 Difference between a Branch office and a Representative Office

A Branch Office (BO) and a Representative Office (RO) are both subsidiary
companies owned by overseas entities. Both of these offices are mere
extensions of the parent company’s presence into the Philippines. As such,
both company set-ups are technically foreign corporations operating in the
Philippines that need to secure licenses from the Securities and Exchange
Commission (SEC) to do business.
 A Branch Office is defined as “an extension of a foreign corporation
that carries out the business activities of its head office from
abroad into the Philippines.”
 A Representative Office, on the other hand, is defined as “a
business structure that acts as a local liaison office for a foreign
corporation that seeks to establish a corporate presence in the
country without engaging in income-generating activities.”

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 A Resident Agent required for both Representative Office and Branch
Office, in a way, is the counterpart of the Board of Directors of a
Domestic Corporation.
 A Branch Office is required to purchase and maintain a certain amount
of government securities during the entire duration of the Branch Office’s
existence in the Philippines. This is likely because the Branch Office is
 expected to gain revenue from the domestic Philippine market whereas
the Representative Office is not allowed to earn any revenue and must be
fully subsidized by its parent company.

 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. (Section
1(c), Implementing Rules and Regulations of Republic Act 7042, or the Foreign
Investments Act.) 

A representative office is fully subsidized 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 products 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.

 Representative Office Tax Implications

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 (Sec. 28(B), Republic Act 8424, or the
National Internal Revenue Code (“NIRC”) and value-added tax (“VAT”) directly
due upon it. (BIR Ruling No. DA (VAT-003) 036-2008, July 15, 2008.)
 This substantially reduces the tax upon a representative office compared to a
Philippine 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 royalties 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. (BIR Ruling
No. DA (VAT-003) 036-2008, July 15, 2008.)
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 Philippines 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 Philippines,
then such entities may be registered as representative offices.

 Minimum Capital Requirements of a Representative Office

The minimum capital requirements for establishing a Representative Office is

US$30,000. The foreign parent company is required to remit this amount
annually to support operating expenses.

 Representative Office is not allowed to generate income from

sources within and outside the Philippines.
Under Philippine laws, a Representative Office is not allowed to generate
income from sources within and outside the Philippines. It can only perform
activities similar to the following:
 Facilitation of orders from the head office’s clients
 Dissemination of information and conduct of promotional activities about
company products
 Undertaking of quality control of company products
 Undertaking of other related administrative activities from the head office
Similar to a Branch Office, it has no separate legal entity from its parent
company and any liabilities it will incur are considered liabilities of the head
office.

 Proof of Official Business Address

A registered office address is required before starting the company registration
process. The Contract of Lease of the office address must be presented to to the
Bureau of Internal Revenue (BIR) and local government units (LGUs) to fulfill
this requirement.
  Setup Requirements of a Representative Office

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:
o Authorizing the establishment of a representative office in the
Philippines;
o Designating a resident agent; and,
o 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.

 The usual timeline for registering a Representative Office in the

Philippines is 6-10 weeks, provided all required documents are
submitted ahead of time and there are no processing delays from
the government