SEC Opinion Clarifies Limits on Representative Offices: Importation for Distribution Deemed Income-Generating

SEC-OGC Opinion No. 25-09 addresses a request for clarification regarding the permissible activities of a proposed representative office (RO) of a foreign corporation engaged in the marketing and distribution of health and cosmetic products.

The foreign client intended to register an RO in the Philippines to gain legal standing and undertake allowed activities. Central to the client’s plan was the importation of its products for initial marketing and market penetration. To facilitate this, the client sought to obtain a License to Operate (LTO) from the Food and Drug Administration (FDA), which is a prerequisite for securing a Certificate of Product Registration (CPR) and a Certificate of Product Notification (CPN).

The legal query sought the SEC’s opinion on five key issues, essentially questioning whether an RO could undertake the necessary steps to import products for distribution while complying with its statutory mandate. 

The SEC confirmed that an RO, being an organizational unit of its parent company, is allowed to engage in activities necessary for its legitimate operations. The parent company has the authority to appoint officers and personnel, including foreign nationals, provided that these appointments adhere to immigration, labor, and other relevant laws, and are permitted by the parent company’s by-laws. An RO is allowed to establish a physical office as this is necessary for its purpose, and the parent company is vested with the personality to enter into a lease contract for such purpose.

On Importation, Distribution, and FDA Licenses (LTO, CPR, CPN), the SEC’s analysis centered on the limitations imposed by law on the activities of a representative office, particularly the strict prohibition against generating income in the Philippines.

Citing jurisprudence (CIR vs. Shinko Electronics), the SEC reiterated that an RO’s activities are limited to passive acts such as information dissemination, promotion of the parent company’s products, and quality control. 

The SEC also confirmed that any permissible act of an RO must resemble the same kind or class as those specifically mentioned—passive acts that do not involve the earning of any income.

The SEC noted that the client’s intention to import products (not raw materials) for distribution as part of “market penetration” generally connotes sale, which is a commercial activity. While “marketing” includes simple product promotion, “sales promotion” (which may involve price reductions to increase sales) is not an allowed activity as it may involve income generation.

Since the proposed “marketing” activity involved the distribution of imported products without any assurance that the distribution would be entirely for free, the activity was deemed to fall under prohibited income-generating activities. Consequently, an RO is generally restricted from undertaking the importation and domestic distribution of products for sale or consideration.This opinion serves as a crucial reminder for foreign corporations operating in the Philippines that the Representative Office status is highly restrictive.