OMNIBUS INVESTMENTS CODE OF 1987

Executive Order No. 226

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.

1. INCOME TAX HOLIDAY (ARTICLE 39 (a))

For 6 years from commercial operation of pioneer firms/projects
For 4 years from commercial operation of non-pioneer firms/projects

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

2. ADDITIONAL DEDUCTION FOR LABOR EXPENSE (Article 39 (b))

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.

3. TAX AND DUTY EXEMPTION ON IMPORTED CAPITAL EQUIPMENT AND ITS

ACCOMPANYING SPARE PARTS (ARTICLE 39 (c))

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:

a. not manufactured domestically in sufficient quantity, or comparable quality and at

reasonable price
b. reasonably needed and exclusively used by the registered enterprise in its registered
activity UNLESS
prior approval from the BOI for part-time use in a non-registered activity
proportionate taxes are paid on the specific equipment and machinery being
permanently used for non-registered activities
c. Board approval was secured for the importation of such machinery, equipment and
accompanying spare parts.

In granting the approval of the importations, Board may require INTERNATIONAL

CANVASSING but if total cost exceeds $5 Million, the provisions of PD 1764 on
INTERNATIONAL COMPETITIVE BIDDING shall apply.

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.

EXCEPT if sale within 5 years is made to:

to another registered enterprise or registered domestic producer enjoying similar incentives;
for reasons of proven technical obsolescence; or
for purposes of replacement to improve and/or expand the operations of the registered enterprise.

4.Tax Credit on Domestic Capital (Article 39 (D)

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.)

5.SIMPLIFICATION OF CUSTOMS PROCEDURE(Article 39 (e))

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

6.UNRESTRICTED USE OF CONSIGNED EQUIPMENT (Article 39 (f))

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.

7.EMPLOYMENT OF FOREIGN NATIONALS (Article 39 (G))

A registered enterprise may employ foreign nationals in supervisory, technical or

advisory positions for a period not exceeding 5 years from its registration, extendible for limited
periods at the discretion of the Board, provided:

majority of the capital stock of a registered enterprise is owned by foreign investors

1. the positions of president, treasurer, and general manager or their equivalents may be retained
by foreign nationals beyond the period set forth within.
Foreign nationals under employment contract within the purview of this
incentive, their spouses and unmarried children under 21 years of age, who are
not excluded by Sec. 29 of Commonwealth Act No. 613, as amended, shall be
permitted to enter and reside in the Philippines during the period of employment
of such foreign nationals.
A registered enterprise shall train Filipinos as understudies of foreign nationals
in administrative, supervisory and technical skills and shall submit annual
reports on such training to the Board.
8.EXEMPTION ON BREEDING STOCKS AND GENETIC MATERIALS (ARTICLE 39
(h))

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.

9.TAX CREDIT ON DUTY PORTION OF DOMESTIC BREEDING STOCKS AND

GENETIC MATERIALS (ARTICLE (i))

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.

11.ACCESS TO BONDED MANUFACTURING/TRADING SYSTEM (ARTICLE 39(k))

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))

Exports by a registered enterprise of its non-traditional export products shall be exempted

from any wharfage dues, and any export tax, duty impost and fee.

INCENTIVES TO LESS-DEVELOPED-AREAREGISTERED ENTERPRISE (ARTICLE

40)

LESS DEVELOPED AREA

- determined by the Board upon consultation with the NEDA and other government agencies
- CRITERIA:
o LOW PER CAPITA GROSS DOMESTIC PRODUCT
o LOW LEVEL OF INVESTMENTS
o HIGH RATE OF UNEMPLOYMENT AND/OR UNDEREMPLOYMENT
o LOW LEVEL OF INFRASTRUCTURE DEVELOPMENT including its accessibility to
developed urban centers, shall be entitled to the following incentives in addition to those provided
in the preceding article.

Incentives:

1. Incentives for Necessary and Major Infrastructure and Public Facilities.

Income Tax deduction equal to 100% of costs for necessary and major infrastructure works
prior approval of the Board in consultation with other government agencies concerned;
all such infrastructure works shall upon completion, be transferred to the Philippine Government
- any amount not deducted for a particular year may be carried over for deduction for subsequent
years not exceeding ten (10) years from commercial operation.
 2. Nationality requirements not as strict in less developed areas

Types of Investment

a. Pioneer Areas of Investments (Article 40 (a))

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))

Registered enterprises establishing their production processing or manufacturing plants in

an area that the Board designates as necessary for the proper dispersal of industry or in an area
which the Board finds deficient in infrastructure, public utilities, such as irrigation, drainage,
or other similar waterworks infrastructure may deduct from taxable income an amount equivalent
to 100% of necessary and major infrastructure works it may have undertaken with the prior
approval of the Board in consultation with other government agencies concerned, provided:

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.

BOOK II - CHAPTER I - FOREIGN INVESTMENTS WITHOUT INCENTIVES

Article 44.

Investment is understood as equity participation of enterprise/s formed, organized or existing

under the laws of the Philippines
"Doing business" shall include soliciting orders, purchases, service contracts, and opening offices
including liaison offices or branches;
Appointments of representatives or distributors who are domiciled in the Philippines for a period
or periods totaling one hundred eighty (180) days or more;
Participation in the management, administration or control of any artificial entity in the
Philippines, and such acts that implies continuity of commercial operations in exchange for
progressive and commercial gain or for purposes of furtherance of business organization.

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.

2. There must be a mandatory registration or authority from the Board of investment

if an investment is made by a non-Philippine national in an enterprise not registered
with a total participation of more than 40% in the outstanding in which the authority
shall be granted, unless the proposed investment would:

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

Article 48. Authority 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.

Requirements to be Imposed by the Board.

Upon granting said certificate, the Board shall impose the following requirements:

APPOINTED RESIDENT AGENT (Qualifications)

Filipino citizen
legal age
 good moral character and reputation
sound financing standing
to accept summons and other legal process in behalf of the applicant;

OFFICE IN THE PHILIPPINES

notify SEC
in writing (exact address and transfer or opening of new offices)
15 days before to be effected
not later than 10days after the effectivity

ASSETS/CAPITAL
Assets/capital that are necessary as approved by the BOI
must be unimpaired to maintain the business operation in the Philippines

PROOF OF ALLOWANCE TO DO BUSINESS IN THE PHILIPPINES:

If domiciled country imposes conditions other than those by this code:

BOI shall impose those conditions if such shall foster the sound and balanced development of
the national economy on a self-sustaining basis;

CHARTER AND BY-LAWS AND ALL AMENDMENTS

submit certified copies to SEC
with their translation into official language
within 20days after their adoption or after grant of Certificate by BOI

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

NOTICE OF STOPPAGE OF BUSINESS

-submit to SEC notice of intention to stop doing business in the Philippines
-at least 6 months advance
-give public notice for the benefit of creditors and third parties

FRANCHISE, LICENSING OR OTHER AGREEMENT

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.

Cause for Cancellation of Certificate of Authority or Payment of Fine.

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

IF ISSUANCE OF LICENSE ID IRREGULAR OR CONTRARY TO LAW:

any person adversely affected may file with RTC where the alien resides or its principal office
to cancel said license
No injunction without notice and hearing
appeal and other proceedings for review shall be directly filed with SC
 BOOK II (Repealed by Foreign Investments Act of 1991 [Republic Act No. 7042)

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

LICENSING OF REGIONAL OR AREA HEADQUARTERS IN THE PHILIPPINES

(As Amended by Republic Act No. 8756)

What is a Regional or Area Headquarters (RHQ)?

A Regional or Area Headquarters (RHQ) is an office whose purpose is to act as an

administrative branch of 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.

Multinational company - shall mean a foreign or group of companies with business

establishments in two (2) or more countries.

Who may Establish Regional or Area Headquarters(RHQ) in the Philippines?

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:

1. A certification from the Philippine Consulate/Embassy,or a duly authenticated

certification from the Department of Trade and Industry or its equivalent in the foreign firm's home
country that said foreign firm is an entity engaged in international trade with affiliates, subsidiaries
or branch offices in the Asia-Pacific Region and other foreign markets.

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.

Grounds for Cancellation of License:

Any violation by the RHQs of a multinational company of any of the provisions of the
Omnibus Investments Code, or its implementing rules and regulations, or other terms and
conditions of its registration, or any provision of existing laws, shall constitute a sufficient cause
for the cancellation of its license or registration.