The Business Process Outsourcing (BPO) industry is a booming business sector in the Philippines. With the Filipino workforce’s competence and high education coupled with the reasonable cost of doing business in the country, the Philippines has become one of the premier destination for outsourcing.
For foreign investors looking into entering the BPO sector, there are different options on what type of structure to register for their business.
TYPES OF CORPORATION TO REGISTER FOR A BPO BUSINESS
BPO TYPE: BRANCH OFFICE OF A FOREIGN CORPORATION
– carries out the business activities of the head office and derives income from the host country. Basically it is an extension of the foreign corporation. A branch office is required to register with the Securities and Exchange Commission (SEC) and the latter must issue a license to enable to former to operate in the country. Further, a branch office must assign a resident agent in the Philippines were summons and other legal process may be served
- A branch office usually needs a capital investment to be remitted in the Philippines in the amount USD200,000.00
- A branch office engaged in outside activities involving advanced-technology, or that employ at least fifty (50) direct employees, needs a reduced capital investment of USD100,000.00
- A branch office that is considered an export enterprise and that the goods and services do not fall under List A and List B of the Foreign Negative List, can be owned 100% foreign owned. The said branch office will not need a capital investment of USD200,000.00 or USD100,000.00 mentioned above if they are exporting physical goods or services or generating revenue from abroad amounting to more than 60% of its gross sales.
BPO TYPE: REPRESENTATIVE OR LIAISON OFFICE
– deals directly with the clients of the parent company but does not derive income from the host country and is fully subsidized by its head office. It undertakes activities such as but not limited to information dissemination and promotion of the company’s products as well as quality control of products.
- Representative offices needs to have an appointed resident agent in the Philippines to whom service of summons and other legal process maybe served.
- The parent corporation/companies of representative offices needs to have an initial inward remittance of USD30,000.00 and the same amount every year thereafter to support the operation of its office.
Difference Between a Branch Office and a Representative Office
In an opinion dated 02 February 2001 addressed to Mr. Jaime Diaz, the SEC elucidated the difference between a branch office and a representative office:
“Further the implementing rules and regulations of Republic Act 7042, as amended, clearly defined a representative office or liaison office as distinguished from a branch office. The former deals directly with the client of the parent company but does not derive income from the host country and is fully subsidized by its head office while the latter carries out the business activities of the head office and derives income from the host country.”
BPO TYPE: DOMESTIC CORPORATION
A foreign company can established a company which is 60% Filipino owned and 40% foreign owned, which will make it a domestic corporation. The advantage of having Filipino ownership in the business is the familiarity locals with the business and cultural environment of the Philippines.
BPO TYPE: FULLY FOREIGN OWNED CORPORATION
According to the Foreign Investments Act (FIA) of 1991 a foreign corporation can own up to 100% of a domestic corporation provided that the area of business is not governed by the Foreign Investments Negative List (FINL). BPOs are not included in the FINL, thus, they can be 100% foreign owned.
REGIONAL OR AREA HEADQUARTERS (RHQ) AND REGIONAL OPERATING HEADQUARTERS (ROHQ)
Regional or Area Headquarters (RHQ) – Any multinational company can establish an RHQ in the Philippines as long they are existing under the laws outside of the Philippines. A one-time inward remittance of USD200,000.00 is required
According to Republic Act 8756 an RHQ “shall mean an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade which principally serves as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets and which does not earn or derive income in the Philippines.”
Regional Operating Headquarters (ROHQ) – Like an RHQ, Any multinational company can establish an RHQ in the Philippines as long they are existing under the laws outside of the Philippines. A one-time inward remittance of USD200,000.00 is required.
According to Republic Act 8756 an ROHQ “shall mean a foreign business entity which is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets.”