By: Tax and Accounting Center Philippines
Business process outsourcing (BPO), knowledge process outsourcing (KPO) or back support operations in Philippines is a stronghold industry in the Philippines taking into account the qualifications of Filipino manpower, the English speaking, work quality, the culture, and the work environment, among others. For the purpose, there could be some options on the type of legal entity to set-up for the purpose and one of which is the Philippine Branch where the legal entity of the foreign company abroad (e.g. Australia, Singapore, United States of America, etc.) is secured a License to Do Business in the Philippines as a Branch Office.
Taxation of BPO under Branch Office set-up in Philippines
A Philippine branch office is by nature a profit oriented entity that could operate similar to a local company in the Philippines. For tax purposes, it is subject to the following:
It is however subject to withholding taxes on its income payments and compensation, and could be passed on 12% value added tax on its purchases from VAT-registered suppliers.
To manage the above tax liabilities, the business process outsourcing in the Philippines under Branch Office set-up could opt to locate in an IT Zone or IT Part accredited by Philippine Economic Zone Authority (PEZA) and register for tax incentives as follows:
Capitalization of BPO under Branch Office in Philippines
As business process outsourcing operations are export oriented where at least 60% of its output are exported to clients abroad, its required capitalization would depend on its reasonable needs, e.g. working capitalization requirements. Such preferred capitalization is required to inwardly remit its initial capitalization to the Philippines through the treasurer-in-trust account it could set-up for the purpose and the bank will issue Certificate of Inward Remittance and Certificate of Deposit as proof of capitalization that SEC will require submission.
Appointment of Resident Agent of Branch Office in Philippines
A BPO under branch office set-up in Philippines is likewise required to appoint a resident agent on whom summons and other legal processes against the same may be served in all actions or other legal proceedings against the Company. Resident agent could be a resident local or foreign individual, or a domestic corporation. Read more about Resident Agent in the Philippines…
Requirements for License to Do Business in Philippines
To secure Securities and Exchange Commission (SEC) approval of the License to do Business in the Philippines of a Philippine Branch office of foreign corporation, you need to have the following documentary requirements:
Basic SEC Requirements
SEC in the Philippines has a set of prescribed forms for some of the above documentary requirements that you may either do it yourself or secure the assistance of experienced professionals.
SEC application and approval of License to do Business in the Philippines
Initial registration papers carefully prepared for the purpose will undergo initial evaluation of the SEC online through the Company Registration System (CRS), and finding the same in order will be assessed filing and other fees based on the proposed capitalization. Payment of the filing and other fees marks the formal filing of the application and normal approval procedures would immediately follow. Approval normally comes in a couple of days to about ten (10) days and once approved, the branch office can initially commence its operations such as hiring employees, setting-up physical office, and etc.
Security Deposit for Branch Office in Philippines
Within sixty (60) days from SEC approval, the business process outsourcing in the Philippines under Branch Office set-up is required a security deposit of at least PhP500,000.00. Please read more about Security Deposit of branch Office in Philippines…
Tax Authority Registration
SEC will assign a tax identification number (TIN) upon release of the License to do Business in the Philippines and such TIN shall be formally registered with the Bureau of Internal Revenue (BIR). Certain registration fees and taxes will be paid and other registrations for books of accounts, and official receipts or invoices will follow.
Business Permits & Licenses
For the legality of its local operations, business permit has to be secured with the local government unit of business location. Certain fees and other registrations are likewise required such as community tax certificate, barangay clearance, fire permit, occupancy permit, and the likes.
Employee safeguards registrations
Employer registration with the Social Security System (SSS), Philippine health Insurance Corporation (Philhealth), and Home Development Mutual Fund (HDMF) is likewise mandatory and will proceed independent of the above.
PEZA Registration of Branch Office in Philippines
In case you opt for tax incentives and decided to register with Philippine Economic Zone Authority, you can commence this process simultaneously with the SEC registration. Certain documents and forms will be required by PEZA and evaluation will be made on such documentary requirements while SEC registration is ongoing. PEZA approval will be released after SEC approval is released. Alternatively, you can opt to process PEZA registration after all other registrations are completed.
Complete Processing Timetable
With the improved processing system of the government agencies, complete processing of the above will take three (3) to four (4) weeks from filing with the Securities and Exchange Commission. We suggest you secure the services of professionals to assist you in the complete registration of your Philippine Company that you may be able to simply concentrate on operational matters.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.
8 Ways to Get New Quality Clients for Ph CPA Practitioners
How to Record Foreign Currency Denominated Transactions in the Philippines?
Why Should You Withhold Taxes on Payments to Digital Freelancers in the Philippines?
Business Registration and Compliance: The Philippine Digital Freelancer’s Milestone to a Long-term Business
Tax Incentives of existing PEZA, BOI, etc. entities under RA 11534 CREATE Philippines
Vetoed Provisions of RA 11534 CREATE
RMC No. 29-2021: Adoption of e-Signature on Certain BIR Forms
Webinar: Input VAT Refund
2022 Tax and Accounting Online Conference
Webinar: Withholding Taxes, Subjects & Applications
Webinar on Corporate Entity Registration & Business Compliance: The start of a long-term business
Webinar: Winning BIR Tax Assessment and Preparing Effective Tax Protest
Live Webinar on Ph Payroll Computation and Taxation
Live Webinar: Value Added Tax: In and Out
Live Webinar: PEZA Registered Entities: Taxation and Basic Reports
Live Webinar: Basic Accounting & Tax Compliance for Digital Freelancers & Other Professionals Under 8% Tax Scheme
Phone : (02) 5310-2239
Mobile : Smart: 0921-343-2024
Email : info(@)taxacctgcenter.ph
© Tax and Accounting Center 2022. All Rights Reserved