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Business opportunities in the

Philippines
an introduction to Doing Business with the
Philippines
THE PHILIPPINES
Land Area: 300,000 sq.km.

The Philippines is an archipelago made up of 7, 107 islands and islets


and three major geographical regions, namely, Luzon, Visayas and
Mindanao. It is situated in the southeastern coast of mainland Asia and
because of its strategic location it is a gateway to the Southeast Asian
market of about 500 million people.

Population: 97,976,603 (July 2009 est.)

Religions: 80.95% Roman Catholic, 15% Christian, 5% Muslim

Literacy Rate: 95%

Strategically located in Asia

It is approximately 4.5 flying hours to the capital cities of the Southeast


Asia countries.
ABOUT THE PHILIPPINES
It has a mixed cultural society ----a colony of Spain for 300 years
and America for 40 years until it finally achieved independence
in 1946.

Its population of about 94 million people is made of 95%


Christians of which 85% are Catholics and 5% Muslim.

It is the third largest English- speaking country in the world and


although Filipino is the national language, English is widely
spoken and is the language use for business and instruction in
schools, colleges and universities.

The climate is hot and dry from March to May; rainy from June
to October; and cool and dry from November to February.

The country is a democratic republic and has a presidential form


of government with a president elected for a fixed term of 6
years without reelection.
GOVERNMENT AND POLITICS

The three major branches of government are:

Executive, headed by the President;

the legislative, the Philippine Congress composed


of the Senate, the upper house, and House of
Representatives, the lower house; and

The judiciary with the Supreme Court as the highest


court of the land. The three branches are co-equal
and independent and serves as a check and balance
of each other.
GOVERNMENT POLICY ON
FOREIGN INVESTMENTS

The Philippine Government maintains a policy of promoting and


developing all industries in all sectors of the economy and in all
regions of the country to foster and accelerate the country’s
economic growth and has divided the country into 17 regions,
each of which has its own development plan. Its favourable
investment climate, highly skilled and English-speaking labour
force, western lifestyle, fiscal and non-fiscal incentives for eligible
investors have attracted and encouraged foreign direct
investments.

The US$5 billion Malampaya Deep Water Gas-to-Power Project


in the coast of Palawan, southern Philippines, is one of the
biggest foreign investments. The project is joint undertaking of
the Philippine Department of Energy and the private sector
represented by Shell Philippines Exploration B.V. (SPEX) on
behalf of Chevron Malampaya LLC and PNOC (Philippine
National Oil Corporation). It draws natural gas from deep
beneath Philippine waters and was inaugurated in October 2001
at the onshore gas plant in Batangas, central Philippines.
BUSINESS OPEN FOR
FOREIGN INVESTMENTS

Foreigners may engage in all kinds of business subject to the limitations under the Philippine Constitution and special laws

1. Constitutional Restrictions

a. 60% ownership by Filipino citizens or nationals is required for the exploration, development and utilization of natural resources; ownership
and management of public utilities; and ownership, establishment and administration of educational institutions.

b. No foreign equity is allowed in mass media except recording and practice of all professions such engineering; medicine and allied professions;
law; accountancy, architecture and others save in cases prescribed by law.

2. Statutory Limitations

a. Foreign Negative Lists (FNL) under Foreign Investment Act of 1991―prescribes the maximum level of foreign equity allowed for
specific businesses enumerated therein which could be 20%; 25%; 30%; 40%; and 60%.

b. Mining Act of 1995―100% foreign-owned companies maybe involved in the exploration, development and utilization of minerals,
petroleum and other mineral products through a Financial andTechnical Assistance Agreement (FTAA).

c. Banking Law of 2000―limits foreign ownership in Philippine banks to 60% although a framework for 100% ownership maybe allowed in
the future.
SPECIAL ECONOMIC ZONES FOR
REGIONAL DEVELOPMENT
Special Economic Zones Act of 1995

To date about 140 ecozones have been approved by PEZA

Bases Conversion and Development Act of 1992

Subic Bay Freeport―administered by Subic Bay Metropolitan Authority (SBMA)

Clark Special Economic Zone―administered by Clark Development Authority


(CDA

Other smaller zones under said Act: John Hay & Poro Point

Other Ecozones created under Special Laws

Cagagan Economic Zone Authority and Zamboanga Economic Zone Authority


Priority sectors
2009 Investment Priorities Plan (IPP)

The priority investment areas are classified into:

• Preferred Activities which include a Contingency List and


Regular List.

• Mandatory List

• Export Activities

• ARMM List

4. Priority Sectors for the UK and Scotland

• Renewable Energy;

• Business Support & IT(BPO);

• Infrastructure (BOT Scheme―PPP);

• Investment Tourism;

• Mining

• Export of Electronics
FISCAL AND NON-FISCAL
INCENTIVES
BOI Registered Enterprises

General Rule: Only Filipino citizens and companies organized under Philippines laws and registered with the BOI
are eligible for BOI incentives under the Omnibus Investments Code of 1987.

Exception: Companies which are 100% foreign-owned shall be eligible for BOI incentives if they are

• (a) engaged in pioneer projects (introduce new products or processes in the Philippines or conduct certain
approved businesses);

• (b) export 70% of production or lower as determined by the BOI;

• (c) undertake projects in less-developed areas as determined by the BOI.

However, the foreign companies are obliged to attain 60% Filipino ownership with 30 years from registration or
longer period as determined by the BOI. Exception when 100% of production is for export or the foreign ownership is
limited under the Constitution or the Foreign Investment Negative List (FINL) of the Foreign Investments Law of
1991.
FISCAL AND NON-FISCAL
INCENTIVES
BOI Registered Enterprises

Tax Incentives

1. Pioneer Projects
• 6 years tax holiday for first 6 years of operations extendable to 2 years subject to certain conditions.
• 6 years exemption from local business tax (Local Government Code).

2. Non-pioneer Projects
• 4 years tax holiday from date of operations
extendable to 3 years subject to certain conditions.
Non-tax Incentives for all BOI-registered companies
• Access to manufacturing/trading warehouse system for export-oriented companies resulting to deferral or
elimination of taxes and customs duties.
• Simplified customs procedures for imports and exports.
• Unrestricted use of consigned equipment.
• Employment of foreign nationals in supervisory, technical or advisory positions for 5 years from registration.
FISCAL AND NON-FISCAL
INCENTIVES
PEZA Registered Enterprises

Tax Incentives

• 3 to 8 years tax holiday from income tax and local taxes. Thereafter, 5% tax on gross income (sales less direct costs)
in lieu of all local and income taxes.

• Duty-free and tax-free importation of imported capital equipment and production supplies,

• Exemption from branch profits remittance tax by PEZA-registered branch of foreign corporation.

PEZA- registered companies are entitled to all fiscal incentives avaible to BOI-registered companies.

Non-tax Incentives
• Permanent residency status for foreign investor with initial investment of US$100,000 or more. The permanent
residency status is extended to the investor’s spouse and dependent children under 21 years of age for investments of
US$150,OOO or more.

• Employment of foreign nationals to top managerial positions indefinitely of the foreign investor owns majority of the
capital of the registered enterprise.

Fiscal incentives for companies located at Subic Bay Freeport Zone and Clark Special Economic Zone are provided by the
laws creating them and generally takes the form of income tax holiday and duty-free importation of raw materials
and capital equipment.
FOREIGN LAND OWNERSHIP

General Rule: Philippine Constitution provides that only Filipino citizens and corporations and partnerships which
are at least 60%-owned Filipino-owned may acquire lands in the Philippines.

Exceptions:

• Acquisition before the 1935 Constitution

• Acquisition thru hereditary succession if the foreigner is a legal spouse


of a Filipino citizen or natural children (legitimate or illegitimate)
of a Filipino mother/father.

• Philippine Condominium Act, R.A. 4726, allows foreigners to acquire condominium units and shares in
condominium corporations up to not more than 40% of the total and outstanding capital stock of a Filipino owned or
controlled condominium corporation.

There have been proposals in the Philippine Congress to amend this provision of the Philippine Constitution.

Foreigners can lease lands for industrial and agricultural projects for a maximum period of 50 years renewable for
another 25 years, or a total lease period of 75 years.
PROTECTION OF FOREIGN
INVESTMENTS
1. Bilateral Mutual Promotion and Protection of Foreign Investment Agreements

2. UN Multilateral Investment Guaranty Agreement (MIGA) (6 February 1965)


Philippines is a signatory.

3. UN Multilateral Agreement for Settlement of Investment Disputes


Philippines is a signatory.
REGIONAL HEADQUARTERS

1. Regional Headquarters (RHQ)—branch office that functions only as a supervisory, communication


and coordination centre for the subsidiaries, branches or affiliates of a multinational company
operating in the Asia Pacific region and other foreign markets. Operates only as a cost centre and
cannot manage the subsidiary or branch office of the multinational company. Cannot market or
solicit goods or services.

2. Regional Operating Headquarters (ROHQ)---branch office can derive income in the Philippines by
doing services to its affiliates, subsidiaries or branches in the Asia Pacific region including the
Philippines and other foreign markets such as administration, business planning procurement of
raw materials, marketing and sales promotion but it cannot directly or indirectly engage in the sale
and distribution of goods and services.
INVESTMENT RELATED VISAS

1. SPECIAL VISA FOR EMPLOYMENT GENERATION (SVEG) –


EXECUTIVE ORDER 758
2. SPECIAL INVESTOR'S VISA ( SIRV) - EXECUTIVE ORDER
Nos. 226 & 63
PHILIPPINE MEMBERSHIP IN
INTERNATIONAL AND REGIONAL
ORGANISATIONS
INTERNATIONAL

United Nations (UN)

United Nations on Conference & Trade


(UNCTAD)

World Trade Organisation (WTO) REGIONAL

Association of Southeast Asian Nations


(ASEAN)

Asia Pacific Economic Cooperation (APEC)

Asia Europe Meeting (ASEM)