Corporations 101 | Inquirer Business

Corporations 101

/ 02:18 AM October 04, 2022

A corporation is an artificial being created by operation of law, having right of succession, and the powers, attributes, and properties expressly authorized by law or incidental to its existence. It has a personality that is separate from its stockholders or members. (Republic Act No. 11232,  the Revised Corporation Code or RCC).

Domestic corporations

A domestic corporation is a business entity that is organized, registered, and existing under Philippine laws. Shareholders of a corporation may be a natural person, partnership, association or another corporation. All domestic corporations must be registered with the Philippine Securities and Exchange Commission (SEC).


With the passage of the RCC, which was signed into law in February 2019, stock corporations now have perpetual existence and are no longer required to have a minimum capital stock, except when specifically required.

Corporations no longer need to have at least five shareholders and they can either be incorporated with two to 15 shareholders or a single person, which is then a One Person Corporation (OPC).


A non-Filipino Citizen may establish a One-Person Corporation for as long as the company engages in an industry where 100-percent foreign ownership is allowed.

Corporate income tax is 25 percent. However, those with total assets of not more than P100 million and net income not exceeding P5 million shall be taxed at 20 percent. The Minimum Corporate Income Tax (MCIT) is also applicable (RA 11534, Corporate Recovery and Tax Incentives for Enterprises Act).

Stock corporations are those which have their capital stock divided into shares and are authorized to distribute dividends and profits to shareholders.

All other corporations are non-stock corporations.

Non-stock corporations

A non-stock corporation is formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes like trade, industry and agricultural chambers. No part of its net income are distributable as dividends to its members, trustees, or officers. Any profit shall be used only to further its purpose(s).

Examples of non-stock corporations are charitable foundations and condominium corporations and are composed of members and not stockholders as is the case for stock corporations.

Foreign corporations

Considering that we live in a connected world and businesses increasingly operate in multiple countries as a norm, it is important to discuss foreign corporations.


A foreign corporation is defined as one formed, organized or existing under laws other than those of the Philippines, and whose laws allow Filipino citizens and corporations to do business in its own country or state.

Foreign corporations that plan to do business in the Philippines have several options which may involve establishing a representative office, a regional operating headquarters, a branch, a subsidiary or investment in a domestic corporation.

Representative office

A representative office or RO of a foreign corporation in the Philippines is allowed to undertake only non-income generating activities. It does not have a separate legal personality from its parent company and its activities are geared toward assisting, promoting and marketing for the parent company. It must register with the SEC and appoint a resident agent in the Philippines.

This structure is used for exploratory purposes such as to evaluate and explore the Philippine market before deciding to enter and operate commercially.

The parent company must subsidize the operating expenses of the RO with at least $30,000 every year.

While an RO may have to remit withholding taxes, it does not pay income tax and value added taxes and is not qualified to apply for fiscal and non-fiscal incentives.

Regional operating headquarters

Regional Operating Headquarters (ROHQ) is an extension of a foreign corporation that 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. (RA 8756)

An ROHQ must register with the SEC, be capitalized with at least $200,000 and appoint a resident agent in the Philippines.An ROHQ’s corporate income tax rate has been increased from 10 percent to 25 percent.

Branch fofice

A non-resident foreign corporation is one which does not have any presence in the Philippines but derives income in the Philippines. Such an entity may have activities such as extending foreign loans earning interest income or investing in shares of stocks of domestic corporations earning dividends.

A foreign corporation may establish a branch office in the Philippines by registering with the SEC. This foreign company carries out the business activities of the head office and derives income from the host country. It does not have a separate juridical personality from the foreign corporation itself and must appoint a resident agent in the Philippines.

It must be capitalized with at least $200,000. However, Republic Act No. 11647, which amended the Foreign Investments Act of 1991, allows for a capitalization of $100,000 in certain instances such as when the activity of the company involves advanced technology, it qualifies as a startup or is a startup enabler or it employs a set minimum number of employees. (RA 11647)

There are also those foreign export enterprises which export 60 percent or more of their goods and services and these may be capitalized for as little as P5,000. (Implementing Rules and Regulations of RA 11647)

For those foreign entities engaged in  retail trading, the capital requirements have also been lowered by RA 11595 which was signed into law on Dec. 21, 2021.

A branch office is required to initially deposit with the SEC acceptable securities with market value equivalent of at least P100,000 plus an annual additional deposit of 2 percent of the amount by which the branch office’s gross income exceeds P5 million.

Branches of foreign corporations are subject to a corporate income tax rate of 25 percent. The MCIT is also applicable. However, branches are allowed to register and avail of certain tax incentives such as income tax holiday or special tax regime.

Subsidiary corporation

A subsidiary is a corporation where more than 50 percent of the voting stock of which is owned or controlled, directly or indirectly, through one or more intermediaries, by another corporation, which thereby becomes its parent corporation.

A subsidiary is a separate juridical entity from its parent company.

When non-Filipinos own more than 40 percent of a corporation, it is a foreign domestic corporation. When a foreign corporation owns more than 50 percent of the voting stock of a domestic corporation, this corporation is a subsidiary of the parent company and is also a foreign owned domestic corporation.

A foreign domestic corporation is subject to the Foreign Investments Act where the minimum paid in capital is $200,000. The lower capital requirement under RA 11647 is applicable as well as that for export enterprises. For those foreign entities engaged in activities considered as Retail Trade, there are also new capitalization requirements which have been lowered by law.

Lastly, foreign corporations may also invest in the Philippines by owning 40 percent or less of a domestic corporation.

The author, Atty. John Philip C. Siao, is a practicing lawyer and Co-Managing Partner of Tiongco Siao Bello & Associates Law Offices, a professor at the MLQU School of Law, and an arbitrator of the Construction Industry Arbitration Commission of the Philippines. He may be contacted at [email protected] The views expressed in this article belong to the author alone.

Your subscription could not be saved. Please try again.
Your subscription has been successful.

Subscribe to our daily newsletter

By providing an email address. I agree to the Terms of Use and acknowledge that I have read the Privacy Policy.

Read Next
Don't miss out on the latest news and information.

Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.

For feedback, complaints, or inquiries, contact us.
Your subscription could not be saved. Please try again.
Your subscription has been successful.

Subscribe to our business news

By providing an email address. I agree to the Terms of Use and acknowledge that I have read the Privacy Policy.

© Copyright 1997-2023 | All Rights Reserved

We use cookies to ensure you get the best experience on our website. By continuing, you are agreeing to our use of cookies. To find out more, please click this link.