Foreign entrepreneurs and companies continue to seek the Philippines for its skilled and English-speaking population, growing consumer base, and strategic access to other Asian markets.

If you’re planning to do business here, you’re probably already thinking how you should set up your legal presence in the country.

Between a domestic corporation and a resident foreign corporation, which one is the best business structure for your needs?

Here are the key points that should factor into your decision.

Content Summary

✅ A domestic corporation in the Philippines can have up to 100% foreign ownership, as long as its business activities aren’t restricted by law.

✅ A resident foreign corporations has different types: branch office, representative office, regional headquarters, and regional operating headquarters.

✅ A domestic corporation is taxed on worldwide income, while a resident foreign corporation is taxed on income sourced within the Philippines.

✅ It can take longer to register a domestic corporation in the Philippines, compared to registering a resident foreign corporation.  

The key difference

A domestic corporation is a company incorporated under Philippine laws and registered with the Securities and Exchange Commission (SEC). It can be fully or partially owned by foreigners, depending on whether or not the industry is government-protected.

A resident foreign corporation, on the other hand, refers to an extension of the parent company based abroad. It isn’t a separate legal entity.

Resident foreign corporations can be classified as:

• Branch office. Can operate in the Philippines as a legal extension of the parent company, as long as it’s registered with the SEC. It can engage in income-generating activities and profits are subject to corporate income tax.
• Representative office. Cannot engage in income-generating activities but is still considered a resident foreign corporation for legal purposes. Limited to activities like liaison work, promotion, and market research.
• Regional headquarters (RHQ). Supervises, coordinates, and communicates with subsidiaries, affiliates, or branches of the parent company. Cannot earn income for the company.
• Regional operating headquarters (ROHQs). Can generate income at a limited capacity. ROHQs can only provide services to the parent company’s affiliates, branches, or subsidiaries. Additionally, these qualifying services must fall within specific categories allowed by law.

In general, the parent company is liable for obligations and liabilities for the branch office, representative office, and RHQ. But it bears limited liability for the ROHQ.

Ownership rules

A domestic corporation can have up to 100% foreign ownership, as long as its business activities aren’t restricted under the Foreign Investment Negative List (FINL).

For example, mass media, small-scale retail, and certain land-related industries are reserved for only Filipino businesses or have limits.

For a tabled breakdown of foreign investment restrictions, check out this blog post on FAQs about business registration in the Philippines. If you prefer reading it in its entirety, here’s the full text of the 12^th Regular FINL.

On the other hand, a resident foreign corporation is always 100% foreign-owned, since it’s simply a branch of a company already incorporated overseas. However, it can only perform activities that are explicitly approved during registration, as briefly discussed earlier.

Tax considerations

Things can get tricky when it comes to how corporations are taxed, but here’s a general overview.

• Domestic corporations are taxed on worldwide income. So, if you earn profit outside the Philippines under your Philippine-registered company, it would most likely be subject to taxation by the Bureau of Internal Revenue (BIR).
• Resident foreign corporations are taxed only on income sourced within the Philippines. This setup may be better if your business has a global presence and doesn’t entirely rely on revenue generated in the country. Just keep in mind that each type of resident foreign corporation will be taxed differently.
  • Branch office: Subject to income tax, VAT (if VAT-registered), and branch profit remittance tax.
  • Representative office: Subject to final tax on expat employees’ salaries.
  • Regional headquarters: Subject to final withholding tax on expat employees’ salaries.
  • Regional operating headquarters: Subject to corporate income tax, VAT (if VAT-registered), and withholding tax on employee compensation.

Tax incentives you may qualify for

The business structure you choose will be crucial if you plan to register with investment promotion agencies (IPA) like the Philippine Economic Zone Authority (PEZA), Tourism Infrastructure and Enterprise Zone Authority (TIEZA) or the Board of Investments (BOI).

Registering with these IPAs can give your company a business advantage, such as:

• Corporate income tax exemption for four to seven years, depending on the nature of business activities.
• Issuance of special visas with multiple entry for foreign investors and their immediate family.
• Expedited customs procedures for importation of equipment and materials.

Domestic corporations can be eligible for these incentives, if they operate in priority sectors like exporting, manufacturing, IT, or renewable energy.

Resident foreign corporations are generally not covered when it comes to these tax incentives and related perks — since the parent company is ultimately based overseas.

So, if your business strategy will heavily rely on government incentives, registering as a domestic corporation may make more sense.

For more information, check out our blog post on PEZA/BOI registration.

Business registration setup

Starting a domestic corporation involves incorporating locally, which can take longer since there’s no legal entity yet. You’ll need to:

• Appoint a board of directors, majority of whom must be Filipino residents.
• Meet minimum capital requirements, which can range from ₱5,000 (regular Filipino-owned corporation) to $US 200K (over 40% foreign equity) depending on foreign ownership mix and industry.

Meanwhile, setting up a resident foreign corporation is usually quicker. General registration requirements include:

• License to operate in the Philippines from SEC
• Appointment of resident agent
• Parent company’s incorporation documents and good standing in its home country

What makes sense for your business?

If you’re planning long-term operations in the Philippines, relying on government incentives, as well as local capital and labor, then a domestic corporation could be the best option.

If you want to test the waters in the Philippine market or provide support for your income-generating branches in the region, a resident foreign corporation may be suitable.

If you’re still mulling over which setup to pursue, why not get in touch with Loft?

Reach out to us using the form below for sound business registration solutions in the Philippines.

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