This is part two of our 2-part series on bringing your business to the Philippines.
If you already have a corporation back home, and are merely looking to expand, then your best bet is to set up a branch office.
A branch office is considered a legal extension of the parent company, can engage in the same income generating activities, and as its representative, close sales in its own name. Being the legal representative also makes the parent company legally liable for any liability of the branch in excess of its investment.
Initial investment required is $200,000 if foreign interest exceeds 40%, but may be lowered to $100,000 if advanced technology is involved, or you employ more than 50 people. Corporate taxes are derived from income sourced within and without the Philippines at 30%. After four years of operation, a 2% MCIT will be imposed if the gross taxable income is higher than the 30% already imposed. Again, this is computed without PEZA tax breaks.
Branch remittances are subject to a 15% of profits earmarked for remittance to the home office (except for activities done within the PEZA site). However, any income derived by the branch office, which is not connected to Philippine based activities, can be remitted tax free back to the home office. Again, taxes are a little hard to figure out on your own, so with investments this big it’s best to lawyer up.
If you have a startup at home and would like to leverage the lower labor costs along with having an international presence, this is the best way to go. Your movements aren’t limited, you can scale your company as big as you can afford to, without ever having to partner up with a local. However, this option does require that you establish a legal company at home. So make sure you build an empire at home, before looking to expand to the Philippines.
Having a representative office is probably the cheapest and best option if you just want to outsource the back-end of your office. Representative Offices are limited to acting as liaisons, business process optimization hubs, and may not engage in product creation, nor derive income from the Philippines.
Capital investment is only at $30,000, and since representative offices do not engage in income generating activities, they do not have to pay any taxes.
This option is ideal for start-ups who want to cut costs by outsourcing their administrative offices, but want to keep their core businesses to themselves. It’s also a great way for you to try out outsourcing without investing a lot of money. Staying with traditional BPO and semi-KPO work also allows you to gauge the level of talent available in the area for your type of business, and makes it easier for you to scale up should you decide to get bigger.
Also read: OTTP007 – How To Build A Virtual Team And Set-Up Shop In The Philippines, With Jared Croslow