Foreign companies seeking to do business in the Philippines have several choices in terms of business structures which can they can use. Among these, the preferred ones are the subsidiary company and the branch office. The choice will usually depend on the activities the parent company wants to undertake in the Philippines.
Our company formation agents in the Philippines can explain the main differences between the subsidiary and branch office. We can help the representatives of foreign companies interested in setting up subsidiary companies in the Philippines.
The video below shows the registration process for a subsidiary in the Philippines:
What is a Filipino subsidiary?
Even if the subsidiary is an extension of the parent company operating in the Philippines, from a legal point of view it will be considered an independent domestic company. Also, registering a subsidiary in the Philippines will mean that the parent company can also carry out other commercial activities than its regular ones on the Filipino market. It should be noted that the subsidiary in the Philippines will be considered a tax resident here.
Our Philippines company formation consultants can offer more information on the characteristics of subsidiaries.
Characteristics of subsidiaries in the Philippines
Under the Corporation Code, the subsidiary company will undergo the same registration procedure and will comply with the same requirements as local companies. Under the same law, a subsidiary in the Philippines can be characterized by:
- being offered the same treatments as local companies, however, it must also consider the decisions imposed by the parent company;
- the subsidiary is an independent business form which means it will bear full responsibility for its actions;
- there are cases where the foreign company must have one or more local partners to set up a subsidiary;
- compared to the branch office, the subsidiary can complete the same, but other activities than those of the parent company at the same time;
- from a taxation point of view, the subsidiary will be treated as a domestic company;
- in terms of licensing requirements, the subsidiary will need to obtain its business permits and licenses from the Philippines authorities.
If you need more information on the features of subsidiary companies, our Philippines company registration specialists are at your disposal for clarifications.
Structures available for registering a subsidiary in the Philippines
As mentioned above, the Filipino subsidiary will be treated as a domestic company which means a foreign company can use the business forms provided by the Company Act. The most employed business forms for subsidiary companies in the Philippines are:
- the domestic limited liability company or corporation which needs to have foreign ownership in a proportion of 40%;
- the foreign-owned limited liability company which can have 40% to 100% foreign ownership.
Depending on the choice of the parent company will influence the share capital to be deposited upon the incorporation of the Filipino subsidiary. The minimum share capital to consider upon the registration of a foreign-owned subsidiary in the Philippines is usually 200,000 USD, however, this can differ according to the industry in which the company will activate in.
Another aspect related to setting up a fully foreign-owned company as a subsidiary is the restriction on completing activities in certain industries. However, a foreign company can use a domestic corporation for such purposes.
Our consultants can offer detailed information on how the chosen business form for your subsidiary in the Philippines will impact your activities here. You can rely on us for starting a business in the Philippines, no matter the type of structure you decide on.
What are the requirements to open a subsidiary in the Philippines?
Establishing a subsidiary implies the same steps as starting a business in the Philippines by a natural person, the only difference being the fact that the shareholder in a subsidiary in another company. The foreign company will be required to appoint a board of directors made of Filipino residents. For this purpose, employment or residence permits for the directors can be obtained.
Subsidiary registration steps in the Philippines in 2024
The steps for opening a subsidiary in the Philippines are the same as for any other type of company and will imply filing certain documents with the Securities and Exchange Commission and obtaining the necessary licenses to be allowed to operate.
The following documents are required when creating a subsidiary in the Philippines:
- the Memorandum and Articles of Association of the new company;
- a declaration from the Treasurer’s Office;
- a company name verification paper;
- a registration data sheet.
The Securities and Exchange Commission can also request other information from the parent company.
Tax registration and business licensing for a Filipino subsidiary
Two of the most important steps in opening a subsidiary in the Philippines are related to the registration for taxation and obtaining the necessary licenses to start the operations. From a taxation point of view, the subsidiary must obtain the tax identification number (TIN) from the Securities and Exchange Commission and based on it, the Bureau of Internal Revenue will register the company.
One must pay attention to the fact that the representative of the company will need to pay certain fees and taxes for the release of the accounting books, invoices, and receipts.
The subsidiary must also register as an employer with the following authorities:
- the Social Security System;
- the Home Development Mutual Fund;
- the Health Insurance Corporation.
As for the licenses it must obtain in 2024, a Philippines subsidiary must consider the authorities in the industry it will activate. Among the general licenses required to do business in the Philippines, a subsidiary must consider the fire permit, the Barangay clearance, and the occupancy permit.
Taxation of subsidiaries in the Philippines
The taxation of subsidiaries in the Philippines will occur under the same laws applied to local companies. The following taxes need to be considered by those setting up such companies in the Philippines:
- a 25% tax imposed on the corporate income of the subsidiary (the company will be taxed on its worldwide income);
- the value added tax which is levied at a standard rate of 12%, however, reduced rates also apply;
- the value added tax imposed at a rate of 0% is available for services exported by the subsidiary;
- a withholding tax of 25% on dividend payments made to non-resident shareholders in the subsidiary.
One of the greatest advantages of opening a subsidiary in the Philippines is that it can benefit from the double taxation agreements signed with other states and which provide for substantial tax deductions.
Foreign investments in the Philippines are on the rise, as indicated by statistical data released in February 2024 concerning the fourth quarter of 2023, revealing the following:
- The total approved foreign investments in the last quarter of 2023 reached PhP 394.45 billion, marking a 127.2% increase compared to the same quarter in the previous year when foreign investments were PhP 173.61 billion.
- The Netherlands led with the highest investment commitment of PhP 345.76 billion, constituting 87.7% of the total amount; Japan followed as the second-largest investor with PhP 31.37 billion, and Singapore with PhP 4.99 billion;
- Most investments were in the electricity, gas, steam, and air conditioning supply industry.
For assistance in registering a subsidiary in 2024 in this country, please feel free to contact our company registration experts in the Philippines.