Branch vs.

Subsidiary Corporation

As to Taxability
Branch

Subsidiary (Domestic Corporation)

1. Subject to income tax only on

Philippine source income

1. Subject to income tax on worldwide

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.

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 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

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

Subsidiary (Domestic Corporation)

Subsidiaries are not required to deposit
securities with the SEC.

of 2% of the amount by which the branch

offices gross income exceeds five (5)
million pesos

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
applicants 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:
o

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

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

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.
o

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 branchs operations

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 Treasurerin-Trust
appointed
by
the
subscribers.
7. Pay
the
filing
fee
for
the
registration
which
will
be
approximately
0.2%
of
the
subsidiarys
authorized
capital
stock, plus 1% of such SEC fee for
the SEC legal research fees and
P210.00 for the registration of the
subsidiarys by-laws.