Many businesses start with a representative office, a great entry point into a new market. But as success grows, so can your ambitions. A recent client contacted us with a question we hear often: “Can we convert our Philippine representative office into a branch?” With the Philippine market booming, they were ready to take the next step. Thankfully, B.E.T.H. AI was there to help them navigate the process.
What’s the difference?
A representative office is like a support crew—it facilitates orders, conducts promotional activities, and provides quality control, but cannot directly earn income in the Philippines. On the other hand, a branch acts as a frontliner, engaging in trade and business activities locally, thus creating avenues for income, growth, and more extensive impact.
Why make the switch?
Upgrading from a representative office to a branch isn’t just a structural change; it’s an investment in the country’s future. By establishing a branch, foreign companies can bring in not just capital, but also technology transfer, local employment, and new skills for the workforce.
Navigating the Conversion Process
A representative office is one that deals directly with the clients of the head office. It has neither authorized capital nor assigned capital, but it must be fully subsidized by the head office. It is not allowed to derive income from the Philippines. Accordingly, it is not subject to any Philippine income tax.
Branch, on the other hand, refers to the operation of a foreign corporation doing business or engaging in trade of business in the Philippines. Similar to a subsidiary, a branch has the powers, attributes, and properties expressly authorized by law or incidental to its existence. The branch being merely considered an extension of its Head Office, it has no separate personality. Accordingly, the assets of the head office are exposed to the liabilities of the branch under the “single entity concept.” Here are some key requirements:
a. Licensing Requirements: The circular specifies the documentation required for foreign corporations to obtain a license to operate a branch office in the Philippines. This includes the submission of a Board Resolution authorizing the establishment of the branch, financial statements, and proof of inward remittance of the required capital.
b. Capital Requirements: It reiterates the minimum capital requirements for branch offices, which is generally set at US$200,000. However, this amount can be reduced to US$100,000 if the branch office engages in activities involving advanced technology or employs at least 50 direct employees c. Investment Requirement: It mandates the deposit of securities with the SEC within 60 days of license issuance, with an initial market value of at least Php 500,000. Additional securities are required if the branch’s gross income exceeds Php 10,000,000 or if the market value of the securities decreases by 10%.
The conversion process involves legal compliance and requirements set by the SEC, such as capital thresholds, documentation, and adherence to local business laws. While it might sound complex, the potential rewards—both for the company and the community—make it a smart move.
How we can HELP 💯
Babylon2k helps your businesses adapt, making them compliant to handle the conversion process. Utilizing our expertise in accounting and tax ensures that your business remains compliant while minimizing disruptions to your operations.
Whether you’re a small business, or a growing startup, Babylon2k provides tailored solutions to meet your business’s need, designed to simplify processes for you. Each service has a corresponding code (e.g., 110010, 110040) for our tax, accounting, and audit services.
B.E.T.H. can also help you when you need more information and clarification on how this conversion affects your business.
When you’re ready to start, simply sign in or request a quote and enter the relevant service code(s) to ensure we can connect you with the perfect Babylon2k specialist.
🗓️ Request a free consultation
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💡 P.S. This insight was brought to you by B.E.T.H. AI, empowering smarter business decisions.
