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TITLE III
INCENTIVES TO REGISTERED ENTERPRISES
(Art. 39, As Amended by Republic Act No. 7918)
GENERAL RULE: An investor may avail of the incentives upon registration with the BOI and if
he invests in preferred areas of investment as designated in the Investment Priorities Plan (IPP),
which is periodically issued by the Board of Investments (BOI). These preferred areas are
classified as either pioneer or non-pioneer.
For 3 years from commercial operation of expanding firms/projects (during the period within
which this incentive is availed of by the expanding firm it shall not be entitled to additional
deduction for incremental labor expense (Article 39 (b)).
Shall be fully exempt from income taxes levied by the national government
Income tax exemption may be EXTENDED for 1 year if:
a. the project meets the prescribed ratio of capital equipment to number of
workers set by the Board;
b. utilization of indigenous raw materials at rates set by the Board;
c. the net foreign exchange savings or earnings amount to at least
US$500,000.00 annually during the first three(3) years of operation.
No registered pioneer firm may avail of this incentive for a period exceeding 8 years
For the first five (5) years from registration, a registered enterprise shall be allowed an
additional:
Deduction of 50% of wages corresponding to the increment in the number of direct
labor for skilled and unskilled workers if the project meets the prescribed ratio of
capital equipment to number of workers set by the board.
Additional deduction shall be doubled if the activity is located in less developed
areas as defined in Art. 40.
Importations of machinery and equipment and accompanying spare parts of new and
expanding registered enterprises shall be exempt to the extent of 100% of the customs duties and
internal revenue taxpayable thereon, provided:
Should the enterprise sell the machinery within 5 YEARS from importation, both the
vendor and the vendee shall besolidarily liable to pay TWICE the amount of the tax exemption
granted to it.
A tax credit equivalent to 100% of the value of the national internal revenue taxes and
customs duties shall be given to the new and expanding enterprise provided:
said equipment, machinery and spare parts are reasonably needed and will be used exclusively by
the registered enterprise in its registered activity
use for the part-time utilization of said equipment in a non-registered activity is allowed with
prior approval from BOI for the purpose of maximizing usage therof.
the equipment would have qualified for tax and duty exemption under paragraph (c) hereof;
prior approval from the BOI was obtained by the registered enterprise
purchase is made on or before December 31, 1997 or December 31, 1999 as the case may be.
If the registered enterprise sells, transfers, or disposes of these machinery, equipment
and spare parts, the provision in the preceding paragraph for such disposition shall
apply. (If the registered enterprise sells the machinery, equipment and spare parts
without prior approval of the Board within 5 years from date of acquisition, the
parties to the sale shall be solidarily liable to pay TWICE the amount of the tax
exemptions given to it.)
Customs procedure for the importation of equipment, spare parts, raw materials and
supplies, exports of processed prodictsby registered enterprises shall be simplified by Bureau of
Customs
Machinery, equipment and spare parts consigned to any enterprise shall not be subject to
restrictions as to period of use of such machinery, equipment and spare parts, provide:
appropriate re-export bond is posted unlessimportation is covered under subsections (c) and (1)
of this Article, provided further:
o such consigned equipment shall be for the exclusive use of the registered enterprise.
SAME RULE IN ARTICLE 39 (c) (3) APPLIES WHEN EQUIPMENT IS
SOLD.
The importation of breeding stocks and genetic materials within 10 years from the date of
registration or commercial operation of the enterprise shall be exempt from all taxes and duties
provided:
such breeding stocks and genetic materials are
1. not locally available and/or obtainable locally in comparable quality and at reasonable
prices
2.. reasonably needed in the registered activity
3. approved by the board.
A tax credit equivalent to 100% of the value of national internal revenue taxes and customs
duties that would have been waived on the breeding stocks and genetic materials had these items
been imported shall be given to the registered enterprise which purchases breeding stocks and
genetic materials from domestic producer: provided,
said breeding stocks and genetic materials would have qualified for tax and duty-free importation
under the preceding paragraph.
Breeding stocks and generic materials are reasonably needed in the registered activity
Approval of the board has been obtained
Purchase is made within 10 years from the date of registration of commercial operation
10.TAX CREDIT FOR TAXES AND DUTIES ON RAW MATERIALS (ARTICLE 39 (i))
Every registered enterprise shall enjoy a tax credit equivalent to the national internal
revenue taxes and customs duties paid on the supplies, raw materials and semi-manufactured
products used in the manufacture, processing or production of its exports products forming part
thereof, provided:
The taxes on the supplies, raw materials and semi-manfactured products domestically purchased
are indicated as a separate item in the sales invoice.
Registered export-oriented enterprises shall have access to the utilization of the bonded
warehousing system in all areas required by the project subject to such guidelines as may be issued
by the Board upon prior consultation with the Bureau of Customs.
12.EXEMPTION FROM TAXES AND DUTIES ON IMPORTED SPARE
PARTS (ARTICLE (l))
Importation of required supplies and spare parts for consigned equipment or those imported
tax and duty-free by a registered enterprise with a bonded manufacturing warehouse shall be
exempt from customs duties and national internal revenue taxes payable thereon, provided:
Such spare parts and supplies are not locally available at reasonable prices, sufficient quantity
and comparable quality, provided further:
o Such spare parts and supplies shall be used only in the bonded manufacturing warehouse of the
registered enterprise under such requirements as the Bureau of Customs may impose.
13.EXEMPTION FROM WHARFAGE DUES AND EXPORT TAX, DUTY, IMPOST AND
FEES (ARTICLE 39 (m))
Incentives:
Types of Investment
An enterprise in a less-developed area registered with the Board under Book 1 of this Code,
whether proposed, or an expansion of an existing venture, shall be entitled to the incentives
provided for a pioneer registered enterprise under its law registration. (6 years, regardless of status)
b. Incentives for Necessary and Major Infrastructure and Public Facilities (Article 40 (b))
The title to all such infrastructure works shall upon completion, be transferred to the Philippine
Government, provided further:
o Any amount not deducted for a particular year may be carried over for deduction for subsequent
years not exceeding 10 years from commercial operation.
The BOI uses the incentive package under EO 226 to influence industry and encourage enterprises
to locate outside the National Capital Region (NCR). In this connection, the BOI limits incentives
to firms that locate in congested urban centers. Further, the law provides maximum incentives to
registered enterprises that will locate in LDAs or in the thirty (30) poorest Philippine provinces.
Projects that otherwise may not be covered by ITH may become entitled if the projects will be
located in LDAs.
TITLE V
GENERAL PROVISIONS
Article 41.
Upon recommendation of the Board and in the interest of national development, the
President may:
(1) Rationalize the incentives scheme herein provided;
(2) Extend the period of availment of incentives
(3) Increase rates of tax exemption of any project whose viability or profitability
require such modification.
Article 42.
In case of cancellation or revocation of the certificate granted under this Code, the Board
may, in appropriate cases, require the refund of incentives availed of and impose corresponding
fines and penalties.
Article 43.
Enterprises that are registered and engages in activities or endeavors in certain area
that have not been declared preferred areas of investments, the benefits and incentives accruing
provided in this Code to such enterprises shall be limited to the portion of the activities as a
preferred area of investment.
Article 44.
Article 45. The provisions of this code shall not apply to banking institutions which are governed
and regulated by the General Banking Act (RA 8791) and other laws which are under the
supervision of the Central Bank.
CHAPTER II - INVESTMENTS
Article 46 and 47. The following are Permitted Investments are as follows:
1. If there is no need of prior authority for investing, anyone that is not a
Philippine national, Non - Citizen or Foreign Corporation owned by Non Filipino
citizens of more than 40%, and not otherwise disqualified by law, may invest to the
following:
(a) In any registered enterprises up to the extent that the total investment of
non-Philippine nationals therein would not affect its status as a registered
enterprise under the law;
(b) In a non-registered enterprises up to the extent that the total investment of
non-Philippine nationals herein shall not exceed 40% of the outstanding capital
of such enterprise, unless there exist a law that provides a lower percentage.
Within thirty (30) days after notice of the investment is received by the enterprises by
non-Philippine nationals, such investment must be registered to the Board of
Investments for purposes of record.
Conflict to constitutional provisions and laws that regulating the degree of required ownership
by Philippine nationals in the enterprise; or
Promote monopolies or combinations in restraint of trade; or
Be made in enterprise engaged in an area adequately being exploited by Philippine nationals;
or
Inconsistent with the Investment Priorities Plan that are in force at the time the investment is
sought to be made; or
Adversely affect the sound and balanced development of the national economy on a self-
sustaining basis.
As to both investment provided, subject to the appraisal and assessment of the value to be made
The Board, investments made in the form of foreign exchange and other assets actually transferred
to the Philippines shall also be registered with the Central Bank.
CHAPTER II
LICENSE TO DO BUSINESS
No alien, and no firm association, partnership, corporation or any other form of business
organization formed, organized, chartered or existing under any laws other than those of the
Philippines, or which is not a Philippine national, or more than forty per cent (40%) of the
outstanding capital of which is owned or controlled by aliens shall do business or engage in any
economic activity in the Philippines or be registered, licensed, or permitted by the Securities and
Exchange Commission or by any other bureau, office, agency, political subdivision or
instrumentality of the government, to do business, or engage in any economic activity in the
Philippines without first securing a written certificate from the Board of Investments to the effect:
(1) That the operation or activity of such alien, firm, association, partnership,
corporation or other form of business organization, is not inconsistent with the Investment
Priorities Plan;
The IPP is a list of priority investment activities that may be given incentives. -Broadly these
changes include further emphasis on innovation-driven and job-generating businesses
Formulated through a participative, analytical, and multi-sector process, the new IPP is
expected to generate more investments to strengthen manufacturing resurgence and create more
jobs as targeted in the PDP 2017-2022.
(2) That such business or economic activity will contribute to the sound and balanced
development of the national economy on a self-sustaining basis
This balance may be possible not only by developing alternative energy sources but mostly by
dramatically containing the growth spirals of economy, population and depletion of resources,
reducing them to a state of near stasis.
This balancing act must also be accompanied by a deep understanding that the nature of the
problem is the tension between short-term growth and long-term survival
(3) That such business or economic activity by the applicant would not conflict with the
Constitution or laws of the Philippines;
Article 12 of Philippine Constituion (National Economy and Patrimony)
Sec 10 The State shall regulate and exercise authority over foreign investments within its
national jurisdiction and in accordance with its national goals and priorities.
(4) That the field of business or economic activity is not one that is being adequately
exploited by Philippine nationals; and
adequately exploited means use of something for profit
(5) That the entry of applicant therein will not pose a clear and present danger of
promoting monopolies or combinations in restraint of trade.
Article 49.
ASSETS/CAPITAL
Assets/capital that are necessary as approved by the BOI
must be unimpaired to maintain the business operation in the Philippines
FINANCIAL STATEMENT
show SALN of their operations and the results
separate the result those to the branch office
ACCOUNTING RECORDS
complete set kept by the resident agent
all transactions in the Philippines
may be inspected by BOI, BIR, and SEC
UPON INSOLVENCY/DISSOLUTION/REVOCATION OF LICENSE:
give priority to resident creditors non-resident creditors and owners in the
GENERAL RULE: Not to terminate such agreements with a resident of the Philippines and
authorizing the latter to assemble, manufacture and sell within the Philippines
EXCEPTION:
-violation
-just cause
-payment of compensation
-reimbursement of investment
- be determined by the country where the licensee is domiciled
- who shall require the applicant to file a bond sufficient for this purpose
The above requirements shall be in addition to those set forth in the Corporation
Code of the Philippines for authorizing foreign corporations to transact business in
the Philippines.
Article 50.
GENERAL RULE: violation of any of the requirements set forth in Article 49 or of the terms and
conditions which the Board may impose shall be sufficient cause to cancel the certificate of
authority issued pursuant to this Book and/or subject firms to the payment of fines
Previously, before enactment of Foreign Investments Law of 1991, because foreign equity in the
enterprise will not exceed 40%, the enterprise is denominated as permitted investment under the
Omnibus Investments Code. Under the Code, the enterprise may immediately incorporate with
directly with SEC without need of prior BOI authority.
Now the requirements of FIA should be complied with, which operates under policy that except
for those found in the Negative Lists, all areas of investments are opened to 100% foreign equity
investment.
BOOK III
Any foreign business entity formed, organized and existing under any laws other than those
of the Philippines whose purpose, as expressed in its organizational documents or by resolution of
its Board of Directors or its equivalent, is to supervise, superintend, inspect or coordinate its own
affiliates, subsidiaries or branches in the Asia-Pacific Regionand other foreign markets, after
securing a license therefore from the Securities and Exchange Commission, upon the favorable
recommendation of the Board of Investments.
The following minimum requirements shall be complied with by the said foreign entity:
2. A duly authenticated certification from the principal officer of the foreign entity to the
effect that the said foreign entity has been authorized by its Board of Directors or governing body
to establish its RHQ in the Philippines, specifying that:
a. The activities of the RHQ shall be limited to acting as a supervisory,
communications and coordinating center for its subsidiaries, affiliates and
branches in the region;
b. The RHQs will not derive any income from sources within the Philippines
and will not participate in any manner in the management of any subsidiary or
branch office it might have in the Philippines nor shall it solicit or market goods
and services whether on behalf of its mother company or its branches, affiliates,
subsidiaries or any other company; and
c. The RHQs shall notify the Board of Investments and the Securities and
Exchange Commission of any decision to close down or suspend operations of
its headquarters at least fifteen (15) days before the same is effected.
3. Any undertaking that the multinational company will remit into the country such amount
as may be necessary to cover its operations in the Philippines but which amount will not be less
than Fifty thousand United States dollars ($50,000) or its equivalent in other foreign currencies
annually.
a. Within thirty (30) days from receipt of Certificate of Registration from the Securities
and Exchange Commission, the multinational company will submit to the Securities and Exchange
Commission a certificate of inward remittance from a local bank showing that it has remitted to
the Philippines the amount of at least Fifty thousand United States dollars ($50,000) or its
equivalent in other foreign currencies and converted the same to Philippine currency.
b. Annually, within thirty (30) days from the anniversary date of the multinational
company's registration as an RHQ with the Securities and Exchange Commission, it will submit
proof to the Securities and Exchange Commission of inward remittance amounting to at least Fifty
thousand United States dollars ($50,000) or its equivalent in other foreign currencies during the
past year.