How to Register a Subsidiary of a Foreign Company in Philippines

By: Tax and Accounting Center Philippines

A Philippine subsidiary is essentially a local domestic corporation registered and existing under the laws of the Philippines enjoying the rights, duties, and privileges of a local domestic corporation. It is duly owned and controlled by a foreign entity that is treated as an entity separate and distinct from each other. This ownership and control makes it a subsidiary of the foreign company in the Philippines and you could use this set-up in a number of operations in the Philippines such as in business process outsourcing, consultancies, and more.

For the purpose, a foreign corporation will become an investor-stockholder of the local domestic corporation entity of such ownership allowing the same material participation in the management and control of the local company in the Philippines. For registration purposes, percentage of ownership should be to the extent allowed by law in relation such factors as nature of business in the Philippines, target market – export market or Philippine domestic market, and capitalization. For ownership exceeding 40% of subscribed capitalization, it is required to file an application under Foreign Investments Act (FIA) or SEC Form No. F-100 For New Corporations with more than 40% foreign equity.

A Philippine subsidiary is by nature a profit oriented entity and as such, for tax purposes, it is subject to the following:

•  30% income tax based on taxable net income;
• 12% value added tax on local sales;
• 30% final withholding tax on dividends to non-resident foreign corporation, save those under Philippines Tax Treaties with lower tax rates;
• 0% value added tax on export sales of services;
• withholding taxes on its income payments and compensation; and,
• could be passed on 12% value added tax on its purchases from VAT-registered suppliers.

For the payment of the subscription of the foreign corporation, it could be inwardly remit through the treasurer-in-trust account (TITF) account of the proposed corporation set-up for the purpose. This foreign investment could be registered with the Bangko Sentral ng Pilipinas (BSP) for ease in sourcing foreign currencies in the future upon repatriation of foreign investments and related profits thereto.

Requirements for registering a Philippine Subsidiary in Philippines

To secure Securities and Exchange Commission (SEC) approval of the subsidiary of foreign company in the Philippines, you need to have the following documentary requirements:

Basic SEC Requirements

• Articles of Incorporation
• By-laws
• Treasurer’s Affidavit
• Name verification slip of the company name to be used. This should be reserved manually with the Securities & Exchange Commission (SEC) for minimal fees – P40.00 for every 30 days up to a maximum of 90 days subject to renewal or online through the SEC -Register;
• SEC Form F-100 for foreign equity of more than 40%
• Such other documents SEC may further require

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 Philippine Subsidiary of Foreign Entity

Initial registration papers carefully prepared for the purpose will undergo initial evaluation of the SEC, 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.

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.

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.

Processing fees for securing license to do business

Should intend to engage the services of a professional for the assistance in securing License to Do Business in the Philippines, professional fees could vary and the range could start from US$1,000.00.

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.