’s or its Treasurer-in-trust’s local bank account, unless the corporation is export-
oriented. It takes around three (3) days from submission of bank documents for purposes
of opening an account; and,
6. SEC Form F-100 (Application to Do Business Under the Foreign Investments Act)

If the incorporators, directors, and/or officers designated in the Articles of

Incorporation and By-laws are Filipinos, their Tax Identification Numbers (“TIN”)
must be stated. If said individuals are non -Filipinos, their passport numbers must be
indicated instead.

If any of the above documents are signed or executed outside the Philippines, such
documents should be authenticated by the Philippine Embassy or Consular Office at
or nearest the place of execution.

The application requires filings fee equivalent to one fifth of one percent (0.2%) of
the corporation’s authorized capital stock, plus one perce nt (1%) of such fee as
legal research fee and Philippine Pesos: Five Hundred Ten (PhP510.00) for
registration of by-laws.
The incorporation of a subsidiary will take at least one (1) month from submission
of the complete documentary requirements with the S EC. The subsidiary is deemed
incorporated upon the issuance of a certificate of incorporation in its favor.

Within thirty (30) days from receipt of the certificate of incorporation, the
corporation’s stock certificates and stock transfer book must be regis tered with the
SEC. Within the first five (5) days of the following month from receipt of the
certificate of incorporation, the Documentary Stamp Tax on the subscribed shares
must be paid to the BIR amounting to Philippine Pesos: Two (PhP2.00) for every
Philippine Pesos: Two Hundred (PhP200.00) worth of subscription.

In addition, the subsidiary must register with the BIR by filing BIR Form 1903,
with its attachments. The registration will take around one (1) week upon
submission of all necessary documents.

The subsidiary must also secure business permits, such as a Mayor’s Permit,
Locational Clearance, etc., from the local government of the city or municipality
where its principal office is based. The permits will be issued in around two (2)
weeks.

Independent Domestic Corporation

Considering the tedious requirements for the incorporation of a subsidiary, and

noting the need to promptly establish the foreign company’s presence in the
Philippines, it is possible to incorporate a corporation that does not fall within the
restrictions of the Foreign Investments Act. In this case, such corporation will be
independent from the foreign corporation but will be partly owned by foreign
entities. This requires that the independent corporation have foreign ownership not
exceeding forty percent (40%) of its authorized capital stock. Thus, at least sixty
percent (60%) of the independent corporation’s owners should be Filipino entities.
Accordingly, the minimum capitalization for the independent corporation will
amount to Philippine Pesos: Twenty-Five Thousand (PhP25,000.00).

The process will be the same as the incorporation of a subsidiary, except that SEC
Form F-100 will not be required and a certificate of bank deposit, in lieu of inward
remittance, will instead be filed. The certificate of bank deposit will require the
opening of a bank account with a minimum deposit of Philippine Pesos: Twenty -
Five to Fifty Thousand (PhP25,000.00 – PhP50,000.00).

In this case, once the foreign corporation has the ability to remit at least US
Dollars: Two Hundred Thousand (US$200,000.00) for the purposes of the
independent Philippine corporation, then such amount may be remitted and be
considered a capital investment into the independent corporation. The ownership of
the independent corporation will be changed to include said amount as capital and
the ownership structure will also change as a result. Only upon the foregoing will
the provisions of the Foreign Investments Act apply to the independent corporation.