The Foreign Business Act grants special rights to juridical persons organized according to foreign laws to establish their branch offices in the Philippines. The Corporation Code provides that foreign corporations lawfully doing business in the Philippines have the right to establish a branch office. Additionally, the existing 2004 Securities and Exchange Commission Rules and Regulations implementing Republic Act 7042, also known as the Foreign Investments Act, state that foreign corporations making investments in the Philippines have the same right. Our explanation of the contradictions in the Class Act of the Philippine Foreign Business Law will be rectified by an SEC regulation implementing statements from Article 75 to Article 92. If you’re looking to establish a branch office Philippines, our firm can help.
The need to expand the business footprint through multiple locations is a strategic decision faced by many corporations. Some decide to expand through partnerships, share acquisitions, and subsidiaries, while others choose to establish branch offices in different locations. Countries have distinct business regulations that need to be understood in order to decide on the best approach to expand the business footprint. This article will provide insights and clarify Articles 118 to 122 of the Corporation Code, as well as the 2004 SEC Rules and Regulations for the establishment of branch offices in the Philippines. Substantive changes recommended by FCB Law firm will be suggested.
Significance of Expanding Business Footprint
Implement the comprehensive guidelines of regarding the setting up a branch office to every successful transaction of application, comply with the documentary requirements, avoid filing delays during submission, and, at the same time, undergo and complete the correct procedure with consistent professional support for the successful establishment of the first branch office of a foreign company incorporated outside of the Philippines, in favor of the mother company.
Expansion of business footprint is a significant move to usher in growth and to address the rising demand for corporate products or services. The transition from one office to branch offices could either be a separate entity in the Philippines or owned by the mother company in which the head office is existing outside the Philippines. The pursuit to cater and serve to the maximum extent beyond the head office’s territory requires an expansion in terms of different locations, provided that the business is not under licensing or specialized professional work scope. The establishment of a branch office pulls in more opportunities for business growth due to proximity to customers, suppliers and other business partners, and, at the same time, offer an alternative venue for business operations, facilitate R&D activity, and enhance technology transfer.
Establishing a Branch Office in the Philippines
Foreign corporations which would ordinarily set up a branch office in the Philippines do so in a variety of trades or for many business ventures ranging from exporting perishable products of the Philippines to financing loans to the parent foreign corporation to helping reduce the costs of the Philippines enabling the parent organization to provide better services. The purpose why a foreign corporation establishes a branch office in the Philippines and enters into business thereat could be a strong magnet for other foreign business organizations having a core set up to the Philippines. In establishing the branch office, a set of totally different corporate rules and regulations from those of a domestic corporation must be followed; strict compliance with the requisites and procedures of establishment is also required before it can operate. On the whole, the process of establishing and registering a branch is cheaper and faster than having to incorporate a domestic corporation. For more information and a consultation on a business permit for branch office, contact our team.
By a branch office of a foreign corporation in the Philippines is meant a foreign corporation organized under the laws of a country other than the Philippines and is not doing business in the Philippines as defined by existing laws. A branch office may be defined generally as a subordinate and auxiliary office or business place established or maintained in a foreign country through which the parent corporation may carry on any small part of its ordinary business for the purpose of convenience or efficiency. A previous Philippine statute defined the term “foreign corporation” to include every corporation, unincorporated association, and other organization originating from or organized under the laws of any country but does not include any of the following: 1) a corporation, partnership, or association engaged in business or sort in the Philippines; 2) an insurance company; and 3) a company or association, if the relation of the parent company to the local company does not give the parent company absolute or majority direct and indirect control of the board of directors or trustees or management of policies of the local company or association, by whatever means or in whatever manner exercised.
Legal Framework and Regulations
Shared services companies are specifically attracting foreign companies to participate in the local area and maintain their international headquarters and perform a range of processing functions, mainly software development, AI, seized and data management, for their foreign affiliates several reasons, and are provided with specific tax breaks, such as income tax holiday or-class status and credit. In addition to paying taxes and fees related to the operation and employment of its employees in the adjacent zone, the Bureau of Internal Revenue (BIR) also provides for other preferential tax treatments for SSC in certain respects. On the other hand, a participating SSC makes use of an ordinary business system. Qualifications and other specific requirements of the business are subject to the same legal requirements as the above and are specifically regulated.
The foreign investment negative list sets out the restrictions on foreign investments in certain sectors of the economy, as set out below. In accordance with the Constitution and other relevant laws, amendments and exceptions, the list can be changed or abolished by the President. The 10th development plan on investment measures in general, which is the stipulated Foreign Investment Negative List (Positive List). Hiring of overseas professionals, such as consultants, engineers, or regional managers, must be licensed by the Philippine Professional Regulations Commission (PRC) and a certificate of recognition (TOR) work permit issued by DOLE. Businesses in the Philippines have the possibility to obtain enterprise work visas for their foreign employees, which are known as non-immigrant visas with extended visas.
Foreign nationals or corporations are generally free to invest and participate in the business of the Philippines, except only as may be provided by specific nationality restrictions or special laws. Otherwise, except for the Philippines, all other businesses in the Philippines are allowed to be 100% foreign-owned subsidiaries, the minimum viable capital and other requirements. In accordance with this policy, a number of companies established PEZA offices in the Philippines-economic zones and Cagayan-special economic zones, which provide the necessary facilities. With many options of law offices in Makati, consult FCB Law for topnotch law services.
Benefits of Establishing a Branch Office
Establishing a branch office is a principal means of doing business in the Philippines for foreign investors looking to expand their existing non-resident multinational companies. This business structure provides full managerial and operational control over the foreign parent corporation, where decisions by headquarters can be carried out by the local subsidiary, except with more substantive responsibilities.
The legal needs of business entities will vary based on their line of business and other aspects. Business ventures will need different support, guidance, and legal action when engaged in aggressive litigation, car technology or supply contracts, managing the global mobility of its employees, or inadvertently letting go of corporate clients’ personal data. Attentive, specialized service is key. Often, companies may not see unexpected business problems arising from certain issues until it is too late. FCB Law offers services to beat the pests before they gnaw and damage a corporate client’s hard-planted reputation and strongholds. FCB Law is the preferred, go-to legal adviser of business leaders new to the borders of the Philippines.
Foreign and local businesses both have various legal needs based on particular circumstances and structures. As such, capably addressing these corporate and commercial requirements can significantly save a company both time and money. Proper and specialized legal services can also pave the way for a better-preserved business reputation, more harmonious work relations, and overall greater profitability. FCB Law offers various specialized legal services for expanding corporate clients through its expertly learned and experienced attorneys. These include, but are not limited to, litigation, transaction assistance, labor relations, data privacy, and protection against cybercrimes. FCB Law works closely with its clients to provide comprehensive services based on individual needs. Flexibility is key to client satisfaction and business growth.
Corporate organization, including its auxiliary component, corporate governance, is a principal area of specialization of FCB Law. Our team of lawyers assists clients in doing business in the Philippines by providing advice on the most suitable business organization vehicle for its activities. We establish sole proprietorships, regional and area headquarters of multinational corporations, branches, representative offices, and other structures, like partnerships or joint ventures. Our task often requires that we coordinate with the respective Philippine government agencies or instrumentalities. We also help clients reorganize their enterprise through mergers, consolidation, dissolution, or similar methods that reflect the varying needs of our clients. As a necessary adjunct to doing business in the Philippines, we likewise register and ensure compliance of foreign investments with the required foreign equity restrictions.
Our practicing lawyers specialize in key areas of legal practice, including corporate structure and organization, corporate compliance and governance, corporate restructuring, mergers and acquisitions, corporate finance, registration of business operations, investments and security rights, commercial law, doing business in the Philippines, taxation, land ownership and use, infrastructure projects, international trade, and permits and licenses.
Initial Consultation with FCB Law
We require an initial consultation with the intended investor or client to discuss the proposed venture. This meeting is most productive if the intended investor updates us with preliminary proposals for the Philippine venture. With this knowledge, we would have a more focused discussion to provide responsive advice, including the possible legal requirements, the procedures to be followed, the timeframe needed to accomplish the formation of the proposed undertaking, and the fees and charges expected to be paid in connection with the formation, operations, management, and maintenance of such business entity. What is also important is that an initial consultation would allow us to explain to the intended investor the tax implications of doing business in the Philippines. Our experience shows that oftentimes, prospective investors in the Philippines sign on the dotted line, set up the Philippine representative office, and hire individuals to represent the intended investor only to realize subsequently that its presence in the Philippines meant that such investor is slowly getting exposed to the Philippine tax authorities for business income and related taxes. This income carried with it potential revenue exposure from the Philippine Bureau of Internal Revenue (BIR).
