Modes of Outsourcing/Offshoring to the Philippines
A comparative table on foreign business registration in the Philippines:
Representative Office vs. Ordinary Stock Corporation
This article is prepared by and a product of Kerwin K. Tan, managing partner of TAN HASSANI & COUNSELS Law Offices, and is not to be construed as legal advice or create an attorney-client relationship. Copyright ©2014-2022 Kerwin K. Tan. All rights reserved. No portion of this work may be reproduced without our written consent.
A foreign investor (whether a foreign individual or a foreign company) may establish any of the following for purpose of establishing a back office in the Philippines:
- Representative office; or
- Ordinary Stock Corporation
*note: there are other company types in the Philippines but for purposes of outsourcing or offshoring a back office, these are the two suggested types suited for this purpose.
Hereunder, in tabular form, are the distinctions and requirements of each company type registration:
| REPRESENTATIVE
OFFICE |
OSC Type
CORPORATION |
|
| As to foreign parent company | Requires a foreign parent company existing in a foreign country | Stockholder may be either foreign individuals and/or foreign companies
|
| As to nature of business | A Rep Office is that it is a limited purpose office of a foreign company in the Philippines.
It cannot derive income from doing business in the Philippines and it’s Philippine operating expenses must be fully subsidized by the foreign company that it represents.
See FAQ below for the limited purposes a Rep Office can do (mostly, limited to back office work)
|
May be different from the parent company |
| As to minimum business capitalization | Minimum US$30,000
(equivalent in Philippine Pesos) paid-up capitalization |
Can fall as a “service exporter”, i.e. if the business of the corporation is to generate gross revenues of at least 60% of its services outside of the Philippines (i.e. it has foreign clients) can start with a minimum of Php5,000 (approx. US$100)
|
| As to business legal personality | Is not considered a separate business from the parent company, thus, liability of Rep Office is the liability of the parent company | Generally, is considered a separate business from the parent company, thus, liabilities of the subsidiary-corporation are its own (i.e. not attributable to the parent company)
|
| As to officers | Requires only 1 Philippine-resident agent
|
Requires at least 2 to act as Incorporators of the OSC (who shall also be the initial 2 directors). The Incorporator are the persons who apply to start registration.
Requires at least 3 corporate officers: 1. President 2. Corporate Secretary (must be Filipino-resident) 3. Treasurer (must be resident)
|
| As to documents required to be filed for registration | Special documents required aside from application form:
1. Board resolution that (a) authorizes the establishment of branch office; (b) names the resident agent 2. Parent company latest financial statements as of a date not exceeding one (1) year immediately prior to the application, certified by an independent CPA of the home country; 3. Certified copies of the parent company formation or registration documents in home country, with an English translation if in foreign language; 4. Philippine bank certificate on min. capitalization; 5. Resident Agent’s acceptance of appointment
|
Standard documents only:
1. F-100 application form; 2. Articles of Incorporation; and 3. By-laws
|
| As to registration timelines
|
Apostille Phase:
All foreign-issued documents required to be filed with the SEC requires an apostille. As we are not sure of the timeline for an apostille in your home country, please note that this will add to the timeline.
Note: Authentication at the Philippine Consulate may be required if the country where the company licensing its Rep Office is registered, is not part of the Hague Convention on the Apostille.
SEC Phase:
Upon filing of complete documents with the SEC, around 3 months
|
Apostille Phase:
Only if the documents are signed outside the Philippines will apostille be required. In the event the incorporators are in the Philippine when signing the Articles, then only a local Philippine notarization is required.
Note: Authentication at the Philippine Consulate may be required if the country where the company licensing its OSC is registered, is not part of the Hague Convention on the Apostille.
SEC Phase:
Upon filing of complete information and documents with the SEC, around 4 weeks. |
FREQUENTLY ASKED QUESTIONS
- REPRESENTATIVE OFFICE
Q. What is the main characteristic of a Rep Office?
A. A Rep Office is really a special purpose type of company registration under a special law. A Rep Office cannot earn income from the Philippines and its operating expenses in the Philippines (e.g. salaries of staff, rent, utilities, etc.) must be fully subsidized and paid for by the head office.
The activities of a Rep Office are limited to the promotion and dissemination of information about the products and/or services of the foreign company that it represents. Although it can engage in products and/or services promotion, it cannot sign contracts on behalf of the foreign company it represents. Such contracts must be signed directly between the foreign company and the relevant counterparty.
A Rep Office may perform the following activities:
- quality control
- act as a message center or a communication center between interested parties and its head office;
- promote products presently being distributed in the Philippines;
- provide and facilitate better communication and contact between its head office and affiliated companies on the one hand and present and future customers on the other;
- conduct surveys and studies on the market, economic, and financial conditions in the Philippines; and
- attend to the needs of end-users of its head office’s products/services in the Philippines, advise them on the proper care and maintenance of their equipment, and communicate to its head office problems that call for consultations.
Therefore, with these limited functions, usually a Rep Office functions more of a back office of a foreign company who wish to take advantage of the excellent educated work force in the Philippines with cost effective labor costs.
Q. I don’t have a company abroad. Can I still do rep office registration?
A. Unfortunately, no. The rep office is, as the name implies, the Philippine representative office of a company abroad and merely promotes or assist in administrative and communication functions of the company abroad. The company abroad is what we call the “Parent Company” or “head office”.
Q. Is the US$30,000 really required?
A. Yes, that is a mandatory requirement by law, the rationale being that the Philippine Government wants to ensure that only those with sufficient capitalization to hire Filipinos will be allowed.
Q. How do I pay the US$30,000?
A. You will have to open a bank account in the Philippines (a temporary bank account called an “in-trust fund” account) and transmit the money from your bank abroad. The bank will then issue a certification on the money remitted and this will be filed with the Philippine Securities & Exchange Commission.
Q. What happens to the US$30,000
A. During rep office registration process with the Philippine Securities & Exchange Commission, the capital will stay in the bank and once you are issued a license as a representative office, you may then use the US$30,000 for your operations in the Philippines. It cannot be withdrawn arbitrarily but will be subject to Philippine accounting and tax rules.
Q. So the US$30,000 is not registration or filing fee?
A. No, and you may use it in your Philippine operations once you are licensed.
Q. So what are the requirements?
A. These are the documentary requirements:
1.1 Certificate of company formation/registration of the foreign company issued by the government of the home country;
1.2 Articles of incorporation/memorandum of association;
NOTE: for items 1.1. and 1.2, it should show at least:
a) Date of Formation/Registration;
b) Office address;
c) Country of Registration
1.3 Audited Financial Statement (“FS”) of the foreign company as of a date not exceeding one (1) year from filing date of Rep Office application with the SEC, certified by an independent certified public accountant in the country of registration;
a) If unaudited, the SEC will require a letter-explanation from a lawyer in your country that under the laws of that country, that there is no need for financial statements to be audited.
b) if more than one (1) year from filing date, or if not at least one full year financial statement, the SEC may not accept it.
c) The AFS complies with the following Special Conditions:
- Based on our experience, due to the difference in fiscal year per country, this requirement must be reviewed by the client. The requirement is audited financial statement as of a date not exceeding one (1) year from Philippine SEC filing date for Rep Office application.
- Compliance with Financial Ratios. The SEC will review the FS and it will require a passing solvency ratio.
NOTE: for item 1.3, our accountant can review your financial statement for you, to check for compliance.
1.4 Applicant foreign company board resolution (or equivalent company authorization) authorizing 1) the registration of a Rep Office in the Philippines; 2) the designation of the resident agent to whom summons and other legal processes may be served to applicant foreign company; and (c) states that in the absence of such agent or upon cessation of its operation in the Philippines, any summons or legal processes may be served to SEC as if the same is made upon applicant foreign company at its home office.
1.5 Certificate of Solvency of the applicant foreign company
1.6 One (1) Resident Agent. Filled-out Rep Office Application form signed by your Resident Agent. The Resident Agent can be a foreigner so long as that foreigner has a residency type of Philippine visa.
1.7 Rep Office Philippine bank account certificate showing US$30,000. Kindly note that what is to be opened is an “In-Trust” account, in trust for and in the name of the proposed Rep Office (NOT a personal bank account). This is opened by the Resident Agent on behalf of the company.
The following are the usual and minimum requirements required by the bank for purposes of their customer identification and compliance with anti-money laundering regulations:
1.7.1 Company Profile (a short write up on the application company);
1.7.2 Valid passport and a secondary valid ID (e.g. driver’s license) of the signatory/ies; and
1.7.3 Proof of beneficial ownership of the applicant company
1.8 Office Address. The address will serve as the principal office address of the rep office. An exact address is required by the SEC.
1.9 Company Contact Details. Required are the following:
- Official email address
- Alternate email address
- Official mobile number (must be a Philippine mobile no.)
- Alternate mobile number (must be a Philippine mobile no.)
NOTE: For items 1.4 to 1.6, we will be the one to prepare it should you decide to work with us.
- PHILIPPINE CORPORATION (OSC type)
Q. What is the difference between a rep office and a corporation?
A. The main difference is that the rep office must be fully subsidized by the head office, while the corporation must generate its own revenue for services rendered. This means that an OSC will have to bill its parent company for services rendered, and once the parent company pays for the services rendered, the corporation shall then have the revenue to pay for its local operating expenses.
Q. Can this OSC be 100% owned by foreigners?
A. Yes, a back office or BPO type of company has no foreign ownership restrictions.
Q. What is the paid up capital requirement?
A. As a general rule, a 100% foreign owned corporation is required to have at least US$200,000 paid up capital at the start. However, as an exception, if the corporation is a “service exporter” (i.e. its revenues are sourced from clients outside the Philippines for services rendered by the Philippine based staff), then it is exempt from this US$200,000 paid up capital requirement. The minimum to start would be just Php5,000 (or about US$100).
Q. So what are the requirements?
A. These are the information requirements (and we prepare the documents using these information):
- At least 2 incorporators.
The Incorporators mean the people who will register the corporation (meaning, the applicants for incorporation of a new corporation). The incorporators usually are also the stockholders of the new corporation (or represents the company-stockholder) and will simultaneously act as the initial set of directors of the company.
Requirements:
- Minimum of two (2) incorporators (up to maximum of 15);
- Passport No. (if foreigner person signatory).
NOTES:
- Usually, the incorporators can also be the initial directors (e.g. if 2 incorporators, then they are the 2 initial directors). The 2 person incorporators must hold one (1) share to act as directors.
- Even if the corporation will be 100% foreign owned, there is still a need, by law, to have at least 2 incorporators.
- Office Address. The address will serve as the principal office address of the company. An exact address is required by the SEC.
- The Treasurer must be a resident of the Philippines (even if foreigner, but must have the residency visa). For purposes of incorporation process, the Treasurer can be one of the incorporators so long as a resident.
- Company Contact Details. Required are the following:
- Official email address
- Alternate email address
- Official mobile number (must be a Philippine mobile no.)
- Alternate mobile number (must be a Philippine mobile no.)
- Corporate Secretary: For purposes of Business Permit application, you will need a resident Filipino citizen to act as your Corporate Secretary.
oO END Oo