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Procedures for Investing
in the Philippines

Who may invest?

Anyone, regardless of nationality, is welcome to invest in the Philippines in almost all areas, and up to the extent of 100% ownership. However, the Foreign Investments Act of 1991 (RA 7042) restricts some areas of economic activities open to foreign investors. These activities are found in the Foreign Investment Negative List (FINL).
What are the kinds of investments? Depending on the type on incentives desired, the kind of investments under the Omnibus Investments Code of 1987 (EO 226) are the following):
Investments with incentives (Book I of EO 226)
Incentives to Multinational Companies Establishing Regional or Area Headquarters in the Philippines (Book II of EO 226)
Incentives to Multinational Companies Establishing Regional or Area Headquarters in the Philippines (Book III of EO 226)
Special Investors Resident Visa (Book V of EO 226)
Incentives for Export Processing Zone Enterprises (Book VI of EO 226).

Foreign-owned companies not availing of incentives are covered by the provisions of RA 7042.

In what form can foreign investments be made? In general, foreign investments which means equity investments, can be made in the form of foreign exchange or other assets actually transferred to the Philippines. These non-cash assets may be in the form of capital goods, patents, formula or other technologies rights or processes.
What are the basic rights and guarantees given for the safety of foreign investments? All investors and enterprises are entitled to the basic rights and guarantees provided in the Philippine Constitution. These include, among others,

Right to Repatriation of Investments
In the case of foreign investments, the right to repatriate the entire proceeds of the liquidation of the investment in the currency in which the investment was originally made at the exchange rate prevailing at the time of repatriation.

Right to Remittance of Earnings
In the case of foreign investments, the right to remit earnings from the investments in the currency in which the investment was originally made at the exchange rate prevailing at the time of remittance.

Right to Foreign Loans and Contracts
The right to remit, at the exchange rate prevailing at the time of remittance, such as may be necessary to meet the payment of interest and the principal on foreign loans and foreign obligations arising from technological assistance contracts.

Right to Freedom from Expropriation
There shall be no expropriation by the government of the property represented by the investments or of the property of enterprises except for public use or in the interest of national welfare and defense and upon payment of just compensation. In such cases, foreign investors or enterprises shall have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance.

Right to Non-Requisition of Investment
There shall be no requisition of the property represented by the investment or of the property of enterprises, except in the event of war or national emergency and only for the duration. Just compensation for the requisitioned property may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance.

INVESTMENTS WITH INCENTIVES
Who may avail of government incentives? Under Book I of the Omnibus Investments Code, an investor may enjoy certain benefits and incentives, provided he invests in preferred areas of investment found in the current Investment Priorities Plan (list of promoted areas of investments eligible for government incentives which are comparable with other countries).

An enterprise may still be entitled to incentives even if the activity is not listed in the IPP so long as:

At least 50% of production is for exports -- if Filipino-owned enterprise; and,
At least 70% of production is for exports -- if majority foreign-owned (more than 40% foreign equity)

The BIO in certain instances as indicated in the IPP may completely or partially limit the incentives available to export products.

What are these incentives?

Under Book I of the Omnibus Investments Code, BOI-registered enterprises are given a number of incentives in the form of tax-exemptions and concessions. More specifically, the fiscal incentives include:

Fiscal Incentives

Income Tax Holiday
Four (4) years income tax holiday for registered new non-pioneer firms and six (6) years for registered new pioneer firms, extended for another year in each of the following cases:
- Indigenous raw materials are utilized at rates set by the BOI;
- Project meets the prescribed ration of capital equipment to annual number of workers set by the BOI;
- Net foreign exchange savings or earnings amount to at least US$500,000 annually during the first three (3) years of operation.

In no case shall the registered pioneer firm avail of this incentive for a period exceeding eight (8) years.

Registered expanding firms shall be entitled to an exemption from income taxes proportionate to their expansion for a period of three (3) years from commercial operation.

Tax and Duty Free Importation of Capital Equipment -- Machineries and accompanying spare parts up to 31 December 1994.
Tax credit on Domestic Capital Equipment -- for the same period as provided in the preceding paragraph.
Additional Deduction for Labor Expense -- for the first five (5) years from registration, a registered enterprise shall be allowed an additional deduction from taxable income of fifty per cent (50%) of the wages corresponding to the increment in the number of direct labor for skilled and unskilled workers if the project meets the prescribed ratio of capital equipment to number of workers set by the Board. Provided that this additional deduction shall be doubled if the activity is located in less developed areas.
Exemption from Contractor's Tax -- both on the national and local levels. This incentive is available to export-oriented firms.
Tax and Duty Free Importation of Breeding Stocks and Genetic Materials -- for ten (10) years from registration of commercial operation for agricultural producers.
Tax credit on Domestic Breeding Stocks and Genetic Materials -- under the same condition as the preceding paragraph.
Simplification of Customs Procedures -- Customs procedures for the importation of equipment, spare parts, raw materials and supplies and exports of processed products shall be simplified.
Unrestricted Use of Consigned Equipment -- no restrictions on the use of consigned equipment provided a re-export bond may be waived subject to certain conditions.
Employment of Foreign Nationals -- in supervisory, technical or advisory positions for five (5) years from registration, extendible for limited period. The president, general manager and treasurer of foreign-owned registered firms or their equivalent shall not be subject to the foregoing limitations.
Tax credit for Taxes and Duties on Raw Materials, Supplies and Semi-manufactured Products and forming parts thereof.
Access to Bonded Manufacturing/Trading Warehouse System -- registered export-oriented enterprises shall have access to the utilization of the bonded warehousing system in all areas.
Exemption from Wharfage Dues and any Export Tax, Duty, Impost and Fees -- exports by a registered enterprise of its non-traditional export products shall be exempted from wharfage dues and any export tax, impost and fees.
Tax and Duty Exemption of Imported Spare Parts and Supplies -- for export producers with customs bonded warehouse exporting at least 70% of production.
Non-Fiscal Incentives

Are foreign firms allowed to employ foreign nationals?

Yes, BOI-registered enterprises and firms in the Export Processing Zones are allowed to employ, within five years from registration, foreign nationals in the supervisory, technical or advisory positions and the positions of president, treasurer and general manager or their equivalents may be retained by foreign nationals if the majority of the capital stock of the firms is owned by foreign nationals.

All foreign employees may bring with them their spouses and unmarried children under 21 years of age.

Are there government facilities for training laborers?

The Export Processing Zone Authority extends assistance on major manpower training of laborers to firms in the zones. The National Manpower and Youth Council (NMYC) of the Department of Labor and Employment also conducts manpower training programs on electronics, automotive mechanics, machine shop, welding, hotel and restaurant, garments industry, footwear and leather goods, business equipment computer and electromechanical. In addition, the Labor Code grants incentives to firms engaged in labor training activities.

In case I want to locate my project in less developed areas, are there any additional incentives?

Additional incentives for BOI-registered enterprises locating in a less developed area include:
The same set of incentives given to a pioneer registered enterprise;
A 100% deduction from its taxable income representing the necessary and major infrastructure it may have undertaken in the course of its operation; and,
An additional deduction from taxable income of 100% of the wages corresponding to the increment in the number of direct labor for skilled and unskilled workers in the year of availment as against the previous year is observed.

The nationality requirement on non-pioneer activities locating in a less-developed area is likewise waived, thus 100% foreign ownership is allowed.

Are investment incentives transferable?

In general, investment incentives are not transferable. However, tax credit certificates may be transferable under conditions set by the BOI, after consultation with the Department of Finance.

Investment incentives may be enjoyed by a registered enterprise in relation to the registered operation only.

Are there any incentives to firms offering their stocks to the public?

There are no incentives granted to enterprises merely on account of their stocks being issued publicly and listed in the stock exchange. By law, enterprises registered with the BOI are required to offer their equity to the public in order to provide for a wider base of ownership or corporate holdings.

By policy, the BOI requires a minimum of 10% of equity to be offered to the public.

What are other areas are entitled to incentives?

Export Trader

Those engaged or proposing to engage in the sale abroad of export products bought by it from one or more export producers. New export traders are those engaged in export marketing of new products (means total Philippine export did not exceed US$100,000 annually in two calendar years immediately preceding BOI application for registration) or in exporting to new export markets (country where the Philippines has never exported the specific export product).

New export traders are entitled to the following incentives:

Income tax holiday for a period of four (4) years;
Tax and duty free importation of capital equipment until 31 December 1994 (limited to packaging and quality control equipment);
Tax credit on domestic capital equipment
Tax credit for taxes and duties on raw materials used for its export products and forming part thereof (packaging materials and supplies)
Exemption from wharfage dues, export tax, duties, imposts and fees;
Additional deduction for incremental labor expenses (after income tax holiday);
Employment of foreign nationals

Existing export traders are not entitled to income tax holiday and capital equipment incentives.

Service Exporter

Those enterprises engaged or proposing to engage in rendering technical, professional or other services or in exporting television and motion pictures and musical recording made or produced in the Philippines, either directly or through a registered trader.

New Service Exporters are entitled to the following incentives:

Income tax holiday for a period of four (4) years;
Tax and duty free importation of capital equipment until 31 December 1994 (limited to packaging and quality control equipment);
Tax credit on domestic capital equipment;
Unrestricted use of consigned equipment;
Exemption from contractors’ tax, national or local’ and
Exemption from wharfage dues, export tax, duties, imposts and fees.

Export traders and service exporters availing of incentives shall, at all times, be at least 60% owned by Philippine nationals.

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