Republic Act 7042, also known as the Foreign Investments Act of 1991, was enacted to spell out the procedures and conditions under which non-Philippine nationals, including former Filipino citizens, may invest and do business in the Philippines with a required paid-in capital of at least USD200,000. The law was amended by Republic Act 8179 to further liberalize the entry of foreign investments into the country.
Foreign investments refer to equity investments 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 foreign exchange and other assets actually transferred to the Philippines. These non-cash assets may be in the form of capital goods and patents, formulae, or other technological rights or processes.
One-Stop Action Center (OSAC)
The One-Stop Action Center for Investment of OSAC expedites the setting up of business in the Philippines by providing frontline services and assistance to walk-in investors. Competent personnel from several government agencies are available to answer business queries, arrange meetings and factory visits, promote joint ventures, and facilitate the acquisition of permits, licenses and registration. OSAC also processes certain incentives for BOI-registered companies and Regional Headquarters (RHQs).
OSAC is located at the Ground floor of the Board of Investments, Industry and Investments Building, 385 Sen. Gil Puyat Ave., Makati City.
Investment Priorities Plan (IPP)
The IPP is a list of various areas of economic activities for investment eligible for government incentives as provided for in the Omnibus Investments Code of 1987, as amended. This is drawn up and revised every year in consultation with concerned government agencies and the private sector. Generally, the IPP seeks to attain the following goals -
- To uplift the material well-being of the poor and the marginalized
- To enhance the global competitiveness of the Philippine industries
- To ensure sustainable development
- To take advantage of the global and international developments
Incentives to Registered Firms
Incentives / privileges may be enjoyed only upon registration. In general, registered enterprises are entitled to the following incentives:
Tax Exemption
1. Income Tax Holiday (ITH)
a. BOI-registered enterprises shall be exempt from the payment of income taxes reckoned from the scheduled start of commercial operations as follows -
- New projects with a pioneer status for six (6) years
- New projects with a non-pioneer status for four (4) years
- Expansion projects for three (3) years. As a general rule, exemption is limited to incremental sales revenue/volume.
- New or expansion projects in less developed areas for six (6) years, regardless of status
- Modernization projects for three (3) years. As a general rule, exemption is limited to incremental sales revenue / volume.
b. The income tax holiday is limited to the following cases -
- Export traders may be entitled to the ITH only on their income derived from the following -
- export of new products i.e. those which have not been exported in excess of USD100,000.00 in any of the two years preceding the filing of application for registration, or
- export to new markets i.e. to a country where there has been no recorded import of a specific export product in any of the two (2) years preceding the application for registration
- Mining Activities
- the exploration and development of mineral resources are not entitled to ITH
- Mining and/or quarrying without mineral processing is not entitled to ITH
- Mining and processing of aggregates is not entitled to ITH
c. New registered pioneer and non-pioneer enterprises and those located in the less developed areas (LDA) may avail themselves of a bonus year in each of the following cases-
- The indigenous raw materials used in the manufacture of the registered product must at least be fifty percent (50%) of the total cost of raw materials for the preceding years prior to the extension unless the Board prescribes a higher percentage
- The ratio of the total imported and domestic capital equipment to the number of workers for the project does not exceed USD10,000 to one (1) worker
- The net foreign exchange savings or earnings amount to at least USD500,000 annually during the first three (3) years of operation.
In no case shall the registered pioneer firm avail itself of this incentive for a period exceeding eight (8) years.
2. Exemption from taxes and duties on imported spare parts
A registered enterprise with a bonded manufacturing warehouse shall be exempt from custom duties and national internal revenue taxes on its importation of required supplies / spare parts for consigned equipment or those imported with incentives.
3. Exemption from wharfage dues and export tax, duty, impost and fees
All enterprises registered under the 1999 IPP will be given a ten (10) - year period from date of registration to avail themselves of the exemption from wharfage dues and any export tax, impost and fees on its non-traditional export products.
4. Tax exemption on breeding stocks and genetic materials
Agricultural producers will be exempted from the payment of all taxes and duties on their importation of breeding stocks and genetic materials within ten (10) years from the data of registration or commercial operation.
Tax Credits
1. Tax credit on tax and duty portion of domestic breeding stocks and genetic materials.
A tax credit equivalent to one hundred percent (100%) of the value of national internal revenue taxes and customs duties on local breeding stocks within ten (10) years from date of registration or commercial operation for agricultural producers.
2. Tax credit on raw materials and supplies
A tax credit equivalent to the national internal revenue taxes and duties paid on raw materials, supplies and semi-manufacture of export products and forming part thereof shall be granted to a registered enterprise.
Additional Deductions from Taxable Income
1. Additional deduction for Labor Expense (ADLE)
For the first five (5) years from registration, a registered enterprise shall be allowed an additional deduction from taxable income equivalent to fifty percent (50%) of wages of additional skilled and unskilled workers in the direct labor force. This incentive shall be granted only if the enterprise meets a prescribed capital to labor ratio and shall not be availed simultaneously with ITH.
This additional deduction shall be doubled if the activity is located in an LDA.
2. Additional deduction for necessary and major infrastructure works
Registered enterprises located in LDAs or in areas deficient in infrastructure, public utilities and other facilities may deduct from taxable income an amount equivalent to the expenses incurred in the development of necessary and major infrastructure works.
This privilege, however, is not granted to mining and forestry-related projects as they would naturally be located in certain areas to be near their sources of raw materials.
Non-Fiscal Incentives
1. Employment of foreign nationals
A registered enterprise may be allowed to employ foreign nationals in supervisory, technical or advisory positions for five (5) years from date of registration. The positions of president, general manager and treasurer of foreign-owned registered enterprises or their equivalent shall, however, not be subject to the foregoing limitations.
2. Simplification of customs procedures for the importation of equipment, spare parts, raw materials, and supplies and exports of processed products.
3. Importation of consigned equipment for a period of ten (10) years from date of registration, subject to posting of a re-export bond.
4. The privilege to operate a bonded manufacturing / trading warehouse subject to Customs rules and regulations.
Entrepreneurial Development Services
Considering the multitude of OFWs and the magnitude of foreign exchange that they continue to contribute to the economy, the Bureau of Investments (BOI) believes that the OFWs are excellent sources of investment into the Philippines, hence, the inclusion of overseas Filipinos among BOI's target investors.
To make its investment promotions effort for this sector effective and gain more impact, the BOI has integrated its overseas promotions program with the Overseas Workers Welfare Administration's (OWWA) Reintegration Preparedness Program. Among the activities and services of the BOI for OFWs are:
1. Conduct of Business / Investment Counseling Seminar
2. Conduct of Entrepreneurial Training Workshop
Depending on the preference or need of a particular job site, the BOI may conduct either a general investment briefing or a more advanced seminar workshop dealing with entrepreneurship and business / investment counseling.
3. Assistance in the preparation of project report / project feasibility for BOI registration
4. Participation in investment fairs or exhibitions overseas as venue for BOI to undertake information awareness among the OFWs or Filipinos overseas.
5. Assistance in joint venture partnership
6. Referrals to financing programs for additional capital
7. Provision of guidance in setting up the business
- Registering the business (documentary and procedural requirements of the Securities and Exchange Commission for partnership and corporation, and of the Department of Trade and Industry for sole proprietorship)
- Securing mayor's permit
An investor who would like to engage in businesses and avail himself of incentives can simultaneously file his application for registration with the SEC / BTRCP and application for incentives with the BOI. The addresses and telephone numbers are as follows:
Board of Investment (BOI)
Industry and Investments Bldg.
385 Sen. Gil Puyat Ave., Makati City
Tel. No. +(63)(2) 890-1332 / 897-6682 / 8953640
Securities and Exchange Commission (SEC)
SEC Bldg., EDSA corner Ortigas Ave., Greenhills, Mandaluyong
Tel. No. +(63)(2) 726-0931
Bureau of Trade Regulation and Consumer Protection (BTRCP)
Department of Trade and Industry
Trade and Industry Bldg.
361 Gil Puyat Ave., Makati City
Tel. No. +(63)(2) 890-5124, 890-4949
Retail Trade Liberalization Act
Republic Act 8762, also known as the Retail Trade Liberalization Act of 2000, was enacted to promote consumer welfare by attracting, promoting, and welcoming productive investments of foreign nationals and Filipinos overseas to stimulate economic growth, and enable Philippine goods and services to become globally competitive through the liberalization of the retail trade sector.
The law defines retail trade as any act, occupation or calling of habitually selling merchandise, commodities or goods directly to the general public for consumption.
Exempted Trade Activities
The law shall not apply to the following:
1. Sales by a manufacturer, processor, laborer or worker, to the general public of products manufactured, processed or produced by him if his capital does not exceed one hundred thousand pesos (PHP100,000.00).
2. Sales by a farmer or agriculturist selling the products of his farm
3. Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital, provided that, the restaurant is incidental to the hotel business
4. Sales that are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization.
Foreign Equity Participation
Foreign-owned partnerships, associations, and corporations formed and organized under the laws of the Philippines may, upon registration with the SEC and/or DTI, or in the case of single proprietorship with DTI, engage or invest in the retail trade business, subject to the following categories:
1. Category A - Enterprise with paid-up capital equivalent in Philippine pesos to less than USD2.5 million is reserved exclusively for Filipino citizens and corporations owned by Filipino citizens
2. Category B - Enterprise with a minimum paid-up capital equivalent in Philippine pesos to USSD2.5 million but less than USD7.5 million may be wholly owned by foreigners except for the first two (2) years after the effectivity for this Act wherein foreign participation shall be limited to not more than sixty percent (60 %) of total equity.
3. Category C - Enterprise with a paid up capital equivalent in Philippine pesos to USD7.5 million or more may be wholly owned by the foreigners, provided, however, that in no case shall the investments for establishing a store in Categories B and C be less than the equivalent in Philippine pesos of eight hundred thirty thousand US dollars (USD830,000.00).
4. Category D - Enterprise specializing in high-end or luxury products with paid up capital equivalent in Philippine pesos to two hundred fifty thousand US dollars (USD250,000) per store may be wholly owned by foreigners.
Rights of Former Filipino Citizens
Natural-born citizens of the Philippines who have lost their Philippine citizenship but who reside in the Philippines, are granted the same rights as Filipino citizens in the retail trade business.
For further inquiries, please contact:
The Legal Department, Board of Investment (BOI)
Industry and Investments Bldg.
385 Sen. Gil Puyat Ave., Makati City
Tel. Nos. +(63)(2) 897-6682 local 314, 897-3084, 896-7895
Fax No. +(63)(2) 895-3978
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