This guide walks you through the essential steps— from understanding why the Philippines is a strategic choice, to ensuring long-term legal compliance.
Quick Steps to Set Up a Subsidiary in the Philippines:☑ Research the Market – Study demand, competition, and industry trends. ☑ Pick a Business Structure – Choose a corporation (revenue-generating) or Representative Office (non-commercial). ☑ Register Your Business – Secure SEC, BIR, Mayor’s Permit, and other local licenses. ☑ Open a Business Bank Account – Deposit initial capital and set up financial operations. ☑ Obtain Mandatory Permits – Register for SSS, PhilHealth, Pag-IBIG, and local clearances. ☑ Stay Compliant – File tax returns, meet labor laws, and maintain corporate records. ☑ Leverage Incentives – Explore PEZA & BOI tax benefits for cost savings. ☑ Plan for Growth – Align with regional expansion strategies for scalability. |
Why Expand to the Philippines?
The Philippines is a prime destination for global expansion due to its strategic location, competitive labor market, and a continually improving business environment.
Here’s why setting up a subsidiary here can benefit your business:
1. Thriving Local Market
Positioned as a gateway to investment, the Philippines boasts a dynamic local market with strong growth and rising demand.
2. Competitive Workforce
A highly skilled, English-speaking labor force makes communication and business operations seamless for international companies.
3. Government Initiatives
Policies like the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act lower corporate taxes and provide additional deductions to enhance profitability.
Key Preparations Before Setting Up a Subsidiary
Laying a strong foundation ensures a smooth entry into the market.
Consider these key steps:
1. Conduct Market Research
Before investing, analyze the market:
- Conduct feasibility studies to assess demand and competition.
- Evaluate industry trends to align with consumer needs.
- Examine the competitive landscape for positioning strategies.
2. Choose the Right Business Structure
Decide between these main options (A or B):
A. Corporation
A corporation in the Philippines is a separate legal entity that provides liability protection and is owned by the foreign head office.
A domestic corporation, depending on the industry, with more than 40% foreign ownership is typically required to have a minimum capital of USD 200,000, depending on the industry.
However, for foreign-owned export enterprises (where exports account for more than 60% of gross sales), the capital requirement is the same as local corporations at PHP 5,000.
B. Representation Office
A representation office is strictly limited to non-commercial activities and cannot generate revenue in the Philippines.
Instead, it is permitted to engage in support functions such as:
- Administrative activities,
- Customer service, and
- Market research.
3. Establish a Regional Strategy (when applicable)
If expanding across Asia, consider:
- A regional headquarters (e.g., Singapore) to optimize management and efficiency.
- Long-term scalability to streamline operations across multiple countries.
4. Develop a Financial Plan
A solid financial plan is key to a successful business setup in the Philippines.
- Budget for setup costs, operational expenses, and compliance requirements, including taxes and permits.
- Hiring a local advisor can help navigate regulations, cultural nuances, and business processes efficiently.
- Ensure sufficient capital to manage early-stage challenges.
5. Understand Tax and Incentives
- Review PEZA (Philippine Economic Zone Authority) and BOI (Board of Investments) incentives for tax benefits.
- Align tax strategies with local regulations to maximize cost efficiency.
Legal and Regulatory Framework
Understanding local regulations is crucial to ensuring your subsidiary operates smoothly and remains compliant.
1. Foreign Investment Laws
- Foreign Investments Act: Defines regulations for foreign-owned businesses.
- Foreign Investment Negative List: Outlines industry restrictions for foreign ownership.
2. Essential Business Registrations
Obtain the following:
- Securities and Exchange Commission (SEC) Registration to establish your business identity.
- Barangay Clearance & Mayor’s Permit for local business operations.
- Bureau of Internal Revenue (BIR) Registration for tax compliance.
- SSS, PhilHealth, and Pag-IBIG for employer-related compliance.
3. Key Documentations
Prepare:
- Articles of Incorporation – Defines the business structure and purpose.
- Board of Directors – Must include a President, Treasurer (a Philippine resident), and Corporate Secretary (a Philippine national).
- Parent Company Financial Statements – Required for Representation Offices.
- Resident Agent Appointment – Mandatory for Representation Offices to handle compliance obligations.
Step-by-Step Guide to Registering a Subsidiary in the Philippines
1. Capital Requirements & Business Name Reservation
- Verify the minimum capital requirements, which vary based on foreign ownership and business activity.
- Reserve a unique business name via the SEC online portal.
2. Document Submission & Business Registration
A. Notarize and submit required documents from SEC, including:
- Articles of Incorporation
- By-Laws
- Treasurer’s Affidavit
B. Submit required documents for BIR and Business Permit:
- BIR Form 1903 (for corporations) or 1901 (for sole proprietorships)
- Mayor’s Permit (issued by the LGU)
- Barangay Clearance
- DTI Registration (if applicable)
C. Register with agencies such as:
- SSS (Social Security System)
- PhilHealth (Health Insurance)
- Pag-IBIG (Housing Fund)
3. Open a Corporate Bank Account
- Set up a Treasurer's Trust Fund Account for capital deposit before full registration.
- Choose a bank that aligns with your business needs.
4. Finalize Setup & Prepare for Operations
- Secure remaining local permits and compliance documents when applicable.
- Set up business operations, including office space, banking, and staffing.
- Ensure compliance with tax, labor, and regulatory requirements before launching.
Ongoing Compliance & Legal Obligations
Once your subsidiary is operational, maintaining compliance ensures long-term success and avoids penalties.
1. Corporate Compliance
- File annual reports with the SEC.
- Submit tax returns (monthly, quarterly, & annual) to the BIR (including VAT and income tax).
2. Employment Compliance
- Register employees for mandatory benefits (SSS, PhilHealth, Pag-IBIG).
- Comply with Philippine labor laws regarding wages, overtime, and benefits.
3. Tax Compliance
- Maintain accurate financial records.
- Stay up to date with tax payments and regulatory changes.
Proactive Compliance Management
To avoid legal risks and operational challenges:
- Identify potential compliance issues and seek expert consultation.
- Maintain detailed financial records to ensure transparency.
- Stay informed on policy updates that could affect business operations.
- Establish internal audits to ensure continuous regulatory compliance.
Building a Scalable, Legally Compliant Subsidiary in the Philippines
Setting up a subsidiary in the Philippines presents significant opportunities for business expansion.
By following a structured approach—from market research to compliance management—you can ensure a successful and sustainable operation.
Proseso Consulting specializes in:
- Business registration & tax advisory
- Bookkeeping and Payroll solutions
- Strategic business structuring
With careful planning and expert support, you can navigate complexities, optimize your expansion, and build a strong foundation for long-term success in the Philippines!
Proseso Consulting - Your Modern Finance Expert - For Seamless Growth in the Philippines and Singapore
With our deep local expertise and modern solutions, we enable businesses to leverage the region’s dynamic opportunities and scale with seamless, profitable growth.
This blog article does not constitute professional or legal advice. It is only intended to provide general information on a subject.