The increasing liberalizing policies of the Philippine government are resulting in a positive transformation of the business landscape and encouraging more foreign investors to move to the country. The close geographical location of the Philippines with other potential investment destinations, its strategically positioned sea lanes, and a robust flow of transportation nodes are just a few reasons why the Philippines is fast becoming a prime investment destination. Other reasons include the increasing gross domestic product (GDP), resilient business process outsourcing (BPO) industry, and increasing employment of educated individuals. The Philippine government supports the inflow of foreign investments and as a result, is fast-tracking the ongoing infrastructure programs of the current administration’s nine-point economic agenda.
The Philippines is quickly turning into a prime investment destination due to its unique strategic business location, business-friendly environment, and continually improving investment framework. Setting up a representative office in the Philippines would provide an investor an initial foothold in the country and allow a quicker introduction to the various opportunities available. If you’re looking to establish a representative office in the Philippines, our firm can help.
Legal Landscape in the Philippines
The Philippine Corporate Code or the Corporation Code regulates the formation of corporations and other corporate legal entities throughout the country. Pursuant to the Code, all domestic activities and operations concerning corporations fall subject primarily to the jurisdiction of the Securities and Exchange Commission, an agency created by the code to administer, vet, and register corporations, partnerships, and associations. Foreign-owned corporations, whose capital or equity ownership is owned or controlled by non-Filipinos or non-Philippine nationals, do not have the capacity to operate a business in the Philippines. They can do so, however, only in those areas or fields of endeavor or activities where foreign participation is otherwise specified by the relevant Investment/Foreign Participation Laws. For more information and a consultation on representative office Philippines, contact our team.
Chief considerations in the selection of the legal form of business organization in the Philippines will include the following: the amount of capital committed by the foreign investor; the degree of control that the foreign investor seeks to achieve over the management and operation of the local entity; tax implications attendant to the establishment of such entity; the extent of liability risk the foreign investor is willing to assume; and the degree to which the institutional structuring may affect other laws such as the Foreign Investments Act, the Retail Trade Liberalization Law, and the General Banking Act. A business entering into the Philippines will have to decide whether to engage in its operations as any of the following: a branch or representative office, a partnership, a domestic corporation, or a foreign entity duly registered to do business in the country.
Key Laws and Regulations
Other laws and regulations that a foreign company in the Philippines must comply with include the Bureau of Internal Revenue (BIR) Rules and Regulations, the Tax Code, SEC, and the Central Bank governing the repatriation of capital and profits of foreign corporations. It is also subject to audit by the BIR and must comply with the guidelines of the Department of Trade and Industry, SEC, and others where the prior entry of foreign firms is restricted. Financial reporting compliance requirements are the same as a regular corporation even though a representative office’s duties are only promotion. Since the business license and foreign representative office license are not subject to ‘cut-off’ like the business license of companies or corporations and instead depend on the BIR annual registration, the company’s documents must be renewed annually. Establishing a Philippine representative office may be a daunting task, but our team is well-equipped to help.
Foreign nationals who are interested in working in the Philippines are generally required to secure a work permit from the Department of Labor and Employment. They must also secure an Alien Employment Permit, except if they fall under any of the following categories: (a) member of the governing body of the enterprise who also holds the position of President; (b) certain personnel in regional or area headquarters of multinational corporations; (c) a farmer; (d) executive officers of such representative office; and (e) their legal dependents. Existing foreign companies’ representatives must also obtain the relevant visas.
Setting Up a Representative Office
Other more significant or economically beneficial activities like manufacturing, importing goods, or services which may directly affect the Filipino general public, may not be conducted by the representative office. To ensure compliance, SEC conducts a review of the activities of the representative office from time to time. Failure to adhere to the restricted activities may result in the loss of the license of the representative office or the imposition of fines. Upon being permitted to establish a representative office in the Philippines, outwardly remitting the funds necessary for the operation of such representative office is also allowed.
To establish a representative office, an application with documentation and certain fees are required to be submitted to the SEC. Upon approval, the SEC shall issue, under its official seal, a license for the operation of the representative office. It should be noted that the scope of the permissible activities of a representative office is very limited – these are restricted to the following activities: (1) acting as a liaison function between the head office and local clients; (2) conducting information dissemination on the products and services of its head office; (3) promoting the products and services of its head office; (4) quality control over the products and services of its head office; and (5) undertaking market research.
In the Philippines, without a license to operate issued by the Department of Trade and Industry, foreign firms are not permitted to engage in business or trade activities. Since representative offices may be engaged in non-transactional activities, they may not engage in the production process of any kind nor collect, canvass, screen, or sell any merchandise other than those incorporated in the Philippine market for the principal company.
A representative office (RO) is an office established by a business in a country in which its commercial activities are limited to the promotion of its products and services through publicity or exposing samples. The purpose of a representative office is generally to:
– Act as a direct advertising and promotional unit, introducing the products and services to the Philippine market, addressing products or services to clients or potential customers, and providing and coordinating support to the clients and agents.
– Perform liaison activities with local distributors and agents or coordinate companies’ products or services with their parent company’s resolutions.
Requirements and Procedures
In addition, the corporation must secure from the DOLE a certification stating that the employees it needs are non-resident aliens. This process takes about a week. For immigration purposes, after issuing the AEP, professional, technical, and managerial employees are issued 9(g) visas, while none of the above-mentioned employees are issued special non-resident visas. These visas are good for one year and must be renewed annually. They are not convertible into resident visas. For those employees not covered by an AEP, they can still be employed if they are holders of a 9(E) visa or any other type of visa which legally allows them to work in the Philippines.
Setting up a representative office in the Philippines is relatively straightforward compared to full incorporation. A foreign corporation seeking to do business in the Philippines may hire employees for the issuance of visas, including the Alien Employment Permit (AEP). The AEP is a citizen’s employment permit issued by the Department of Labor and Employment (DOLE) through its Regional Offices.
Specialization in Handling Law Cases
We offer expert knowledge of Philippine Law, as well as existing procedures and requirements that can capably respond to the needs and requirements of foreign law firms and clients. And being the largest, we have specialized teams that have focused on specialized practice areas. Since our designation as a representative office is limited to acting as a matchmaker that refers clients to and manages clients’ cases with our affiliate Philippine law firm, a full member of the association, we specialize in handling cases. We are able to help, advise, or supplement clients with these specialized services.
Professional services and advisory service providers advise prospective investors on viable and feasible investment opportunities, as well as propose a market entry strategy. They perform market studies including competitive intelligence and trade mission itineraries, development of business plans, financial plans (e.g. feasibility study, financial and investment analysis, project financing, restructuring and divestures), and other business-related professional services. The Philippine industry/market-specific investment opportunities, as well as propose a market entry strategy. They perform market studies including competitive intelligence and trade mission itineraries, development of business plans, financial plans (e.g. feasibility study, financial and investment analysis, project financing, restructuring and divestures), and other business-related professional services. The Philippine industry or business community’s needs.
Investors may also learn about different business opportunities from local advisory service providers. Accredited by the major business organizations in the country, consultancy and advisory service providers can advise on a wide range of issues covering the major functional areas of business (e.g. information communications technology, management consultancy, accounting firm services) for various industry sectors and types of investors or business organizations. These firms have practiced in, or specializing in the market and as such offer a wide range of professional services to guide prospective investors in various functional and industry sectors.
However, it must be realized that representative offices are not entitled to engage in transactions other than those that are merely incidental in nature. This also means that any activity conducted by the representative office, which does not fall under the exempt category, is subject to regulatory compliance requirements, including licensing or approvals that may have been overlooked due to its unrecognizable business activities. The principal should therefore explore other options if actual business transactions with Philippine-based customers are planned as the next course of action. In the meantime, while the limitations remain, the representative office will provide the customer relations support that the principal can greatly value.
Representative office operations provide cost-effective and business-friendly alternatives to foreign corporations seeking to promote and market their products or render services to their existing clients in the Philippines. Since all costs in maintaining the representative office are direct, the intention is to avoid engaging in transactions with customers in the domestic setting, potentially increasing revenues. Although the representative office remains fundamentally an extended arm of the office abroad, providing immediate and more direct customer relations than just mailing in or mailing out the products ordered, this mode of affiliation continues to be an attractive proposition.
