Three Licence Holding Models: Subsidiary, Distributor and Independent Third Party

1. Key takeaways

The Philippines offers three licence holding models: a wholly owned subsidiary as holder, which gives the strongest control at the highest fixed cost; a distributor as holder, which is the cheapest to set up and the riskiest to live with; and an independent third party as holder, which balances control against cost. The choice should follow product line importance, intended length of operation and channel strategy. Core product lines with a long term commitment point to a subsidiary or an independent third party; trial products can sit with a distributor, provided the exit mechanism is locked into the agreement before signature.

• Control: only a subsidiary or an independent third party keeps the certificate out of the hands of the commercial counterparty.
• Cost: the distributor model avoids local incorporation, office and qualified person overhead, but transfers leverage.
• Reversibility: the Philippines permits multiple registrations of the same product by different MAHs, so a new holder can register independently.
• Timing: the current fee suspension window changes the economics of establishing a second registration (see article 38).

2. Legal basis

Four instruments frame the choice. The authorisation order determines to whom the certificate is issued; the licensing order confines the LTO to Philippine entities; the vigilance order places post-market responsibility on the MAH; and the foreign equity rule determines whether a subsidiary is commercially viable in the first place.

3. Expert insights

First insight: the core risk of distributor holding is the conflict of interest built into the structure. The problem is not competence. A competent distributor can hold a certificate perfectly well. The problem is that the parties want different things. The distributor wants exclusivity and the best possible price; the manufacturer wants a channel it can control and a supplier position it can switch. When the certificate sits with the distributor, that divergence stops being a negotiation and becomes a structural asymmetry. To change distributor, the manufacturer must first move the certificate, and the distributor knows it. That knowledge is permanent leverage, and it does not expire with the contract term.

Second insight: the threshold for a subsidiary is capital, not registration cost. The Philippines imposes a minimum capital requirement on domestic companies with foreign equity above 40 percent, compiled by third parties at USD 200,000. Establishing a subsidiary is therefore not a question of registration fees but of paid-in capital, premises, the engagement of a qualified person and the running cost of a local compliance function. Those are fixed costs that exist whether or not the product sells. Only where the product line is long enough and volume large enough does the per-unit cost of a subsidiary fall below the cost of holding through a third party. Manufacturers routinely underestimate this because they compare only the visible filing fees.

Third insight: independent third-party holding is the middle path, but the choice of party decides everything. The value of an independent holder is neutrality. It does not distribute, so it does not compete with the manufacturer for margin, and it brings holding capability without a commercial agenda. The diligence points are specific: whether the party holds an LTO in its own name rather than borrowing one, whether it employs a qualified person and dedicated regulatory staff, whether it can actually execute vigilance and recall duties rather than merely promise them, and whether the agreement leaves the manufacturer free to replace distributors without touching the certificate. A holder that is neutral but incapable simply relocates the risk.

Fourth insight: multiple registration gives manufacturers a switch route that does not require confrontation. Unlike several Southeast Asian markets, where a product may hold only one certificate, the Philippines allows the same product to be registered separately by different MAHs. A manufacturer can therefore complete a channel switch without depending on the cooperation of the outgoing holder. The price is duplication: a second dossier, a second set of fees and a second review cycle. That price is currently low in relative terms because of the official fee suspension, which is precisely why the timing of a parallel registration deserves separate consideration (see article 38). The strategic point is that the exit option exists on paper for everyone, but only those who have budgeted for it hold a real option.

4. Practical recommendations

• Grade the product line first, then choose the model. Core products should be held by a subsidiary or an independent third party; trial products may sit with a distributor if the exit clause is agreed before launch.
• Whatever the model, write the handover duty into the agreement. Specify the deadline and the liability for breach covering the original certificate, the registration file, the letter of authorisation and the technical documentation.
• Verify the LTO of a third-party holder on site. Confirm that the LTO is registered in that party name and that the activity type includes device importation.
• Preserve switching capability through multiple registration. Where channel negotiations break down, a new holder can apply independently rather than negotiate for release of the existing certificate.
• Model the subsidiary case on total cost, not on fees. Include capital, premises, qualified person salary, and the annual compliance workload before comparing it with third-party holding.

5. Verification checklist

• □ Product line importance graded against an internal product strategy document
• □ Holder LTO ownership confirmed against the name printed on the LTO certificate
• □ Holder capability and neutrality confirmed, covering qualified person, regulatory team and absence of distribution activity
• □ Handover obligations in the agreement cover all four items, with liquidated damages for breach
• □ Foreign equity subsidiary capital threshold of USD 200,000 confirmed against the third-party compilation and current advice
• □ Feasibility of multiple registration assessed with a cost and timeline estimate

How GRZAN can help. GRZAN provides medical device and IVD registration, quality system, authorised representative and local testing support across Southeast Asia, including the Philippines. Our team prepares CMDN/CMDR dossiers to ASEAN CSDT structure, manages submissions and deficiency responses with the FDA Philippines, and supports post-market vigilance obligations. Business enquiries: info@grzanglobal.com