The SEC in an uncharacteristic move released a new memorandum on June 6th that is very beneficial to many new foreign entities establishing in the Philippines. Memorandum Circular No. 11 of 2013 in line with the President’s push to ease doing business in the Philippines, lessens the mandatory requirements for Branch Offices, Representative Offices, and ROHQ/RHQs.
Previously one of the requirements for a foreign corporation establishing an office in the Philippines was the presentment of audited financial statement which has been authenticated at the Philippine Consulate of the home country at the time of the submission of the SEC application for registration. This AFS must be audited and stamped within at least one year of the time of application with the SEC. For countries where an AFS is not required to be submitted regularly (US being one where even the largest companies that are not public rarely do an audited FS every year) there was a requirement for the company to seek a certification from the SEC of their home country that the AFS is not a requirement.
I can tell you that this is one of the largest pain points for foreign companies setting up. Firstly, getting an AFS should your company not have one of course costs money from an accountant, the cost varies from 1,000 USD to 30,000 USD if the company is large enough. Secondly, the SEC of the Philippines is aware the AFS is not a requirement of US companies however makes each company get a certification from the US SEC. Again this is a very expensive and time consuming endeavor as the US SEC is not quickly issuing this certification.
Now under the new memo, companies that are not required to have an AFS in their home country can issue the unaudited FS signed by the President and a letter from the applicant’s legal council stating that AFS is not a requirement and cite the law or regulation from their home country to that affect.
The memorandum also relaxes the requirement that for the AFS must be within one year. Should the company’s AFS fall outside the 1 year window (which is common place since the financial year ends and then is audited 4-6 months after) then the company will be allowed to submit an interim unaudited FS signed by the President or representative of the company.
Finally the memorandum allows that if the AFS or UFS is signed by the same representative of the corporation as the SEC application in the Philippines than the FS is no longer required to be authenticated.
Authentication can take a couple of weeks and cost a couple of hundred dollars depending on the country and embassy. So the savings are great although the company articles and board resolutions must still be authenticated.
This is really amazing news for foreign investors wanting to register a business in the Philippines and really shows moves to ease doing business in the Philippines.
By: Judah Z Hirsch