Investment and Incentives Law Notes

BCDA The Bases Conversion and Development Authority (BCDA) is a government instrumentality vested with corporate powers under Republic Act (RA) 7227 (Bases Conversion and Development Act of 1992), signed into law by former President Corazon C. Aquino last March 13, 1992. The BCDA Charter was as amended by RA 7917 in 1995, and further amended by RA 9400 in 2007. Mandated to transform former US military bases into alternative productive civilian use. contribute to the modernization of the Armed Forces of the Philippines. to impact regional synergy and socio-development, and to generate economic opportunities for all arising from gains in its special economic zones.

AGENCIES: Bases Conversion and Development Authority. The Subic Bay Metropolitan Authority.

Other ecozones created under R.A. 9400 Subic Special Economic Zone Clark Special Economic Zone Clark Free Port Zone Poro Point Freeport Zone Morong Special Economic Zone John Hay Special Economic Zone

R.A. 7916 AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISMS FOR THE CREATION, OPERATON, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), AND FOR OTHER PURPOSES.

Purposes, Intents and Objectives. It is the purpose, intent and objective of this Act: (a) To establish the legal framework and mechanisms for the integration, coordination, planning and monitoring of special economic zones, industrial estates / parks, export processing zones and other economic zones; (b) To transform selected areas in the country into highly developed agro industrial, industrial, commercial, tourist, banking, investment, and financial centers, where highly trained workers and efficient services will be available to commercial enterprises; (c) To promote the flow of investors, both foreign and local, into special economic zones which would generate employment opportunities and establish backward and forward linkages among industries in and around the economic zones; (d) To stimulate the repatriation of Filipino capital by providing attractive climate and incentives for business activity;

(e) To promote financial and industrial cooperation between the Philippines and industrialized countries through technology-intensive industries that will modernize the countrys industrial sector and improve productivity levels by utilizing new technological and managerial know-how; and (f) To vest the special economic zones on certain areas thereof with the status of a separate customs territory within the framework of the Constitution and the national sovereignty and territorial integrity of the Philippines.

"Special Economic Zones (SEZ)" hereinafter referred to as the ECOZONES, are selected areas with highly developed or which have the potential to be developed into agro-industrial, Industrial tourist/recreational, commercial, banking, investment and financial centers. An ECOZONE may contain any or all of the following: Industrial Estates (IEs), Export Processing Zones (EPZs), Free Trade Zones, and Tourist/Recreational Centers.

Fiscal Incentives. Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987. tax credits for exporters using local materials as Inputs shall enjoy the same benefits provided for in the Export Development Act of 1994.

Exemption from National and Local Taxes.- Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: a. Three percent (3%) to the National Government; b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurers office of the municipality or city where the enterprise is located.

Fiscal Incentives to PEZA-Registered Economic Zone Enterprises 1. Economic Zone Export Manufacturing Enterprise Income Tax Holiday (ITH) 100% exemption from corporate income tax 4 years ITH for Non-pioneer Project 6 years ITH for Pioneer Project ITH Extension years may be granted if Project complies with the following criteria, (one criterion is equivalent to one ITH extension year), provided that the total ITH entitlement period shall not exceed eight (8) years: > The average net foreign exchange earnings of the project for the first three (3) years of operations is at least US$500,000.00 and,

> The capital equipment to labor ratio of the project does not exceed US$10,000.00 to 1 for the year immediately preceding the ITH extension year being applied for. > The average cost of indigenous raw materials used in the manufacture of the registered product is at least fifty per cent (50%) of the total cost of raw materials for the preceding years prior to the ITH extension year. o 3 years ITH for Expansion project (ITH applies to incremental sales) Upon expiry of the Income Tax Holiday - 5% Special Tax on Gross Income and excemption from all national and local taxes (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) Tax and duty free importation of raw materials, capital equipment, machineries and spare parts. Exemption from wharfage dues and export tax, impost or fees VAT zero-rating of local purchases subject to compliance with BIR and PEZA requirements Exemption from payment of any and all local government imposts, fees, licenses or taxes. However, while under Income Tax Holiday, no exemption from real estate tax, but machineries installed and operated in the economic zone for manufacturing, processing or for industrial purposes shall be exempt from real estate taxes for the first three (3) years of operation of such machineries. Production equipment not attached to real estate shall be exempt from real property taxes Exemption from expanded withholding tax

2. Information Technology Enterprise: Income Tax Holiday (ITH) 100% exemption from corporate income tax: 4 years ITH for Non-pioneer project 6 years ITH for Pioneer project ITH Extension year may be granted if Project complies with the following criteria (one criterion is equivalent to one ITH extension year,), provided that the total ITH entitlement period shall not exceed eight (8) years: > The average net foreign exchange earnings of the project for the first three (3) years of operations is at least US$500,000.00 and, > The capital equipment to labor ratio of the project does not exceed US$10,000.00 to 1 for the year immediately preceding the ITH extension year being applied for. o 3 years ITH for Expansion project (ITH applies to incremental sales) Upon expiry of the Income Tax Holiday - 5% Special Tax on Gross Income and excemption from all national and local taxes. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) Tax and duty free importation of equipment and parts. Exemption from wharfage dues on import shipments of equipment. VAT zero-rating of local purchases of goods and services, including land-based telecommunications, electrical power, water bills, and lease on the building, subject to compliance

with Bureau of Internal Revenues and PEZA requirements Exemption from payment of any and all local government imposts, fees, licenses or taxes. However, while under Income Tax Holiday, no exemption from real estate tax, but machineries installed and operated in the economic zone for manufacturing, processing or for industrial purposes shall not be subject to payment of real estate taxes for the first three (3) years of operation of such machineries. Production equipment not attached to the real estate shall be exempt from real property taxes. Exemption from expanded withholding tax.

3. Tourism Economic Zone Locator Enterprise Four (4) years of Income Tax Holiday ITH (as qualified under the National Investment Priorities Plan) Upon expiry of the Income Tax Holiday - 5% Special Tax on Gross Income and exemption from all national and local taxes (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) Tax and duty-free importation of capital equipment VAT Zero Rating on local purchases of goods and services, including landbased telecommunications, electric power, and water bills Exemption from expanded withholding tax

4. Medical Tourism Enterprise Four (4) years of Income Tax Holiday on income solely from servicing foreign patients Upon expiry of the Income Tax Holiday - 5% Special tax on Gross Income upon in lieu of all national and local taxes. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) Tax and duty-free importation of medical equipment, including spare parts and equipment supplies, required for the technical viability and operation of the registered activity/ies of the enterprise. VAT Zero Rating on local purchases of goods and services, including landbased telecommunications, electric power, and water bills Exemption from expanded withholding tax

5. Agro-Industrial Economic Zone Enterprise Four (4) years of Income Tax Holiday Upon expiry of the Income Tax Holiday - 5% Special tax on Gross Income and exemption from all national and local taxes . (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) Tax and duty free importation of production equipment and machineries, breeding stocks, farm

implements including spare parts and supplies of the equipment and machineries Exemption from export taxes, wharfage dues, impost and fees VAT Zero Rating on local purchases of goods and services, including landbased telecommunications, electric power, and water bills Exemption from payment of local government fees such as Mayors Permit, Business Permit, permit on the Exercise of profession/Occupation/Calling, Health Certificate Fee, Sanitary Inspection Fee, and Garbage Fee

6. Economic Zone Logistics Services Enterprise Exemption from duties and taxes on raw materials, semi-finished goods for re-sale to - or for packing/covering, cutting, altering for subsequent sale to PEZA-registered Export Manufacturing Enterprises, for direct export or for consignment to PEZA-registered export enterprise. VAT Zero Rating on raw materials for checking, packing, visual inspection, storage and shipping to be sourced locally

7. Economic Zone Developer / Operator 7.a. Manufacturing Economic Zone Developer / Operator Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by the Econimic Zone Developer. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax

7.b. IT Park Developer / Operator Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by the IT Park Developer. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax

7.c. Tourism Economic Zone Developer / Operator Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by the Tourism Economic Zone Developer. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax

7.d. Medical Tourism Economic Zone Developer / Operator Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by Medical Tourism Zone Developer. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax 7.e. Agro-Industrial Economic Zone Developer / Operator Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by the Agro-Industrial Economic Zone Developer. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax 7.f. Retirement Economic Zone Developer / Operator Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by the Retirement Economic Zone Developer. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax

8. Facilities Enterprises 8.a. Economic Zone Facilities Enterprise Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by developers. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax 8.b. IT Park Facilities Enterprise Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by developers. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax

8.c. Retirement Economic Zone Facilities Enterprise Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by developers. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax

9. Economic Zone Utilities Enterprise Special 5% Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by developers. (Gross Income refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) VAT Zero rating of local purchases Exemption from expanded withholding tax

Republic Act No. 8756

AN ACT PROVIDING FOR THE TERMS, CONDITIONS AND LICENSING REQUIREMENTS OF REGIONAL OR AREA HEADQUARTERS, REGIONAL OPERATING HEADQUARTERS, AND REGIONAL WAREHOUSES OF MULTINATIONAL COMPANIES, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF EXECUTIVE ORDER NO. 226, OTHERWISE KNOWN AS THE OMNIBUS INVESTMENTS CODE OF 1987

Regional or Area Headquarters (RHQ) - shall mean an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade which principally serves as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets and which does not earn or derive income in the Philippines. Incentives: 1. Corporate Income Tax Incentive -not subject to income tax 2. Value-Added Tax Exempt Regional Operating Headquarters (ROHQ) -shall mean a foreign business entity which is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the AsiaPacific Region and in other foreign markets. Incentives: 1. Corporate Income Tax Incentive - ten percent (10%) of their taxable income 2. Value-Added Tax- 10%

The regional operating headquarters may engage in any of the following qualifying services: - General administration and planning; - Business planning and coordination; - Sourcing/procurement of raw materials and components; - Corporate finance advisory services; - Marketing control and sales promotion; - Training and personnel management; - Logistics services; - Research and development services, and product development; - Technical support and maintenance; - Data processing and communication; and - Business development.

Incentives Available to Alien Employees of RHQ and ROHQ:

1. Multiple Entry Visa.

Foreign personnel of regional or area headquarters and regional operating headquarters of multinational companies, their respective spouses and unmarried children under twenty-one (21) years of age. Valid for 3 years

2. Withholding Tax of 15% on Compensation Income

For alien employees Also applicable to Filipino employees at their option

3. Tax and Duty Free Importation

of personal and household effects (for alien executive/s)

4. Travel Tax Exemption

-`for personnel of RHQ and ROHQ and their dependents

INCENTIVES TO RHQ and ROHQ ( Common) 1. Exemption From All Kinds of Local Taxes, Fees, or Charges - Except RPT 2. Tax and Duty Free Importation of Training Materials and Equipment; Importation of Motor Vehicles - Provided such materials and equipments are not available locally.

R.A. 7844

EXPORT DEVELOPMENT ACT OF 1994

Purpose: To evolve export development into a national effort.

Key operating principles. - A macro-economic policy framework that supports export development shall be provided, especially in key areas of concern to exporters:

[a] Monetary and foreign exchange policies shall establish and maintain a competitive exchange rate, supported by measures to provide safety nets for various sectors that may be adversely affected by the implementation of such policies. [b] Fiscal and credit policies shall provide adequate funds for public and private investments and business expansion, while keeping the cost of credit comparable to international levels ensuring access to loanable funds for SMEs as well as highly technical export enterprises, especially those in the countryside. [c] Agricultural policies shall build up viability and competitiveness of the country's agriculture sectors and facilitate their linkage with industry to strengthen the agri-industrial base of the country's export thrust. [d] Trade, tariff and customs policies shall engender competitiveness of domestic industries and facilitate their participation in international trade. [e] Technical support policies to improve the quality of export products shall be adopted, particularly those relating to technology transfer, R & D, technical training and related activities [f] Urgent attention must be given to policies affecting infrastructure in order to ensure the adequate supply and quality of power, water [e.g., for irrigation], transportation [e.g., shipping and cargo handling], and communication to support the flow of goods and services in the context of the national export drive.chanrobles virtual law library [g] The link between export growth and countryside development must be strengthened through policies favorable to SMEs, regional industrial centers, and export processing zones to boost rural and farmbased entrepreneurship in identified geographic economic growth areas of the country. [h] Labor and industrial relations policies must recognize the inevitable industrial shifts that will occur in the effort to achieve international competitiveness. Focus shall be given to the formulation of accords between labor and management which shall provide for sustained increase in productivity and competitiveness [i] All government agencies whose actions affect exporters, such as the Board of Investments [BOI], Bureau of Customs [BOC] and Bureau of Internal Revenue [BIR] shall simplify procedures to minimize bureaucratic red tape. [j] Provisions of existing laws deemed detrimental to the export sector shall be repealed in subsequent acts.

"Exporter" means any person, natural or juridical, licensed to do business in the Philippines, engaged directly or indirectly in the production, manufacture or trade of products or services which earns at least fifty percent [50%] of its normal operating revenues from the sale of its products or services abroad for foreign currency : Provided,That in the case of services, the same shall be limited to information technology services, construction services and other services as defined jointly by the Department of Finance [DOF] and the Department of Trade and Industry [DTI]. Services rendered by overseas contract workers are not covered by the definition.

Incentives. - In addition to existing incentives provided by the Board of Investments, the following incentives shall likewise be granted to exporters: [a] Exemption from Presidential Decree No. 1853, (Requiring Deposits of Duties at the Time of Opening of LOC covering imports and for other purposes) provided that the importation shall be used for the production of goods and services for export. [b] Tax credit for imported inputs and raw materials primarily used for the production and packaging of export goods, which are not readily available locally , shall be valid for five [5] years. Provided,That the tax credit shall be issued within thirty [30] days from exportation. [c] Tax credit for increase in current year's export revenue.

[d] For exporters of non-traditional products who use or substitute locally produced raw materials, capital equipment and/or spare parts, tax credits equivalent to twenty-five percent [25%] of the duties that would have been paid had these inputs been imported [e] In the interim, while the Eximbank is not yet established, government financial institutions [GFIs] including the Development Bank of the Philippines [DBP] , the Philippine National Bank [PNB] and the Land Bank of the Philippines shall extend credit facilities to be used for plant and equipment expansion purposes, among others. These credit facilities shall offer preferential and simplified credit schemes to exporters.

10