A Branch Office (BO) and a Representative Office (RO) are both subsidiary companies owned by overseas entities. Both of these offices are mere extensions of the parent company’s presence into the Philippines. As such, both company set-ups are technically foreign corporations operating in the Philippines that now need to secure licenses from the Securities and Exchange Commission (SEC) to do business.
Let’s refer to the following definitions for a quick overview of these structures:
- A Branch Office is defined as “an extension of a foreign corporation that carries out the business activities of its head office from abroad into the Philippines.”
- A Representative Office, on the other hand, is defined as “a business structure that acts as a local liaison office for a foreign corporation that seeks to establish a corporate presence in the country without engaging in income-generating activities.”
Knowing What’s Right for You
While there is a glaring difference in that a Representative Office is not allowed to generate revenue and a Branch Office is, each company structure is uniquely structured to fit different companies’ various needs.
For the Representative Office, this is a good option for those companies that may want to reduce their costs so they would transfer some processes to the Philippines while still being able to in-house the process and retain quality control powers. The Philippines has one of the highest English literacy rates in the world and has relatively more cost-effective labor. Moreover, since a Representative Office will not be generating any income, there will be zero income tax to pay— thus making it cheaper to maintain a Representative Office.
The Branch Office, on the other hand, is a good option for companies that are seeking to develop a market presence in the Philippines whilst not ready to operate on the full level of a Domestic Corporation. The Branch Office, being an extension of the parent company, requires no Corporate President, Corporate Secretary, Corporate Treasurer, or even a board of directors. Likewise, the Branch Office option is not solely a cost center like the Representative Office structure.
While knowing these benefits, it’s also important to understand the limits of each office type. The RO is limited to marketing services, customer service, and of course doing the parent company’s other business processes. The BO, on the other hand, is limited to doing the same activities as its parent company. The branch office will also be subject to the same taxes applicable to a Domestic Corporation, but only on Philippine-sourced income.
Getting Started with the Checklist
Whilst there are a lot of similarities in the requirements, the specific types of forms needed to be filled out are different for each structure. All, however, are provided by the SEC. Likewise, the Resident Agent required for both Representative Office and Branch Office, in a way, is the counterpart of the Board of Directors of a Domestic Corporation.
Another clear distinction between these two entity types is the requirement for the Branch Office to purchase and maintain a certain amount of government securities during the entire duration of the Branch Office’s existence in the Philippines. This is likely because the Branch Office is expected to gain revenue from the domestic Philippine market whereas the Representative Office is not allowed to earn any revenue and must be fully subsidized by its parent company.
With all of these differences, one thing remains the same for both structures: the local permitting with various local government units (LGUs). In the Philippines, apart from the main company license with the SEC, all registered entities must also obtain different permits from various LGUs. This final stage of the company registration process can eat between 1 to 2 months depending on the city where the business address is located.
Whether you are setting up a Branch Office or a Representative Office, doing business in the Philippines is definitely something exciting. With a strong consumer market, and a highly skilled and educated labor market, starting a sustainable business in the Philippines is definitely possible. The Philippines is also a strategic location to expand to other ASEAN countries.
Still confused about whether to register a Branch Office or a Representative Office? Contact us now. Book an initial consultation with one of our experts via firstname.lastname@example.org or give us a call at +63 (02) 8540-9623.