Chapter 4 - Planning Local Operations

Basic Structures | Registering a Business
Setting Up a Legal Office | Insurance Office

With the emphasis of government placed squarely on the need to attract more foreign investment into the country, the Philippines is now seeking to compete with Hong Kong and Singapore as a preferred location for regional headquarters of multinational corporations (MNCs). Among the MNCs that have already established their base in the country is America Online (AOL), which employs hundreds of highly skilled Filipino technicians and programmers in its office based in Clark Field, Pampanga in the Philippines.

While the Philippine government offers tax incentives to foreign investors, it is the abundant supply of quality but cheap skilled labor that remains the country's strongest selling point. Foreign corporations establishing local operations have to pay only 10 to 20 percent for highly skilled and English-speaking Filipino workers compared to the wages paid to similar workers in the United States.

For many such corporations, the Philippines is carving out a role as a "back-office." Business lines that foreign investors commonly pursue in the Philippines include the fields of payroll accounting and inventory management; software development and systems maintenance; website design and maintenance; call centers, data warehousing and data conversion; insurance claims processing; medical transcription; and content development.

The Philippine Congress recently (2001) approved Republic Act 8756, which allows the regional headquarters of MNCs to derive local income from their Philippine operations. Prior to this, such regional headquarters were allowed to act only as administrative branches for international operations and were not allowed to conduct local business that involved commercial transactions.

The new law also grants expatriates working at regional headquarters special multiple-entry visas, tax breaks such as exemption from payment of income taxes and the local (10 percent) value-added tax. Under certain conditions, supplies imported by these regional headquarters can be exempted from customs duties, internal revenue taxes, export taxes and other local taxes.

The Philippine government requires regional headquarters (RHQ) and regional operating headquarters (ROHQ) of an MNC to submit certificates of remittance to the Securities and Exchange Commission (SEC), within 30 days of receipt of its certificate of registration. The initial funding requirement for an RHQ is US$50,000 while the ROHQ is required to remit initially the amount of US$200,000 or an equivalent amount in other foreign currencies. An ROHQ is a foreign business entity, which is allowed to derive income in the Philippines, by providing qualifying services to its affiliates, subsidiaries, or branches.

Apart from cheap and quality labor available, the country's friendly ambiance to foreign culture helps attract foreign investors, not only to establish an office but also to live in the Philippines.

In its 1999 survey, PERC Limited said that most expatriates rated the Philippines as the country with the best living conditions among the 12 Asian countries surveyed including Japan, Hong Kong and Singapore.

The country's top rating was largely attributed to the recreational facilities, nightlife and cultural compatibility that the country has to offer. (On the other hand, the Philippines was also rated in the same survey as being one of the most corrupt of Asian societies.)

Security Concerns

In this area the ranking may have slipped recently as the Arroyo Government is facing a surge of lawlessness in the form of kidnappings for ransom and terrorist activity. While a number of kidnappings have occurred in Metro Manila, for the most part the terrorist campaign is largely being waged in the southern region of Mindanao. However the so-called New Peoples Army is active to a greater or lesser extent throughout the whole of the Philippines and especially in rural areas.

For the most part the NPA targets corrupt local officials and others who exploit the urban and rural poor leaving foreigners alone but this is not always the case. This threat is not so apparent in Metro Manila.

The government of the Philippines is making a strident effort to combat terrorist activity but the problem is unlikely to be fully resolved until a significant dent is made on the endemic poverty that pervades much of the country .In the meantime business people working in or traveling to remote areas will need to take sensible precautions and be aware of the risks.




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