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.

By: Garry S. Pagaspas, CPA

As most would be aware, a foreign corporation outside of the Philippines could have a number of choices on what to register in the Philippines for its intended operations such as the following:

1. Philippine subsidiary where the foreign corporation would own majority of shares of stock of the local domestic company;
2. Domestic corporation where the investor would along with the rest would incorporate a local corporation without the foreign corporation becoming a stockholder;
3. Philippine branch – How to Register Philippine Branch?;
4. Regional Operating headquarters (ROHQ) – How to Register ROHQ in the Philippines? ;
5. Regional or Area headquarters (RAHQ); and,
6. Representative Office in the Philippines – How to Register Representative Office in the Philippines?

A good choice of legal entity to be used in the Philippines would be a challenging one for the foreign investor and would depend on a number of factors like intended operations, capitalization, target market, extent of foreign ownership .

In one instance, a foreign investor set-up a local domestic corporation that engaged in business process outsourcing related to information technology. Upon completion and during operation, they noticed the tax implication hurting the cash flows.  In an attempt to remedy the situation, they ended up trying to know as to whether or not the domestic corporation could be converted to a tax-exempt entity or cost center entity to save on cash flow.

Foreign investors should be fully aware of the applicable alternatives and related tax implications so the type of legal entity to be established should correspond to the targeted tax implications. Below are two (2) choices of tax-exempt foreign corporations in the Philippines:

Philippines Representative Office of foreign corporations

A Philippine representative office is a cost center entity that is allowed to interact with clients of foreign corporation’s parent to facilitate orders, information dissemination, undertake quality control and undertake other administrative matters. To fund the operations, the foreign corporation will be required to inwardly remit US$30,000.00 initial capitalization. It is required to secure License to Do Business in the Philippines and appoint a resident agent in the Philippines for the service of notices, summons, and other communications.

For tax purposes, a representative office in the Philippines Philippine branch office is not subject to 30% corporate income tax, and 12% value added tax being a cost center in the Philippines. However, it is subject to withholding taxes on its income payments covered by expanded withholding tax, withholding tax on compensation, and could be passed on 12% value added tax on its purchases from VAT-registered suppliers.

Click here on How To register Philippine Representative Office…

Philippine or Regional Area Headquarters (RAHQ)

A regional or area headquarters in the Philippines (RAHQ) is a Philippine administrative office of foreign corporation that will serve as a communication, supervision, and coordination center for the subsidiaries, branches, affiliates within the Asia-Pacific Region and abroad. To fund the operations, it is required to inwardly remit  US50,000.00 initial capitalization. It is required to secure License to Do Business in the Philippines and appoint a resident agent in the Philippines for the service of notices, summons, and other communications.

For tax purposes, a representative office in the Philippines Philippine branch office is likewise not subject to 30% corporate income tax, and 12% value added tax being a cost center in the Philippines. However, it is subject to withholding taxes on its income payments covered by expanded withholding tax, withholding tax on compensation other than those managerial and technical employees covered by the 15% final withholding tax, and could be passed on 12% value added tax on its purchases from VAT-registered suppliers.

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 Representative Office or Regional or Area Headquarters, you need to have the following basic documentary requirements:

Basic SEC Requirements

• SEC Application Form
• 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;
• 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; and,
• Resident Agent acceptance of appointment, unless, the agent is the signatory in the application form;

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. 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.

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. 

By: Tax and Accounting Center Philippines

A Regional Operating Headquarters (ROHQ) in Philippine branch office is form of a resident foreign corporation in the Philippines where the legal entity of a foreign corporation is being brought into the Philippines to engage in qualifying services allowed by law only to its branches, subsidiaries, or affiliate. Below is the list of those qualifying services allowed by Philippine law to be rendered by a regional operating headquarter in Philippines to its branches, subsidiaries, or affiliates in the Asia Pacific Region or abroad:

1. general administrative and planning;
2. business planning and coordination;
3. sourcing and procurement of raw materials and components;
4. corporate finance advisory services;
5. marketing control and sales promotion;
6. training and personnel development;
7. logistics services;
8. research and development service and product development;
9. technical support and maintenance;
10. data processing and communication; and,
11.  business development.

For the purpose, a foreign corporation is required to secure a License to do Business in the Philippines for its Philippine branch operations. This structure is typical for back office of multinational companies others would term as “knowledge process outsourcing”.

A Regional Operating Headquarters (ROHQ) in the Philippines is by nature a profit oriented entity though it could only offer specific services enumerated above. Its required capitalization is US$200,000.00. For tax purposes, it is subject to the following:

•  10% income tax based on taxable net income;
• 12% value added tax on local sales;
• 15% branch profit remittance tax on repatriation of profit to parent company;
• 0% value added tax on export sales of services; and,
• 15% final withholding tax on managerial and technical expatriate employees and to Filipinos holding similar positions based on certain conditions (N.B. – Eliminated by TRAIN Law – RA No. 10963)

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 support its operations in the Philippines, it is required to inwardly remit its initial capitalization to the Philippines through the treasurer-in-trust account it could set-up for the purpose. It 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.

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 Regional Operating Headquarters Philippine, you need to have the following documentary requirements:

Basic SEC Requirements

• SEC Application Form for Regional Operating Headquarters
• 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;
• Indorsement from the Board of Investments (BOI) Philippines;
• Certification from the Philippine Consulate or Embassy, or Philippine Commercial Office or from equivalent office of the Philippine Department of Trade and Industry (DTI) in the applicant’s home country that said firm is an entity engaged in international trade with affiliates, subsidiaries, or branch offices in the Asia Pacific Region and other foreign markets.
• 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 US$200,000.oo initial capitalization; and,
• Resident Agent acceptance of appointment, unless, the agent is the signatory in the application form;

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, 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. For tax exemptions of non-stock non-profit corporation in the Philippines, you need to secure BIR ruling with the tax authority with the Revenue District Office (RDO) of registration.

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.