How to Set Up an Outsourcing Firm in the Philippines: A Guide for Local Founders and International Groups

Quick Answer: Anyone setting up an outsourcing operation in the Philippines, whether a local founder, a foreign investor, or an international group, can register a Domestic Corporation. For most groups, this is the recommended route: it can be 100% foreign owned with no statutory minimum capital as an export enterprise, it shields the parent company from Philippine liabilities, and it isn’t restricted to serving only group affiliates.

International groups have three additional options not available to a local founder: Branch Office, Regional Operating Headquarters (ROHQ), and Regional Headquarters (RHQ). These are narrower purpose alternatives, not a mandatory track for building a shared services or captive arm. Whichever entity you choose, registration runs through the same core sequence: SEC, then BIR, then LGU, then Statutory Agencies (SSS, PhilHealth, Pag-IBIG).

Most guides to setting up an outsourcing business in the Philippines are written for one reader: the foreign investor building a company from zero. That leaves out two groups who search for the exact same thing: the Filipino founder building a commercial BPO to serve local or overseas clients, and the finance leader at an international group tasked with setting up a Philippine outsourcing or shared services operation for the parent company. This guide is built for both.

One thing worth stating plainly before anything else, because it’s the single most common misunderstanding in this space: setting up a captive or shared services arm for an international group does not mean you are locked into a Branch Office or an ROHQ. A Domestic Corporation, wholly owned by the foreign parent, can perform exactly the same shared services function, and in most cases, it is the better suited structure. The entity decision and the “who is this business serving” decision are two separate questions, and this guide treats them that way.

The Opportunity, Either Way

The underlying case for the Philippines doesn’t change depending on who’s setting up: a deep, English proficient talent pool, an IT-BPM industry that’s operated at scale for over two decades, and a cost base that remains highly competitive against Western and regional markets for comparable skill levels.

What has changed is how open that opportunity is to outside ownership. Republic Act No. 11647, which amended the Foreign Investments Act of 1991 (RA 7042), removed the old restrictions that used to push foreign investors toward local nominee arrangements. Because business process outsourcing is not on the Foreign Investment Negative List (FINL), and because most outsourcing businesses qualify as export enterprises, a foreign investor or international group can now own 100% of a Philippine Domestic Corporation outright, whether that entity serves outside clients or exclusively serves its own affiliates.

Your Entity Options and Who Can Actually Use Each One

There are four entity types worth knowing about, but they aren’t four equal branches of one decision tree. One of them is available to everyone. The other three exist only because a foreign parent already exists to extend; they’re a narrower set of tools for a narrower set of situations, not a required route for running a shared services or captive operation.

(RHQ and ROHQ definitions and requirements above are consistent with the Board of Investments’ official RHQ/ROHQ guidance under RA 8756.)

If you are a local founder or a foreign investor with no existing overseas legal entity, the Domestic Corporation is your only choice. There is nothing to “extend,” since a Branch, ROHQ, or RHQ only exists as a legal extension of an existing foreign company.

If you are an international group, all four options are technically on the table. In practice, however, the Domestic Corporation is usually still the right answer, even for a captive shared services arm. A wholly owned Domestic Subsidiary gives you a separate legal entity that shields the parent company from Philippine liabilities, faces no restriction on which entities it can serve if market conditions change, and carries no statutory capital floor as an export enterprise. This is the structure CloudCFO recommends to the large majority of the international groups we work with.

Why standard ROHQs have lost their appeal

ROHQs were historically popular because they enjoyed a preferential 10% corporate income tax rate. The CREATE Act (RA 11534) abolished that 10% rate, and ROHQs are now subject to the standard 25% corporate income tax rate, the same rate a Domestic Corporation or Branch Office pays. Combined with the mandatory US$200,000 initial capital requirement and strict restriction to group only services, this is one of the clearer reasons a wholly owned Domestic Subsidiary has become the preferred standard choice.

Capital Requirements: What Actually Drives the Number

The capital requirement resolves by entity type and export status, not by who is setting up:

For a Domestic Corporation: Under the Foreign Investments Act, an “export enterprise” is defined as an entity that derives at least 60% of its output or revenue from clients or parent affiliates outside the Philippines. Export enterprises face no statutory minimum paid up capital. The US$200,000 capitalization rule that dominates online search results applies strictly to domestic market enterprises serving Philippine customers. One nuance worth flagging: this 60% export threshold under the Foreign Investments Act is not the same as the 70% export sales ratio PEZA and the Board of Investments require for their own incentive eligibility. More on that below. Under the Revised Corporation Code (RA 11232), there is also no mandatory 25% minimum subscription/paid up rule at incorporation. You only need to capitalize enough to cover office setup, initial payroll, and registration costs until operations begin.

For a Branch, ROHQ, or RHQ: Capital rules are statutory floors tied to specific legislation (RA 8756 for ROHQs/RHQs) regardless of export status. A Branch requires the initial ₱500,000 SEC security deposit, an ROHQ requires a US$200,000 inward remittance, and an RHQ requires US$50,000 annually.

The Core Registration Sequence

Registration runs through four main steps. Foreign entities registering a Branch, ROHQ, or RHQ, or a Domestic Corporation with foreign corporate shareholders, must account for foreign document authentication (apostille or consularization) for parent resolutions and corporate documents.

Timeline summary: Local founders should plan for roughly six to ten weeks end to end. International groups requiring home country document authentication should plan for eight to twelve weeks. For a fuller walkthrough of this sequence, see CloudCFO’s Philippines Business Registration guide.

Should You Pursue PEZA or BOI Incentives?

Incentive registration is an additional layer applied on top of entity registration. A Domestic Corporation, Branch Office, or ROHQ can each register with an Investment Promotion Agency (IPA) like PEZA or the BOI if eligible.

What you gain, under the CREATE MORE Act (RA 12066): Registered IT-BPM export enterprises can access a choice of an Income Tax Holiday (ITH) followed by a 5% Special Corporate Income Tax (SCIT) on gross income, or an Enhanced Deductions Regime (EDR) taxed at a reduced 20% corporate income tax rate; VAT zero rating on local purchases directly attributable to the registered activity; duty free importation of qualifying capital equipment and spare parts; and codified telecommuting rules allowing up to 50% work from home arrangements for registered IT-BPM enterprises without jeopardizing fiscal incentives. This is a meaningful, durable shift from older onsite requirements.

What you give up: PEZA incentives require operating out of a PEZA accredited IT park or building. Crucially, while foreign ownership eligibility under the Foreign Investments Act only requires a 60% export ratio, PEZA/BOI incentive eligibility requires maintaining a 70% export sales ratio. Incentive elections are also generally treated as irrevocable once made, so it’s worth confirming office location and staffing strategy before applying. (We go deeper on the incentive mechanics and how CREATE MORE changed the calculus for BPOs and shared services structures in our companion piece on the CREATE MORE Act.)

If your business ends up VAT zero rated as an export enterprise, it’s also worth reading up on claiming VAT input tax refunds. It’s a common blind spot for newly registered exporters sitting on unclaimed input VAT.

The Compliance and Finance Foundation Every Operation Needs

Registering the entity is only the starting point. Ongoing operational compliance begins on day one of hiring and billing:

• Invoicing rules under the Ease of Paying Taxes Act (RA 11976). Under current BIR rules implementing the EOPT Act (via Revenue Regulations No. 7-2024), the Sales Invoice, not the Official Receipt, is now the primary legal document required to substantiate the sale of both goods and services; Official Receipts are treated as supplementary payment collection documents only. Make sure your billing system or Authority to Print setup follows the unified Sales Invoice format before issuing your first billing. CloudCFO’s Tax Services team handles this transition for newly registered clients as a standard part of onboarding.
• Registered books of account. Entities must maintain and register manual, loose leaf, or Computerized Accounting System (CAS) books of account with the BIR. Using the wrong format, or not registering them at all, is a common and avoidable compliance gap. See CloudCFO’s guide on choosing the right books of account for your business.
• Payroll and statutory contributions. Outsourcing is talent intensive. Withholding taxes on compensation, and employer contributions to SSS, PhilHealth, and Pag-IBIG, apply starting with your first payroll cycle. CloudCFO’s Payroll Services and PH Payroll Guide cover this in detail.
• Early tax deadlines. Monthly withholding tax returns, VAT or percentage tax filings, and a first quarterly Corporate Income Tax return typically land within your first quarter of operations. CloudCFO’s Post-Registration Compliance resource maps out what typically comes due, and when.
• Transfer pricing and intercompany documentation. Captive subsidiaries, ROHQs, and branches invoicing foreign affiliates for shared services generate related party transactions. These need to be priced on an arm’s length basis and supported by intercompany agreements and documentation that hold up under BIR audit. This applies regardless of which entity type you’ve chosen. See CloudCFO’s Transfer Pricing guide and coverage of BIR Form 1709 for the current filing requirements.

Where CloudCFO Fits

We didn’t write this guide to sell a registration service. Plenty of incorporation consultancies and law firms already handle that well. But it would be a disservice not to point out where our own work starts: the moment your entity is registered, and for most of the international groups we work with, that entity is a wholly owned Domestic Subsidiary, you need an operational finance partner.

CloudCFO sets up compliant payroll, maintains registered books of account, manages VAT and withholding filings, and builds the intercompany documentation and group reporting formats that align with your parent company’s finance requirements, with Virtual CFO support available for groups that also need strategic financial oversight, not just compliance.

Combining cloud accounting infrastructure, structured processes, and a team of Philippine CPAs, CloudCFO helps founders and international finance leads focus on scaling operations while we maintain full tax and accounting compliance. If you’re weighing entity options before you’ve even registered, CloudCFO’s Business Registration service can also help you make that first decision correctly.

If you’re past the registration stage and thinking about what comes next, that’s exactly the conversation we’re built for.

Weighing entity options, or ready to talk through what comes after registration? Let’s talk.
Get in Touch with Our Team

Frequently Asked Questions

Can an international group set up a Domestic Corporation instead of a Branch Office or ROHQ in the Philippines?
Yes. In most cases, this is the recommended structure. A Domestic Corporation can be 100% foreign owned, faces no restriction on which clients or affiliates it can serve, shields the foreign parent company from Philippine legal liabilities, and carries no statutory capital floor as an export enterprise.

How do I set up an outsourcing business in the Philippines?
Most founders and international groups incorporate a Domestic Corporation with the SEC, followed by tax registration with the BIR, local licensing with the LGU, and employer registration with SSS, PhilHealth, and Pag-IBIG. This sequence applies to both standalone commercial BPOs and captive shared services centers.

What is the difference between a Branch Office and a Domestic Corporation for a BPO?
A Domestic Corporation is an independent legal entity separate from its shareholders, shielding the foreign parent from local liabilities and requiring no statutory capital floor as an export enterprise. A Branch Office is a direct legal extension of the foreign parent, exposing the parent company directly to Philippine liabilities and requiring a ₱500,000 SEC security deposit plus 2% of annual gross income above ₱10 million.

How do I set up a shared services center in the Philippines?
Most groups set up a wholly owned Domestic Subsidiary. Setting up an ROHQ instead requires a minimum US$200,000 inward remittance, restricts services exclusively to group affiliates, and no longer provides tax savings since the CREATE Act (RA 11534) eliminated the legacy 10% tax rate, subjecting ROHQs to the regular 25% corporate income tax rate.

Do I need to register with PEZA to operate a BPO or shared services center?
No. PEZA registration is optional. It offers tax incentives like an Income Tax Holiday and a 5% Special Corporate Income Tax under the CREATE MORE Act (RA 12066). However, it requires locating in a PEZA accredited facility and maintaining a 70% export sales ratio.

Is an ROHQ still taxed at a preferential rate in the Philippines?
No. The preferential 10% corporate income tax rate for ROHQs was repealed by the CREATE Act (RA 11534). ROHQs are now subject to the standard 25% corporate income tax rate, the same rate paid by a Domestic Corporation, without offering the operational flexibility or liability protection of a subsidiary.