There are foreign corporations who might be interested to test out their potential in the Philippine market but are afraid to take the gamble in making significant investments. For those who wish to test the waters without a huge risk of losses, establishing a Representative Office would be of great help to these foreign corporations.
According to tax services in Manila, this type of business entity can be set up as a contact center, marketing hub, or liaison office to offer and give operational support to the head office abroad. Learn more about you can establish and setup this kind of office in the Philippines.
Defining a Representative Office
According to the laws here in the Philippines, a Representative Office is not allowed to earn income from within the Philippines. Since this office is a mere extension of the head office, it can only do activities that are similar to the list below:
- Facilitate orders from the clients of the head office
- Disseminate information and conduct promotional activities
- Undertake quality product control
- Undertake admin work from head office
A Representative Office does not have a separate legal entity from its parent company. Thus, according to tax and audit services in the Philippines, the liabilities any Representative Office will incur shall be considered the head office’s liabilities.
What Are the Things to Do For Setup
Make sure to get a license to do business in the Philippines from the Securities and Exchange Commission. This license will allow foreign corporations to legally establish a Representative Office in the Philippines. You must also do the following:
Appoint a Resident Agent
You need to appoint a resident agent who will be responsible for receiving the summons and legal proceedings served to or against the Representative Office. You can choose someone who lives in the Philippines or choose any legal domestic corporation doing legal business in the Philippines. For example, you can seek help from accounting services in the Philippines who offers business registration services for easy setup.
Get Proof of Official Business Address
You need to secure the proof of your official business address before you start the registration process. You also need to show your lease contract to BIR or Bureau of Internal Revenue and LGUs or Local Government Units to comply with this requirement. You can also opt to rent a virtual office to serve as your business address for the meantime and transfer to a physical office after you have finished the registration.
Minimum Capital
The parent company will be required to remit US$30,000 annually to support the operating expenses of the Representative Office.
Restrictions
A Representative Office is not allowed to generate income and offer services to third parties. This entity is also unqualified to apply for tax incentives.
Corporate Taxes
A Representative Office is not an income-generating entity so it is exempted from paying VAT and income tax to BIR. Note that the VAT exemption will only apply to VAT that is directly due from the Representative Office. If you’re not sure what to do, it’s prudent to seek help from tax and auditing services in the Philippines.
A Representative Office is required to pay withholding taxes on remittances with its parent company and compensation for the employees.
Under the TRAIN law or Republic Act No. 10963, Representative Offices are constituted as withholding agents with regard to compensation payments given to their employees. The compensation withholding tax rates are listed below:
- Graduated tax rate of 20-35% for local employees
- Graduated tax rate of 20-35% for resident expatriates
- Tax rate of 25% for expatriates who do not reside or do not engage in trade or business in the Philippines.
A Representative Office is subject to 35% withholding fringe benefits tax rate of monetary value grossed up under TRAIN law for Representative Offices that are on fringe benefits to supervisory and managerial employees. Filing related returns and reports are also required.
Steps for Registration
Here are the specific steps for registering a Representative Office. Submit the following documents listed below to SEC:
- Application Form
- Name Verification Slip
- A Certification of the Board Resolution of the parent company allowing and authorizing the establishment of the Representative Office and authorizing the designation of a resident agent
- Audited financial statements (latest) that are certified by an independent CPA and authenticated by the Philippine Embassy
- Certified Copies of the parent company’s Articles of Incorporation
- US$30,000 Inward Capital Remittance Certificate
- Appointment of the Resident Agent Acceptance if applicable
- Endorsement from appropriate government agencies.
- An Affidavit executed by the Resident agent or the President with a statement that the foreign corporation is solvent and sound
It usually takes 6 to 10 weeks to register a Representative Office given that all required documents were submitted early and if there are no processing delays from the government. If you need guidance, call our team and we’d be happy to help facilitate the process.
