Foreign investors can pursue a variety of corporate structures in order to establish a business presence in the Philippines. These include forming a domestic corporation in compliance with Philippine laws on equity restrictions, operating through a business association, registering a branch office, or establishing a subsidiary owned by the foreign corporation serving as the head office.
In this blog post, we will discuss the representative office as a form of corporation that foreign investors can create in the Philippines.
What is a representative office?
The Implementing Rules and Regulations (IRR) of the Foreign Investments Act of 1991 (Republic Act No. 7042) defines the representative or liaison office as one that “deals directly with the clients of the parent company but does not derive income from the host country and is fully subsidized by its head office.”
A representative office is considered an extension of a foreign head office, so its legal personality is considered the same as its head office. In effect, any liabilities tied to the representative office also become liabilities of the head office.
What activities is a representative office allowed to do?
Because a representative office is not allowed to gain any income from its operations in the Philippines, its activities are limited by Philippine law.
According to the IRR, a representative office can only engage in activities and operations such as:
- Dissemination of information
- Promotion of the company’s products
- Perform quality control operations for the company’s products
- Function as a communication center for company purposes
A representative office is also prohibited from offering and rendering any third-party services to external business entities.
Other important features of a representative office
- A representative office must only comprise one person, who must also function as the office’s resident agent.
- Representative offices are not qualified to register with the Philippine Board of Investments and, thus, not qualified for any fiscal or non-fiscal benefits.
- No income tax can be collected from a representative office because it is not an income-generating business entity.
- Dividend or profit remittance taxes likewise do not apply.
How can foreign businesses set up a representative office in the Philippines?
Establishing a representative office requires a minimum capital of US$30,000, which represents the company’s initial inward remittance. All expenses incurred by the representative office must be covered by its head office.
The following documentation processes are also required:
- Verification of the parent corporation’s name with the Securities and Exchange Commission (SEC)
- A copy of the Board Resolution confirming that the corporation is authorized to establish an office in the Philippines
- Duly audited financial statements from the year prior to the filing of application
- Certified copies of the parent company’s original Articles of Incorporation duly filed in the country of origin (and translated in English, if necessary)
- Verified proof of inward remittance in the form of a bank certificate or credit advice
For more information on establishing a representative office in the Philippines, get in touch with FilePino. As the leading experts for expats, foreign companies, and startups who want to start a business in the Philippines, we will provide you with all the guidance and insights that you need to succeed.
Contact us today at +1.806.553.6552 (USA) or +63.917.892.2337 (Philippines).
