7th Feb 2017

foreign principal

Foreigners can do business in the Philippines. In fact, foreign investment contributes greatly to the Philippine economy.  Some foreigners wish to establish companies in the Philippines which either form part of the company abroad or with a separate entity from its foreign principal. Either way, companies in the Philippines with foreign principals must be duly registered with the Securities and Exchange Commission. The common vehicles for establishing a business in the Philippines with foreign principals are subsidiaries (which can either be domestic or foreign-owned domestic corporations), branch and representative offices.

 

I.  SUBSIDIARY

 

A subsidiary has a distinct and separate personality from its parent company.  It may be a Philippine Domestic Corporation or a Foreign-Owned Domestic Corporation.

 

A.  Philippine Domestic Corporation

 

A Philippine domestic corporation is one wherein at least 60% of the stocks are held by Filipinos and the majority of the governing body should be Filipinos.  As such, a domestic corporation has a legal personality separate from its stockholders.

 

There is NO need for a resident agent for a Philippine Domestic Corporation.  However, the Corporate Secretary, Corporate Treasurer and majority of the members of the Board of Directors must be Filipino citizens.

 

B.  Foreign-owned domestic corporation

 

A Foreign-owned Domestic Corporation is one wherein foreign equity exceeds forty percent (40%).  It may be controlled by foreigners but the Corporate Secretary and Treasurer must be Filipino residents and citizens.  The minimum paid-up capital for a Foreign-owned Domestic Corporation is Two Hundred Thousand United States Dollars (US$200,000.00).  However, if it is an export market enterprise, the minimum paid-up capital is only Five Thousand Pesos (P5,000.00).  An export market enterprise is an enterprise wherein a manufacturer, processor or service enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty per cent (60%) or more of such purchases.

 

There is NO need for a resident agent for a Foreign-owned Domestic Corporation.  However, the Corporate Secretary and Corporate Treasurer must be Filipino citizens.

 

It must be emphasized that there some industries whereby foreign equity is prohibited or restricted.  Please find attached the Foreign Investment Negative List for guidance.

 

II.  BRANCH OFFICE

 

A Branch office of a foreign company carries out the business activities of the foreign head office and derives income from the Philippines. It has NO separate legal personality since it is merely an extension of the foreign head office. The minimum inward remittance for a branch office is Two Hundred Thousand United States Dollars (US$200,000.00).  However, if the branch uses advanced technology or employ a minimum of 50 direct employees, it may be allowed a minimum paid-up capital of One Hundred Thousand United States Dollars (US$100,000.00). In addition, if it is an export market enterprise, the minimum paid-up capital is only Five Thousand Pesos (P5,000.00).  An export market enterprise is an enterprise wherein a manufacturer, processor or service enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty per cent (60%) or more of such purchases.

 

You will need a Resident Agent for a Branch Office.

 

III.  REPRESENTATIVE OFFICE

 

Representative or liaison office deals directly, with the clients of the foreign parent company but does NOT derive income from the Philippines and is fully subsidized by its foreign head office. It undertakes activities such as but not limited to information dissemination and promotion of the company’s products as well as quality control of products. A representative office does NOT have a legal personality separate from its parent company.

 

The required minimum annual inward is Thirty Thousand United States Dollars (US$30,000.00).  It must be emphasized that the minimum of US$30,000.00 must always be remitted every year to the Representative Office to cover operating expenses.

 

You will need a Resident Agent for a Representative Office.

 

On a final note, for branch and representative offices, the Corporation Code  requires that within sixty (60) days after the issuance of the license to transact business in the Philippines, the branch or representative office shall deposit with the Securities and Exchange Commission for the benefit of present and future creditors of the branch or representative office in the Philippines, securities satisfactory to the Securities and Exchange Commission, consisting of bonds or other evidence of indebtedness of the Government of the Philippines, its political subdivisions and instrumentalities, or of government-owned or controlled corporations and entities, shares of stock in “registered enterprises”, shares of stock in domestic corporations registered in the stock exchange, or shares of stock in domestic insurance companies and banks, or any combination of these kinds of securities, with an actual market value of at least One Hundred Thousand Pesos (P100,000.00).

 

In addition, within six (6) months after each fiscal year of the branch or representative office, the Securities and Exchange Commission shall require the branch or representative office to deposit additional securities equivalent in actual market value to two percent (2%) of the amount by which the branch or representative office’s gross income for that fiscal year exceeds five million (P5,000,000.00) pesos.

 

This is how to create a company with a foreign principal in the Philippines.

 

Nicolas & De Vega Law Offices is a full service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 4706126, +632 4706130, +632 4016392 or e-mail us at info@ndvlaw.com .

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