UNLOCKING COMPLIANCE: CLARIFYING THE SECURITIES DEPOSIT REQUIREMENT OF THE SECURITIES AND EXCHANGE COMMISSION

  • May 1, 2024

A foreign corporation may set up a business in the Philippines through the establishment of a Branch Office, Representative Office, Regional Headquarters or Regional Operating Headquarters. However, as the words of the law provide, a foreign corporation are those incorporated under the laws other than the laws of the Philippines (Article 140, Revised Corporation Code). Thus, they are only licensed to transact business in the Philippines and not incorporated. They are merely an extension of the personality of the foreign corporation located or domiciled abroad.

In consideration of the license granted by the Securities and Exchange Commission, foreign corporations are required to place a securities deposit satisfactory to the Commission (Article 143, Revised Corporation Code). This may consist of bonds or other evidence of indebtedness of the Government of the Republic of the Philippines the actual market value of which must be at least Php500,000.00. The initial Securities Deposit shall be secured by the Foreign Corporation within sixty (60) days from the date of issuance of their License to Transact Business in the Philippines. This shall be earmarked in favor of the Securities and Exchange Commission and a separate application for Securities Deposit must be filed with the SEC.

However, the following are not required to place a securities deposit:

  1. Foreign banking corporation including offshore banking units;
  2. Foreign insurance corporations;
  3. Foreign non-stock corporations including foreign religious corporations;
  4. Foreign Corporations which have established Representative Offices in the Philippines;
  5. Regional or Area Headquarters of Multinational Companies;
  6. Operating Regional Headquarters of Multinational Companies.

For those entities required of Securities Deposit, an additional securities deposit is required however on the following scenarios:

  1. If the licensee’s gross income within the Philippines for that fiscal year exceeds Php10,000,000, additional securities with an actual market value equivalent to two percent (2%) of the increase in said income;
  2. If the actual market value of the deposited securities or financial instruments has decreased by at least ten percent (10%) of their actual market value at the time they were deposited, additional securities with an actual market value that would cover the decrease.

In both cases, the additional securities must be made within six (6) months from the close of the fiscal year/ calendar year.

Thus, upon securing license, the foreign corporation would need to set up a securities deposit in the amount of at least Php500,000.00. In case that the gross income of the company for the fiscal year exceeded Php10,000,000 the additional deposit shall be two percent of the excess plus the minimum deposit of Php500,000 to arrive at the required securities deposit.

Kindly note that failure to comply with this requirement is subject to penalty as follows:

 

Initial Deposit

Additional Deposit

1st Violation

Basic Fine of Php10,000; and surcharge of Php500.00 per month of delay

Basic Fine of Php7,000; and surcharge of Php500.00 per month of delay

2nd Violation

Basic Fine of Php10,000; and surcharge of Php1,000.00 per month of delay

Basic Fine of Php7,000; and surcharge of Php1000.00 per month of delay

3rd Violation

Basic Fine of Php10,000; and surcharge of Php1,500.00 per month of delay

Basic Fine of Php7,000; and surcharge of Php1500.00 per month of delay

For the purpose computing the penalty, a fraction of month shall be considered one month.

Our firm offers a wide range of services, from company setup and preparation to submission of reports. Please feel free to get in touch with us at advisors@morfecenetacpas.com.

This article is for general information only and does not constitute professional advice. Therefore, the reader holds Morfe, Ceneta & Co., CPAs, including its partners, officers and employees free and harmless from any liability arising from one’s reliance on this article.