Branch vs. Subsidiary in the Philippines: Choosing the Right Structure for Your Expansion

November 7, 2025

Expanding into the Philippines offers foreign businesses a gateway to ASEAN markets, a skilled workforce, and a booming consumer base. However, determining the optimal business structure — branch vs subsidiary—is critical for long-term success and compliance. Both models offer unique benefits and face distinct challenges, impacting taxes, liability, and operational freedom.

Understanding the Basics: Branch and Subsidiary Structures

Before choosing, it’s important to clarify what distinguishes a branch from a subsidiary under Philippine law:

Branch Office

A branch office is an extension of a foreign parent company. It operates in the Philippines but is not a separate legal entity—its assets, liabilities, and operations are directly tied to the head office abroad. Branches are authorized by the Securities and Exchange Commission (SEC) to conduct business within the Philippines, subject to certain sectoral restrictions.

Subsidiary (Domestic Corporation)

A subsidiary is a separate legal entity incorporated in the Philippines, controlled by the foreign parent through majority shareholding. It enjoys local corporate rights and obligations distinct from its parent, providing operational autonomy and limited liability to shareholders.

Establishing a Branch Office: Key Features

A branch allows the parent company to conduct business activities as its direct agent.

Legal Status: Not a separate entity, fully governed by and financially linked to the parent company.
Liability: The parent company assumes full responsibility for all the branch’s debts, legal actions, and obligations.
Permitted Activities: The branch can only undertake business identical to that of the parent company. Certain sectors, such as retail trade and land ownership, are closed or restricted for branches.

Setup Process Highlights:

Application to and registration with the SEC
Proof of parents’ incorporation and financial standing
Appointment of a local agent
Minimum assigned capital of USD 200,000 (lower for export enterprises)
Registration with the BIR and local government units

Setting Up a Subsidiary: Core Characteristics

A subsidiary is a Philippine domestic corporation, usually with foreign parent company ownership exceeding 50% (or 100% where allowed).

Legal Status: Independent juridical entity under Philippine law.
Liability: Foreign parent’s liability is typically limited to its equity investment.
Operational Scope: Unrestricted in many sectors; has full capacity to hold assets, sue or be sued, and sign contracts as a Philippine company.

Setup Process Highlights:

File Articles of Incorporation and By-Laws with the SEC
At least two incorporators, with a board of directors (resident and/or foreign)
Minimum paid-up capital of PHP 5,000 (often higher, especially for foreign ownership or regulated sectors)
Compliance with sectoral limits under the Foreign Investments Negative List
Standard BIR and LGU registrations

Branch vs Subsidiary: Comparing Key Factors

Control and Independence

Branch: Complete control by the foreign parent; strategic and operational decisions remain centralized.
Subsidiary: Operates independently; board and officers can include local directors for greater market alignment.

Liability and Risk

Branch: Unlimited liability—foreign parent is exposed to all obligations of the Philippine operation.
Subsidiary: Only the assets of the subsidiary are at risk; the parent company enjoys legal protection.

Taxation

Branch: Subject to Philippine corporate income tax on locally sourced income, plus 15% branch profit remittance tax on profits sent abroad; not liable for documentary stamp tax on shares.
Subsidiary: Taxed on global income; dividends remitted overseas are subject to a 15-30% withholding tax, with possible treaty relief; liable for documentary stamp tax on share issuance.

Capital and Compliance

Branch: Higher upfront assigned capital for 100% foreign ownership; less administrative burden.
Subsidiary: Typically, the minimum paid-up capital is PHP 5,000, but this rises with majority foreign ownership and regulated sectors.

Incentives and Restrictions

Branch: Eligible for PEZA/BOI incentives if in a qualified sector, but limited in land ownership and certain investment areas.
Subsidiary: Broader access to local incentives, ownership of land, and full participation in regulated markets where allowed.

Market Perception and Local Partnerships

Branch: May be seen as ‘foreign’ and less committed by local partners and clients; limitations in government contracting.
Subsidiary: Enjoys a Philippine corporate identity, improving local acceptance and contract participation.

Pros and Cons: Summary Table

Factor	Branch Office	Subsidiary (Domestic Corp)
Legal Status	Extension of parent, no separate entity	Separate entity, governed by PH law
Liability	Unlimited for parent	Limited to subsidiary’s assets
Ownership Rules	100% foreign in most sectors, some restrictions	100% foreign in most sectors, subject to FINL
Taxation	PH-sourced only, 15% BPRT on remittance	Philippine/global income, dividend withholding
Market Perception	Seen as foreign company	Seen as Philippine company
Setup Complexity	Simpler, faster	More complex, more regulatory filings
Eligible Incentives	BOI/PEZA (if qualified)	BOI/PEZA, possible additional local perks
Wind-Up/Ease of Exit	Simpler (SEC revocation)	Lengthier liquidation process
Local Contracting	Sometimes restricted	Full eligibility

Choosing the Best Structure: Key Considerations

The best structure depends on:

Industry/Sector: Some sectors require majority Filipino ownership (see FINL).
Long-Term Commitment: Subsidiaries are better for investors seeking permanence, asset protection, and full local integration.
Risk Appetite: Branches are viable for controlled, limited operations or test markets; subsidiaries for growth and risk management.
Tax Strategy: Assess the impact of branch profit remittance vs. dividend tax and eligibility for tax treaty relief.
Expansion Goals: Subsidiaries offer more flexibility for acquisitions, partnerships, and future diversification in the local market.

Professional guidance is important for foreign companies to avoid costly errors, comply with various regulations, and optimize their expansion strategy.

Final Insights

Weighing the branch versus subsidiary choice is foundational when entering the Philippine market. Branches provide speed and centralized control but expose the parent to greater risks and market restrictions. Subsidiaries cost more to set up but offer protection, broader opportunities, and long-term sustainability. With the right planning and expert advice, your company can select a structure that aligns with its strategy, sector, and goals for growth in the Philippines.

Is Assistance Available?

Yes. For seamless company formation and regulatory support, consult with our experienced team to ensure your Philippine presence sets a strong foundation for success: