Regional or Area Headquarters and Regional Operating Headquarters
Source:
"How to Invest in the Philippines" by PricewaterhouseCoopers Philippines (printed with permission from author)

Scope of Activities, Remittance and Funding Requirements, Taxes, Incentives

1) What is a RHQ and what are the activities it can engage in?

Republic Act (R.A.) No. 8756 (amending the Omnibus Incentives Code of 1987, and approved on November 1999), defines RHQ as 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.

The activities of the RHQ are limited to acting as a supervisory, communications and coordinating center for its subsidiaries, affiliates and branches in the region.

It is neither allowed to derive any income from sources within the Philippines and to participate in any manner in the management of any subsidiary or branch office it might have in the Philippines nor to solicit or market goods and services whether on behalf of its mother company or its branches, affiliates, subsidiaries or any other company.

2) What is a ROHQ and what are the activities it can engage in?

ROHQ 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;
- Logistics services;
- Research and development services and product development;
- Technical support and maintenance; and
- Data processing and communication

A ROHQ is prohibited from offering qualifying services to entities other than its affiliates, branches or subsidiaries as declared in its registration with the Securities and Exchange Commission (SEC). Neither is it allowed to directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company.

3) What are the funding requirements for a RHQ and a ROHQ?

The initial funding requirement for a RHQ of a multinational corporation is US$50,000. Within 30 days from receipt of the SEC certificate of registration, the multinational corporation must submit a certificate of inward remittance from a local bank showing that it had remitted US$50,000. It must also annually remit at least US$50,000 or its equivalent in other foreign currency within 30 days from anniversary date of its registration to cover its operations in the Philippines.

A ROHQ is required to initially remit the amount of US$200,000 or its equivalent in other foreign currencies. Within 30 days from receipt of its certificate of registration, the multinational corporation must submit to the SEC a certificate of inward remittance from a local bank showing that it had remitted US$200,000.

4) What are the taxes applicable and incentives available to a RHQ / ROHQ?

RHQs are exempt from income tax and VAT while their purchases of goods and services and lease of goods and property are zero rated. On the other hand, ROHQs are subject to 10% preferential rate on taxable income and are subject to 10% VAT.

RHQs and ROHQs are granted the following incentives:

a. Exemption from all kinds of local taxes, fees and charges except for real property tax on land improvements and equipment;

b. Tax and duty free importation of training materials and equipment; and

c. Importation of motor vehicles subject to the payment of corresponding taxes and duties.

Expatriates of RHQs and ROHQs are entitled to the following incentives:

a. Multiple entry special visa, including those of spouses and unmarried children below age 21;

b. Withholding tax of 15% on salaries, wages, annuities, and other emoluments of expatriates;

c. Travel tax exemption; and

d. Tax and duty free importation of personal and household effects.

Filipinos occupying managerial and technical positions in RHQ and ROHQ of multinational companies shall be taxed at 15% of their gross income. This rate will be applicable even in the absence of an alien executive in the organization. Filipino executives of RHQs and ROHQs governed by Book III of Executive Order No. 226 may opt to be taxed either at 15% of gross income or at the regular tax rates of 15% to 32% of their taxable income.