How to Set Up a Subsidiary Company in Philippines?

Expanding into the Philippines through a subsidiary is a strategic move for companies aiming to access Southeast Asia’s rapidly growing market. A subsidiary in the Philippines is treated as a separate legal entity. This allows foreign parent companies to limit liability while enjoying operational independence and potential tax benefits.

The Philippines offers a business-friendly environment, particularly for sectors like IT-BPO, manufacturing, e-commerce, and renewable energy. The country is well-positioned for international expansion with English as an official language, a highly educated workforce, and a young, tech-savvy population.

Key Takeaways

• In the Philippines, 100% foreign ownership is permitted in most business sectors.
• Corporate income tax rates range from 20% to 25%, depending on the size and nature of the business.
• Businesses can benefit from attractive tax incentives through agencies such as PEZA and BOI, as well as under the CREATE Law.
• A physical office address is required to complete business registration in the Philippines.
• Subsidiaries established in the Philippines are legally considered domestic corporations.
• The registration process typically takes between 4 to 8 weeks and involves manageable capital requirements.

In this guide, we’ll walk you through setting up a subsidiary company in the Philippines, from choosing the right structure to understanding tax rules, compliance, banking, and more.

What are the Types of Subsidiaries in the Philippines?

When a foreign company enters the Philippine market, it often establishes a subsidiary. A subsidiary is a separate legal entity registered under Philippine laws that can be structured differently based on ownership and control. Below are the types of subsidiaries available in Philippines:

1. Wholly-Owned Subsidiary

The foreign parent company owns this type of subsidiary. It operates as a separate entity, meaning its liabilities and legal obligations are distinct from the parent firm. It is usually incorporated as a domestic corporation.

Key Features:

• Full control by the parent company
• Can freely repatriate profits, subject to applicable taxes
• Must comply with the Philippine Corporation Code

Ideal for: Businesses that want full autonomy in operations and decision-making.

2. Joint Venture Subsidiary

A joint venture involves a partnership between a foreign company and one or more local entities. In the Philippines, this is typically registered as a corporation with shared ownership between Filipino and foreign shareholders.

Key Features:

• Shared risks, profits, and management responsibilities
• Required for sectors restricted to foreign ownership (e.g., media, retail)

Ideal for: Companies entering regulated industries or seeking local expertise.

3. Affiliate or Minority-Owned Subsidiary

In this structure, the foreign company owns less than half of the equity. It has limited influence on decision-making and is often used to test the market or enter strategic alliances.

Key Features:

• Limited control over operations
• Lower exposure to risk
• Easier entry into highly regulated sectors

Gaining information about these is essential when figuring out how to set up a parent company with subsidiaries in the Philippines.

Step-by-Step Guide to Setting Up a Subsidiary in the Philippines

Setting up a subsidiary in the Philippines requires a complete plan of action and structure. Here is a clear, actionable process to help you when you are setting up a subsidiary company in the Philippines:

Step 1: Choose a Legal Structure

Most subsidiaries are registered as domestic corporations, a preferred structure for foreign investors seeking operational independence.

Step 2: Reserve the Company Name

Use the SEC’s Company Registration System (CRS) to verify and reserve a unique company name. This name must not conflict with existing businesses.

Step 3: Draft and Notarize Incorporation Documents

Prepare the following:

• Articles of incorporation and By-laws outlining the business structure and operational rules
• Treasurer’s Affidavit affirming that the minimum capital has been subscribed and paid
• Joint undertaking to comply with SEC and Philippine laws
• Proof of foreign remittance (for foreign capital)

If the parent company is incorporated abroad, you will also need:

• Board Resolution approving the setup of the subsidiary
• Authenticated corporate documents from the parent company

Step 4: Submit to the SEC

Submit all documents via the SEC online portal or in person. Once approved, the SEC will issue a Certificate of Incorporation.

Step 5: Register with the Local Government Units (LGUs)

• Barangay Clearance: Required from the local community office where the office is located
• Mayor’s Business Permit: Issued by the city or municipal hall after health, fire, and sanitation inspections

Step 6: Register with the Bureau of Internal Revenue (BIR)

• Apply for a Tax Identification Number (TIN)
• Register official books of accounts
• Apply for authority to print official receipts and invoices
• File for Value Added Tax (VAT) or Non-VAT registration

Step 7: Register with Mandatory Social Agencies

All employers must register their business and employees with the following:

• Social Security System (SSS)
• PhilHealth (National Health Insurance)
• Pag-IBIG Fund (Home Development Mutual Fund)

Step 8: Open a Corporate Bank Account

Open a bank account in the Philippines under the subsidiary’s name. Most banks require:

• SEC Certificate of Incorporation
• Articles and By-laws
• Board Resolution on Signatories
• Identification documents of corporate officers

These steps are essential to follow when understanding how to establish a subsidiary company in the Philippines market. 

Key Benefits of Establishing a Subsidiary in the Philippines

Setting up a subsidiary company in the Philippines offers foreign companies these strategic, financial, and legal advantages:

1. Access to a Growing Market

The Philippines is one of Southeast Asia’s fastest-growing economies. A local subsidiary allows you to directly engage with a population of over 110 million consumers and expand regionally.

2. Separate Legal Entity

Unlike branch offices, a subsidiary is a legally independent entity. This structure:

• Protects the parent company from liabilities
• Allows localised decision-making
• Simplifies regulatory compliance within the Philippine jurisdiction

3. Favourable Tax Incentives

Qualified businesses can access incentives through:

• Board of Investments (BOI): Tax holidays, duty-free importation
• Philippine Economic Zone Authority (PEZA): Income tax holidays, VAT exemptions

4. Strong Workforce Advantage

The Philippines offers a skilled, English-speaking workforce known for its strength in BPO, manufacturing, and tech services.

5. Improved Market Credibility

A registered local entity builds trust with government agencies, local partners, and Filipino consumers, essential for long-term success.

Essential Documents for Registering a Subsidiary

Here’s a complete list of documents typically required when you are in the process of setting up a subsidiary company in the Philippines:

Corporate Formation Documents

• Articles of Incorporation
• By-laws
• Treasurer’s Affidavit
• Company Cover Sheet (from SEC)
• Board Resolution of the parent company
• Proof of inward capital remittance

Compliance and Local Permits

• Barangay Clearance
• Mayor’s Business Permit
• Lease agreement or proof of business address
• Community Tax Certificate

Tax and Regulatory Documents

• BIR Form 1903 (for business registration)
• Application for Authority to Print (ATP) receipts
• Books of Accounts registration

Employee and Government Filings

• Employer registration forms for SSS, PhilHealth, and Pag-IBIG
• Employee list (once hiring begins)

Legal Structures Available for Subsidiaries in the Philippines

Understanding legal structures is very important when setting up a subsidiary company in the Philippines. Here’s a breakdown of the legal entity types a subsidiary can take:

• Domestic Corporation: This is the most common structure for subsidiaries. It requires at least five incorporators, and may be fully foreign-owned unless the activity is restricted.

• One Person Corporation (OPC): This is a newer structure under Philippine law, but it is not suitable for subsidiaries owned by foreign parent companies, as it allows only individual ownership.
• Representative Office: This structure is limited to non-income-generating activities such as market research or coordination. It cannot earn revenue locally and is entirely funded by the parent company.

Note: While branch and representative offices are not subsidiaries, it’s important to distinguish them when choosing a setup strategy.

Taxation Rules and Incentives for Subsidiaries in the Philippines

Understanding the taxes is critical for any foreign business setting up a subsidiary company in the Philippines. The country offers both standard tax rules and generous incentives to encourage investment. Here’s what you need to know:

Corporate Income Tax Rates

• Domestic corporations (including subsidiaries) are subject to:
  • 25% corporate income tax on net taxable income, if net taxable income > PHP 5 million or total assets > PHP 100 million
  • 20% corporate income tax if net income ≤ PHP 5 million and total assets ≤ PHP 100 million (excluding land)

Other Taxes Applicable

• Value-Added Tax (VAT): 12% on most goods and services
• Withholding Tax on Dividends: 15% if remitted to foreign parent (may vary based on tax treaty)
• Branch Profit Remittance Tax (for branches, not subsidiaries): 15%
• Documentary Stamp Tax (DST): Applied on loan agreements, shares, etc.

Tax Incentives for Subsidiaries

Foreign-owned subsidiaries may qualify for special tax treatment through the following:

• Board of Investments (BOI): For priority sectors, it offers an income tax holiday (ITH), duty-free import of capital equipment, and streamlined customs procedures.
• Philippine Economic Zone Authority (PEZA): Ideal for export businesses in designated zones; provides ITH, 5% tax on gross income, VAT exemption, and duty-free imports.
• Other Government Incentives: Includes CREATE Law incentives for innovation and jobs, plus local government perks like business tax discounts.

These are important to understand and ensure when figuring out how to start a parent company in the Philippines.

Regulatory and Compliance Requirements in the Philippines

When you are learning how to create a subsidiary in the Philippines, you must know how to adhere to ongoing legal and tax obligations to remain in good standing.

Annual Filing Requirements

• General Information Sheet (GIS): Filed with the SEC annually
• Audited Financial Statements (AFS): Must be prepared by a Philippine-accredited external auditor and filed with the SEC and BIR
• Income Tax Return (ITR): Filed annually with the BIR
• Quarterly VAT and Income Tax Returns: Also required

Other Ongoing Compliance

• Books of Accounts: Must be registered with the BIR and maintained properly
• Payroll Tax and Contributions: Employers must remit monthly contributions for SSS, PhilHealth, Pag-IBIG, and withholding taxes
• Business Permit Renewal: Annual renewal with LGUs, typically in January

Penalties for Non-Compliance

Failure to comply with filing deadlines or regulatory requirements can result in:

• Fines and interest charges
• Suspension of operations
• Revocation of business registration

Do You Need a Physical Address for a Subsidiary in the Philippines?

Yes, a physically registered address is mandatory for business incorporation when opening a subsidiary in the Philippines. Under Philippine law, every subsidiary must have a registered office address where legal documents can be delivered and inspections can be conducted.

Subsidiaries in Kosovo can establish their address through a commercial lease, serviced or virtual office, or PEZA zone. While virtual offices suit early-stage businesses, all options must meet zoning laws and local recognition; PEZA zones offer tax incentives.

Operational Setup for a Subsidiary in the Philippines

Beyond registration, setting up the day-to-day operations of your business is essential for successful market entry and the sustenance of the business. Here is how to achieve it:

• Hiring: The Philippines offers a skilled, English-speaking workforce. Use platforms like JobStreet or agencies. Register employees for SSS, PhilHealth, Pag-IBIG, and BIR withholding taxes.
• Office Setup: Lease in business hubs like Makati or BGC. Ensure zoning compliance. PEZA/BOI zones suit exporters and tech firms.
• IT & Infrastructure: Use providers like PLDT or Globe. Adopt cloud-based HR/accounting tools. Follow data privacy rules under the 2012 Data Privacy Act.
• Utilities & Vendors: Utilities (e.g., Meralco) require company registration and lease proof. Services must be under the business name.

How to Open a Business Bank Account for a Subsidiary in the Philippines?

A corporate bank account is necessary for handling business transactions, paying employees, and managing cash flow. Here is the step-by-step process:

1. Choose a Bank: Top banks include BDO, BPI, Metrobank, UnionBank, and Security Bank. Consider proximity, online banking capabilities, and customer service.

2. Prepare Required Documents: Each bank may vary slightly, but generally requires:

• SEC Certificate of Incorporation
• Articles of Incorporation and By-laws
• Board Resolution authorising account opening and signatories
• Valid IDs of authorised signatories
• Mayor’s Permit and Barangay Clearance
• TIN certificate (BIR Form 2303)
• Proof of address (Lease Agreement or utility bill)
• Initial deposit (amount depends on bank’s policy)

3. Visit the Bank for Application: All signatories usually need to appear in person for verification. Some banks allow partial online applications but will still require physical presence to finalise.

4. Account Activation: Once approved, the account is activated, and cheque books, debit cards, and online banking access are provided.

Tip: Some banks offer multicurrency corporate accounts if your parent company deals in USD, EUR, or other foreign currencies.

Is an Operating Agreement Necessary for a Subsidiary?

In the Philippines, subsidiaries are registered as corporations and don’t require a traditional “Operating Agreement.” Instead, the Articles of Incorporation and By-laws serve this purpose. These mandatory documents outline governance rules, powers of directors, voting rights, and profit-sharing procedures. 

They ensure transparency, define control between the parent company and subsidiary, and are required by the SEC for registration and compliance. While not called an “Operating Agreement,” they function similarly and are crucial for smooth, lawful operations.

Opening a Branch vs. a Subsidiary: What’s the Difference?

Foreign companies entering the Philippine market can choose between setting up a branch or a subsidiary. Still, these structures have significant differences in terms of legal status, liability, and tax treatment. Below is a detailed comparison:

How Commenda Can Help You Expand in the Philippines

Commenda simplifies and accelerates setting up and managing your subsidiary in the Philippines through end-to-end support and local expertise. Whether you’re a multinational expanding regionally or a startup exploring new markets, Commenda ensures your operations are fully compliant and hassle-free. Here’s how Commenda supports your expansion:

• Entity Formation: Handles company registration with the SEC, BIR, and local authorities
• Legal & Regulatory Guidance: Ensures compliance with local laws, industry restrictions, and foreign ownership limits
• Registered Address & Virtual Office: Provides a physical address in the Philippines, essential for SEC registration
• Document Preparation: Drafts your Articles of Incorporation, bylaws, board resolutions, and more
• Banking Assistance: Helps open a corporate bank account with top local banks
• Payroll & HR Setup: Supports local hiring, tax registration, and payroll processing
• Ongoing Compliance: Manages tax filings, permit renewals, and statutory reports

Talk to an Expert today and get started with your Philippine operations!

FAQs

Q. How much does it cost to set up a subsidiary in the Philippines?

The typical cost ranges between  US$200,000.00 to US$100,000.00, including SEC registration, legal fees, local permits, and initial capital. Costs can increase if you engage consultants or lease premium office space.

Q. How long does it take to register a subsidiary in the Philippines?

It usually takes about a month, depending on document readiness, government processing times, and any additional regulatory approvals (e.g., PEZA, BOI).

Q. Can a foreigner fully own a subsidiary in the Philippines?

Yes, in most sectors. A subsidiary can be fully foreign-owned unless the business falls under the Foreign Investment Negative List (FINL), making it convenient to learn how to form a subsidiary in the Philippines market.

Q. What are the common challenges when opening a subsidiary in the Philippines?

• Understanding sector-specific foreign ownership restrictions
• Delays in permit processing and tax registration
• Securing a business address with appropriate zoning
• Managing language or documentation requirements for legal processes

Q. Do subsidiaries in the Philippines need a local director or representative?

No, there is no requirement for a local director if the business is not in a restricted sector. However, you will need a local resident agent or corporate secretary (who must be a Philippine resident).

Q. What are the annual compliance requirements for subsidiaries in the Philippines?

• Filing audited financial statements and annual income tax returns
• Submitting the General Information Sheet (GIS) to the SEC
• Renewing business permits and paying local taxes
• Payroll compliance with SSS, PhilHealth, Pag-IBIG, and BIR
• Keeping books of accounts and filing quarterly tax returns

Q. Can a subsidiary hire employees directly in the Philippines?

Yes, a registered subsidiary can hire staff directly, provided it is registered with:

• BIR for tax withholding
• SSS, PhilHealth, and Pag-IBIG for mandatory employee contributions

Q. What happens if a subsidiary fails to meet compliance rules in the Philippines?

Penalties may include:

• Fines and surcharges for late filings
• Suspension or revocation of SEC registration
• Inability to renew business permits or enter into contracts
• Potential legal liability for directors and officers

Staying compliant is essential to maintaining good standing and business continuity.