1. general administration and planning
2. business planning and coordination
3. sourcing and procurement of raw materials and components
4. corporate finance advisory services
5. marketing control and sales promotion
6. training and personnel management
7. logistic services
8. research and development services and product development
9. technical support and maintenance
10. data processing and communication, and,
11. business development

Being a special entity allowed in the Philippines with certain incentives and preivileges, ROHQ’s business activities are subject to the following limitations:

a. Shall offer its services only to its affiliates, branches or subsidiaries, as declared in its registration with the Securities and Exchange Commission (SEC).

b. It shall not directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company.

c. It cannot directly or indirectly engage in the sale and distribution of goods and services of its mother company, branches, affiliates, subsidiaries or any other company.

Capitalization requirements. The ROHQ is required to initially remit into the country within 30 days from receipt of the Certificate of Registration with SEC through BOI such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than US$200,000 or its equivalent in other currencies. This should be evidenced by a Certificate of Inward Remittance issued by the depository branch.

Taxation and Other incentives includes the following:

ROHQ

a. 10% income tax on taxable net income instead of the 30%/25% on income;

b. 12% value-added tax;

c. 15% branch profit remittance  tax;

d. Tax and duty free importation of training materials and equipment, and importation of motor vehicles; and

e. Exemption from all kinds of local taxes, fees, or charges.

Expatriates

a. Multiple entry visa to expats, their spouse and children under certain conditions;

b. Travel tax exemption of expats and their dependents upon certification of the BOI;

c. Tax and duty free importation of personal and household effects ;

d. 15% withholding tax on compensation of managerial and technical alien employees instead of the 25% or 5-32%. Apply also to Filipino citizens holding the same positions.

Licensing. In order to operate and ROHQ in the Philippines, it is required to secure a License with the securities and Exchange Commission (SEC). For the purpose, endorsement by the Board of Investments (BOI) shall be submitted to the SEC along with the other requirements. Likewise, registration with the BIR, and other government agencies are required for the ROHQ.

Related Posts:

a. What are registrable entities in the Philippines?

b. 15% imposable to expats, when applicable?

c. License of Philippine Brach, how secured?

d. How to register a Domestic Company in the Philippines?

Suggested Reading:

a. Republic Act No. 8756  amending Executive Order No. 226;

b. Revenue memorandum Circular No. 41-2009;

Compared to the normal tax rate of 5-32% bracket 5-32%, if a resident alien or non-resident alien engaged in trade or business, or 25%, if a non-resident alien not engaged in trade or business, the 15% rate is a good break because of a material rate gap on rates of income tax on compensation of approximately 17% (32%-15%), and 10% (25%-15%), respectively. Thus, the BIR saw the need to clarify the bounds of the term “Managerial and Technical Positions” to avoid abuse and misapplication of the above rule to minimize taxes, if not escape or evade.

Under the Labor Code, employment of non-resident aliens commonly referred to as “expatriate employees”, is limited to positions which are managerial, confidential, or highly technical in nature, or where there are no Filipinos who are competent, able and willing to perform the services for which aliens are desired. To be considered managerial employee, it must possess authority to act in the interest of its employer requiring the use of independent judgment and not merely routinary or clerical in nature. The case of Villuga vs. NLRC, 225 SCRA 537 provides the following elements to be considered managerial employee:

a. primary duty consist of performance o work directly related to management policies;
b. customarily and regularly exercise discretion and independent judgment;
c. regularly and directly assist in the management of the establishment;
d. does not devote 20% of his time to work other than those prescribed above.

The employees are not managerial employees if they only execute approved and established policies, leaving little or no discretion at all whether to implement said policies or not. On the other hand, RMC did not elaborate very well on “technical position” other than saying that it is limited to positions which are highly technical in nature or where there are no Filipinos who are competent, able and willing to perform the services for which aliens are desired.

By implication, all other BIR rulings issued inconsistent with the RMC are revoked accordingly. As a matter of fact, BIR Ruling No. DA-061-04 is revoked by the RMC. Thus, it is suggested that a review of existing employee structure and job descriptions in relation to their tax treatments is hereby recommended to ensure that the same is in compliance with the RMC.

Related posts:
a.Withholding tax on compensation
b.Exempt compensation

Suggested readings:
a. Villuga vs. NLRC, 225 SCRA 537
b. Republic Act No. 8756, amending E.O. No. 226

a. Philippine corporation

b.Philippine branch

c.Philippine Regional Headquarters

d. Philippine Regional Operating Headquarters

e. Philippine Representative office

A CORPORATION is a separate legal entity distinct from the owners thereof. This can engage in any desired economic activity upon registration with the Securities and Exchange Commission (SEC) and securing the necessary permits and licenses with other government agencies. It is similar to a limited liability company as owner’s or stockholders are generally liable only to the extent of their investments. Foreign companies may become stockholders subject to the applicable limits of the law such as equity participation and capitalization.For tax purposes, a corporation is generally subject to 30% income tax, 12% value added tax or 3% other percentage tax, and other taxes. Dividends remitted to its parent company abroad is normally subject to 15% income tax while royalties and other income payments are taxed at 30%, except under tax treaties with reduced rates of say, 15%.

A BRANCH is a local operation in the Philippines of the foreign parent. It is a mere extension of the parent’s legal entity. By SEC license to do business in the Philippines it is authorized to conduct business similar to a corporation and with such powers and attributes. Being an extension of the parent, liabilities in the Philippines incurred by the branch accrues to the parent. Tax implications are similar to that of the corporation.

A REGIONAL HEADQUARTER (RHQ) of a multinational company is an administrative office for supervision, communication and coordination center of its subsidiaries, affiliates, and branches in the Asia-Pacific region. As as administrative agency, it is not allowed to earn income in the Philippines, thus, it is exempt from 30% income tax, and the 12% VAT. Employees are only taxed at 15% based on gross compensation instead of the graduated 5-32% tax on compensation.

A REGIONAL OPERATING HEADQUARTER (ROHQ) of a multinational company is an operating company with respect to its affiliates, branches or subsidiaries in accordance with its SEC registration. It shall not, however, solicit or market goods or services or distribute goods and services of its mother company, branch, affiliate or other company. For such dealings, it is subject to 10% income tax, 12% VAT and 15% branch profit remittance tax.

A REPRESENTATIVE OFFICE is a support entity of its head office’s business in the Philippines. It can do marketing, information dissemination, post sales services, and other administrative activities for its head office but is not allowed to intervene in the pricing policies of its head office. It is likewise not allowed to derive income, thus, not subject to income taxes.

Each of the above entities require SEC registration for regulation and monitoring purposes. Other entities may include partnerships, whether, a business partnership or general professional partnerships under certain conditions. Likewise, it is required to be registered with the BIR, and other government agencies. For further details, you may browse the relater SEC and BIR links or you comment on the author.