Verify and reserve your company name with the Securities and Exchange A subsidiary is subject to corporate income
porate income tax of 30% of its taxable income from
Commission (SEC) all sources within and outside the Philippines.
Deposit your paid-in minimum capital at the bank
Notarize your treasurer’s affidavit and articles of incorporation at the INCORPORATION PROCESS
notary
Get your pre-registered Taxpayer Identification Number (TIN) after
registering your company with the SEC File the following with the SEC:
Get your barangay clearance
Go to the City Treasurer’s Office (CTO) to get your community tax Articles of Incorporation and By-Laws
certificate (CTC) and pay your annual community tax
Obtain a business permit to operate from the BPLO Name Verification Slip (reserving a Corporation Name) and
Buy special books of account at a bookstore in the Philippines
And much more
Treasurer's Affidavit*
o *Note: Pursuant to the Revised Corporation Code, the
The entire process typically takes 29 days and costs about PHP 7,630. If you
choose to set up this type of Philippines subsidiary, you should budget the time corporation is now required to declare in its Articles of
and money necessary to complete the process. Incorporation that the Treasurer-in-trust has certified that the
information with respect to the capital structure of the
corporation is correct and that the paid-up portion of the
To apply for incorporation, the incorporators must access
subscription in cash for the benefit and credit of the corporation
online https://crs.sec.gov.ph and fill in an application form. The availability of the
has been duly received. This declaration removes the
name is verified online by filing the application. The required documents are
requirement of a Treasurer’s Affidavit. We note, however, that
uploaded to the SEC system and upon approval, an email is sent to the applicant.
the SEC has yet to issue guidelines on incorporation requirements
Upon payment of fees and presentation of proof of payment, the applicant then
pursuant to these changes brought about by the Revised
submits the original signed and notarized documents to the SEC onsite.
Corporation Code.
Further to this, a Certificate of Deposit issued by a bank showing that the
Subsidiary paid-up capital portion of the authorized capital stock is duly deposited in
this bank is generally not required by the SEC. However, the deposit must
A subsidiary is a domestic entity (that is, incorporated in the Philippines) and
be completed and available to be in compliance with applicable law. It is
subject to Philippine laws in all aspects. It can engage in the activities allowed by
recommended to obtain the bank certificate for ease of processing of the
the SEC, as shown in its SEC-approved articles of incorporation.
incorporation.
A subsidiary has a separate legal personality. A claim or judgment obtained Basic filing fee in the amount of 1/5 of 1% of the authorized capital stock
against the subsidiary can only be satisfied from the assets of the subsidiary. Its of the proposed company or the subscription price of the subscribed
shareholders are liable only to the extent of their capital contribution in the
capital stock, whichever is higher, plus an additional amount of 1% of the
subsidiary.
basic filing fee for legal research fund, which in no case should be less
than PHP2,000
HOW TO FORM 15 percent under domestic law, subject to conditions. Typical charter
documents: articles of incorporation and bylaws
Two or more persons (but not exceeding 15) must act as incorporators Shares are either common (always voting) or preferred (voting or non-
and sign the articles of incorporation of the subsidiary voting)
Any person, partnership, association or corporation singly or jointly may Reportorial requirements to be submitted to the SEC annually, including
organize a corporation for any lawful purpose. Previously, only natural Audited Financial Statements (AFS)
persons may act as incorporators. The Revised Corporation Code has
removed the minimum requirement of five incorporators but has MINIMUM CAPITAL REQUIREMENT
retained 15 as the maximum number of incorporators. The SEC rules,
US$200,000 equity capital for domestic market enterprise, or US$100,000
however, provide that the minimum number of incorporators is two
paid-in capital if:
(except for OPC which is one). Not more than 15 natural persons should
Involved in advanced technology as determined and certified by the
act as directors
Philippines' Department of Science and Technology (DOST) or
There is no limitation on the number of shareholders. However, if the
Employs at least 50 direct employees (Filipino personnel) as certified by
subsidiary would sell/issue shares of stock to more than 19 persons
the appropriate regional office of the Department of Labor and
during a 12-month period, it must register its securities with the
Employment (DOLE)
Philippines Securities and Exchange Commission (SEC). If the issuance
Above minimum capitalization requirement is not applicable if the
would be to less than 20 persons (who are not existing shareholders) in a
subsidiary intends to export more than 60% of its products, in this case
12-month period, in lieu of registration, a notice of exemption may be
the company will be incorporated as an export market enterprise
filed with the SEC
Generally no personal liability of shareholders LEGAL LIABILITY
Taxed at 30 percent of its taxable income from all sources within and
without of the Philippines or, beginning on the fourth taxable year, A corporation has a personality separate and distinct from its individual
immediately following the year in which such corporation commenced its stockholders. Liability of stockholders is limited only to the extent of their capital
business operations, two percent of its gross income from all sources contribution. However, the privilege of being considered as a separate and
within and without of the Philippines, whichever is higher. The Philippines distinct entity is confined to limited uses. Should this be exercised for fraudulent,
is presently implementing tax reform in phases and expects to pass a new unfair or illegal purposes (ie, evade taxes, escape liabilities to third parties,
tax reform bill which will lower the corporate income tax rate. Dividends confuse legitimate issues of employer-employee relationship, protect fraud, etc.),
received by a nonresident foreign corporation from a Philippines the veil of corporate entity may be pierced, and the stockholder may then be held
subsidiary are subject to 30 percent withholding tax, subject to reduction personally liable.
pursuant to applicable tax treaties or to the dividends tax sparing rate of
TAX PRESENCE It is required to file an Annual Income Tax Return for subsidiaries, branch offices,
regional operating headquarters and partnerships. ORPORATE
Subject to corporate income tax for income from sources within and out
of the Philippines Representative offices and regional/area headquarters are also required to file an
Also subject to value-added tax (VAT) for gross receipts derived from Annual Income Tax Return and zero income has to be declared.
sale, barter or exchange of goods or properties/services rendered in the
Philippines BUSINESS REGISTRATION FILING REQUIREMENTS
Also subject to local business taxes
Must secure business permits from the local government unit where it is located
Dividends received by the foreign entity/head office from its subsidiary
and register with the Bureau of Internal Revenue (BIR), Social Security System
are subject to withholding tax without prejudice to applicable treaties
(SSS), Philhealth and Pag-Ibig.
and domestic law provision, allowing the dividends tax sparing rate of 15
percent subject to conditions BUSINESS EXPANSION
Generally not applicable. Exception is a subsidiary where Articles of Incorporation
BUSINESS RECOGNITION
must be amended and filed with the SEC when authorized capital stock is
increased.
Being a separate and distinct legal entity from its parent company, it is an
attractive investment option for foreign entities wishing to do business in the
EXIT STRATEGY
Philippines.
A voluntary dissolution may be effected by amending the articles of
SHAREHOLDER MEETING REQUIREMENTS
incorporation to shorten the corporate term or provide for a fixed
corporate term. This requires a majority vote of the board of directors
Generally not applicable. Exception is a subsidiary where it is required to hold an
ratified by stockholders owning at least two-thirds of the outstanding
annual stockholders' meeting to vote on certain matters, such as election of
capital stock. Company is deemed dissolved upon approval of the
directors.
amended articles of incorporation by the SEC. Under the RCC,
BOARD OF DIRECTOR MEETING REQUIREMENTS corporations have a perpetual existence unless the articles of
incorporation provide otherwise.
Generally not applicable. Exception is a subsidiary where regular meetings of the A voluntary dissolution where no creditors are affected may be effected
board of directors must be held monthly, unless by-laws provide otherwise. by a majority vote of the board of directors and by a resolution duly
adopted by the affirmative vote of the stockholders owning at least two-
ANNUAL COMPANY TAX RETURNS thirds of the outstanding capital stock. A notice of stockholders' meeting
is required to be published for three consecutive weeks in a newspaper minimum capital stock requirement. Unlike an ordinary corporation,
published in a location where the principal office of a company is located. however, an OPC is not required to submit corporate by-laws.
In case none is available, then in a newspaper of general circulation. The The single stockholder serves as the sole director and president of the
application for dissolution must be submitted to the SEC. OPC. The OPC is required to appoint a treasurer, corporate secretary and
Voluntary dissolution where creditors are affected: file Petition for other officers as necessary within 15 days from the issuance of its
Dissolution with the SEC.File necessary documents with other certificate of incorporation. However, the single stockholder is proscribed
government agencies where the subsidiaries hold permits/registrations. from being appointed as the corporate secretary.
The single stockholder is required to designate a nominee and an
DIRECTOR / OFFICER REQUIREMENTS alternate nominee who shall take his place as director in the event of
his death or incapacity. The extent and limitations of the authority of the
Generally not applicable.As an exception in subsidiary there must be:
nominee and alternate nominee shall be stated in the articles of
No more than 15 directors , each of whom must own at least one share in
incorporation. The nominee and alternate nominee may be changed at
the capital stock of the corporation registered in his or her name in the
any time and without need of amendment of the articles of
books of the company
incorporation.
At least 3 officers:President, who must be a director,Treasurer, who
In case of death or permanent incapacity, the nominee shall sit as director
must be a Philippine resident andSecretary, who must be a resident and
only until the legal heirs of the single stockholder have been lawfully
citizen of the Philippines
determined, and the heirs have designated one of them or have agreed
that the estate shall be the single stockholder.
LOCAL CORPORATE SECRETARY REQUIREMENT
In lieu of meetings, a written resolution signed and dated by the single
Not applicable in general. Exception is a subsidiary that must have a secretary stockholder and recorded in the minutes book shall be sufficient when
who must be a resident and a citizen of the Philippines. The OPC is also required action is needed on any matter. Aside from the minutes book, the OPC
to have a secretary. shall also be required to submit reportorial requirements. Failure to
submit such requirements three times within a period of five years may
place the OPC under delinquent status.
ONE PERSON CORPORATION The reportorial requirements are as follows:
The Revised Corporation Code introduced the new concept of a one Annual financial statements
person corporation (OPC) which is defined as "a corporation with a single A report containing explanations or comments by the president on every
stockholder." This corporation may only be formed by a natural person, qualification, reservation, or adverse remark or disclaimer made by the
trust, or an estate. Similar to ordinary corporations, an OPC has no auditor in the latter's report
A disclosure of all self-dealings and related party transactions and A potential implication of the OPC regime is its possible use by new and
existing business owners as a mode of tax avoidance, in particular with
Other reports required by the SEC
respect to imposition of improperly accumulated earnings tax (IAET). The
IAET is essentially a penalty (a 10% levy) imposed on corporations that
The new law allows the conversion from an ordinary corporation to an OPC and have improperly accumulated taxable income. The IAET serves as a
from an OPC to an ordinary stock corporation. An ordinary stock corporation may deterrent to the avoidance of tax for shareholders who are supposed to
be converted to an OPC when the single stockholder acquires all the stocks of an be taxed on their dividends distributed from the company’s profits.
Basically, if a company’s earnings are distributed to its shareholders, then
ordinary stock corporation and files an application for conversion with the SEC. An
these shareholders are eventually liable for income tax on these
OPC may be converted into an ordinary stock corporation after due notice to the dividends, whereas if the company retains its earnings, shareholders
SEC of such fact and of the circumstances leading to the conversion. One such would not be liable for income tax on these undistributed profits.
circumstance provided by the law is the death of the single stockholder. In such a Businesses may avoid imposition of the IAET if they are able to reasonably
justify the accumulation of income for an immediate need, for instance in
case, the legal heirs may decide to either wind up and dissolve the OPC or convert
anticipation of a future capital expenditure or to satisfy the rules for
it into an ordinary stock corporation. retaining earnings as required by law or applicable regulation.
To incorporate, an OPC needs to submit only its Articles of Incorporation,
which sets forth among others a primary purpose, principal office
address, term of existence, names and details of the single stockholder,
the nominee and alternate nominee, and the authorized, subscribed and
paid-up capital.
When the single stockholder assumes the position of the treasurer, an OPC must
post a surety bond, computed based on its authorized capital stock and subject to
renewal every two years, or as may be required, upon review of its annual
financial statements.
At the minimum, an OPC with authorized capital stock of up to P250,000 will have
to give a bond of P250,000. The bond shall be equal to the authorized capital
stock when the latter breaches P5 million.
