Incentives of Foreign Investments in Philippines
With the Republic Act No. 8762 or the Retail Trade Liberalization Act taking on its effect, the Philippine government is encouraging foreign investors to invest in the country with businesses that will provide opportunities in employment, develop the productivity of resources, heighten the volume as well as the value of exports and provide the future development of the economy’s foundation. The liberalization started in March 2000 and is expected to continue in the coming years.
According to liberalization act, foreign equity may be allowed to up to 100% in all areas of investment with an exception to financial institutions and to the areas which are included in the third regular Foreign Investment Negative List. The Foreign Investment Negative List took effect on October, 1998 and includes the following:
List A- mandated by the Constitution, areas under this listing are reserved to Filipinos such as but not limited to:
- retail trade, cooperative and small mining scale, mass media except recording, practiced of licensed profession, and the rest. In these areas, ownership by a foreigner is prohibited.
- Operation and management of public utilities, advertising, land ownership and the rest. In these areas, only minority ownership by foreigner is allowed.
List B- are areas that are related to defense, those with unfavorable effects on the morals and health of the public, and domestic market enterprises which have paid-in capital below US$200,000. The paid-in capital can be US$100,000 only if they directly employ 50 employees or involve in advance technology.
To be able to engage in business in the Philippines, a foreign entity needs to secure licenses or registrations from different government agencies that are appropriate for the business that will be put up.
For projects or activities qualified for incentives, the foreign investor may apply in the following:
Board of Investment (BOI) Incentives
This entitles a registered enterprise to the following incentives with subject to certain terms and conditions:
- Six year income tax holiday (ITH) for pioneer firms while four years ITH for non-pioneer firms. A non-pioneer firm will be entitled to 6 years ITH if it is located in a less developed area. In Metro Manila, to be granted an ITH they must be within a government industrial estate, service-type projects which has no manufacturing facilities, power generating plants or exporters with expansion projects.
- Tax credit on semi-manufactured product, raw materials and supplies
- Further deduction from taxable income for expenses in labor
- Further deduction from taxable income for major and necessary works in infrastructure
- Additional deductions cannot be enjoyed simultaneously with the ITH incentives
Non- Fiscal Incentives
The non-fiscal incentives that a registered enterprise can enjoy are assured repatriation of foreign investment and earnings thereon, consigned equipment importation, and foreign nationals’ employment.
Philippine Economic Zone Authority (PEZA) Incentives
Presidential Decree No.66 or Book VI of EO 226 granted the incentives to registered enterprises operating within the Ecozones. These enterprises are entitled to the incentives under the BOI incentives with additional tax and duty exemption on importations raw materials, capital equipment and other merchandise that are essential to its operations. Benefits provided for in the Export Development Act of 1994 shall be enjoyed by exporters using local materials. Moreover, a preferential rate of 5% shall be remitted to the government by the enterprises with lapse EO226.
The Cagayan Special Economic Zone and the Zamboanga City Special Economic Zone grant the same incentive given to enterprises within the ecozone of PEZA.
Subic Bay Freeport (SBF) and the Clark Special Economic Zone allow enterprises to pay a final tax of 5% of their gross income as long as their income from non-export sale shall not go beyond 30% of their income coming from all sources.
As tax credit certificates may be transferred under certain conditions, investment incentives are non-transferable.