How to Register a Philippine BPO using a Foreign Corporation as Branch Office in Philippines?

By: Tax and Accounting Center Philippines

Business process outsourcing (BPO), knowledge process outsourcing (KPO) or back support operations in Philippines is a stronghold industry in the Philippines taking into account the qualifications of Filipino manpower, the English speaking, work quality, the culture, and the work environment, among others. For the purpose, there could be some options on the type of legal entity to set-up for the purpose and one of which is the Philippine Branch where the legal entity of the foreign company abroad (e.g. Australia, Singapore, United States of America, etc.) is secured a License to Do Business in the Philippines as a Branch Office.

Taxation of BPO under Branch Office set-up in Philippines

A Philippine branch office is by nature a profit oriented entity that could operate similar to a local company in the Philippines.  For tax purposes, it is subject to the following:

•  30% income tax based on taxable net income;
• 0% value added tax (VAT) on export sales,
• 12% (VAT) on local sales, if any; and,
• 15% branch profit remittance tax on repatriation of profit to parent company;

It is however subject to withholding taxes on its income payments and compensation, and could be passed on 12% value added tax on its purchases from VAT-registered suppliers.

To manage the above tax liabilities, the business process outsourcing in the Philippines under Branch Office set-up could opt to locate in an IT Zone or IT Part accredited by Philippine Economic Zone Authority (PEZA) and register for tax incentives as follows:

• Income tax holiday (ITH) for 4 years (non-pioneer) or 6 years (pioneer) and subject to extension of up to 8 years where the business process outsourcing in the Philippines under Branch Office set-up will not be liable for 30% income tax; and/or
• 5% special tax on gross income in Philippines, in lieu of all internal revenue and local taxes, instead of the 30% income tax, along with other incentives.

Capitalization of BPO under Branch Office in Philippines

As business process outsourcing operations are export oriented where at least 60% of its output are exported to clients abroad, its required capitalization would depend on its reasonable needs, e.g. working capitalization requirements. Such preferred capitalization is required to inwardly remit its initial capitalization to the Philippines through the treasurer-in-trust account it could set-up for the purpose and the bank will issue Certificate of Inward Remittance and Certificate of Deposit as proof of capitalization that SEC will require submission.

Appointment of Resident Agent of Branch Office in Philippines

A BPO under branch office set-up in Philippines is likewise required to appoint a resident agent on whom summons and other legal processes against the same may be served in all actions or other legal proceedings against the Company. Resident agent could be a resident local or foreign individual, or a domestic corporation. Read more about Resident Agent in the Philippines…

Requirements for License to Do Business in Philippines

To secure Securities and Exchange Commission (SEC) approval of the License to do Business in the Philippines of a Philippine Branch  office of foreign corporation, you need to have the following documentary requirements:

Basic SEC Requirements

• SEC Application Form No. F-103 – Application of a Foreign Corporation to Establish a Philippine Branch Office
• Certified copy of the Board Resolution of the Parent company authorizing the establishment of an office in the Philippines and designating a Resident Agent who may be an Philippine resident individual or a domestic corporation;
• Latest audited financial statements of the parent company certified by an independent certified public accountant and authenticated by the Philippine consulate/embassy;
• Certified copies of the Articles of Incorporation of the parent company with an English translation, if in a foreign language;
• Certificate of Inward remittance and Certificate of Bank Deposit of the initial capitalization;
• Resident Agent acceptance of appointment, unless, the agent is the signatory in the application form; and,
• Affidavit executed by the President or Resident Agent stating that the applicant is solvent and sound in its financial condition.

SEC in the Philippines has a set of prescribed forms for some of the above documentary requirements that you may either do it yourself or secure the assistance of experienced professionals.

SEC application and approval of License to do Business in the Philippines

Initial registration papers carefully prepared for the purpose will undergo initial evaluation of the SEC online through the Company Registration System (CRS), and finding the same in order will be assessed filing and other fees based on the proposed capitalization. Payment of the filing and other fees marks the formal filing of the application and normal approval procedures would immediately follow. Approval normally comes in a couple of days to about ten (10) days and once approved, the branch office can initially commence its operations such as hiring employees, setting-up physical office, and etc.

Security Deposit for Branch Office in Philippines

Within sixty (60) days from SEC approval, the business process outsourcing in the Philippines under Branch Office set-up is required a security deposit of at least PhP500,000.00. Please read more about Security Deposit of branch Office in Philippines…

Tax Authority Registration

SEC will assign a tax identification number (TIN) upon release of the License to do Business in the Philippines and such TIN shall be formally registered with the Bureau of Internal Revenue (BIR). Certain registration fees and taxes will be paid and other registrations for books of accounts, and official receipts or invoices will follow.

Business Permits & Licenses

For the legality of its local operations, business permit has to be secured with the local government unit of business location. Certain fees and other registrations are likewise required such as community tax certificate, barangay clearance, fire permit, occupancy permit, and the likes.

Employee safeguards registrations

Employer registration with the Social Security System (SSS), Philippine health Insurance Corporation (Philhealth), and Home Development Mutual Fund (HDMF) is likewise mandatory and will proceed independent of the above.

PEZA Registration of Branch Office in Philippines

In case you opt for tax incentives and decided to register with Philippine Economic Zone Authority, you can commence this process simultaneously with the SEC registration. Certain documents and forms will be required by PEZA and evaluation will be made on such documentary requirements while SEC registration is ongoing. PEZA approval will be released after SEC approval is released. Alternatively, you can opt to process PEZA registration after all other registrations are completed.

Complete Processing Timetable

With the improved processing system of the government agencies, complete processing of the above will take three (3) to four (4) weeks from filing with the Securities and Exchange Commission. We suggest you secure the services of professionals to assist you in the complete registration of your Philippine Company that you may be able to simply concentrate on operational matters.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.