What are the Business Structures Allowed Under the Philippine Laws? (Part 2)

In my previous blog, we learned that deciding what business structure you will adopt for your business defines the costing, legal, tax, ownership, immigration issues, and jurisdiction requirements that your enterprise will encounter.

We also learned that the following are the types of business structures under allowed under the Philippine Laws:

Organized Under Philippine Laws

• Sole Proprietorship
• Partnership
• Corporation

Organized Under Foreign Laws

• Branch Office
• Representative Office
• Regional Headquarters (RHQs)
• Regional Operating Headquarters (ROHQs)

Business structured organized under Philippine Laws was discussed in my previous blog. Today, I will discuss those that are organized under foreign laws.

Branch Office
A branch office is an extension of the parent company. Registration as a branch office in the Philippines entitles a foreign corporation to do business in the country without a need to create a separate entity from its parent company. As such, it is not required to have directors or officers separate and distinct from its parent company.

The minimum required capitalization for a branch office is Two Hundred Thousand US Dollars (USD200,000) that may be reduced to One Hundred Thousand US Dollars (USD100,000) if the branch office is either engaged in activities involving advance technology or hired at least fifty (50) direct employees.

Since a branch office is wholly foreign-owned business entity, it cannot engage in any business activity listed under the Philippine Foreign Investments Negative List.

Representative Office
This type of business structure serves as a liaison office between its parent company and its clients. It does not derive income from the Philippines and its business activities are limited to the following:

1. Information dissemination
2. Promotion of the products of the head office
3. Provide quality control of the products of the head office
4. Act as a communication center

A representative office cannot have income in the Philippines as it can only be a cost center of the head office to provide back office support services.

The operation of the representative office is fully subsidized by its head office and must have a minimum inward remittance of Thirty Thousand US Dollars (USD30,000) to cover its operating expenses and is required to be liquidated annually.

Regional Headquarters (RHQs)

Regional headquarters act as the parent company's supervisory, communication, and coordinating centers for their subsidiaries, affiliates, or branches in the Asia-Pacific region. It may also serve as an administrative branch of a multinational enterprise engaged in international trade.

RHQs do not earn income in the Philippines and its operation is fully subsidized by its parent company. A minimum inward remittance in the amount of Fifty Thousand US Dollars (USD50,000) is required to cover its operating expenses.

Regional Operating Headquarters (ROHQs)

Regional operating headquarters performs the following qualifying services:

1. General administration and planning
2. Business planning and coordination
3. Sourcing of raw materials
4. Corporate finance advisory services
5. Marketing and sales promotion
6. Training and management of personnel
7. Logistic services
8. Research and development
9. Technical support and communications
10. Business or product development

ROHQs may derive income from performing the above qualifying services.

A one-time remittance of Two Hundred Thousand US Dollars (USD200,000) is required for capital.

Under Republic Act (RA) 8756, any multinational company may establish an RHQ or ROHQ as long as they are existing under the laws other than the Philippines, with branches, affiliated, and subsidiaries in the Asia Pacific Region and other foreign markets.