Setting up a business entity in the Philippines may either be to do business with local parties or to facilitate arrangements with foreign clients, partners, and suppliers who have no presence in the Philippines. As local companies are often requested to provide orientations on and introduce foreign principal companies to interested parties of the same line of business, it has become a popular arrangement for a foreign principal company opting to have a representative office in the Philippines. With the establishment of a number of economic zones, the Philippines offers a generally suitable climate for business entities to establish a convenient base of operation without having to engage in local business entities to facilitate its economic and business activities. If you’re looking to establish a representative office in the Philippines, our firm can help.
Overview of FCB Law Services
Aside from recognition obtained in their respective fields in the practice of law, through their regular and active involvement and strong related competencies, firmly developed with experience among any of the earliest firms established in the country, members of the firm strive to respond to the increasing challenges of the rapidly changing business and regulatory environments. They possess a strong commitment to the highest standards of legal ethics and professional responsibility and are dedicated to offer and deliver services founded upon ethical and quality legal practice. The same are grounded on the client’s best practical interests and are custom-fitted upon the demands and objectives of the clients. For more information and a consultation on representative office Philippines, contact our team.
Understanding Representative Offices
In addition, the representative office’s activities are limited to those that do not interfere with the activities of a head office or require it to obtain an appropriate type of business visa or work permit.
The representative office is established for the purpose of performing efficiency and e-marketing services to their head offices overseas. These services include acting as a communication center between the parent company for market information sharing and dissemination, serving as a promotional center to communicate with prospective Philippine customers and disseminate information about the company’s products, services, and activities, providing corporate advice and services in areas such as product support to customers in the Philippines, and providing information to its clients in the Philippines about their head office’s products and services, etc.
The role of the representative office is to act as a liaison office between the parent company and its clients, suppliers, and customers in the Philippines. It is strictly prohibited from conducting sales activities, documentation processes, and services for established businesses in the Philippines, such as issuing checks, receiving payments, and signing documents containing contracts.
It is important for foreign investors to understand the distinction between the different entry modes available in the Philippines, which are the representative office, branch office, regional headquarters, joint venture arrangement, and domestic corporation. Establishing a Philippine representative office may be a daunting task, but our team is well-equipped to help.
Definition and Purpose
The services are limited to those mentioned above, and a representative office is strictly prohibited from engaging in business operations in the Philippines, such as selling and distribution functions, even on a non-profit basis. The representative office cannot draw contracts in the name of the head office and shall be prohibited from soliciting or making any sale or offer for any sale in connection with any investment, including things like books, most pharmaceutical products, food, cosmetics, and motor vehicles.
A representative office is an entity allowed to engage in limited non-profit generating activities. It is a cost-effective entry vehicle for foreign entities that merely need to carry out marketing and promotional activities for the goods or services sold by its mother company (head office). The representative office has limited roles and functions in the Philippines that are largely confined to market representation, such as information dissemination, product/service promotion, quality control, and gathering data and information on potential clients. Aside from the benefit of having market presence in the Philippines, it can also give the head office a feel for the local business climate and establish close and personal links with various clients, suppliers, and other business partners.
Legal Framework in the Philippines
The main enabling law is E.O. 226, otherwise known as the Omnibus Investments Code. Foreign investments are welcome, and there are no restrictions on the extent of foreign equity within certain areas of investment. The exceptions to the general rule include national defense and security, the practice of the licensed professions, and the operation of public utilities. The activities of foreign investment in the Philippines are set out in the Revised Foreign Investment Negative List, which is periodically updated.
A foreign corporation wishing to establish a representative office in the Philippines is authorized under E.O. No. 226 otherwise known as “the Omnibus Investments Code” and its Implementing Rules and Regulations. These Rules and Regulations are further qualified by Memorandum Order No. 100. In general, a representative office is established to handle liaison functions and to engage in and promote export sales. It is not allowed to derive income from sources within the Philippines, and its activities need the prior approval of the appropriate government agency.
Key Regulations and Requirements
Moreover, the authority to establish a representative office is subject to limitations imposed by the Philippine Constitution and existing treaties and international obligations. Generally, the principal duties which a representative office may exercise relate to information dissemination and public relations, acting as a communication and coordinating office for the activities of its parent company, or engaging in quality control or checking goods that are for export. Regulatory compliance and government accreditations required of the new company are as follows: SEC registration and BIR tax registration; Barangay Clearance/Permit; Mayor’s Permit; PAG-IBIG, PhilHealth, and SSS Registration; and SEC Certificate of Authority to Employ Aliens.
To open a representative office, the foreign corporation must first register this office with the Department of Trade and Industry under the Foreign Investment Act Rules. The representative office must neither participate in any local business nor derive income from local sources. To qualify to operate in the Philippines, the foreign corporation must be existing and operational, solvent and in good standing, and must have a minimum prescribed capital determined by the SEC, depending on the principal function of the foreign corporation and higher if the foreign entity avails of incentives under corresponding laws.
FCB Law Expertise in Handling Law Cases
Among our cases handled, among others, pose special concerns such as family arguments, labor disputes, intellectual property and infringement lawsuits for cancellation. Corporate counsel handle the management of various companies, such as partnerships, private companies, organized organizations, and domestic and foreign corporations, with its emphasis on corporate law and meets client requirements. Our other specialties are the acquisition or closing of businesses or protection from their buyers or sellers, or invigoration or restructuring, bankruptcy or dissolutions of business entities, and regulatory compliance.
We pride ourselves in being skilled in handling law cases, particularly for disputes in various areas of practice. We have an excellent track record in cases handled by the top lawyers tailor-fitted to the client and its specific requirements. Our firm is civil-law inclined yet has entered generally into the two categories of lawyers, and for the law cases we have handled, they either involved litigation, defend clients in the trial court, and argue appeals.
Power and energy cover the following: finance, construction, operation, corporate organization, and administrative regulation of build-operate-transfer, power purchase and sale, resource pooling and energy sharing, exploration, development, and situation deals for oil, gas, hydro, coal, wind, biomass, solar, and geothermal projects and electricity exchanges; production, transportation, distribution, and delivery of electricity, petroleum, and petrochemicals; generation, transmission, and distribution of electric power; air transport, sea transport, land transport (including toll way), terminal, logistics, multimodality, and project finance for toll way and port projects, acquisition and operation of intermodal and logistics facilities, operation of cruise ships, shipping agents, freight forwarders, and carriers.
General corporate practice includes, among others, the formation, registration, joint ventures, dissolution, and liquidation of corporations and partnerships and other business organizations; corporate secretarial duties; compliance with reportorial and other responsibilities demanded of local and foreign corporations; merger, de-merger, and reorganization of business organizations. Special practice involving IP rights is offered by registration of patents, trademarks, and copyrights; acts of infringement; assignment, license, and mortgage of trademarks, patents, and copyrights; and consultation in technology transfer, licensing, royalty, and franchising arrangements. Japanese companies and individuals act as manufacturers’ and exporters’ representatives, constructors and contractors of infrastructure projects; spare parts, heavy machinery, and industrial equipment suppliers and distributors; service center of Japanese consumer products; licensors under licensing and franchising arrangements.
When establishing a representative office is your option, it is paramount that some practical advice needs to be seriously considered. Business purpose and long-term plans are the most important components to be clearly defined, checked, and rechecked against Philippine laws that regulate representative offices before any further action is taken. Always remember that sooner or later, a representative office will need to incorporate a regular subsidiary or a branch office. With the processing time taking about 5 to 6 months, the said entity will become operational ultimately. When that time comes, will the present authorized representative or manager or operator be qualified to be the head of the domestic subsidiary or branch office? If not, consider what penalties you might face and be ready to face them. Ensure that you are always compliant with Philippine laws. Prepare now for the future.
Starting a business with only a representative office is certainly not the most ideal choice. However, it is sometimes the more practical one, especially for those foreign corporations whose business purposes are rooted in non-revenue generating activities, such as liaison activities or business coordination with an affiliate company. Unfamiliarity with certain procedures and/or warped concepts leading to fictitious corporate structures and unrealistic business documents, as well as hastily formulated conclusions and decisions, have resulted in huge monetary losses in some of these cases. To ensure that the process from start to finish runs smoothly, it is advisable to seek the assistance of a knowledgeable consultant or a law firm with expertise in this particular matter.
