guide philippines

8/13/2019 Guide Philippines

1/30

www.lexmundi.com

PhilippinesPrepared by Lex Mundi member firm,Romulo Mabanta Buenaventura Sayoc &

De Los Angeles

Guide to Doing Business

Lex Mundi is the world’s leading network of independent law firmswith in-depth experience in 100+ countries. Through close collaboration,our member firms are able to offer their clients preferred access to morethan 21,000 lawyers worldwide – a global resource of unmatched breadthand depth.

Lex Mundi – the law firms that know your markets.

This guide is part of the Lex Mundi Guides to Doing Business series whichprovides general information about legal and business infrastructures in

jurisdictions around the world. View the complete series at:www.lexmundi.com/GuidestoDoingBusiness.


2/30

A G UIDE TO

D OING B USINESS IN THE P HILIPPINES

R OMULO M ABANTA B UENAVENTURA

S AYOC & DELOS A NGELES

2 0 1 1


3/30

2

Tab le o f Con ten t s

1 Introduction 12 The Foreign Investments Act 23 Modes of Doing Business 3

Domestic Subsidiary 3Branch 4Representative Office 5Regional or Area Headquarters 6Regional Operating Headquarters 6Joint Venture 7Purchase of Shares in an Existing 7CorporationMerger or Consolidation 8Technology Transfer Arrangement 9Management Contract 10

4 Incentives to Foreign Investment 11

Board of Investments 11Special Economic Zones 15Incentives in Other Laws 17

5 Relevant Laws 19Exchange Controls 19Taxation 19Labor 21Immigration 22 Anti-trust 23Intellectual Property 23E-commerce 24Product Liability 24

Firm Background 25 Annexes


4/30

Chapter 1 :I n t roduc t i on

Legal system

The Philippine legal system is a peculiar mixture ofcivil law, common law, indigenous customary law andcontemporary law designed to meet currentconditions, with a separate and distinct Muslim legalsystem operating for the Muslim minority. To have agenuine grasp of the Philippine legal system, it mustbe pointed out that the Philippines had been underfour centuries of Spanish domination and about half acentury of American political administration. Spanishlaw is civil law and American law is common law.

If one asks whether the legal system is predominantlycivil law or common law, the answer will depend onone’s orientations. One jurist-writer has definitelystated that the country follows the civil law system. Buteven years before that statement, Mr. Justice George

A. Malcolm, speaking for the Supreme Court in a 1920decision, had made clear, after describing hisexhaustive jurisprudential investigation, that what wehave is a Philippine common law all its own (In re:Shoop, 41 PHIL. 216 [1920] Malcolm, J)

Although regardless of how one looks at the nature ofthe Philippine legal system, it is generally agreed that:First, laws hold an ascendancy over judicial decisionsin that courts have to apply them and are forbidden tochallenge their wisdom, which is an exclusive functionof the legislature. Second, in the rare event that courtsdeclare laws unconstitutional, the courts cannot stillreplace the legislation that they have voided. Third,Philippine courts are both courts of law and of equity,a term broadly defined by Justice J.B.L. Reyes as“justice according to natural law and right.” (JusticeJose B.L. Reyes, The Trend Toward Equity versusPositive Law in Philippine Jurisprudence, AnalyticalSurvey of Selected Supreme Court Decision in CivilLaw, 1983, UP Law Center, 1984, p.1)

The Benefits of Investing in the Philippines

In recent years, the Philippine economy has made aremarkable recovery that has caught the attention ofthe international business community. The once "sickman of Asia" has evolved into the latest AsianEconomic Miracle due to a democratic governmentcommitted to free enterprise and its liberalizedbusiness laws that have opened more investmentareas to 100% foreign equity, have granted incentivesto foreign investors at par with other Asean countries,

and have simplified investment procedures. Asidefrom these, its being a strategic location for globalexports, the existence of quality manpower made up

of educated, highly trainable, creative, English-speaking, computer- literate persons and continuallyimproving infrastructure have all contributed to makingthe Philippines an attractive business location whichassures foreign investors a profitable return on theirinvestments.

Republic Act No. 7042, more commonly known as theForeign Investment Act of 1991 (“FIA”), sums up thedirection that government policy is taking towardsforeign investments:

"Foreign investments shall be encouraged inenterprises that significantly expand livelihood andemployment opportunities for Filipinos; enhanceeconomic value of farm products; promote the welfareof Filipino consumers; expand the scope, quality andvolume of exports and their access to foreign markets;and/or transfer relevant technologies in agriculture,

industry and support services. Foreign investmentshall be welcome as a supplement to Filipino capitaland technology in those enterprises that servicemainly the domestic market."

First, laws hold an ascendancy over judicial decisionsin that courts have to apply them and are forbidden tochallenge their wisdom, which is an exclusive functionof the legislature.

Second, in the rare event that courts declare lawsunconstitutional, the courts cannot still replace the

legislation that they have voided.

Third, our courts, nonetheless, are both courts of lawand of equity, a term broadly defined by Justice J.B.L.Reyes as “justice according to natural law and right.”(Justice Jose B.L. Reyes, The Trend Toward Equityversus Positive Law in Philippine Jurisprudence,

Analytical Survey of Selected Supreme Court Decisionin Civil Law, 1983, UP Law Center, 1984, p.1)

Chapter 2 : The Fore ignInv es tmen t Ac t

The Foreign Investment Act has served to open upmore areas of the Philippine economy to foreigninvestment, although maintaining constitutional andstatutory restrictions in certain nationalizedenterprises. By virtue of the FIA, as much as 100 percent foreign equity is allowed in areas of activity nototherwise found in what is now known as theForeign Investments Act Negative List (the“Negative List”) [See Annex A]

The Negative List enumerates the areas ofeconomic activities reserved, whether partially or

totally, for Philippine nationals. List A describesareas of activity, such as mass media, retail trade,

A GUIDE TO DO ING BUSINESS IN THE PHILIPPINES


5/30

advertising and public utilities, which are reservedfor Philippine nationals by the mandate of theConstitution and specific laws. List B includes thoseareas which are either defense-related, requiringprior clearance and authorization from theDepartment of National Defense, or with

implications on public health and morals.

The FIA has also clarified what would constitute“doing business” in the Philippines. The FIA definesthe act of "doing business" to include:

a. soliciting orders;b. service contracts;c. opening offices, whether called liaison

offices or branches;d. appointing representatives or distributors

domiciled in the Philippines who in anycalendar year stay in the country for a

period of one hundred eighty (180) daysor more;

e. participating in the management,supervision or control of any domesticbusiness, firm, entity or corporation in thePhilippines; and

f. any other act or acts that imply acontinuity of commercial dealing orarrangements, and contemplate to thatextent the acts or works, or the exerciseof some of the functions normally incidentto, and in progressive prosecution of,commercial gain, or the purpose and

object of the business organization.c. having a nominee or officer to represent its

interests in such corporation; andd. appointing a representative or distributor

domiciled in the Philippines whichtransacts business in its own name andfor its own account.

The Implementing Rules and Regulations of the Actfurther exclude from the definition of "doing business"the following:

a. publication of a general advertisementthrough any print or broadcast media

b. maintaining a stock of goods in thePhilippines solely for the purpose ofhaving the same processed by anotherentity in the Philippines;

c. consignment by a foreign entity ofequipment with a local company to beused in the processing of products forexport;

d. collecting information in the Philippines;and

e. performing services auxiliary to anexisting isolated contract of sale which are

not on a continuing basis.

In further qualifying the activities which are deemed“doing business” in the Philippines, the Supreme Courtrecently ruled that “activities within Philippine

jurisdiction that do not create earnings or profits to theforeign corporation do not constitute doing business inthe Philippines.” (Cargill, Inc. v. Intra Strata Assurance

Corporation, G.R. No. 168266. 15 March 2010)

If it is foreseen that a foreign entity’s acts wouldconstitute “doing business” in the Philippines, then it isnecessary that such entity to be licensed to dobusiness in the Philippines. Otherwise, an entity doingbusiness in the Philippines without a license would bedenied the right to sue in Philippine courts, althoughthey would be subject to suit in the Philippines. Thepurpose of the law in requiring entities doing businessin the country be licensed to do so, is to subject suchentities to the jurisdiction of Philippine courts.Otherwise, a foreign entity doing business here

because of its refusal or neglect to obtain the requiredauthority to do business may successfully thoughunfairly plead such neglect or illegal act so as to avoidservice and impugn the jurisdiction of local courts.(Avon Insurance PLC v. Court of Appeals, 278 SCRA312 [1997]).

The term "doing business", however, excludes:

a. mere investment as a shareholder by a foreignentity in domestic corporations duly registered todo business;b. exercise of such rights as an investor;

Chap ter 3 : Modes o f I nv es tmen t

In order to be granted authority to do business in thePhilippines, a foreign entity has several optionsowing to the various allowable modes of foreigninvestment. It is important to note that mode ofinvestment has its own requirements,characteristics and features that may either beviewed as an advantage or disadvantage,depending on the investor’s business goals andgrowth plan.

The common forms of business entities used byforeign companies are the following: domesticsubsidiary; branch; representative office;regional headquarters; or regional operatingheadquarters. Other forms of investment may bedone through a joint venture; purchase of sharesin an existing domestic corporation; merger orconsolidation; technology transferarrangements; or through a managementContract with a domestic corporation.

The following is a summary of the basic information

needed for the different modes of doing business:


6/30

[Note that the tax rates and registration feesindicated are those applicable as of the date of thispublication and are subject to change]

A. Domesti c Subs id iary

A subsidiary is a corporation which, whileincorporated and existing under Philippines laws, iseither wholly-owned or at least majority-owned by aforeign "parent" corporation. It is thereforeconsidered a domestic (Philippine) corporation byvirtue of its incorporation under the laws of thePhilippines, but it is also considered foreign becauseits shares of stock are wholly or majority-owned by aforeign corporation. The advantage of a domesticsubsidiary over a branch office is that a subsidiaryhas a separate and distinct juridical personality fromits parent corporation, so that the liability of theparent corporation to creditors of the subsidiary is

limited to its shareholdings in the domesticsubsidiary. The parent foreign corporation is thus fullyprotected from the liabilities of the subsidiary inexcess of its shareholdings in such subsidiary.Nationality requirements with respect to certainindustries must be observed. [See Annex A]

Capital Requirement. Generally, the requiredminimum paid-up capital is Two Hundred ThousandUS Dollars (US$200,000.00) (Republic Act No.8179). This amount of required minimum paid-upcapital may be reduced to One Hundred ThousandUS Dollars (US$100,000.00) if advanced

technology as determined by the PhilippineDepartment of Science and Technology is involved orthe business directly employs at least fifty (50)employees. Higher capitalization requirements mayalso be required for certain industries, i.e. mining.The minimum paid up capital of US$200,000.00 doesnot apply to enterprises that export sixty percent(60%) or more of its output or domestic purchases.

Taxes.

Corporate Income Tax. A subsidiary is liable fortax at the rate of 30% on its entire net income,

both from sources within and without thePhilippines, or the MCIT, whichever is higher (seediscussion on "Branch").

Tax on Remittance of Dividends. The remittanceof dividends by a subsidiary to its foreign "parent"corporation is, generally, taxed at 30%. This,however, may be reduced to 15% where thecountry in which the foreign "parent" corporationeither: (a) grants a tax sparing credit of 15% or (b)does not at all impose any tax on such dividendsreceived..

Expenses. For purposes of taxation, the parentcompany of a subsidiary cannot pass on to its

subsidiary any portion of its expenses since thesubsidiary is a separate and distinct entity from theparent company.

Liabilities. The subsidiary's liabilities are separateand do not become the liabilities of its foreign "parent"

corporation because of its separate juridical personality.Recovery for damages and/or liabilities is limited to thecapital and assets of the subsidiary in the Philippines.The foreign corporation is thus completely shieldedfrom the liabilities of its subsidiary.

Deposit of Securities. No deposit of securities withany entity is required.

Establishment and Registration Costs.

a. Filing fee: 1/5 of 1% of the authorizedcapital stock or the subscription price of the

subscribed capital stock whichever is higher,but not less than One Thousand PhilippinePesos (P1,000.00);

b. Legal research fee: 1% of the filing fee, butnot less than Ten Philippine Pesos(P10.00); and a minimum research feealso apply

c. By-Laws fee: P500.00;d. Documentary stamp tax: Equivalent to

P1.00 on each P200.00 par value of

shares issued or fractional part thereof;

e. For Applications under the ForeignInvestments Act: Additional TwoThousand Philippine Pesos (P2,000.00)for applications under the ForeignInvestments Act; and

f. Other fees: Minimal amount of fees for postincorporation government permits such asthe mayor's permit, tax identificationnumber, Value Added Tax and WithholdingTax Agent's Registration if applicable, BIR

registration of books ofaccount

g. B. Branch A foreign corporation may set up a branch in thePhilippines by obtaining a license to transactbusiness. A branch is an extension of the foreigncorporation (i.e., incorporated and existing underforeign laws), but may engage in exactly the sameactivities as its parent company. However, existingnationality requirements with respect to certainindustries must be observed. [See Annex A]

Since a branch office is a mere extension of itsparent corporation, the branch does not have a


7/30

personality separate and distinct from its parentcompany. A branch office may, therefore, concludesales contracts with local entities in its own name,and in general, engage in income-producingactivities in the same manner as its parentcompany. Further, the parent corporation may be

held responsible for any liability of the branch inexcess of its investment.

Capital Requirement. The required minimumassigned capital is Two Hundred Thousand USDollars (US$200,000.00) (Republic Act No. 8179).This amount of required minimum assigned capitalmay be reduced to One Hundred Thousand USDollars (US$100,000.00) if advanced technology asdetermined by the Philippine Department of Scienceand Technology is involved or the business directlyemploys at least fifty (50) employees.

Taxes.

Corporate Income Tax Rate. A branch istaxed only on net income derived fromPhilippine sources at a rate of 30%.

Minimum Corporate Income Tax. In lieu of theabove-mentioned normal corporate income taxrate, beginning the fourth (4th) year immediatelyfollowing the year of the commencement of itsoperations, a branch will be subject to theminimum corporate income tax (MC IT) of two

percent (2%) of gross income if such MCIT ishigher than the corporation's taxable incomecomputed using the 30% rate. The term grossincome is defined as (i) gross sales less salesreturns, discounts and allowances and cost ofgoods sold, or (ii) gross receipts less salesreturns, allowances, discounts and cost ofservices. Any excess MCIT over the normalcorporate income tax may be carried forward forthe three (3) immediately succeeding taxableyears and credited against the normal corporateincome tax. The Secretary of Finance maysuspend the imposition of the MCIT on any

corporation which suffers losses on account ofprolonged labor dispute, because of forcemajeure, or because of legitimate businessreverses.

Tax on Branch Profit Remittance. Theremittance of profits made by a branch to its headoffice is subject to a tax of 15%, which shall bebased on the total profits applied or earmarkedfor remittance without any deduction for the taxcomponent thereof (except those activities whichare registered with the Philippine Economic Zone

Authority). However, if the branch receives

income in the form of dividends, interest orrentals, among others, which are not effectively

connected with the conduct of its trade orbusiness in the Philippines, such income whenremitted to the head office abroad shall not beconsidered as branch profits and no branchprofits tax is further required to be paid.

Expenses. For purposes of taxation of theincome of the branch office, the parent foreigncorporation can allocate to its branch aproportional part of its expenses, losses, interestpayments and similar expenses relating to theconduct of business in the Philippines.

Liabilities. A foreign corporation which does businessthrough a branch is liable for all damages and/or otherliabilities which may be incurred by its branch.Theoretically, the assets of the home office may bemade to answer for the liabilities incurred by thebranch.

Deposit of Securities. A branch is required by lawto deposit government securities with actual marketvalue of at least One Hundred Thousand PhilippinePesos (P 100,000.00) with the Securities andExchange Commission (the "SEC"), within sixty (60)days from the issuance of the SEC license totransact business in the Philippines, and thereafter,within six (6) months after each fiscal year of thelicensee, additional securities equivalent in marketvalue to two percent 2% of the amount by which thegross income of the branch exceeds Five MillionPhilippine Pesos (P5,000,000).


a. Filing Fee: Equivalent to 1% of the actualinward remittance of the branch convertedinto Philippine currency but not less thanP2,000.00.

b. Legal research fee: 1% of the filing fee,but not less than Ten Philippines Pesos(P10.00);

c. For applications under the ForeignInvestments Act: Additional Two

Thousand Philippine Pesos (P2,000.00)for applications under the ForeignInvestments Act; and

d. Others: Minimal amount of fees for postincorporation government permits such asthe mayor's permit, tax identificationnumber, Value Added Tax andWithholding Tax Agent's Registration ifapplicable, BIR registration of books ofaccount.

C. Representativ e Office

A representative office promotes the products and/or


8/30

services of the Company it represents, but cannotconclude contracts with local entities on behalf of itsparent Company. Such contracts must be directlyentered into between the Company head office andthe local entity. Its activities are limited to thepromotion and dissemination of information about

the Company's products and/or services.

By the nature of the activities allowed of arepresentative office, it cannot derive income fromthe Philippines. The test of whether an office is arepresentative office or not, is whether it derivesincome from its operations.

Some of the acceptable activities of a representativeoffice are the following:

a) dissemination of foreign marketinformation;

b) promotion for export of Philippine productsspecially nontraditional products;

c) acting as a message centre or acommunication centre between interestedparties and the head office;

d) promotion of products presently beingdistributed in the Philippines;

e) to render, assist and give technical know-how and training to existing and futurecustomers of the Company's products;

f) to provide and facilitate bettercommunication and contact between itshead office and affiliated companies on onehand and present and future customers on

the other;g) to inform potential customers of price

quotations of the head office and affiliatedcompanies;

h) to conduct and make surveys and studies ofthe market, economic and financialconditions in the Philippines; and

i) attend to the needs of end-users of itsproducts in the Philippines, advising them onthe proper care and maintenance of theirequipment and to communicate to its headoffice problems that call for consultations.

Capital Requirement. The amount initially to beremitted is at least Thirty Thousand US Dollars(US$30,000.00).

Taxes. A representative office has no income fromoperations and, therefore, has no income tax liability.

Expenses. No allocation can be made to therepresentative office since the representative officeobtains no income from the Philippines with which tooffset the expenses.

Deposit Of Securities. No deposit of securities

with any entity is required.


a. Filing Fee: Equivalent to l/10 of 1% of the actualinward remittance of the Company converted intoPhilippine currency, but not less than TwoThousand Philippines Pesos (P2,000.00);

b. Legal research fee: 1% of the filing fee, but notless than Ten Philippines Pesos (P1 0.00); and

c. Other Fees: Minimal amount of fees for postincorporation government permits such as the

mayor's permit, tax identification number,Bureau of Internal Revenue ("BIR")registration, and registration of books of accountand Certificate of Registration with theDepartment of Trade and Industry.

D. Regional or Area Headquarters

The Regional or Area Headquarters of amultinational company is an administrative branchwhich principally acts as a supervision,communications and coordination center for thesubsidiaries, branches or affiliates of a multinationalcompany in the Asia-Pacific Region. It is not allowedto do business or earn income from the host country,unlike a branch or subsidiary. Neither does it dealdirectly with the clients of the parent company,unlike a representative office, when it undertakessuch activities as information dissemination andpromotion of the company's products for export.

Capital Requirement. The required minimum capitalis the amount of not less than Fifty Thousand USDollars (US$50,000) or its equivalent in acceptableforeign currency.

Taxes. It will not be subject to income tax provided itwill not earn or derive income from the Philippinesand merely act as a supervisory, coordination andcommunication center for its affiliates, subsidiariesor branches in the Asia-Pacific Region and otherforeign markets. It is also exempted from the value-added tax, local licenses, fees and dues, duties onimportation of training materials

Expenses. All its expenses are financed by thehead office or parent company. The foreign firmshould remit into the Philippines the entire amountnecessary to cover the operations of its RegionalHeadquarters in the Philippines but not less thanFifty Thousand US Dollars ($50,000.00) annually orits equivalent in acceptable foreign currencies.

All funds of the Regional Headquarters shall beutilized for salaries and other emoluments, includingfringe benefits of personnel, rental of offices,transportation expenses, communication fees andsimilar costs for the maintenance of the regional


9/30

headquarters in the Philippines.

Liabilities. Its liabilities, like its expenses, are to beshouldered by the Parent Company.

Deposit of Securities. No deposit of securities

with any entity is required.


a. Filing fee: Five Thousand PhilippinePesos (P5,000.00); and

b. Legal research fee: 1% of the filing fee, butnot less than Ten Philippine Pesos (P1 0.00);and

c. Board of Investments requirement ofannual inward remittance: at least FiftyThousand U.S. Dollars (US$50,000.00) for

operating expenses.

E. Regional Operating Headquarters

A regional operating headquarters of a multinationalcompany is a branch office established in thePhilippines engaged in any one of the followingservices: general administration and planning;business planning and coordination; sourcing andprocurement of raw materials and components;corporate finance advisory services; marketing controland sales promotion; training and personnelmanagement; logistic services; research and

development services and product development;technical support and maintenance; data processingand communication; and business development. Itrefers to a foreign business entity which is allowed toderive income in the Philippines by performingqualifying services to its affiliates, subsidiaries orbranches in the Philippines, in the Asia-Pacific Regionand in other foreign markets.

Regional operating headquarters are prohibited fromoffering qualifying services to entities other than theiraffiliates, branches or subsidiaries, as declared in theirregistration with the Securities and Exchange

Commission nor shall they be allowed to directly andindirectly solicit or market goods and services whetheron behalf of their mother company, branches,affiliates, subsidiaries or any other company.

Capital Requirement. The required minimum capitalis the amount of not less than Two Hundred ThousandUS Dollars (US$200,000) or its equivalent inacceptable foreign currency.

Taxes.

Tax on Income of ROHQ. Regional operating

headquarters shall pay a tax of ten percent (10%)of their taxable income.

Tax on Branch Profit Remittances. Anyincome derived from Philippine sources by theregional operating headquarters when remittedto the parent company shall be subject to thetax on branch profit remittances of 15% whichshall be based on the total profits applied or

earmarked for remittance without any deductionfor the tax component thereof (except thoseactivities which are registered with thePhilippine Economic Zone Authority).

Expenses. Assuming that it is earning incomefrom its operations as a regional operatingheadquarters, income from such operations shallfinance the regional operating headquarters.However, if there is no sufficient income, itsexpenses may be financed by the multinationalcompany.

Liabilities. Its liabilities, like its expenses, are to beshouldered by the multinational company.

Deposit of Securities. No deposit of securitieswith any entity is required.


a. Filing fee: 1% of the actual remittance,but not less than 1% of the Philippinecurrency equivalent of Two HundredThousand US Dollars (US$200,000.00);and

b. Legal research fee: 1% of the filing fee,but not less than Ten Philippine Pesos (P10.00).

F. Joint Venture

A foreign corporation can enter into a joint venturewith a domestic corporation by forming a domesticcorporation. A joint venture means a cooperativearrangement of corporations, whether foreign ordomestic, to jointly perform a single, specificundertaking or project with each of the partners

contributing to the performance. However, existingnationality requirements with respect to certainindustries must be observed. (See Table A)

Capital Requirement. If foreign interest exceeds fortypercent (40%) of the outstanding capital stock of the

joint venture corporation, the required minimum paid-up capital is Two Hundred Thousand US Dollars(US$200,000.00). (Republic Act No. 8179). Thisamount of required minimum paid-up capital may bereduced to One Hundred Thousand US Dollars (US$100,000-00) if advanced technology as determined bythe Philippine Department of Science and Technology

is involved or the business directly employs at leastfifty (50) employees. The minimum paid up capital of


10/30


11/30

Taxes. The transfer or exchange of shares of stock orother securities pursuant to a plan of merger orconsolidation is exempt from registration underPhilippine securities law. The Philippine Tax Codegenerally recognizes the entire amount of gain or lossupon the sale or exchange of any property. However,

in a merger or consolidation, no gain or loss isrecognized, provided the constituent corporationexchanges property, stocks or other securities solelyfor stocks or other securities of the surviving orconsolidated corporation. If the exchangecontemplates some payment in money or delivery ofother property, no gain or loss will be recognized,provided the money and/or other property isdistributed to the stockholders of the constituentcorporations pursuant to the merger or consolidationplan.

The new corporation or the surviving corporation

shall be subjected to a 30% income tax rate.

Expenses. The surviving or newly-formedcorporation bears the expenses.

Liabilities. The surviving or newly-formedcorporation formed bears the liabilities.


Establishment and Registration Costs. The articlesof merger or consolidation must be submitted to the

SEC for approval and issuance of the certificate ofmerger or consolidation. The following must be paid:

a. Filing Fee: 1/5 of 1% of the equity of theabsorbed corporation/s, but not less thanThree Thousand Philippine Pesos(P3,000.00).

i. In merger: in case of simultaneousfiling of application for Increase ofthe Authorized Capital Stock by thesurviving corporation, the filing feefor increase in capital stock (1/5 of1% of the increase in capital stock or

the subscription price of thesubscribed capital stock whichever ishigher, but not less than OneThousand Philippine Pesos[P1,000.00]) or the filing fee forMerger (Filing fee of 1/5 of 1% of theequity of the absorbed corporation/s,but not less than Three ThousandPhilippine Pesos [P3,000.00])whichever is higher;

ii. In consolidation: where the totalequity of the constituent corporations

is different from the authorizedcapital stock of the consolidated

corporation, the filing fee is 1/5 of 1%of the total equity of the constituentcorporations or the filing fee for

Articles of Incorporation (1/5 of 1% ofthe authorized capital stock or thesubscription price of the subscribed

capital stock whichever is higher, butnot less than One ThousandPhilippine Pesos [P1,000.00])whichever is higher.

c. Legal research fee: 1% of the filing fee,but not less then Ten Philippine Pesos(P10.00);

d. By-Laws fee: P500.00;e. Documentary stamp tax: For the issuance

of new shares, equivalent to One Philippine

Peso (P1.00) on each Two HundredPhilippine Pesos (P200.00) or fractional partthereof, of the par value, of such shares ofstock ; and

f. Others: Minimal amount of fees for postincorporation government permits such asthe mayor's permit, tax identification number,Value Added Tax and Withholding Tax

Agent's Registration if applicable, BIRregistration of books of account andCertificate of Registration with the Bureau ofDomestic Trade.

I. Technology Transfer Arrangement

A foreign corporation may enter into a technologytransfer arrangement. Technology Transfer

Arrangements refer to contracts or agreementsentered into involving the:

a. transfer of systematic knowledge for themanufacture of a product or theapplication of a process;

b. rendering of a service, includingmanagement contracts;

c. transfer, assignment or licensing of all formsof intellectual property rights, includinglicensing of computer software, exceptcomputer software developed for massmarket. (Sec. 4.2, Intellectual PropertyCode).

Provisions of technology transfer contracts should nothave adverse effects on competition and trade, mustprovide for effective quality control by the licensorover the product or service covered by the contract,and must allow continued access to improvements in

the transferred technology.


12/30

Technology transfer agreements are no longerrequired to be registered with the Documentation,Information, and Technology Transfer Bureau if theycomply with the provisions of, and/or include thestipulations/ conditions required by Sections 87 and 88of the Intellectual Property Code. Otherwise, the

agreements will be considered unenforceable. Non-complying agreements, however, may be allowedregistration under exceptional circumstances providedin Section 91.

Taxes. Taxes shall be imposed upon the royaltypayments received by the foreign corporation enteringinto the Technology Transfer Arrangement. A foreigncorporation not doing business in the Philippines shallgenerally pay a tax equivalent to 30% of the grossincome received during the year from all sourceswithin the Philippines, royalty payments being includedtherein. This tax may be pared down to as low as

10%, depending on whether or not there is an existingtax treaty between the Philippines and another state ofwhich the foreign corporation is a resident, as definedin the tax treaty.The royalties shall likewise be subject to a value-added tax to be withheld by the payor of suchroyalties. At present, the rate of the value-added tax istwelve percent (12%).

Expenses. No allocation of expenses can be madesince there is no local entity deriving income from thePhilippines.

Liabilities. The foreign corporation is shielded from therisk of failure of the domestic corporation. It does notassume the risk that the domestic corporation mightfail. Even if the domestic corporation is not profitable,it would have to pay royalties for the technology beingsupplied to it. Deposit of Securities. No deposit ofsecurities with any entity is required.

Establishment and Registration Costs. Thefollowing are costs to be incurred by the Licensee incases where technology transfer arrangements are tobe registered with the Intellectual Property Office(IPO):

Filing fee: Two Thousand Five Hundred PhilippinePesos (P2,500.) plus 1% legal research fund paid tothe Intellectual Property Office ; andRegistration fee: Two Thousand Five HundredPhilippine Pesos (P2,500.) plus 1% legal researchfund.

J. Management Contract

A foreign corporation may also choose to enter into amanagement contract with a domestic corporation.Under a management contract, the foreign corporationshall undertake to manage all or substantially all of the

business of a domestic corporation. It may be enteredinto for a period of only five years for any one term.

Domestic enterprises engaging in wholly or partiallynationalized activities cannot enter into a managementcontract with a foreign corporation.

Taxes. The foreign corporation shall be subject to30% income tax rate, as a foreign corporation doing

business in the Philippines (that is, a branch), or theMCIT, whichever is higher.

Expenses. The foreign corporation shall be liable forits own expenses and not for the expenses of thedomestic corporation.

Liabilities. The foreign corporation will bear its ownliabilities. It is shielded from the risk of the failure ofthe domestic corporation.


Establishment and Registration Costs. This is aprivate contract. There will be no filing, license orregistration fees due. However, the existence of themanagement contract must be disclosed.

Chapter 4 : Incent ives to Fore ignInves tment

I. Board of Investments

The Omnibus Investment Code of 1987 is the generallaw that provides the most comprehensive listing ofincentives available to qualified business enterprises.Under the Omnibus Investment Code, the Board ofInvestments (BOI) publishes an annual InvestmentPriorities Plan (IPP) which contains a list of promotedareas of investments eligible for governmentincentives.

The 2010 IPP [See Annex B] was formulated togenerate more investments and more jobs in theagriculture, industry and services sectors that aregeared up to optimize the opportunities from the

global economic recovery and the implementation ofinternational engagements.. Its theme, “MaximizingOpportunities of a Stronger Philippine Economy,”reflects the strategic solutions and programs to sustaina strong and responsive republic that theadministration advocates. It is also made moresignificant as it promotes investments in greenbusiness initiatives that also address the climtechange challenge towards a Green Philippines.

Like previous IPPs, the 2010 IPP continues to supportglobally competitive economic activities, build up thecapabilities of small and medium enterprises (SME) togenerate jobs, provide food, deliver basic services,and spur countryside development. In its bid to meet


13/30

the demands of globalization and trade liberalization,the 2005 IPP presents a list of priority economicactivities that address the challenges of building astrong republic. It also enhances the scope andcoverage of some areas, in support of the programs ofother government agencies.

The 2005 IPP classifies Priority Investment Areasunder the following: Preferred Activities, ,Mandatory List, Export Activities and the ARMMList.

The Preferred Activities is divided into aContingency List and the Regular List. TheContingency Li st is unique in the 2010 FIA, as itcovers existing projects and/or activitiesaffected by the global economic crisis that will atleast retain investments or increase its currentnumber of workers. The Contingency List also

covers new projects of micro and smallenterprises. Enterprises registered under thislist may be entitled to an Income Tax Holiday.

The Contingency List, however, is a temporaryinclusion to the IPP to enable existingenterprises to recover from the effects of theglobal crisis and will be delisted upon an officialpronouncement by the NEDA (NationalEconomic Development Authority) that the crisisno longer exists.

The Regular List consist of 9 (nine) investment

areas. These are agribusiness and fishery,infrastructure, manufactured products, businessprocess outsourcing (BPO), creative industries,strategic activities, green projects, disasterprevention, mitigation and recovery projects andresearch and development innovation.

Other Preferred Activities covers other exportactivities, industry cluster, and modernizationactivities.

Mandatory Inclusions covers all areas or activitieswhere the inclusion in the IPP and/or the grant ofincentives under the Omnibus Investments Code is

mandated by law. New laws which require inclusionin the list include the Renewable Energy Act of 2008and the Tourism Act of 2009.

Export Activities covers (i) manufacture of exportproducts; (ii) export services, and (iii) activities insupport of exporters.

The ARMM Lis t covers priority areas determined by theregional Board of Investments (RBOI) of the

Autonomous Region of Muslim Mindanao (ARMM) inaccordance with E.O. 458. Economic activities listed inthe ARMM shall be entitled to incentives only when

said activities are undertaken within the ARMM region.

Qualification for BOI Incentives:

To qualify for the incentives, an enterprise intending toengage in a preferred area of investment listed in thecurrent IPP must be registered with the BOI. Theenterprises applying must either be owned by a citizen

of the Philippines or be a juridical entity sixty percent(60%) of whose capital is owned or controlled bycitizens of the Philippines. If the applicant is acorporation, sixty percent (60%) of the capital stockoutstanding and entitled to vote must be owned byPhilippine nationals, as defined in the law, and at leastsixty percent (60%) of the board of directors must beFilipino citizens. The ownership percentage is waivedunder the following conditions:

a. the enterprise proposes to engage in apioneer project which is not among theareas reserved by the Constitution and

the laws of the Philippines for Philippinecitizens or corporations wholly owned andcontrolled by such citizens; or

b. the majority foreign-owned enterpriseintends to export at least seventy percent(70%) of its production; or

c. investments are made in non-pioneerpreferred areas which are not nationalizedin the Constitution, laws and the NegativeLists A and B of the Foreign Investments

Act, provided the enterprise exports at

least 70% of its total production.

In the first two instances, the enterprise is required toattain at least sixty percent (60%) Filipino ownershipwithin thirty (30) years from its registration, unless itexports one hundred percent (100%) of its production.

Yet, even if the enterprise is not engaged in an area ofactivity listed under the IPP, the enterprise may stillqualify for incentives so long as: (1) (if Filipino-owned)at least fifty percent (50%) of its production is forexports, or (2) (if a majority foreign – ownedenterprise) at least seventy percent (70%) of its

production is for exports.

A. Fiscal Incen ti ves

Pursuant to Book I of the Omnibus InvestmentsCode, BOI – registered enterprises are given anumber of incentives in the form of tax exemptionsand concessions. These include:

1. Income Tax Holiday (ITH)

a) BOI registered enterprises shall be exemptfrom the payment of income taxes reckoned

from the scheduled start of commercialoperations as follows:


14/30

i. New projects with a pioneer status: for six(6) years;

ii. New projects with a non-pioneer status:for four (4) years;

iii. Expansion projects: for three (3) years. As ageneral rule, exemption is limited to

incremental sales revenue/ volume;iv. New or expansion projects in lessdeveloped areas: for six (6) years,regardless of status; and

v. Modernization projects: for three (3)years. As a general rule, exemption islimited to incremental sales revenue/volume.

b) Criteria for Addit ional Period of Availment:

For new registered firms, the Income Tax Holidayincentive may be extended for an extra year for each

of the following cases, but in no case to exceed thetotal period of eight (8) years for pioneer registeredenterprises:

i. If the ratio of the total imported and domesticcapital equipment to the number of workersfor the project does not exceed US$10,000 toone (1) worker.

ii. It the average cost of indigenous rawmaterials used in the manufacture of theregistered product is at least fifty (50%)percent of the total cost of raw materials for

the preceding years prior to the extensionunless the Board (BOI) prescribes a higherpercentage.

iii. If the net foreign exchange savings orearnings amount to at least US$500,000.00annually during the first three (3) years ofoperation to be determined by the Board(BOI) at the end of such three-year period:Provided, That the foreign exchange savingscriterion shall apply as a general rule, toregistered firms whose products are totallyimported into the country at the time of

registration

and duly indicated as imports substituting inthe firm's certificate of registration.

c) The income tax holiday is limited in the followingcases:

i. Export traders may be entitled to the ITHonly on their income derived from thefollowing:

a) Export of new products, i.e., thosewhich have not been exported in

excess of US$100,000 in any of thetwo (2) years preceding the filing of

application for registration, orb) Export to new markets, i.e., to a

country where there has been norecorded import of a specific exportproduct in any of the two (2) yearspreceding the filing of the

application for registration.

ii. Mining ActivitiesUnder the 2010 IPP, mining activities areentitled to the ITH only in certain cases:

a) Exploration and development ofmineral resources including thosecovered by mineral agreementsmay qualify for pioneer status.However, these activities are notentitled to Income Tax Holiday

(ITH).

b) For mining, quarrying andprocessing of metallic and non-metallic minerals (except thoseinvolving riverbed operations, cavemining and beach mining):

(1) Mining and/or quarryingintegrated with mineralprocessing* (e.g., flotation)shall be entitled to ITH.Production of direct shipping

ore is not entitled to ITH.(2) Mineral processing* without

mining or quarrying shall beentitled to full incentives.

(3) Mining and processing ofaggregates is not entitled toITH.

(4) Marble processing projects,whether or not integrated withmining and quarrying, mustexport at least fifty percent(50%) of production, if Filipino-owned or at least seventy

percent (70%), if foreign-owned.

(5) Mineral processing projectsmust locate outside theNational Capital Region.

Note: *Simple processing such as sorting,crushing, washing, drying and other similaractivities, is not entitled to ITH. Providedthat reduction to powder/granular size (e.g.grinding), classification and/or chemicalwashing/scrubbing of non-metallic mineralsmay be granted ITH.


15/30

Projects of foreign-owned corporations withapproved Financial or Technical Assistance

Agreements (FTAAs) or Mineral ProcessingPermits (MPPs) are qualified for pioneerstatus, with full ITH incentive. Providedfurther, that FTAA and MPP projects

covered under Art. 17, Title 1 of E.O. 226,as amended, or located in less-developedareas shall be granted full incentives.

2) Exemption from taxes and duties on importedspare parts

A registered enterprise with a bondedmanufacturing warehouse shall be exempt fromcustoms duties and national internal revenue taxeson its importation of required supplies/spare parts forconsigned equipment or those imported withincentives.

3) Exemption from wharfage dues and exporttax, duty, impost and fees.

All enterprises registered under the IPP will be givena ten-year period from date of registration to avail ofthe exemption from wharfage dues and any exporttax, impost and fees on its non-traditional exportproducts.

4) Tax exemption for agricultural producers ofbreeding stocks and genetic materials within ten(10) years from the date of registration or commercial

operation.

5) Tax credit on tax and duty portion of domesticbreeding stock s and genetic materials.

A tax credit equivalent to one hundred percent(100%) of the value of national internal revenuetaxes and customs duties on local breeding stocks

within ten (10) years from date of registration orcommercial operation for agricultural producers.

6) Tax credit on raw materials and supplies. A tax credit equivalent to the national internal revenuetaxes and duties on raw materials, supplies and semi-manufactured products used in the manufacture ofexport products and forming part thereof shall begranted to a registered enterprise.

7) Addi tional deduct ion for labor expense.For the first five (5) years from registration, aregistered enterprise shall be allowed an additionaldeduction from taxable income equivalent to fiftypercent (50%) of the wages of additional skilled andunskilled workers in the direct labor force. This

incentive shall be granted only if the enterprise meetsa prescribed capital to labor ratio and shall not be

availed simultaneously with ITH. This additionaldeduction shall be doubled if the activity is located inan LDA.

8) Addi tional deduc tion fo r necessary and majorinfrastructure works.

Registered enterprises locating in LDAs or in areasdeficient in infrastructure, public utilities and otherfacilities may deduct from taxable income an amountequivalent to the expenses incurred in thedevelopment of necessary and major infrastructureworks. This privilege, however, is not granted tomining and forestry-re late d projects as they wouldnaturally be located in certain areas to be near theirsources of raw materials.

B. Non-fiscal Incentives

All investors and enterprises are entitled to the basicrights and guarantees provided in the PhilippineConstitution. Among other rights recognized by thegovernment of the Philippines are the following:

a. the right to repatriate the entire proceeds of theliquidation of the investments in the currency in whichthe investment was originally made at the exchangerate prevailing at the time of repatriation;

• Note that foreign investments dulyregistered with the Bangko Sentral ngPilipinas (BSP) shall be entitled to full

and immediate capitalrepatriation and dividends and profitremittance privileges without prior BSPapproval.

b. the right to remit, at the exchange rate prevailing atthe time of remittance, such as may be necessary

to meet the payment of interest and the principal onforeign loans and foreign obligations arising fromtechnological assistance contracts;

• Note that upon presentation of theBangko Sentral Registration Document

(as proof that the foreign investmentwas duly registered with the BSP) withauthorized agent banks (AABs), aninvestor may buy and remit theequivalent foreign exchange at theexchange rate at the time of actualremittance, to remit sales, divestmentproceeds or dividends, or profit.

c. protection from expropriation of propertyrepresented by investments, except for public use orin the interest of national welfare and defense andonly upon payment of just compensation, which maybe remitted in the currency in which the investmentwas originally made and at the exchange rate


16/30

prevailing at the time of remittance;

d. protection from requisition of propertyrepresented by the investment, except in the event ofwar or national emergency and only upon payment of

just compensation, which may be remitted in the

currency in which the investment was originally madeand at the exchange rate prevailing at the time ofremittance;

Other non-fiscal incentives provided under theOmnibus Investments Code include:

a. Employment of foreign nationals insupervisory, technical or advisory positions forfive (5) years from date of registration, Theposition of president, general manager andtreasurer of foreign-owned registered enterprises

or their equivalent shall however not be subject tothe foregoing limitations.

Foreign nationals under employment contractwithin the purview of this incentive, their spousesand unmarried children under twenty-one (21)years of age, who are not excluded by Section 29of Commonwealth Act Numbered 613, asamended, shall be permitted to enter and residein the Philippines during the period ofemployment of such foreign nationals.

A registered enterprise shall train Filipinos as

understudies of foreign nationals inadministrative, supervisory and technical skillsand shall submit annual reports on such trainingto the Board.

b. c. Simplification of customs procedures for the

importation of equipment, spare parts, rawmaterials, and supplies and exports ofprocessed products.

d. Importation of consigned equipment for aperiod of 10 years from date of registration,subject to posting of a re-export bond.

e. The privilege to operate a bondedmanufacturing/trading warehouse subject toCustoms rules and regulations.

C. Addi tional Incent ives fo r Locat ing Project inLess Developed Areas

Additional incentives for BOI – registered enterpriseslocating in a Less Developed Area (LDA), whetherproposed or in an existing venture geared forexpansion, include:

1. Six (6) year income tax holiday regardless ofstatus (pioneer or non-pioneer) or type of

project (new or expansion).2. Additional deductions from taxable income

equivalent to 100% of expenses incurred in thedevelopment of necessary and majorinfrastructure facilities.

D. Incentives for Regional Headquarters (RHQs)and Regional Operating HeadquartersThe applicable taxes and incentives available toRHQs and ROHQs are:

Corporate Income Tax and VAT

RHQs are exempt from income tax and VAT,while their purchase of goods and servicesand lease of goods and property are zero-rated.

ROHQs enjoy a 10% preferential rate ontaxable income, are subject to 12% VAT,and shall pay branch profit taxes if it remitsincome derived from Philippine sources.

2. RHQs and ROHQs are granted thefollowing incentives:

a. Exemption from all kinds of localtaxes, fees and charges, except forreal property tax on landimprovements and equipment;

b. Tax and duty free importation oftraining materials and equipment;and

c. Importation of new motor vehiclessubject to the payment ofcorresponding taxes and duties.

3. Expatriates of RHQs and ROHQs are entitled to thefollowing incentives:

a. Multiple entry visa, including those ofspouse and unmarried children below age 21;

• A non-immigrant visa shall be issuedwithin 72 hours upon submission of all

required documents.• The multiple entry visa is valid for a

period of three (3) years andextendible for another three yearsupon submission to the Bureau ofImmigration of a sworn certification bya responsible officer of theRHQ/ROHQ that its license to operateremains valid and that it complied withall requirements stipulated underrelevant Philippine laws.

b. Withholding tax of 15% oncompensation income applicable toboth alien and Filipino executives


17/30

holding managerial and technicalpositions;

c. Travel tax exemption issued by thePhilippine Tourism Authority (PTA) uponrecommendation of the Board ofInvestments (BOI) during the expatriate’sassignment in the country; and

d. Tax and duty free importation of personaland household effects.

(Source: The 2005 Investment Priority Plan and thePhilippine Board of Investments Website, atwww.boi.gov.ph)

II. Special Economic Zones

A. Ecozones under the Phi lippine EconomicZone Authority (PEZA)

In 1995, the Ramos administration enacted theSpecial Economic Zone Act, which established

special economic zones, or "ecozones" to respond todemands for ready-to-occupy locations for foreigninvestments.

ECOZONES, are selected areas with highlydeveloped or which have the potential to be developedinto agro-industrial, industrial, tourist/recreational,commercial, banking, investment and financialcenters. An ECOZONE may contain any or all of thefollowing: Manufacturing Economic Zone, InformationTechonology Parks/Centers , Agro-IndustrialEconomic Zone, Tourism Economic Zones andMedical Tourism Parks/Centers

Ecozones are classified by the PEZA into PublicEconomic Zones and Private Economic Zones. ThePublic Economic Zones are owned and operated by thegovernment. These are the Baguio City EconomicZone, Bataan Economic Zone, Cavite Economic Zone,and Mactan Economic Zone. They are considered asseparate customs territories from the rest of thePhilippines. Private Economic Zones are owned andestablished by private entities. Foreign citizens andcompanies owned by non-Filipinos in whateverproportion may set up enterprises in the ECOZONE,

either by themselves or in joint venture with Filipinos inany sector of industry, international trade and

commerce within the ECOZONE.

In its website, the PEZA reports that as of 31 May2010, there are 217 economic zones operating invarious provinces and regions throughout thePhilippines. Of the 217, 7 are Agro-Industrial

Economic Zones, 134 are IT Parks/Centers, 65Manufacturing Economic Zones, 2 are MedicalTourism Parks/Centers and 9 are Tourism EconomicZones.

Projects registered under PEZA may still avail of BOIincentives provided there is no double enjoyment ofthe same or similar incentives.

Investment Incentives for EcozoneDevelopers/Operators

• Income Tax Holiday;• Incentives under the Build-Operate-TransferLaw, which includes government support for

accessing Official Development Assistanceand other sources of financing;

• Provision of vital off-site infrastructurefacilities;

• Option to pay a special 5% Gross IncomeTax, in lieu of all national and local taxes;

• Permanent resident status for foreigninvestors and immediate family members;

• Employment of foreign nationals;• Assistance in the promotion of economic

zones to local and foreign locator

enterprises

Incentives for Ecozone and InformationTechnology Locators

1. Subic Bay Special Economic and Freeport Zone

The Subic Bay Special Economic and Freeport Zoneboasts of one of the world’s best seaport facilities, andis ideal for light-to-medium and high-tech industries.

An enterprise that registers with the Subic FreeportZone cannot qualify for incentives under the OmnibusInvestments Act. It is noteworthy, however, that the

incentives available to enterprises within this Zone aresimilar to those under the Omnibus Investments Code.

These include:

a. tax and duty free importation of articles forSBF enterprises;

b. SBF managed as separate customsterritory, ensuring free flow of articleswithin the zone;

c. businesses within the SBF may be 100percent foreign-owned;

d. liberalized banking rules/no foreignexchange controls;

Enterprises that locate in any of the fourgovernment ecozones in the country are allowedone hundred (100%) foreign ownership, provided

the total production of firms situated inside thezones must be entirely for export. In certaininstances, and subject to the approval of PEZA,thirty percent (30%) of production may be sold inthe domestic market.

http://www.boi.gov.ph/http://www.boi.gov.ph/http://www.peza.gov.ph/images/stories/map/manufacturing_list.gifhttp://www.peza.gov.ph/images/stories/map/manufacturing_list.gifhttp://www.peza.gov.ph/images/stories/map/manufacturing_list.gifhttp://www.peza.gov.ph/images/stories/map/it_list.gifhttp://www.peza.gov.ph/images/stories/map/it_list.gifhttp://www.peza.gov.ph/images/stories/map/it_list.gifhttp://www.peza.gov.ph/images/stories/map/it_list.gifhttp://www.peza.gov.ph/images/stories/map/agro_list.gifhttp://www.peza.gov.ph/images/stories/map/agro_list.gifhttp://www.peza.gov.ph/images/stories/map/agro_list.gifhttp://www.peza.gov.ph/images/stories/map/tourism_list.gifhttp://www.peza.gov.ph/images/stories/map/tourism_list.gifhttp://www.peza.gov.ph/images/stories/map/mt_list.gifhttp://www.peza.gov.ph/images/stories/map/mt_list.gifhttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Agro-Industrial%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Agro-Industrial%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Agro-Industrial%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=IT%20Parks/Centershttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=IT%20Parks/Centershttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Manufacturing%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Manufacturing%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Manufacturing%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Medical%20Tourism%20Parks/Centershttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Medical%20Tourism%20Parks/Centershttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Medical%20Tourism%20Parks/Centershttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Tourism%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Tourism%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Tourism%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Tourism%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Tourism%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Tourism%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Medical%20Tourism%20Parks/Centershttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Medical%20Tourism%20Parks/Centershttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Manufacturing%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Manufacturing%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=IT%20Parks/Centershttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Agro-Industrial%20Economic%20Zonehttp://www.peza.gov.ph/index.php?option=com_content&view=article&id=116&Itemid=161&nature=Agro-Industrial%20Economic%20Zonehttp://www.peza.gov.ph/images/stories/map/mt_list.gifhttp://www.peza.gov.ph/images/stories/map/tourism_list.gifhttp://www.peza.gov.ph/images/stories/map/agro_list.gifhttp://www.peza.gov.ph/images/stories/map/agro_list.gifhttp://www.peza.gov.ph/images/stories/map/it_list.gifhttp://www.peza.gov.ph/images/stories/map/it_list.gifhttp://www.peza.gov.ph/images/stories/map/manufacturing_list.gifhttp://www.boi.gov.ph/


18/30

e. security and infrastructure of a SpecialEconomic and Freeport Zone;

f. freely engaging in any business, trade,manufacturing, financial or service activityand importing and exporting freely all typesof goods, subject to regulations of the

Subic Bay Metropolitan Authority;g. exemption from national internal taxes andlocal taxes, including income tax on allincome from sources within areasconsidered as separate customs territoryfrom the Philippine customs territory;

h. maximum of five (5) percent final tax ongross income in lieu of all national andlocal taxes;

i. income tax credits for all taxes paid byforeign corporations;

j. allowable income from sources within thePhilippine customs territory of a maximum

of 30 percent of total income;k. exemption from franchise, common carrier

or value-added taxes and other percentagetaxes on public and service utilitiesoperating within the Zone;

l. preferential income tax treatment onincome earned/derived from businessoperations within the secured area of theZone or from foreign sources; zero-ratedvalue-added tax on purchases of rawmaterials, capital goods or equipment andservices from entities within the Philippinecustoms territory; employment of foreign

nationals, subject to the certificationrequirements of the Department of Laborand Employment;

n. permanent residency visas for foreigninvestors investing at leastUS$250,000.00 in the Zones;

o. temporary residency visas for foreignemployees, their spouses and dependentchildren under 21 years of age;

p. a free market for foreign exchange, gold,securities and futures that will allowfreedom to engage in businesstransactions involving any foreign

currency; andq. availability of an Inspection and Disputes

Office for the amicable settlement of labordisputes.

(Source: The Subic Webpage at www.sbma.com, and The Regulatory Environment by Romulo,Mabanta, Buenaventura, Sayoc & de los Angelespublished in the "Philippines, The Next Asian Tiger"by Jose Galang)

2. Clark Special Economic ZoneThe Clark Special Economic Zone boasts of a 4,400hectare main zone and access to a modern aviation

complex designated as the country’s futurepremiere gateway site.

CSEZ enterprises have all the applicable SBFincentives enumerated above, as well as thoseunder the Omnibus Investments Act and the Export

Processing Zone.

(Source: Clark Development Corporation Webpageat www.clark.com.ph)

3. Cagayan Special Economic ZoneThe Cagayan Special Economic Zone covers theentire area embraced by the Municipality of Santa

Ana and the islands of Fuga, Barit, and Mabbag inthe Municipality of Aparri, Province of Cagayan.Business establishments operating within the Zoneshall be entitled to the existing fiscal incentives

under the PEZA law or those under the OmnibusInvestments Code.

4. ZamboecozoneBusiness establishments within theZAMBOECOZONE shall be entitled to the existingfiscal incentives as provided for under PresidentialDecree No. 66, the law creating the Export

Processing Zone Authority, or those provided underthe Omnibus Investment Code, and suchincentives, benefits or privileges presently enjoyedby business establishments operating within theSubic special economic zone.

III. Incentives in Other Laws

Various other laws provide for the grant of additionalincentives to more specific and specialized areas ofinvestment. Among these are the following:

A. Build Operate Transfer LawProjects undertaken under the Build-Operate-Transfer Law which cost more than One Billion Pesosshall be entitled to the incentives under the OmnibusInvestments Code regardless of its inclusion or non-inclusion in the yearly Investment Priorities Plan. Inaddition, these projects may be granted governmentsupport or contributions, either in the form of: (1)partial financing from direct governmentappropriations and/or from Official Development

Assistance of foreign government or institutions, upto fifty percent (50%) of the project cost, and (2) suchgovernment undertakings as cost sharing with theagency or local government unit (LGU) involved inthe project, or credit enhancements which include aguarantee by the Government on the performance ofthe obligation of the agency or LGU under its contract

http://www.sbma.com/http://www.sbma.com/http://www.sbma.com/http://www.clark.com.ph/http://www.clark.com.ph/http://www.clark.com.ph/http://www.clark.com.ph/http://www.sbma.com/


19/30

with the project proponent.

B. Export Development Act of 1994Enterprises which earn at least fifty percent (50%) oftheir normal operating revenues from the sale of

products or services outside the Philippines forforeign currency shall be entitled to incentives asidefrom those granted under the Omnibus InvestmentsCode and those granted to enterprises in theecozones or in the Subic Free-Port, as follows:

a. exemption from the requirement of advancepayment of customs duties upon the opening of aletter of credit;

b. tax credits for increases in current year's exportrevenues. The following tax credits are available:

First 5% increase inannual export revenue

2.5% tax credit

Next 5% increase 5% tax creditNext 5% increase 5% tax creditFor increases in excess of15%

10% tax credit

c. support in export financing, guarantee andinsurance from the Export Financing Programmeoperated under the Export Financing Institution.

C. Foreign Investor’s Lease Act Any foreign investor is allowed to lease private lands

for a period of fifty (50) years, renewable for twenty-five (25) years, as long as the leased land is usedsolely for the purposes of or in connection with theinvestment, such as the establishment of industrialestates, factories, assembly or processing plants,agro-industrial enterprises, land development fortourism, industrial or commercial use, and similarpriority productive endeavors.

Long-term lease of private lands of tourism projectsshall be limited to those involving investments of notless than 5 million dollars, seventy percent (70%) ofwhich must be infused into said project within three

years from the signing of the lease agreement.

D. Philippine Overseas Shipping Development ActForeign investment in a Philippine shipping enterpriseis allowed up to 40 per cent of the capital of suchenterprise. A Philippine shipping enterprise is exemptfrom the payment of import duties and taxes on theimportation of ocean going vessels to be registeredunder the Philippine flag.

Chapter 5 : Re levan t Laws

I. Exchange ControlsUnder Bangko Sentral ng Pilipinas (“BSP”) CircularNo. 1389, foreign investments are required to be

registered with the BSP if the foreign exchange is to besourced from the Philippine banking system..

If foreign investments are not registered with the BSP,the Philippine company and/or the foreign investorcannot use the Philippine banking system to convertany profits and earnings from Philippine Pesos intoother currencies or service the repatriation of capitaloutside the Philippines. They can, however, source itsforeign exchange outside the Philippine bankingsystem (i.e., foreign exchange dealers). The foregoingis subject to the power of BSP, with the approval ofthe President of the Philippines, to restrict the

availability of foreign exchange during an exchangecrisis, when an exchange crisis is imminent or in timesof national emergency.

II. Taxation A. Basis of Taxation:On Income of Domestic and Resident ForeignCorporations:Corporate Income Tax. As a rule, a domesticcorporation is liable to pay income tax at the rate ofthirty percent (30%) based on its worldwide net

income. A resident foreign corporation is generallytaxed at the same rate, but based on its net incomederived from sources within the Philippines. A foreigncorporation is considered a resident when it isengaged in trade or business in the Philippines and islicensed by the SEC to engage in trade or business inthe Philippines.

Minimum Corporate Income Tax (MCIT). Beginningon the fourth taxable year immediately following theyear in which a domestic corporation or resident

foreign corporation commenced its businessoperations, a minimum corporate income tax (MCIT)of two percent (2%) of the gross income shall beimposed on the corporation, when the MCIT is greaterthan the computed regular income tax based on 35%of net income.

On Income of Non-Resident ForeignCorporations:

As a rule, non-resident foreign corporations aretaxed at thirty percent (30%) based on their grossincome from sources within the Philippines. Regular

Taxes App licable to companies

a. Income Tax is a tax on all yearly profits arising


20/30

from property, profession, trades or offices or asa tax on a person’s income, emoluments, profitsand the like. For a domestic corporation, theregular corporate income tax is 30% based on netincome derived from sources within and outsidethe Philippines. For a resident foreign

corporation, the regular corporate income tax is30% based on net income derived from sourceswithin the Philippines. For a non-resident foreigncorporation, the regular corporate income tax is30% based on gross income derived fromsources within the Philippines.

b. Minimum Corporate Income Tax (MCIT): Thisis imposed on domestic and resident foreigncorporations at the rate of 2% of gross incomebeginning on the fourth taxable year immediatelyfollowing the taxable year in which suchcorporation commenced business operations,

whenever the amount of MCIT is greater than thenormal tax due (based on the rate of 30%) fromsuch corporation.

c. Fringe Benefits Tax: Fringe benefits paid tomanagerial and supervisory employees aresubject to a fringe benefit tax of 32% based ongrossed-up monetary value of the benefits. Thegrossed-up monetary value of the fringe benefitshall be determined by dividing the actualmonetary value of the fringe benefit by sixty-fivepercent (65%), and seventy percent (70%).

d. Capital Gains Tax: This is a tax imposed on thegains presumed to have been realized by theseller from the sale, exchange, or otherdisposition of capital assets located in thePhilippines, including pacto de retro sales andother forms of conditional sale.

Capital gains tax f or sale of real property: Sixpercent (6%) of fair market value or selling price,whichever is higher.

Capital gains tax for sale of shares of stoc ksnot traded in the stock exchange: Five

percent (5%) based on the first Php100,000.00net capital gain, and ten percent (10%) for netcapital gain in excess of Php100,000.00.

Percentage tax on the sale of shares of st ockstraded in the stock exchange:

one half of one percent (1/2 of 1%) ofgross selling price

e. Documentary Stamp Tax (DST): This is atax on documents, instruments, loanagreements and papers evidencing the

acceptance, assignment, sale or transfer ofan obligation, rights, or property incidentthereto. DST rates vary depending on the

type of document made, signed, issued,accepted or transferred.

f. Value Added Tax (VAT): This is abusiness tax imposed and collected fromthe seller in the course of trade or business

on every sale of properties (real orpersonal), lease of goods or properties (realor personal) or vendors of services. It is anindirect tax, thus, it can be passed on to thebuyer. The VAT rate is now at 12%, basedon gross sales or receipts.

g. Percentage Tax: This is a business taximposed on persons or entities who sell orlease goods, properties or services in thecourse of trade or business whose grossannual sales or receipts do not exceedPhp550,000.00 and are not VAT-registered.

Percentage tax is at 3% based on grossquarterly sales/receipt.

h. Withholding Tax on Compensation is thetax withheld from individuals receiving purelycompensation income.Withholding tax on compensation rangesfrom 5% to 35%.

i. Expanded Withholding Tax is a kind ofwithholding tax which is prescribed only forcertain payors and is creditable against theincome tax due of the payee for the taxable

quarter year. Withholding tax rates varydepending on the nature of the incomepaid.

C. Other Relevant Taxes

Dividends paid to foreign corporate shareholders.The remittance of dividends by a domestic corporationto its foreign "parent" corporation is, generally, taxedat 35%. This, however, may be reduced to 15% wherethe country in which the foreign "parent" corporationeither: (a) grants a tax sparing credit of 20%, or (b)does not at all impose any tax on such dividends

received.

The rate of withholding tax on dividends is subject tofurther reduction under an applicable tax treaty.

Dividends received from foreign companies.Dividends received from foreign corporations shall besubject to income tax. For resident foreigncorporations who are only taxed on sources withinthe Philippines, Section 42(A)(2)(b) of the Tax Codeof 1997 provides that dividends received from aforeign corporation shall be treated as income fromsources within the Philippines unless less than fiftyper cent (50%) of the gross income of such foreign

corporation for the three year period ending with theclose of its taxable year preceding the declaration of


21/30

such dividends was derived from sources within thePhilippines.

Interest paid to foreign corporate shareholders.Under Section 28(B) of the Tax Code, as amended,interest paid to non-resident foreign corporation is

subject to 35% final withholding tax, unless a lowertreaty rate applies. However, if interest is on foreignloans, a final withholding tax of 20% shall apply(Section 28(b)(5)(a)), unless reduced by anapplicable treaty.

IP royalties. Payments for royalties are subject to thefollowing taxes:

a. If paid to a domestic corporation – 20%(Section 27(d)(1))

b. If paid to a resident foreign corporation – 20%(Section 28(A)(7)(a))

c. If paid to a non-resident foreign corporation -35% (Section 28(B)(1)), unless reduced by atax treaty

D. Transfer PricingUnder Section 50 of the 1997 Tax Code, asamended, the Commissioner of Internal Revenue hasthe power to allocate income and expenses betweenor among controlled groups of companies in order toprevent the avoidance of taxes. It places a controlledtaxpayer in tax parity with an uncontrolled taxpayerby determining the arm's-length price of inter-

company transactions.Pursuant to such provision, the Bureau of InternalRevenue has issued RAMO 1-98 which provides foraudit guidelines and procedures in the examination ofinterrelated group of companies.

E. Imports/ExportsImports are subject to import duties based on thevarious rates prescribed under the tariff and customscode. In addition, there are special duties imposed inthe following instances:

e. Anti-dumping duty – is a special duty imposed onthe importation of articles into the Philippines atless than its normal value when destined fordomestic consumption in the

exporting country. The rate of duty is equivalentto the difference between the export price and thenormal value of such articles.

f. Countervailing duty – is a special duty imposedon imported articles which are granted any kindor form of subsidy by the government in thecountry of origin or exportation, the importation ofwhich has caused or threatens to cause materialinjury to a domestic industry or has materiallyretarded the growth or prevents the

establishment of a domestic industry.

g. Marking duty – is a duty imposed on importedarticles that are not properly marked as to thecountry of origin of such articles in accordancewith the requirements set down by the Code.

h. Discriminatory duty – is imposed on importedarticles whenever their country of origin imposesany unreasonable charge or limitation which isnot equally enforced upon the like articles ofevery foreign country, or discriminates againstthe commerce of the Philippines.

At present, only certain planted trees are imposedwith an export duty. As a rule, exports by an exportproducer registered with the Board of Investments ofits non-traditional registered export product shall beexempted from any export tax, duty, impost and fee,

including wharfage fee.

F. Tax Treaties

The Philippines has entered into tax treaties withapproximately 38 countries, including the UnitedStates.

III. Labor

Philippine labor laws generally cover theemployment of individuals who render services inthe Philippines, regardless of the place where the

individuals were actually or first employed. ThePhilippine Overseas Employees Associationregulates the deployment of Filipinos abroad.

A written contract is not a specific requirement underthe law to establish an employer-employeerelationship. Other terms that govern theemployment relationship include any applicablecollective bargaining agreement, wage orders issuedby the Department of Labor, and other laws as wellas implementing rules and directives from theDepartment of Labor.

Constitution provides that employees have a right toparticipate in policy and decision-making processesaffecting their rights and benefits as may be providedby law.

Security of Tenure

Employees who have attained regular status, i.e. anemployee who has been engaged to perform activitieswhich are usually necessary or desirable in the usualtrade or business of the employer, or has rendered atleast one year of service, are entitled to security oftenure and cannot be terminated except for just or

authorized causes.


22/30

The just causes for dismissal are: serious misconductor willful disobedience by the employee of the lawfulorders of his employer or representative in connectionwith his work; gross and habitual neglect by theemployee of his duties; fraud or willful breach by theemployee of the trust reposed in him by his employer

or duly authorized representative; commission of acrime or offense by the employee against the person ofhis employer or any immediate member of his family orhis duly authorized representative; or other causesanalogous to the foregoing. The authorized causes fordismissal are the installation of labor saving devices,redundancy, retrenchment to prevent losses, or theclosing of operation of the establishment.

The normal consequences of a finding that anemployee has been illegally dismissed are that theemployee is entitled to reinstated to his former positionwithout loss of seniority rights and payment of

backwages. However, in case reinstatement is nolonger possible due to strained relations, the Courtsmay order the payment of separation benefits in lieu ofreinstatement in addition to backwages.

Redundancy is deemed to exist when the services ofan employee are in excess of what is reasonablydemanded by the actual requirements of the company.There are no specific regulations for redundancies.

Although in case of termination of an employee due toredundancy, the terminated employee is entitled toseparation pay of one (1) month pay or to at least one(1) month pay for every year of service, whichever is

higher.

Minimum Costs of Employment

Employees are subject to income tax on theircompensation income, which is withheld by theemployer. This is subject to a 5-32% income taxrate.Employees generally are not entitled to managementrepresentation, although the

As mandated by law, both employer and employeesare to contribute to the Social Security System for thesocial security benefits of the employees; to the

Philippine Health Insurance Corporation for medicalinsurance benefits of the employees in accordancewith the National Health Insurance Program; and tothe Home Development and Mutual Fund for certainemployee benefits.Employers are also required to pay employees anannual 13th Month Pay equivalent to one (1) monthsalary.Second ment ArrangementsFor services provided in the Philippines, an employeeseconded to the Philippines is taxed like any residentforeign individual, i.e. 32% of his income from withinthe Philippines, provided he stays in the Philippines for

at least 180 days. Otherwise, he is not subject toPhilippine income tax.

Work in the Philippines

Under labor laws, foreign nationals who shall beworking in the Philippines, are required to apply foran Alien Employment Permit. (“AEP”), subject tocertain exceptions. The AEP is issued after a

determination by the Department of Labor &Employment (DOLE) that there is no person in thePhilippines who is competent, able and willing at thetime of the application to perform the services forwhich the alien shall be employed.

As a general rule, AEPs are approved and releasedwithin a period of three (3) to four (4) weeks from thedate of application.

IV. Immigration

Entry Visa

Foreign nationals may come to the Philippines forreasons of business, pleasure or health with atemporary visitor's visa. This visa allows stays forperiods of 59 days, extendable for a maximum of oneyear. To extend their stay, visitors must register withthe Bureau of Immigration or with the office of themunicipal or city treasurer in areas outside Manila.Executive Order No. 408 allows foreign nationals,except those of specifically restricted nationalities, tostay in the Philippines for up to 21 days without avisa.

Work Permits

In general, a foreign national seeking employment inthe Philippines, whether resident or non-resident, mustsecure an Alien Employment Permit (AEP)

from the Department of Labor and Employment(DOLE). An AEP is valid for one year from the date ofissue and may be renewed subject to the approval ofthe DOLE. Executives of area or regionalheadquarters and OBUs, as well as treaty trader visaholders, are exempt from the requirement to obtainalien employment certificates.

A local employer who wishes to employ a foreignnational must apply on the foreign national's behalfwith the DOLE for the permit. The petitioning companymust prove that the foreign national possesses therequired skills for the position and that no Filipino isavailable who is competent, able and willing to do thespecific job for which the foreign national is desired.

To ensure a proper transfer of technology, the DOLErequires the employers of foreign nationals to providean Understudy Training Programme (UTP) and todesignate at least two Filipino understudies. Thefunctions of these employers must be deemed

permanent, and they must require skills or expertisethat are scarce in the Philippines.


23/30

The Special Investor Resident Visa

The Special Investor Resident Visa (SIRV) entitles theholder to reside in the Philippines for an indefiniteperiod as long as his investment subsists. Any alien,except restricted nationals under the Foreign Service

Code, may apply for an SIRV provided he meets thefollowing requirements:

1. He has not been convicted of a crime involvingmoral turpitude.2. He is not afflicted with any loathsome,

dangerous or contagious disease.3. He has not been institutionalized for mental

disorder or disability.4. He is willing and able to invest the amount of at

least US$75,000.00 in the Philippines.

The government has liberalized visa requirements for

foreign entrants to encourage foreign participation inthe economic development of the Philippines. Amongthe liberalized rules are the following provisions:

1. Foreign stockholders, investors,representatives of investment houses, landdevelopers and tourism developers are amongthe categories entitled to the special visaincentive, which grants privileges to certainforeign nationals.

2. Aliens entitled to enter the country under theprovision of a treaty of amity, commerce andnavigation may be admitted as non-immigrants.

They are

guide philippines

Documents