6 Items That May Prolong Company Registration of Foreign Investors in Ph

By: Garry S. Pagaspas, CPA

Every country has each own set of rules for documentation and process on company registration and for foreign investors registering a company or legal entity in a particular country like Philippines would be most concern on how soon he could register. Notably, Philippine government agencies are working hand-in-hand to make doing business in the Philippines easier to attract more investors.

These simplifications on government processes (say, 1 day approval, or 2 days, etc.) are normally taken from the time of filing with the related government agencies and preparatory to that stage could be lots of stories to tell. In reality, processing of your company registration may prolong, in a way or another, that could be brought about by lack of familiarity of SEC documentary requirements for registration and or lack of preparation. At times, securing a seasoned professional for the purpose is a big factor to fast track securing SEC approval on your company registration.

In this article, items that may prolong company registration in the Philippines with the Securities and Exchange Commission (SEC) will be cited and discussed based on personal views of the author in relation to his long experience in setting-up legal entities in the Philippines with the end view of giving foreign investors to the Philippines a clue on how to speed-up company registration in Philippines and not to impute anything negative on the SEC documentation and/or processes or that of any other government agency.

1. Corporate documents abroad

Whether securing a License to do Business in the Philippines or registering a subsidiary, corporate documents abroad (certificate of registration, equivalent of articles of incorporation and by-laws in Philippines) of the parent entity is necessary, in a way or another. These documents are normally required to be generally consularized (Red Ribbon document as we loosely call it) or certified by the Philippines Embassy/Consular office in the country of location for the same to be acceptable with the government agencies in the Philippines and some private entities such as banks. The purpose of this is to give the document the character of authenticity and due execution of private entity abroad or due issuance of appropriate agency abroad equivalent to certified true copies issued by a government agency in the Philippines or notarization for executed documents.

Some countries may take days, others may take weeks, and the rest may take month/s and as soon as you have them, sending them to the Philippines by courier may take few days. It is recommended that foreign investors secure such corporate documents for the purpose of company registration in Philippines as early as possible and 2 to 3 copies (e.g. for SEC, for bank opening, file reference) so there will be no need to repeat the process if you just secure one set.

2. Board Resolutions and private documents executed abroad

Securing a License to Do Business for a branch office, representative office, regional area headquarters (RAHQ), regional operating headquarters (ROHQ) in the Philippines would require a Board Resolution authorizing the establishment of such office or entity in the Philippines and appointing a resident agent required by the SEC. This would likewise require to be consularized abroad where the document is executed. Notably, Philippines does not seem to adopt an electronic signature on documents for SEC registration so you have to manually sign the same on the place of location and secure consularization in such country where you sign on them.

Opening bank accounts (e.g. treasurer-in-trust-account (TITF), regular bank account, online banking account) would likewise require such resolutions from parent company so it is recommended to execute such board resolution in such manner as to anticipate other requirements. Same in No. 1, it is recommended that you secure 2-3 copies of these documents.

3. Financial Statements abroad – audited & financial ratios

Securing a License to Do Business for a branch office, representative office, regional area headquarters (RAHQ), regional operating headquarters (ROHQ) in the Philippines would require a financial statements as SEC would be interested on the financial capacity to establish and support Philippine operations. It should be a complete set of financial statements based on accounting/auditing standards (e.g. income statement, balance sheet, statement of cash flows, statement of changes in equity, and notes to financial statements) with a cut-of of not later than one (1) year as of date of filing and is normally required to be audited, unless, not required to be audited in the country of origin, in which case, an opinion of the auditor/accountant/or counsel with the citation of the provision in law/rules not requiring audit. At time minimum financial ratios are required such as current ratio of at least 1:1, solvency ration of 1:1, and a debt-to-equity of not more than 3:1.

Failure to provide an audited financial statements, an opinion required for unaudited financial statements, or failure to comply with required financial ratios would require more time to deal with to comply with SEC requirements for registration of company in the Philippines. As such, it is recommended that you determine ahead the applicable requirement, and then again, this is required to be consularized in same manner as in Nos. 1 and 2 above.

4. Securing Tax Identification Number (TIN) in Philippines

For SEC purposes, a TIN from the Bureau of Internal Revenue (BIR) is required to be indicated in the SEC registration papers. Process normally takes a couple/few days based on complete documentation. For a parent company of an intended subsidiary, BIR normally requires consularized corporate documents (almost same as in No. 1 above) along with board resolution authorizing securing TIN and appointing a representative in the Philippines for the purpose.

For an individual incorporator, a Special Power of Attorney (SPA) is normally required – consularized if signed outside Philippines, notarized if singed while in Philippines, and a photocopy of passport page with personal details. Other BIR documents for the purpose can be executed and signed by the authorized representative/tax agent. Accordingly, it is recommended to secure ahead the TIN for company registration purposes.

5. Corporate Address for SEC Registration

Another requirement of SEC is a complete address of the company’s principal office in the Philippines. For a domestic company who do not have a legal entity as yet prior to SEC approval of the corporation it intends to register in Philippines, this becomes a challenge dealing with. For a foreign corporation Securing a License to do Business in the Philippines, it could use its foreign legal entity to secure an address for company registration in Philippines. Normal lease contracts are for yearly and local lessors are keen to securing the usual corporate documentation and registrations. For this, some virtual office providers provide an option for shorter term for such purpose and for minimal cost although you may have to reprocess transfer of address if you take it temporarily.

6. Inward Remittance of Capitalization for SEC Registration

Another common requirement of SEC for registration is proof of inward remittance for those securing a License to Do Business for a branch office, representative office, regional area headquarters (RAHQ), regional operating headquarters (ROHQ) in the Philippines. For this purpose, a treasurer-in-trust (TITF) account is being opened that the parent could make inward remittance of the required minimum paid-up capitalization for SEC registration. This would normally require consularized corporate papers of parent company, consularized board resolution, bank forms and other basic documents.

One approach is to have a local signatory to facilitate opening a TITF account and ensure the exact key-in of TITF details along with ensuring that the minimum paid-up capital (e.g. US$30,000.00 for representative office) will be credited to the TITF. Error in TITF details may keep it hanging or local bank would need to cancel that would require redoing the remittance, while failure to credit the minimum required amount may require subsequent remittance of the deficiency and in either case, may take more time to deal with. Once remittance is credited to the TITF account, next step is to closely coordinate with the depository bank to facilitate the issuance of the depository bank of Certificate of Inward Remittance for SEC registration and Certificate of Inward Remittance for Central Bank of the Philippines required for registration of foreign direct investment (FDI) relative to sourcing of foreign currency for future repatriation of capital and earnings.

Conclusion

The above items could either be simple or technical but should not be taken for granter for a simple failure to anticipate the basic requirements of the SEC, BIR, bank and other related agencies could take you time to deal with and ruin your target timeline to commence. Notably, those items are matters of concern during the documentation stage – completing the documentary requirements for SEC registration. The clue is to complete the required documentation as fast as you can to facilitate uploading of the required documentation with the Company Registration System (CRS) of the SEC and the ultimate approval of the application for company registration in Philippines. While foreign investors are welcome to process their own applications for company registration in the Philippines, securing professional services of well-versed and seasoned professionals could prove to facilitate completion of such company registration in Philippines.

Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for about seventeen (17) years now helping out taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. 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. For comments, you may also please send mail at info(@)taxacctgcenter.org, or you may post a question at Tax and Accounting Center Forum and participate therein.