Branch vs. Subsidiary Corporation

As to Taxability

Branch

  1. Subject to income tax only on Philippine source income
  2. Profits remitted by the branch to its head office are subject to branch profit remittance tax of 15% or 10% depending on certain tax treaties; however, if located in a special economic zone then they are tax exempt.
  3. A branch office is not subject to documentary stamp tax (DST) simply because it does not issue shares of stock
  4. Subject to certain conditions, overhead expenses of the Head Office may be allocated to the Philippine branch office
  5. 5. A branch is not liable to pay the 10% improperly accumulated earnings tax

Subsidiary (Domestic Corporation)

  1. Subject to income tax on worldwide income
  2. Dividends paid by a Philippine subsidiary to non-resident shareholders is subject to 30% in general or 15% subject to certain conditions or preferential tax treaty rates.
  3. A subsidiary is liable to pay DST on the original issuance of shares of stock  at the rate of P2.00 for every P200.00 or fractional part of the par value of the shares of the outstanding  shares of stock
  4. The Philippine subsidiary is not entitled to the allocation of overhead expenses of its parent company.
  5. A subsidiary is liable to pay the 10% improperly accumulated earnings tax.

As to its Nature

Branch

A branch office is merely an extension of the head office, thus its liabilities are considered liabilities of the head office

Subsidiary (Domestic Corporation)

A subsidiary is a juridical entity separate and distinct from that of its parent company, hence its liabilities are generally not regarded as the liabilities of the parent company.

As to its Capitalization

Branch

As a 100% foreign-owned entity, a branch must have a capital of at least US$200,000 unless the branch will be exporting goods or services or generating revenue from abroad amounting to more than 60% of its gross sales it can be fully foreign owned, as it is considered an Export Enterprise under the Foreign Investments Act.  Hence, the  branch can be registered with as little as P5,000 paid up capital.  However, most banks require P25,000 – P50,000 to open a corporate bank account.

Subsidiary (Domestic Corporation)

A subsidiary with more than 40% foreign equity must also have a minimum paid up capital of at least US$200,000 unless  the company will be exporting goods or services or generating revenue from abroad amounting to more than 60% of its gross sales it can be fully foreign owned, as it is considered an Export Enterprise under the Foreign Investments Act.  Hence, the company can be registered with as little as P5,000 paid up capital.  However, most banks require P25,000 – P50,000 to open a corporate bank account.

As to the Number of Incorporators

Branch

A branch may be set up with only one (1) person who will act as  the resident agent

Subsidiary (Domestic Corporation)

The establishment of a subsidiary requires at least five (5) but not more than fifteen (15) incorporators/directors (all of whom must be natural persons) majority of whom must be residents of the Philippines.

As to the deposit requirement of securities with SEC

Branch

A branch is required initially to deposit with the SEC for the benefit of present and future creditors, acceptable securities with market value equivalent to at least P100,000 plus an annual additional deposit of 2% of the amount by which the branch office’s gross income exceeds  five (5) million pesos

Subsidiary (Domestic Corporation)

Subsidiaries are not required to deposit securities with the SEC.

As to Registration Requirements

Branch

A branch is required to obtain a license to do business here in the Philippines with the Securities and Exchange Commission (SEC).  This license shall be issued by the SEC upon compliance with the following requirements:

  1. Fill up and file the SEC Form 103 (Application of a Foreign Corporation) to Establish a Branch Office in the Philippines). This application may be signed by any person authorized  by the applicant’s Board of Directors. If this is signed outside of the Philippines, it must be authenticated by the nearest Philippine Embassy or Consulate.
  2. Pay the SEC filing and legal research fees.  For the registration of a branch with a US$200,000 assigned capital, the SEC registration fees shall be calculated on the basis of its converted equivalent in Philippine pesos.  For an initial assigned capital of US$200,000, the SEC registration fees may be calculated as the peso equivalent of the following:
    • Filing Fee (US$200,000 x 1%)=US$2,000  + Legal Research fee (US$2,000 x 1%) =US$20.00 or a total of US$2,020. (this will not apply to export oriented businesses)
  3. Remit the initial assigned capital of US$200,000 which should be remitted separately from the registration fees.  The US$200,000 shall be remitted directly to the Treasurer-in-Trust account opened for and on behalf of the branch office;
  4. Submission of the latest audited financial statements.  Such financial statements must be authenticated by the Philippine Embassy or Consulate of the place of execution thereof.
    • Submission of the Articles of Incorporation, by-laws or similar document authenticated by the Philippine Embassy or Philippine Consulate.
  5. Within sixty (60) days after obtaining the license to operate, the branch office is required to deposit marketable securities worth at least P100,000 with the SEC which may be withdrawn upon cessation of the Philippine branch’s operations

Subsidiary (Domestic Corporation)

For the establishment of a subsidiary in the Philippines, it must be registered with the SEC.  The SEC will require the following from the applicant:

  1. A corporate name which must not be similar to existing names already registered with the SEC.;
  2. The Articles of Incorporation must provide the specific purpose or purposes for which the corporation is being formed.
  3. As to the capital stock  requirement and since the foreign equity will exceed 40%, it must have a minimum paid up capital of US$200,000 as provided under the Foreign Investments Act unless export oriented.  For this purpose, the applicant must submit a Certificate of Inward remittance issued by a Philippine bank on the remittance of at least US$200,000 net of bank charges to your Philippine account;
  4. Provide the name of the subscribers to the authorized capital stock of the corporation and the number of shares  and amount subscribed by each subscriber.
  5. Provide the names, nationalities, addresses, passport numbers of the incorporators.  Under the Corporation Code of the Philippines, a corporation must have at least five (5) but not more than fifteen (15) individual incorporators who must own at least  one (1) share in the company and majority of whom must be residents of the Philippines.
  6. Provide the name of the Treasurer-in-Trust appointed by the subscribers.
  7. Pay the filing fee for the registration  which will be approximately 0.2% of the subsidiary’s authorized capital stock, plus 1% of such SEC fee for the SEC legal research fees and P210.00 for the registration of the subsidiary’s by-laws.