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Career Guide Set Up a Subsidiary Company in the Philippines for Employers

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Set Up a Subsidiary Company in the Philippines for Employers

Explore the ultimate guide for Singaporean companies looking to establish a subsidiary in the Philippines. Learn about the process, benefits, and key considerations for success.

Cindy Angelia

Updated Aug 7, 2024

For Singaporean companies looking to expand their operations, setting up a subsidiary in the Philippines can be a strategic choice.

With its advantageous location, skilled labor force, and welcoming business environment, the Philippines offers many opportunities for growth. Here's a detailed guide to help you understand the process and requirements.

What is a Subsidiary Company?

A subsidiary is a business entity that is owned and controlled by another company, known as the parent company or holding company.

The parent company may own the subsidiary partially or entirely. If the parent company holds more than 50% of the subsidiary's shares, it has controlling interest.

A wholly-owned subsidiary means the parent company owns 100% of the shares, without involving other shareholders.

Business Options for Foreign Investors in the Philippines

Foreign investors in the Philippines have several business structures to choose from:

Sole Proprietorship: This is the simplest structure but comes with personal liability for the business's debts.
Partnership: Two or more individuals share ownership and liability.
Corporation: This is a more common choice for foreign companies. It can be a domestic corporation, branch office, representative office, regional headquarters (RHQ), or regional operating headquarters (ROHQ).

Among these, subsidiaries and branch offices are popular options. A subsidiary operates as an independent entity, whereas a branch office is an extension of the parent company.

Subsidiary Company vs Branch Office

A branch office is not a separate entity but an extension of the parent company. It operates under the same business model as the parent company, and any liabilities are shared with the parent company.

Meanwhile, a subsidiary is a separate company with its own legal status. It can operate independently and may engage in different business activities than the parent company. Companies often choose a subsidiary if they want to operate independently or diversify their offerings.

Key Characteristics of a Subsidiary in the Philippines

Ownership

A subsidiary in the Philippines is considered a foreign-owned domestic corporation if more than 50% of its shares are held by a foreign entity.

If the subsidiary exports goods or services or earns over 60% of its revenue from abroad, it can be fully owned by foreigners. This type of subsidiary is classified as an Export Enterprise under the Foreign Investment Act. However, some types of subsidiaries may still need to partner with a local entity.

Legal Status

A subsidiary operates as a separate legal entity from its parent company under Philippine law. This means it functions independently, and its legal status is distinct from that of its parent company and its shareholders.

Liabilities

Because a subsidiary is legally distinct from its parent company, it is responsible for its own liabilities. These liabilities do not extend to the parent company or its shareholders.

Capital Requirements

In the Philippines, a subsidiary generally needs a minimum capital of approximately USD 200,000 (SGD 270,000).

If the company uses advanced technology and has at least 50 employees, this requirement can be reduced to USD 100,000 (SGD 135,000). For subsidiaries that are considered Export Enterprises, the capital requirement can be as low as PHP 5,000 (SGD 130).

Additionally, to operate, a subsidiary must have a corporate bank account. Most banks in the Philippines require an initial deposit of at least PHP 25,000 (SGD 650).

Set Up a Subsidiary: Legal and Administrative Steps

When establishing a subsidiary company in the Philippines, Singaporean employers must navigate several important registration steps to ensure they meet local legal requirements. Here's a detailed guide on what’s needed:

1. Securities and Exchange Commission (SEC) Registration

To operate legally in the Philippines, a subsidiary must first register with the Securities and Exchange Commission (SEC). Here’s what you need:

Business Name: The name must be unique and comply with SEC guidelines. It should not be already in use.
Articles of Incorporation: These documents must outline the purpose of the corporation clearly.
Capital Requirements: If the subsidiary has more than 40% foreign ownership, it must have a minimum paid-up capital of PHP 10 million (approximately SGD 250,000). If the subsidiary is involved in exporting, this requirement might be different. Proof of this capital being deposited into a Philippine bank account is also necessary.
Shareholder Information: List the shareholders, specify the number of shares they own, and detail the amount they are investing.
Incorporator Details: Provide personal information for each incorporator, including names, nationalities, addresses, and passport numbers. You need between 5 and 15 incorporators, with the majority being Philippine residents.
Treasurer-in-Trust: Appoint a Treasurer-in-Trust to manage the company’s finances.
Fees: Pay the registration fees, which include approximately 0.2% of the authorized capital stock for filing, 1% for SEC legal research fees, and PHP 210 (around SGD 5.50) for registering the subsidiary's by-laws.

2. Bureau of Internal Revenue (BIR) Registration

After securing SEC registration, the subsidiary must register with the Bureau of Internal Revenue (BIR). This step is essential for managing tax obligations.

3. Local Government Unit (LGU) Registration

The subsidiary also needs to obtain local business permits from the Local Government Unit (LGU) where the business will be operating. This ensures compliance with local regulations and zoning laws.

4. Social Security System (SSS), PhilHealth, and Pag-IBIG Fund Registration

To properly handle employee benefits and contributions, the subsidiary must register with the Social Security System (SSS), PhilHealth, and the Pag-IBIG Fund. This ensures that the subsidiary meets all requirements related to employee social security, health insurance, and housing fund contributions.

For additional information on employee benefits and setting up payroll in the Philippines, check resources on Employee Benefits and Compensation and How to Set Up Payroll in the Philippines.

Benefits and Challenges of Setting Up a Subsidiary

Benefits

1. Distinct Legal Entity

A subsidiary operates as its own separate legal entity, distinct from the parent company and its owners. This means that any debts or liabilities are the responsibility of the subsidiary alone.

2. Strategic Location

The Philippines is strategically positioned in Southeast Asia, providing access to the vibrant ASEAN market and millions of potential customers.

3. English Skills and Cultural Fit

English is widely spoken in the Philippines, and many skilled professionals are fluent in the language. Additionally, the cultural similarities with Western countries can make business interactions smoother for foreign investors.

4. Economic Stability and Growth

The Philippines has shown consistent economic growth, with a GDP increase averaging around 6% in recent years. This demonstrates economic stability and resilience even in uncertain global conditions.

5. Skilled Workforce at Affordable Costs

The country is known for its young, educated, and large workforce, especially in sectors like virtual assistance, customer service, IT-BPM (Information Technology-Business Process Management), engineering, healthcare, and creative industries. Labor costs are also competitive compared to many other regions.

Challenges

1. Complex Tax System

Subsidiaries are required to pay taxes on their worldwide income. They also need to handle additional taxes, such as those on dividends paid to non-resident shareholders, documentary stamp taxes, and a 10% improperly accumulated earnings tax.

2. Complicated Registration Process

Registering a subsidiary involves navigating a complex process similar to that of a domestic corporation in the Philippines. This can be time-consuming and requires thorough attention to detail.

3. Infrastructure Issues

Although infrastructure is improving, some regions in the Philippines still face challenges such as poor transportation, occasional power outages, and limited internet connectivity, which could impact business operations.

4. Employment Law Differences

The Philippines’ labor laws, governed by the Labor Code, can differ significantly from those in Singapore. Managers of the subsidiary need to be familiar with these local employment regulations to ensure compliance.

FAQ

What is the difference between affiliate and subsidiary in the Philippines?

In the Philippines, an affiliate and a subsidiary are distinct in terms of ownership and control. An affiliate is a company in which another company owns a significant but non-controlling stake, typically less than 50%.

It operates independently but has a strategic or financial relationship with the parent company. On the other hand, a subsidiary is a company where the parent company holds a majority ownership stake (more than 50%), giving it control over the subsidiary's operations and decision-making processes.

The subsidiary is legally separate but closely controlled by the parent company, often sharing resources and aligning with the parent’s strategic goals.

What is the difference between branch and subsidiary in the Philippines?

In the Philippines, a branch and a subsidiary are distinct types of business entities for foreign companies. A branch office is an extension of the parent company and does not have a separate legal identity. It operates directly under the name of the parent company and is subject to the same legal and financial responsibilities.

On the other hand, a subsidiary is a separate legal entity incorporated in the Philippines. It has its own legal identity, distinct from its parent company, and can engage in business activities under its own name. A subsidiary's liability is limited to its assets, whereas a branch's liabilities are directly tied to the parent company.

Try Epicareer for Employers to search Filipino talents in Customer Service, Virtual Assistant, Call Center Agent, and Business Development.

Cindy Angelia

Talent Acquisition Manager

With a strong background in HR and talent management, I am passionate about creating positive candidate experiences and fostering a culture of growth and development. My strategic approach to recruitment ensures we attract and retain the best professionals in the industry.

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