I am often asked by foreign companies and foreign individuals, “What is the best company structure in the Philippines?”. Although this is an extremely difficult question because of the many types of businesses to register in the Philippines, I try to steer foreign clients towards a Representative Office or Branch Office.
One of the main advantages for a foreign company in picking one of these two structures is that there is no need to have any locals on your board or in control of any part of your company. Many of the foreign clients I speak with share similar concerns. The SEC of the Philippines requires that even if the company is 100% foreign owned corporation that the corporate secretary and usually the treasurer must be Filipino. Most foreign companies, especially those brand new to any country, will want full control of the finances and operations, not trusting anyone else to operate it.
When setting up a Branch Office or a Representative Office, there is no board of directors in the Philippines. All that is assigned is a Resident Agent, and that can be a foreigner residing in the Philippines. This completely limits the amount of paperwork necessary for the company to carry out it’s business locally.
The main difference between a Branch Office and a Representative Office is that a Rep Office cannot earn income from its activities in the Philippines. So a Representative Office is not required to pay income tax because no income is being earned. This also simplifies the taxes and bookkeeping for a Rep Office as only the withholding taxes need to be paid. A Representative Office is VAT exempt so there is an added cost savings in the yearly operations as compared to other business entities.
Now, if your business does not directly need to pay the company in the Philippines because
- It is just the back office of the parent companies operation,
- Its just providing customer service, or
- The Point-of-Sale is actually taking place in another country
then there is very little reason to consider the other type of corporate structures.
Business Registration is relatively cheap, easy, and controllable when incorporating a Representative Office in the Philippines.