The effort of the Philippines to improve its infrastructure is now in completion phase under the Build, Build, Build (BBB) Program launched in 2017. This program aims to construct major railways, industrial parks and airports. Other projects include construction of energy facilities, water resource projects and irrigation systems, flood control facilities and other redevelopment programs. Likewise, the program seeks to provide economic growth opportunity, create jobs and improve the lives of its citizens. Considering other factors, inflation slowed down to 1.7% in August 2019, the lowest it had been for three years, while poverty declined from 26% in 2015 to 20.8% in 2019. Currently, the population is 106 million, and is an attractive prospect for foreign investors because of its young, well-educated and capable work force.
Foreign investors can enter the Philippines market with either 40% ownership of a company or as a 100% foreign owned corporation, earning income as a Domestic Corporation, subsidiary, or Branch Office of the Parent Company.
Domestic corporations have a separate identity distinct from its parent company and the benefit of limited liability. Generally, the capital requirement is US$200,000, except for in the following instances:
i. The business activity of the corporation involves advanced technology as certified by the Department of Science & Technology (DOST);
ii. The corporation undertakes to export at least 70% of its total output or production or is registered with Philippine Economic Zone Authority (PEZA) or Board of Investment (BOI). Both PEZA and BOI registered companies are generally export-oriented enterprises; or
iii. The equity participation of the foreigners is limited to 40%.
With regard to a Branch Office, its parent company should authorize the establishment of its branch in the Philippines with 100% ownership. Its capital investment must also be equal to at least US$200,000 if the branch is not classified under either (i) or (ii) of the above-mentioned items listed.
Another option for foreign investors is to establish a Regional Operating Headquarters (ROHQ). This is 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, as follows:
General administration and planning;
Business planning and coordination;
Sourcing / procurement of raw materials and components;
Corporate finance advisory services;
Marketing control and sales promotion;
Training and personnel management;
Research and development services and product development;
Technical support and maintenance; and
An ROHQ shall offer the above services only to its affiliates, branches or subsidiaries, as declared in its registration with the Securities and Exchange Commission (SEC). It shall not directly and indirectly solicit or market goods and services, whether on behalf of its parent company, branches, affiliates, subsidiaries or any other company. In the same manner, it cannot directly or indirectly engage in the sale and distribution of goods and services of its parent company, branches, affiliates, subsidiaries or any other company. ROHQs shall initially pay an amount of no less than US$200,000 or its equivalent in other foreign currencies, to cover its operations in the Philippines.
Foreign investors could also choose to set up a Regional or Area Headquarters (RHQ), which is an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade. It principally serves as a supervision, communications and coordination centre for its subsidiaries, branches or affiliates in the Asia-Pacific region and other foreign markets, and does not earn or derive income in the Philippines.
A RHQ must undertake that it shall remit the amount necessary to cover its operations in the Philippines. This equates to paying set up costs of no less than US$50,000, or its equivalent in other foreign currencies, and then is required to pay this amount annually to support ongoing expenses.
The creation of a Philippine Representative Office is another way for foreign investors to enter the Philippines. Under the existing rules, a foreign corporation shall have the right to transact business in the Philippines after it has obtained both a license to transact business in the Philippines and a certificate of authority from the appropriate government agency. The same applies to the Philippine Representative Office, which would deal directly with the clients of its head office, based on the following limited activities:
Facilitate orders from its head office to customers or clients in the Philippines;
Disseminate information and conduct promotional activities about the products of its head office;
Undertake quality control of products of its head office; and,
Undertake other related administrative activities for its head office.
For a Philippine Representative Office to support its operations in the Philippines, capital of US$30,000 must be paid initially, and then continue to be paid as an annual fee. It must also appoint a resident agent on whom summons and other legal processes may be served, should legal proceedings arise against the company.
The above-mentioned entities are just a few of the many structural options for foreign investors to establish a presence in the Philippines. An investor needs to assess its purposes in order to determine which type of structure fits its needs.
Thinking of Moving to the Cloud? What you Need to Know.
The Cloud Revolution comes to Sydney
If you have been following our LinkedIn page, you might have seen an announcement we were tagged in from a company called Greatsoft, which announced the successful migration of our practice systems from desktop solutions to the Cloud. This announcement was the culmination of 15 months of planning and work to build our “tech stack”, (standby for technology buzz words!), along with a significant amount of data cleanup so that the data we were converting was in a logical and consistent format. So, what have we learned from this process?
“The Connected Practice – knowing what you need”
Over the past few years’ we have been bombarded with articles written by self-appointed “Futurists” talking about “Building a Connected Practice” or “Technology Stacks” or “Creating a Source of Trust”. Frankly, while initially interesting, the industry this appears to have spawned is now a source of annoyance with all sorts of sales people now marketing themselves as “experts” to accounting firms. Most of them are not. So, when we sat down to plan our move to the Cloud, we decided to speak directly to the software providers themselves. Accountants, being both eminently practical on one hand and with a focus on cost and efficiency on the other, are in a great position to know what they need, and to then articulate the criteria that software needs to be assessed against. Knowing what you need means that you have a clear idea about what you want to achieve at the end of your journey to the Cloud.
The Devil in the Details
As part of our software selection process, we thoroughly reviewed the fine print of the terms and conditions of each vendor. To say there was a vast difference between vendors and their terms is to understate what we found! Some of the contract terms we found would be legally not enforceable, while others stated a proper place of law outside of Australia. More concerning, some did not warrant they complied with the minimum standards in the Australian Privacy Act and sought to disclaim any requirement to notify of a data breach. Therefore, if you are moving to the Cloud, a rigorous review of the legal terms of the software is necessary.
Your employees have a mix of ages, backgrounds and experiences, all of which are valuable when selecting a new input. At ECOVIS Clark Jacobs we formed our employees into teams and gave them roles in assessing our software. In this way, we had “Knowledge Champions” who were different for each piece of software we rolled out. This increased collaboration amongst our staff after conversion, and meant that we had buy in from staff regarding our new software goals from a very early stage in the process, meaning we faced less resistance to change.
Be Prepared to Adapt your Thinking
Finally, be prepared to adapt your thinking and quickly substitute what works for what does not. You will absolutely make a wrong selection or have something go wrong when changing to the Cloud, so be prepared for that and have sufficient time allocated to recover from it. More importantly, if the software doesn’t work in the way you want, be prepared with an alternative and don’t hesitate to go that way. Don’t try to put a square peg in a round hole with your new software, just be prepared to move on as quickly as possible with your Plan B.
ECOVIS Tajikistan was founded in January 2005 as Asian Business Group LLC. Since April 2011 they represented BDO International in their country. In November 2020 the firm signed membership agreement with ECOVIS International. The Firm’s focus lies on audit and assurance and non-assurance services. However, they can also assist international clients with accounting and tax services. Three partners lead a team of 13 staff members. The main partners are Firuz Bulbulov and Bakhtiyor Saloev.
The Senior Partner of Ecovis Tajikistan Mr. Bakhtiyor Saloev comments following on joining Ecovis International: “We are glad to join ECOVIS International. We are committed to building close, long-lasting and effective relationships with our clients by providing first-rate services on an ongoing basis. We strive to be recognised as consultants who are truly trustworthy. Our company is structured in such a manner that our clients can always turn to senior professionals and partners. Thanks to our combination of national and international experience and expertise, we understand the needs of businesses in each country and are aware of international trends, ensuring the provision of effective and practical advice”.
We warmly welcome our new colleagues from Tajikistan to the Ecovis family!