Incentives for Foreign Investors in the Philippines

With the country’s young, tech-savvy professionals who are highly proficient in the English language, as well as the low labor cost (wages are less than a fifth of that in the US), the Philippines prove to be an attractive starting base. More importantly, the many business incentives for foreign investors in the country make it the perfect launch pad for businesses.

Not convinced about how you should start a business in the Philippines? Below are some of the major laws in the Philippines that make various incentives available to foreign investors:

 

Omnibus Investment Code of 1987 (EO 226) by the Board of Investments (BOI)

The Omnibus Investment Code of 1987 encourages and guides domestic and foreign investors by integrating the basic laws on investments. To avail of the incentives under EO226, you should be investing in priority areas of activities, which are listed in the Investment Priorities Plan (IPP). These include:

• Manufacturing
• Agribusiness and Fishery
• Services
• Economic and Low-cost Housing (horizontal and vertical)
• Hospitals
• Energy
• Public Infrastructure and Logistics
• PPP Projects

An application for registration should be submitted to the Board of Investments to enjoy the incentives. Incentives include:

• Tax exemptions
  • Income Tax Holiday
  • Duty free importation of capital equipment, spare parts, and accessories, subject to conditions
  • Exemption from wharfage dues and export tax, duty, impost, and fees
  • Tax and duty-free importation of breeding stocks and genetic materials
• Tax credits
  • Tax credit on the purchase of domestic breeding stocks and genetic materials
  • Tax credit on raw materials and supplies
• Additional deductions from taxable income
  • Additional deduction for labor expense (ADLE)
  • Additional deduction for necessary and major infrastructure work
• Zero-rated value-added tax
• Non-fiscal incentives
  • Employment of foreign nationals
  • Simplification of customs procedures for the importation of equipment, spare parts, raw materials, and supplies and exports of processed products.
  • Importation of consigned equipment for a period of ten (10) years from the date of registration (subject to posting of a re-export bond)
  • The privilege to operate a bonded manufacturing/trading warehouse (subject to Customs rules and regulations)

 

Bases Conversion and Development Act of 1992 (RA 7227)

The objective of RA 7227 is to accelerate the conversion and development of the Clark and Subic military reservations into special economic zones, and ultimately, promote the economic and social development of Central Luzon.

With this, RA 7227 created the Bases Conversion and Development Authority (BCDA) and the Subic Bay Metropolitan Authority (SBMA). Meanwhile, the BCDA has the Clark Development Corporation (CDC) as its operating and implementing arm that manages the Clark Special Economic Zone and the Clark Freeport Zone (CFZ).

Incentives granted under either BCDA, SBMA, or CDC include:

• Tax and duty-free importation
• Employment of foreign nationals
• Permanent residency status for investors, their spouses and dependents (subject to conditions)
• Instead of all local and national taxes, only a final tax of five percent (5%) on gross income earned is required to be paid.

 

The Special Economic Zone Act of 1995 (RA 7916)

For other special economic zones aside from Clark and Subic, there is RA 7916. With the goal of achieving a balanced industrial, economic, and social development all over the country, RA 7916 created the Philippine Economic Zone Authority (PEZA) to establish and develop “ecozones” in different parts of the Philippines. Like the EO 226, RA 7916 has a list of enterprises/activities eligible for incentives. This includes:

• Export manufacturing
• IT Service export
• Tourism
• Medical tourism
• Agro-industrial export manufacturing
• Agro-industrial bio-fuel manufacturing
• Logistics and warehousing services
• Ecozone development/operation
• Facilities providers
• Utilities

Incentives include:

• All incentives under EO 226
• A final tax of five percent (5%) on gross income earned, similar to that of RA 7227
• Tax and duty-free importation
• Tax credits for exporters using local materials
• Deduction of one-half (1/2) of the value of training expenses from the government’s share of 3% final tax

 

Other Special Economic Zones

Apart from the ecozones in RA 7227 and RA7916, there are other ecozones specifically in Zamboanga, Cagayan, Aurora, and Bataan. If you are registered in one of those, you are also entitled to incentives similar to that of RA 7916.

 

The Tourism Act of 2009 (RA 9593)

If your business is in any way related to travel, aim for Tourism Enterprise Zones (TEZs) as your base. RA 9593 created the Tourism Infrastructure and Enterprise Zone Authority (TIEZA), an attached agency to the Department of Tourism, to designate, regulate, and supervise TEZs, as well as grant and administer incentives under the act.

Businesses that are either directly related to tourism or may be related to tourism, and are registered within the TEZs are eligible for incentives such as:

• Income tax holiday
• A final tax of five percent (5%) on gross income earned
• Exemption from taxes and customs duties on importation of capital investment, equipment, transportation equipment, and goods
• Employment of foreign nationals
• Special investor’s resident visa (under certain conditions,)
• Social responsibility incentive
• Protection from requisition of investment
• Incentives on foreign currency transactions
• Lease and ownership of land by foreign investors (subject to conditions under the Investor’s Lease Act)

If you fail to make any of the TEZs as your base, you may also be entitled to incentives under EO 226, the Foreign Investment Act, RA 7916, and RA 7227, under certain conditions.

 

Export Development Act of 1994 (RA 7844)

To enjoy the incentives in the act, you should be an exporter in the Philippines that earns at least 50% of your revenue from the sale of your products or services abroad for foreign currency. Services rendered by overseas contract workers are excluded.

Incentives granted under RA 7844 include:

• Exemption from Presidential Decree 1853 (under certain conditions,)
• Tax credit for incremental export performance—granted that you have a local value-added tax above 10%; are not enjoying income tax holiday and value-added tax exemption; and aren’t engaged in the re-exportation of imported goods.

 

With all the laws that grant incentives to foreign investors, no matter what kind of business you’re planning to put up, you will surely enjoy these attractive incentives.

Nonetheless, if there’s one thing we’re sure of, it would be that starting a business in the Philippines will be one of the smarter decisions you will make.