Banking & Investment Laws

7/27/2019 Banking & Investment Laws

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EXECUTIVE ORDER NO. 226 July 16, 1987

THE OMNIBUS INVESTMENTS CODE OF1987

WHEREAS, the Government is committed toencourage investments in desirable areas ofactivities;

WHEREAS, to facilitate investment, there is aneed to adopt a cohesive and consolidatedinvestments incentives law;

WHEREAS, it is imperative to integrate basiclaws on investment, to clarify and harmonizetheir provisions for the guidance of domestic andforeign investors;

NOW, THEREFORE, I, CORAZON C. AQUINO,President of the Philippines, do hereby orderand ordain the following:

Article 1. Short Title. This Order shall beknown as the "Omnibus Investments Code" of1987.

Article 2. Declaration of InvestmentPolicies. To accelerate the sound developmentof the national economy in consonance with theprinciples and objectives of economicnationalism and in pursuance of a plannedeconomically feasible and practical dispersal of

industries and the promotion of small andmedium scale industries, under conditions whichwill encourage competition and discouragemonopolies, the following are declared policiesof the State:

1. The State shall encourage privateFilipino and foreign investments in industry,agriculture, forestry, mining, tourism and othersectors of the economy which shall: providesignificant employment opportunities relative tothe amount of the capital being invested;increase productivity of the land, minerals,forestry, aquatic and other resources of thecountry, and improve utilization of the productsthereof; improve technical skills of the peopleemployed in the enterprise; provide a fountainfor the future development of the economy; meetthe tests of international competitiveness;accelerate development of less developedregions of the country; and result in increasedvolume and value of exports for the economy.lawphi1.net

2. The State shall ensure the holisticdevelopment by safeguarding the well-being ofthe social, cultural and ecological life of thepeople. For this purpose, consultation withaffected communities will be conductedwhenever necessary. lawphi1.net

3. The Sate shall extend to projects whichwill significantly contribute to the attainment ofthese objectives, fiscal incentives without whichsaid projects may not be established in thelocales, number and/or pace required foroptimum national economic development. Fiscalincentive system shall be devised tocompensate for market imperfections, to rewardperformance contributing to economicdevelopment, be cost-efficient and be simple toadminister.

4. The Sate considers the private sector as

the prime mover for economic growth. In thisregard, private initiative is to be encouraged,with deregulation and self-regulation of businessactivities to be generally adopted where dictatedby urgent social concerns.

5. The State shall principally play asupportive role, rather than a competitive one,providing the framework, the climate and theincentives within which business activity is totake place.

6. The State recognize that there areappropriate roles for local and foreign capital toplay in the development of the Philippineeconomy and that it is the responsibility ofGovernment to define these roles and providethe climate for their entry and growth.

7. The State recognizes that industrialpeace is an essential element of economicgrowth and that it is a principal responsibility ofthe State to ensure that such condition prevails.

8. Fiscal incentives shall be extended tostimulate the establishment and assist initialoperations of the enterprise, and shall terminate

after a period of not more than 10 years fromregistration or start-up of operation unless aspecific period is otherwise stated.

The foregoing declaration of investment policiesshall apply to all investment incentive schemes.


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CHAPTER II

BOARD OF INVESTMENTS

Article 3. The Board of Investments. TheBoard of Investments shall implement theprovisions of Books One to Five of this Code.

Article 4. Composition of the Board. TheBoard of Investments shall be composed ofseven (7) governors: The Secretary of Tradeand Industry, three (3) Undersecretaries ofTrade and Industry to be chosen by thePresident, and three (3) representatives fromother government agencies and the privatesector. The Secretary of Trade and Industryshall be concurrently Chairman of the Board andthe Undersecretary of the Department of Tradeand Industry for Industry and Investments shallbe appointed by the President for a term of four

(4) years: Provided, That upon the expiration ofhis term, a governor shall serve as such until hissuccessor shall have been appointed andqualified: Provided, further, That no vacancyshall be filled except for the unexpired portion ofany term, and that no one may be designated tobe governor of the Board in an acting capacitybut all appointments shall be ad interim orpermanent.

Article 5. Qualifications of Governors ofthe Board. The governors of the Board shall becitizens of the Philippines, at least thirty (30)years old, of good moral character and ofrecognized competence in the fields ofeconomics, finance, banking, commerce,industry, agriculture, engineering, law,management or labor.

Article 6. Appointment of BoardPersonnel. The Board shall appoint its technicalstaff and other personnel subject to Civil ServiceLaw, rules and regulations.

Article 7. Powers and Duties of the Board.The Board shall be responsible for the regulationand promotion of investments in the Philippines.

It shall meet as often as may be necessarygenerally once a week on such day as it may fix.Notice of regular and special meetings shall begiven all members of the Board. The presenceof four (4) governors shall constitute a quorumand the affirmative vote of four (4) governors ina meeting validly held shall be necessary toexercise its powers and perform its duties, whichshall be as follows:

(1) Prepare annually the InvestmentPriorities Plan as defined in Article 26, whichshall contain a listing of specific activities thatcan qualify for incentives under Book I of thisCode, duly supported by the studies of existingand prospective demands for such products andservices in the light of the level and structure ofincome, production, trade, prices and relevanteconomic and technical factors of the regions aswell as existing facilities;

(2) Promulgate such rules and regulationsas may be necessary to implement the intentand provisions of this Code relevant to theBoard:

(3) Process and approve applications forregistration with the Board, imposing such termsand conditions as it may deem necessary topromote the objectives of this Code, including

refund of incentives when appropriate, restrictingavailment of certain incentives not needed bythe project in the determination of the Board,requiring performance bonds and otherguarantees, and payment of application,registration, publication and other necessaryfees and when warranted may limit theavailment of the tax holiday incentive to theextent that the investor's country law or treatieswith the Philippines allows a credit for taxes paidin the Philippines;

(4) After due hearing, decide controversiesconcerning the implementation of the relevantbooks of this Code that may arise betweenregistered enterprises or investors therein andgovernment agencies, within thirty (3)) daysafter the controversy has been submitted fordecision: Provided, That the investor or theregistered enterprise may appeal the decision ofthe Board within thirty (30) days from receiptthereof to the President;

(5) Recommend to the Commissioner ofImmigration and Deportation the entry into thePhilippines for employment of foreign nationalsunder this Code;

(6) Periodically check and verify, either byinspection of the books or by requiring regularreports, the proportion of the participation ofPhilippine nationals in a registered enterprise toascertain compliance with its qualification toretain registration under this Code;

(7) Periodically check and verify thecompliance by registered enterprises with the


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relevant provisions of this Code, with the rulesand regulations promulgated under this Codeand with the terms and conditions of registration;

(8) After due notice, cancel the registrationor suspend the enjoyment of incentives benefitsof any registered enterprise and/or requirerefund of incentives enjoyed by such enterpriseincluding interests and monetary penalties, for(a) failure to maintain the qualifications requiredby this Code for registration with the Board of (b)for violation of any provisions of this Code, of therules and regulations issued under this Code, ofthe terms and conditions of registration, or oflaws for the protection of labor or of theconsuming public: Provided, That theregistration of an enterprise whose projecttimetable, as set by the Board is delayed by oneyear, shall be considered automaticallycancelled unless otherwise reinstated as a

registered enterprise by the Board;

(9) Determine the organizational structuretaking into account Article 6 of this Code;appoint, discipline and remove its personnelconsistent with the provisions of the Civil ServiceLaw and Rules;

(10) Prepare or contract for the preparationof feasibility and other pre-investment studies forpioneer areas either upon its own initiative; orupon the request of Philippine nationals whocommit themselves to invest therein and showthe capability of doing so; Provided, That if theventure is implemented, then the amountadvanced by the Board shall be repaid withinfive (5) years from the date the commercialoperation of said enterprise starts;

(11) When feasible and considered desirableby the Board, require registered enterprises tolist their shares of stock in any accredited stockexchange or directly offer a portion of theircapital stock to the public and/or theiremployees;

(12) Formulate and implement rationalization

programs for certain industries whose operationmay result in dislocation, overcrowding orinefficient use of resources, thus impedingeconomic growth. For this purpose, the Boardmay formulate guidelines for progressivemanufacturing programs, local contentprograms, mandatory sourcing requirementsand dispersal of industries. In appropriate casesand upon approval of the President, the Boardmay restrict, either totally or partially, the

importation of any equipment or raw materials orfinished products involved in the rationalizationprogram;

(13) In appropriate cases, the subject to theconditions which the Board deems necessary,suspend the nationality requirement provided forin this Code or any other nationalization statutein cases of ASEAN projects or investments byASEAN nationals in preferred projects, and withthe approval of the President, extend saidsuspension to other internationalcomplementation arrangements for themanufacture of a particular product on a regionalbasis to take advantage of economies of scale;

(14) Extend the period of availment ofincentives by any registered enterprise;Provided, That the total period of availment shallnot exceed ten (10) years, subject to any of the

following criteria:

(a) The registered enterprise has sufferedoperational force majeure that has impaired itsviability;

(b) The registered enterprise has not fullyenjoyed the incentives granted to it for reasonsbeyond its control;

(c) The project of the registered enterprisehas a gestation period which goes beyond theperiod of availment of needed incentives; and

(d) The operation of the registeredenterprise has been subjected to unforeseenchanges in government policies, particularly,protectionalism policies of importing countries,and such other supervening factors which wouldaffect the competitiveness of the registered firm;

(15) Regulate the making of investments andthe doing of business within the Philippines byforeigners or business organizations owned inwhole or in part by foreigners;

(16) Prepare or contract for the preparation

of industry and sectoral development programsand gather and compile statistical, technical,marketing, financial and other data required forthe effective implementation of this Code;

(17) Within four (4) months after the close ofthe fiscal year, submit annual reports to thePresident which shall cover its activities in theadministration of this Code, includingrecommendations on investment policies;


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(18) Provide, directly or through PhilippineDiplomatic Missions, such information as maybe of interest to prospective foreign investors;

(19) Collate, analyze and compile pertinentinformation and studies concerning areas thathave been or may be declared preferred areasof investments; and

(20) Enter into agreements with otheragencies of government for the simplificationand facilitation of systems and proceduresinvolved in the promotion of investments,operation of registered enterprises and otheractivities necessary for the effectiveimplementation of this Code;

(21) Generally, exercise all the powersnecessary or incidental to attain the purposes ofthis Code and other laws vesting additional

functions on the Board.

Article 8. Powers and Duties of theChairman. The Chairman shall have thefollowing powers and duties:

(1) To preside over the meetings of theBoard;

(2) To render annual reports to thePresident and such special reports as may berequested;

(3) To act as liaison between investors

seeking joint venture arrangements in particularareas of investments;

(4) Recommend to the Board such policiesand measures he may deem necessary to carryout the objectives of this Code; and

(5) Generally, to exercise such otherpowers and perform such other duties as maybe directed by the Board of Governors from timeto time.

Article 9. Powers and Duties of the Vice-Chairman. The Vice-Chairman shall have thefollowing powers and duties:

(1) To act as Managing Head of the Board;

(2) To preside over the meetings of theBoard in the absence of the Chairman;

(3) Prepare the Agenda for the meetings ofthe Board and submit for its consideration andapproval the policies and measures which the

Chairman deems necessary and proper to carryout the provisions of this Code;

(4) Assist registered enterprises andprospective investors to have their papersprocessed with dispatch by all governmentoffices, agencies, instrumentalities and financialinstitutions; and

(5) Perform the other duties of theChairman in the absence of the latter, and suchother duties as may be assigned to him by theBoard of Governors.

BOOK I

INVESTMENTS WITH INCENTIVES

TITLE I

PREFERRED AREAS OF INVESTMENTS

CHAPTER I

DEFINITIONS OF TERMS

Article 10. "Board" shall mean the Board ofInvestments created under this Code.

Article 11. "Registered Enterprises" shallmean any individual, partnership, cooperative,corporation or other entity incorporated and/ororganized and existing under Philippine laws;and registered with the Board in accordancewith this Book: Provided, however, That the term"registered enterprise" shall not includecommercial banks, savings and mortgagebanks, rural banks, savings and loanassociations, building and loan associations,developmental banks, trust companies,investment banks, finance companies, brokersand dealers in securities, consumerscooperatives and credit unions, and otherbusiness organizations whose principal purpose

or principal source of income is to receivedeposits, lend or borrow money, buy and sell orotherwise deal, trade or invest in common orpreferred stocks, debentures, bonds or othermarketable instruments generally recognized assecurities, or discharge other similarintermediary, trust of fiduciary functions.

Article 12. "Technological assistancecontracts" shall mean contracts for: (1) the


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transfer, by license otherwise, of patents,processes, formulas or other technological rightsof foreign origin; and/or (2) foreign assistanceconcerning technical and factory management,design, planning, construction, operation andsimilar matters.

Article 13. "Foreign loans" shall mean anycredit facility or financial assistance other thanequity investment denominated and payable inforeign currency or where the creditor has theoption to demand payment in foreign exchangeand registered with the Central Bank and theBoard.

Article 14. "Foreign Investments" shallmean equity investments owned by a non-Philippine national made in the form of foreignexchange or other assets actually transferred tothe Philippines and registered with the Central

Bank and the Board, which shall assess andappraise the value of such assets other thanforeign exchange.

Article 15. "Philippine national" shall meana citizen of the Philippines or a domesticpartnership or association wholly-owned bycitizens of the Philippines; or a corporationorganized under the laws of the Philippines ofwhich at least sixty per cent (60%) of the capitalstock outstanding and entitled to vote is ownedand held by citizens of the Philippines, or atrustee of funds for pension or other employeeretirement or separation benefits, where thetrustee is a Philippine national and at least sixtyper cent (60%) of the fund will accrue to thebenefit of Philippine nationals; Provided, Thatwhere a registered and its non-Filipinostockholders own stock in a registeredenterprise, at least sixty per cent (60%) of thecapital stock outstanding and entitled to vote ofboth corporations must be owned and held bythe citizens of the Philippines and at least sixtyper cent (60%) of the members of the Board ofDirectors of both corporations must be citizensof the Philippines in order that the corporationshall be considered a Philippine national.

Article 16. "Preferred areas of investments"shall mean the economic activities that theBoard shall have declared as such inaccordance with Article 28 which shall be eithernon-pioneer or pioneer.

Article 17. "Pioneer enterprise" shall meana registered enterprise (1) engaged in themanufacture, processing or production, and not

merely in the assembly or packaging of goods,products, commodities or raw materials thathave not been or are not being produced in thePhilippines on a commercial scale or (2) whichuses a design, formula, scheme, method,process or system of production ortransformation of any element, substance or rawmaterials into another raw material or finishedgoods which is new and untried in thePhilippines or (3) engaged in the pursuit ofagricultural, forestry and mining activities and/orservices including the industrial aspects of foodprocessing whenever appropriate, pre-determined by the Board, in consultation withthe appropriate Department, to be feasible andhighly essential to the attainment of the nationalgoal, in relation to a declared specific nationalfood and agricultural program for self-sufficiencyand other social benefits of the project or (4)which produces non-conventional fuels or

manufactures equipment which utilize non-conventional sources of energy or uses orconverts to coal or other non-conventional fuelsor sources of energy in its production,manufacturing or processing operations.Provided, That the final product in any of theforegoing instances, involves or will involvesubstantial use and processing of domestic rawmaterials, whenever available; taking intoaccount the risks and magnitude of investment:Provided, further, That the foregoing definitionsshall not in any way limit the rights andincentives granted to less-developed-area

enterprises provided under Title V, Book I,hereof.

Article 18. "Non-pioneer enterprise" shallinclude all registered producer enterprises otherthan pioneer enterprises.

Article 19. "Expansion" shall includemodernization and rehabilitation and shall meanincrease of existing volume or value ofproduction or upgrading the quality of theregistered product or utilization of inefficient oridle equipment under such guidelines as theBoard may adopt.

Article 20. "Measured capacity" shall meanthe estimated additional volume of production orservice which the Board determines to bedesirable in each preferred area of investment inorder to supply the needs of the economy atreasonable prices, taking into account the exportpotential of the product, including economies ofscale which would render such product


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competitive in the world market. Measuredcapacity shall not be less than the amount bywhich the measurable domestic and country'spotential export market demand exceeds theexisting productive capacity in said preferredareas. For export market industries, whenwarranted the Board shall base measuredcapacity on the availability of domestic rawmaterials after deducting the needs of thedomestic market therefor.

Article 21. "Tax credit" shall mean any ofthe credits against taxes and/or duties equal tothose actually paid or would have been paid toevidence which tax credit certificate shall beissued by the Secretary of Finance or hisrepresentative, or the Board, if so delegated bythe Secretary of Finance. The tax creditcertificates including those issued by the Boardpursuant to laws repealed by this Code but

without in any way diminishing the scope ofnegotiability under their laws of issue aretransferable under such conditions as may bedetermined by the Board after consultation withthe Department of Finance. The tax creditcertificate shall be used to pay taxes, duties,charges and fees due to the NationalGovernment; Provided, That the tax creditsissued under this Code shall not form part of thegross income of the grantee/transferee forincome tax purposes under Section 29 of theNational Internal Revenue Code and aretherefore not taxable: Provided, further, That

such tax credits shall be valid only for a period often (10) years from date of issuance.

Article 22. "Export products" shall meanmanufactured or processed products the totalF.O.B. Philippine port value of the exports ofwhich did not exceed five million dollars in theUnited States Currency in the calendar year1968 and which meet the local contentrequirement, if any, set by the Board, andstandards of quality set by the Bureau ofProduct Standards, or, in default of suchstandards, by the Board or by such public orprivate organization, chamber, group or body asthe Board may designate. The above definitionnotwithstanding, the Investment Priorities Planmay include other products for export subjects tosuch conditions and limited incentives as maybe determined by the Board.

Article 23. "Export sales" shall mean thePhilippine port F.O.B. value, determined frominvoices, bills of lading, inward letters of credit,

landing certificates, and other commercialdocuments, of exports products exported directlyby a registered export producer or the net sellingprice of export product sold by a registeredexport producer to another export producer, orto an export trader that subsequently exports thesame: Provided, That sales of export products toanother producer or to an export trader shallonly be deemed export sales when actuallyexported by the latter, as evidenced by landingcertificates or similar commercial documents:Provided, further, That without actual exportationthe following shall be considered constructivelyexported for purposes of this provision: (1) salesto bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to exportprocessing zones; (3) sales to registered exporttraders operating bonded trading warehousessupplying raw materials used in the manufactureof export products under guidelines to be set by

the Board in consultation with the Bureau ofInternal Revenue and the Bureau of Customs;(4) sales to foreign military bases, diplomaticmissions and other agencies and/orinstrumentalities granted tax immunities, oflocally manufactured, assembled or repackedproducts whether paid for in foreign currency ornot: Provided, further, That export sales ofregistered export trader may include commissionincome: and Provided, finally, That exportationof goods on consignment shall not be deemedexport sales until the export products consignedare in fact sold by the consignee.

Sales of locally manufactured or assembledgoods for household and personal use toFilipinos abroad and other non-residents of thePhilippines as well as returning OverseasFilipinos under the Internal Export Program ofthe government and paid for in convertibleforeign currency inwardly remitted through thePhilippine banking systems shall also beconsidered export sales.

Article 24. "Production cost" shall mean thetotal of the cost of direct labor, raw materials,and manufacturing overhead, determined inaccordance with generally accepted accountingprinciples, which are incurred in manufacturingor processing the products of a registeredenterprise.

Article 25. "Processing" shall meanconverting of raw materials into marketable fromthrough physical, mechanical, chemical,electrical, biochemical, biological or other means


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or by a special treatment or a series of actions,such as slaughtering, milling, pasteurizing,drying or dessicating, quick freezing, that resultsin a change in the nature or state of theproducts. Merely packing or packaging shall notconstitute processing.

Article 26. "Investment Priorities Plan" shallmean the over-all plan prepared by the Boardwhich includes and contains:

(a) The specific activities and genericcategories of economic activity whereininvestments are to be encouraged and thecorresponding products and commodities to begrown, processed or manufactured pursuantthereto for the domestic or export market;

(b) Specific public utilities which can qualifyfor incentives under this Code and which shall

be supported by studies of existing andprospective regional demands for the services ofsuch public utilities in the light of the level andstructure of income, production, trade, pricesand relevant economic and technical factors ofthe regions as well as the existing facilities toproduce such services;

(c) Specific activities where the potential forutilization of indigenous no-petroleum basedfuels or sources of energy can be bestpromoted; and

(d) Such other information, analyzes, data,

guidelines or criteria as the Board may deemappropriate.

The specific and generic activities to be includedin the Investment Priorities Plan with their statusas pioneer or non-pioneer shall be determinedby the Board in accordance with the criteria setforth in this Book.

CHAPTER II

INVESTMENT PRIORITIES PLAN

Article 27. Investment Priorities Plan. Notlater than the end of March of every year, theBoard of Investments, after consultation with theappropriate government agencies and theprivate sector, shall submit to the President anInvestment Priorities Plan: Provided, however,That the deadline for submission, may beextended by the President.

Article 28. Criteria in Investment PriorityDetermination. No economic activity shall beincluded in the Investment Priority Plan unless itis shown to be economically, technically andfinancially sound after thorough investigationand analysis by the Board.

The determination of preferred areas ofinvestment to be listed in the InvestmentPriorities Plan shall be based on long-runcomparative advantage, taking into account thevalue of social objectives and employingeconomic criteria along with market, technical,and financial analyses.

The Board shall take into account the following:

(a) Primarily, the economic soundness ofthe specific activity as shown by its economicinternal rate of return;

(b) The extent of contribution of an activityto a specific developmental goal;

(c) Other indicators or comparativeadvantage;

(d) Measured capacity as defined in Article20; and

(e) The market and technical aspects andconsiderations of the activity proposed to beincluded.

In any of the declared preferred areas ofinvestment, the Board may designate as pioneerareas the specific products and commoditiesthat meet the requirements of Article 17 of thisCode and review yearly whether such activity,as determined by the Board, shall continue aspioneer, otherwise, it shall be considered asnon-pioneer and accordingly listed as such inthe Investment Priorities Plan or removed fromthe Investment Priorities Plan.

Article 29. Approval of the InvestmentPriorities Plan. The President shall proclaim thewhole or part of such plan as in effect; oralternatively, return the whole or part of the planto the Board of Investment for revision.

Upon the effectivity of the plan or portionsthereof, the President shall issue all necessarydirectives to all departments, bureaus, agenciesor instrumentalities of the government to ensurethe implementation of the plan by the agenciesconcerned in a synchronized and integrated


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manner. No government body shall adopt anypolicy or take any course of action contrary to orinconsistent with the plan.

Article 30. Amendments. Subject topublication requirements and the criteria forinvestment priority determination, the Board ofInvestments may, at any time, add additionalareas in the plan, alter any of the terms of thedeclaration of an investment area or thedesignation of measured capacities, or terminatethe status of preference. In no case, however,shall any amendment of the plan impairwhatever rights may have already been legallyvested in qualified enterprises which shallcontinue to enjoy such rights to the full extentallowed under this Code. The Board shall notaccept applications in an area of investmentprior to the approval of the same as a preferredarea nor after approval of its deletion as a

preferred area of investment.

Article 31. Publication. Upon approval ofthe plan, in whole or in part, or upon approval ofan amendment thereof, the plan or theamendment, specifying and declaring thepreferred areas of investment and theircorresponding measured capacity shall bepublished in at least one (1) newspaper ofgeneral circulation and all such areas shall beopen for application until publication of anamendment or deletion thereof, or until theBoard approves registration of enterprises which

fill the measured capacity.

CHAPTER III

REGISTRATION OF ENTERPRISES

Article 32. Qualifications of a RegisteredEnterprises. To be entitled to registration underthe Investment Priorities Plan, an applicant mustsatisfy the Board that:

(1) He is a citizen of the Philippines, in case

the applicant is a natural person, or in case of apartnership or any other association, it isorganized under Philippine laws and that at leastsixty percent (60%) of its capital is owned andcontrolled by citizens of the Philippines; or incase of a corporation or a cooperative, it isorganized under Philippine laws and that at leastsixty per cent (60%) of the capital stockoutstanding and entitled to vote is owned andheld by Philippine nationals as defined under

Article 15 of this Code, and at least sixty percent (60%) of the members of the Board ofDirectors are citizens of the Philippines. If it doesnot possess the required degree of ownershipas mentioned above by Philippine nationals, thefollowing circumstances must be satisfactorilyestablished:

(a) That it proposes to engage in a pioneerprojects as defined in Article 17 of this Code,which, considering the nature and extent ofcapital requirements, processes, technical skillsand relative business risks involved, is in theopinion of the Board of such a nature that theavailable measured capacity thereof cannot bereadily and adequately filled by Philippinenationals; or, if the applicant is exporting at leastseventy per cent (70%) of is total production, theexport requirement herein provided may bereduced in meritorious cases under such

conditions and/or limited incentives as the Boardmay determine;

(b) That it obligates itself to attain the statusof a Philippine national, as defined in Article 15,within thirty (30) years from the date ofregistration or with such longer period as theBoard may require taking into account the exportpotential of the project: Provided, That aregistered enterprise which exports one hundredpercent (100%) of its total production need notcomply with this requirement;

(c) That the pioneer are it will engage in isone that is not within the activities reserved bythe Constitution or other laws of the Philippinesto the Philippine citizens or corporations ownedand controlled by Philippine citizens;

(2) The applicant is proposing to engage ina preferred project listed or authorized in thecurrent Investment Priorities Plan within areasonable time to be fixed by the Board or, ifnot so listed, at least fifty percent (50%) of itstotal production is for export or it is an existingproducer which will export part of productionunder such conditions and/or limited incentives

as the Board may determine; or that theenterprise is engaged or proposing to engage inthe sale abroad of export products bought by itfrom one or more export producers; or theenterprise in engaged or proposing to engage inrendering technical, professional or otherservices or in exporting television and motionpictures and musical recordings made or


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produced in the Philippines, either directly orthrough a registered trader.

(3) The applicant is capable of operating ona sound and efficient basis of contributing to thenational development of the preferred area inparticular and of the national economy ingeneral; and

(4) If the applicant is engaged or proposesto engage in undertakings or activities other thanpreferred projects, it has installed or undertakesto install an accounting system adequate toidentify the investments, revenues, costs, andprofits or losses of each preferred projectundertaken by the enterprise separately from theaggregate investment, revenues, costs andprofits or losses of the whole enterprise or toestablish a separate corporation for eachpreferred project if the Board should so require

to facilitate proper implementation of this Code.

Article 33. Application. Applications shallbe filed with the Board, recorded in a registrationbook and the date appearing therein andstamped on the application shall be consideredthe date of official acceptance.

Whenever necessary, the Board, through thePeople's Economic Councils, shall consult thecommunities affected on the acceptability oflocating the registered enterprise within theircommunity.

Article 34. Approval and RegistrationProcedures. The Board is authorized to adoptrules and regulations to facilitate action onapplications filed with it; prescribe criteria for theevaluation of several applications filed in onepreferred area; devise standard forms for theuse of applicants and delegate to the regionaloffices of the Department of Trade and Industrythe authority to receive and process applicationsfor enterprises to be located in their respectiveregions.

Applications filed shall be considered

automatically approved if not acted upon by theBoard within twenty (20) working days fromofficial acceptance thereof.

Article 35. Criteria for Evaluation ofApplications. The following criteria will beconsidered in the evaluation of applications forregistration under a preferred area:

(a) The extent of ownership and control byPhilippine citizens of the enterprises;

(b) The economic rates of return;

(c) The measured capacity Provided, Thatestimates of measured capacities shall be

regularly reviewed and updated to reflectchanges in market supply and demandconditions; Provided, Further, That measuredcapacity shall not result in a monopoly in anypreferred area of investment which would undulyrestrict trade and fair competition nor shall it beused to deny the entry of any enterprise in anyfield of endeavor or activity;

(d) The amount of foreign exchangeearned, used or saved in their operations;

(e) The extent to which labor, materials and

other resources obtained from indigenoussources are utilized;

(f) The extent to which technologicaladvances are applied and adopted to localcondition;

(g) The amount of equity and degree towhich the ownership of such equity is spread outand diversified; and

(h) Such other criteria as the Board maydetermine.

Article 36. Appeal from Board's Decision.Any order or decision of the Board shall be finaland executory after thirty (30) days from itspromulgation. Within the said period of thirty (30)days, said order or decision may be appealed tothe Office of the President. Where an appealhas been filed, said order or decision shall befinal and executory ninety (90) days after theperfection of the appeal, unless reversed.

Article 37. Certificate of Registration. Aregistered enterprise under this Code shall beissued a certificate of registration under the sealof the Board of Investments and the signature ofits Chairman and/or such other officer oremployee of the Board as it may empower anddesignate for the purpose. The certificate shallbe in such form and style as the Board maydetermine and shall state, among other matters:

(a) The name of the registered enterprise;


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(b) The preferred area of investment inwhich the registered enterprise is proposing toengage;

(c) The nature of the activity it isundertaking or proposing to undertake, whetherpioneer or non-pioneer, and the registeredcapacity of the enterprise; and

(d) The other terms and conditions to beobserved by the registered enterprise by virtueof the registration.

TITLE II

BASIC RIGHTS AND GUARANTEES

Article 38. Protection of Investments. Allinvestors and registered enterprises are entitledto the basic rights and guarantees provided inthe Constitution. Among other rights recognizedby the Government of the Philippines are thefollowing:

(a) Repatriation of Investments. In the caseof foreign investments, the right to repatriate theentire proceeds of the liquidation of theinvestment in the currency in which theinvestment was originally made and at theexchange rate prevailing at the time ofrepatriation, subject to the provisions of Section74 of Republic Act No. 265 as amended;

For investments made pursuant to ExecutiveOrder No. 32 and its implementing rules andregulations, remittability shall be as providedtherein.

(b) Remittance of Earnings. In the case offoreign investments, the right to remit earningsfrom the investment in the currency in which theinvestment was originally made and at theexchange rate prevailing at the time ofremittance, subject to the provisions of Section74 of Republic Act No. 265 as amended;

(c) Foreign Loans and Contracts. The rightto remit at the exchange rate prevailing at thetime of remittance such sums as may benecessary to meet the payments of interest andprincipal on foreign loans and foreign obligationsarising from technological assistance contracts,subject to the provisions of Section 74 ofRepublic Act No. 265 as amended;

(d) Freedom from Exploriation. There shallbe no expropriation by the government of theproperty represented by investments or of theproperty of the enterprise except for public useor in the interest of national welfare or defenseand upon payment of just compensation. In suchcases, foreign investors or enterprises shallhave the right to remit sums received ascompensation for the expropriated property inthe currency in which the investment wasoriginally made and at the exchange rate at thetime of remittance, subject to the provisions ofSection 74 of Republic Act No. 265 as amended;

(e) Requisition of Investment. There shallbe no requisition of the property represented bythe investment or of the property of enterprises,except in the event of war or national emergencyand only for the duration thereof. Justcompensation shall be determined and paid

either at the time of requisition or immediatelyafter cessation of the state of war or nationalemergency. Payments received ascompensation for the requisitioned property maybe remitted in the currency in which theinvestment was originally made and at theexchange rate prevailing at the time ofremittance, subject to the provisions of Section74 of Republic Act No. 265 as amended.

TITLE III

INCENTIVES TO REGISTEREDENTERPRISES

Article 39. Incentives to RegisteredEnterprises. All registered enterprises shall begranted the following incentives to the extentengaged in a preferred area of investment;

(a) Income Tax Holiday.

(1) For six (6) years from commercialoperation for pioneer firms and four (4) years fornon-pioneer firms, new registered firms shall be

fully exempt from income taxes levied by theNational Government. Subject to suchguidelines as may be prescribed by the Board,the income tax exemption will be extended foranother year in each of the following cases:

i. the project meets the prescribed ratio ofcapital equipment to number of workers set bythe Board;


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ii. utilization of indigenous raw materials atrates set by the Board;

iii. the net foreign exchange savings orearnings amount to at least US$500,000.00annually during the first three (3) years ofoperation.

The preceding paragraph notwithstanding, noregistered pioneer firm may avail of thisincentive for a period exceeding eight (8) years.

(2) For a period of three (3) years fromcommercial operation, registered expandingfirms shall be entitled to an exemption fromincome taxes levied by the National Governmentproportionate to their expansion under suchterms and conditions as the Board maydetermine; Provided, however, That during theperiod within which this incentive is availed of by

the expanding firm it shall not be entitled toadditional deduction for incremental laborexpense.

(3) The provision of Article 7 (14)notwithstanding, registered firms shall not beentitled to any extension of this incentive.

(b) Additional Deduction for Labor Expense.For the first five (5) years from registration aregistered enterprise shall be allowed anadditional deduction from the taxable income offifty percent (50%) of the wages correspondingto the increment in the number of direct labor for

skilled and unskilled workers if the project meetsthe prescribed ratio of capital equipment tonumber of workers set by the Board: Provided,That this additional deduction shall be doubled ifthe activity is located in less developed areas asdefined in Art. 40.

(c) Tax and Duty Exemption on ImportedCapital Equipment. Within five (5) years from theeffectivity of this Code, importations ofmachinery and equipment and accompanyingspare parts of new and expanding registeredenterprise shall be exempt to the extent of one

hundred percent (100%) of the customs dutiesand national internal revenue tax payablethereon: Provided, That the importation ofmachinery and equipment and accompanyingspare parts shall comply with the followingconditions:

(1) They are not manufactured domesticallyin sufficient quantity, of comparable quality andat reasonable prices;

(2) They are reasonably needed and will beused exclusively by the registered enterprise inthe manufacture of its products, unless priorapproval of the Board is secured for the part-time utilization of said equipment in a non-registered activity to maximize usage thereof orthe proportionate taxes and duties are paid onthe specific equipment and machinery beingpermanently used for non-registered activities;and

(3) The approval of the Board was obtainedby the registered enterprise for the importationof such machinery, equipment and spare parts.

In granting the approval of the importationsunder this paragraph, the Board may requireinternational canvassing but if the total cost of

the capital equipment or industrial plant exceedsUS$5,000,000, the Board shall apply or adoptthe provisions of Presidential Decree Numbered1764 on International Competitive Bidding.

If the registered enterprise sells, transfers ordisposes of these machinery, equipment andspare parts without prior approval of the Boardwithin five (5) years from date of acquisition, theregistered enterprise and the vendee,transferee, or assignee shall be solidarily liableto pay twice the amount of the tax exemptiongiven it.

The Board shall allow and approve the sale,transfer or disposition of the said items withinthe said period of five (5) years if made:

(aa) to another registered enterprise orregistered domestic producer enjoying similarincentives;

(bb) for reasons of proven technicalobsolescence; or

(cc) for purposes of replacement to improveand/or expand the operations of the registered

enterprise.(d) Tax Credit on Domestic CapitalEquipment. A tax credit equivalent to onehundred percent (100%) of the value of thenational internal revenue taxes and customsduties that would have been waived on themachinery, equipment and spare parts, hadthese items been imported shall be given to thenew and expanding registered enterprise which


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purchases machinery, equipment and spareparts from a domestic manufacturer: Provided,That (1) That the said equipment, machineryand spare parts are reasonably needed and willbe used exclusively by the registered enterprisein the manufacture of its products, unless priorapproval of the Board is secured for the part-time utilization of said equipment in a non-registered activity to maximize usage thereof; (2)that the equipment would have qualified for taxand duty-free importation under paragraph (c)hereof; (3) that the approval of the Board wasobtained by the registered enterprise; and (4)that the purchase is made within five (5) yearsfrom the date of effectivity of the Code. If theregistered enterprise sells, transfers or disposesof these machinery, equipment and spare parts,the provisions in the preceding paragraph forsuch disposition shall apply.

(e) Exemption from Contractor's Tax. Theregistered enterprise shall be exempt from thepayment of contractor's tax, whether national orlocal.

(f) Simplification of Customs Procedure.Customs procedures for the importation ofequipment, spare parts, raw materials andsupplies, and exports of processed products byregistered enterprises shall be simplied by theBureau of Customs.

(g) Unrestricted Use of ConsignedEquipment. Provisions of existing lawsnotwithstanding, machinery, equipment andspare part consigned to any registeredenterprises shall not be subject to restrictions asto period of use of such machinery, equipmentand spare parts Provided, that the appropriatere-export bond is posted unless the importationis otherwise covered under subsections (c) and(m) of this Article. Provided, further, that suchconsigned equipment shall be for the exclusiveuse of the registered enterprise.

If such equipment is sold, transferred orotherwise disposed of by the registered

enterprise the related provision of Article 39 (c)(3) shall apply. Outward remittance of foreignexchange covering the proceeds of such sale,transfer or disposition shall be allowed only uponprior Central Bank approval.

(h) Employment of Foreign Nationals.Subject to the provisions of Section 29 ofCommonwealth Act Number 613, as amended,a registered enterprise may employ foreign

nationals in supervisory, technical or advisorypositions for a period not exceeding five (5)years from its registration, extendible for limitedperiods at the discretion of the Board: Provided,however, That when the majority of the capitalstock of a registered enterprise is owned byforeign investors, the position of president,treasurer and general manager or theirequivalents may be retained by foreign nationalsbeyond the period set forth herein.

Foreign nationals under employment contractwithin the purview of this incentive, theirspouses and unmarried children under twenty-one (21) years of age, who are not excluded bySection 29 of Commonwealth Act Numbered613, as amended, shall be permitted to enterand reside in the Philippines during the period ofemployment of such foreign nationals.

A registered enterprise shall train Filipinos asunderstudies of foreign nationals inadministrative, supervisory and technical skillsand shall submit annual reports on such trainingto the Board.

(i) Exemption on Breeding Stocks andGenetic Materials. The importation of breedingstocks and genetic materials within ten (10)years from the date of registration or commercialoperation of the enterprise shall be exempt fromall taxes and duties: Provided, That suchbreeding stocks and genetic materials are (1)not locally available and/or obtainable locally incomparable quality and at reasonable prices; (2)reasonably needed in the registered activity; and(3) approved by the Board.

(j) Tax Credit on Domestic BreedingStocks and Genetic Materials. A tax creditequivalent to one hundred percent (100%) of thevalue of national internal revenue taxes andcustoms duties that would have been waived onthe breeding stocks and genetic materials hadthese items been imported shall be given to theregistered enterprise which purchases breedingstocks and generic materials from a domestic

producer: Provided, 1) That said breeding stocksand generic materials would have qualified fortax and duty free importation under thepreceding paragraph; 2) that the breeding stocksand genetic materials are reasonably needed inthe registered activity; 3) that the approval of theboard has been obtained by the registeredenterprise; and 4) that the purchase is madewithin ten (10) years from date of registration or


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commercial operation of the registeredenterprise.

(k) Tax Credit for Taxes and Duties on RawMaterials. Every registered enterprise shallenjoy a tax credit equivalent to the NationalInternal Revenue taxes and Customs duties paidon the supplies, raw materials and semi-manufactured products used in the manufacture,processing or production of its export productsand forming part thereof, exported directly orindirectly by the registered enterprise: Provided,however, that the taxes on the supplies, rawmaterials and semi- manufactured productsdomestically purchased are indicated as aseparate item in the sales invoice.

Nothing herein shall be construed as to precludethe Board from setting a fixed percentage ofexport sales as the approximate tax credit for

taxes and duties of raw materials based on anaverage or standard usage for such materials inthe industry.

(l) Access to BondedManufacturing/Trading Warehouse System.Registered export oriented enterprises shallhave access to the utilization of the bondedwarehousing system in all areas required by theproject subject to such guidelines as may beissued by the Board upon prior consultation withthe Bureau of Customs.

(m) Exemption from Taxes and Duties onImported Spare Parts. Importation of requiredsupplies and spare parts for consignedequipment or those imported tax and duty freeby a registered enterprise with a bondedmanufacturing warehouse shall be exempt fromcustoms duties and national internal revenuetaxes payable thereon, Provided, However, Thatat least seventy percent (70%) of production isexported; Provided, further, that such spareparts and supplies are not locally available atreasonable prices, sufficient quantity andcomparable quality; Provided, finally, That allsuch spare parts and supplies shall be used only

in the bonded manufacturing warehouse of theregistered enterprise under such requirementsas the Bureau of Customs may impose.

(n) Exemption from Wharfage Dues andany Export Tax, Duty, Impost and Fee. Theprovisions of law to the contrary notwithstanding,exports by a registered enterprise of its non-traditional export products shall be exempted ofits non-traditional export products shall be

exempted from any wharfage dues, and anyexport tax, duty, impost and fee.

TITLE IV

INCENTIVES TO LESS-DEVELOPED-AREAREGISTERED ENTERPRISE

Article 40. A registered enterpriseregardless of nationality located in a less-developed-area included in the list prepared bythe Board of Investments after consultation withthe National Economic & Development Authorityand other appropriate government agencies,taking into consideration the following criteria:low per capita gross domestic product; low levelof investments; high rate of unemploymentand/or underemployment; and low level of

infrastructure development including itsaccessibility to develop urban centers, shall beentitled to the following incentives in addition tothose provided in the preceding article:

(a) Pioneer incentives. An enterprise in aless-developed-area registered with the Boardunder Book I of this Code, whether proposed, oran expansion of an existing venture, shall beentitled to the incentives provided for a pioneerregistered enterprise under its law ofregistration.

(b) Incentives for necessary and Major

Infrastructure and Public Utilities. Registeredenterprise establishing their production,processing or manufacturing plants in an areathat the Board designates as necessary for theproper dispersal of industry or in area which theBoard finds deficient in infrastructure, publicutilities, and other facilities, such as irrigation,drainage or other similar waterworksinfrastructure may deduct from taxable incomean amount equivalent to one hundred percent(100%) of necessary and major infrastructureworks it may have undertaken with the priorapproval of the Board in consultation with other

government agencies concerned; Provided, Thatthe title to all such infrastructure works shallupon completion, be transferred to the PhilippineGovernment: Provided, further, That any amountnot deducted for a particular year may be carriedover for deduction for subsequent years notexceeding ten (10) years from commercialoperation.


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TITLE V

GENERAL PROVISIONS

Article 41. Power of the President toRationalize Incentives. The President may, uponrecommendation of the Board and in the interest

of national development, rationalize theincentives scheme herein provided; extend theperiod of availment of incentives or increaserates of tax exemption of any project whoseviability or profitability require such modification.

Article 42. Refund and Penalties. In caseof cancellation of the certificate granted underthis Code, the Board may, in appropriate cases,require the refund of incentives availed of andimpose corresponding fines and penalties.

Article 43. Benefits of Multiple Area

Enterprises. When a registered enterpriseengages in activities or endeavors that have notbeen declared preferred areas of investments,the benefits and incentives accruing under thisCode to registered enterprises and investorstherein shall be limited to the portion of theactivities of such registered enterprise as is apreferred area of investment.

BOOK II

FOREIGN INVESTMENTS WITHOUTINCENTIVES

TITLE I

CHAPTER I

DEFINITIONS AND SCOPE OF THIS BOOK

Article 44. Definition of terms. As used inthis Book, the term "investment" shall meanequity participation in any enterprise formed,organized or existing under the laws of thePhilippines; and the phrase "doing business"shall include soliciting orders, purchases,

service contracts, opening offices, whethercalled "liaison" offices or branches; appointingrepresentatives or distributors who are domiciledin the Philippines for a period or periods totallingone hundred eighty (180) days or more;participating in the management, supervision orcontrol of any domestic business firm, entity orcorporation in the Philippines, and any other actor acts that imply a continuity of commercial

dealings or arrangements and contemplate tothat extent the performance of acts or works, orthe exercise of some of the functions normallyincident to, and in progressive prosecution of,commercial gain or of the purpose and object ofthe business organization.

Article 45. Non-Applicability to BankingInstitutions. This Book shall not apply to bankinginstitutions which are governed and regulated bythe General Banking Act and other laws whichare under the supervision of the Central Bank.

CHAPTER II

INVESTMENTS

Article 46. Permitted Investments.

(1) Without need of prior authority, anyone not a

Philippine national as that term is defined inArticle 15 of this Code, and not otherwisedisqualified by law, may invest:

(a) In any enterprise registered under BookOne hereof, to the extent that the totalinvestment of non-Philippine nationals thereinwould not affect its status as a registeredenterprise under the law;

(b) In an enterprise not registered underBook One hereof, to the extent that the totalinvestment of non-Philippine nationals hereinshall not exceed forty percent (40%) of the

outstanding capital of that enterprise, unlessexisting law forbids any non- Philippineownership in the enterprise or limits ownershipby non-Philippine national to a percentagesmaller than forty percent (40%).

(2) Within thirty (30) days after notice of theinvestment is received by it, the enterprise inwhich any investment is made by a non-Philippine national shall register the same withthe Board of Investments for purposes of record.Investments made in the form of foreignexchange or other assets actually transferred to

the Philippines shall also be registered with theCentral Bank. The Board shall assess andappraise the value of such assets other thanforeign exchange.

Article 47. Permissible Investments. If aninvestment by a non-Philippine national in anenterprise not registered under Book One hereofis such that the total participation by non-Philippine nationals in the outstanding capital


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thereof shall exceed forty percent (40%), theenterprise must obtain prior authority from theBoard of Investments, which authority shall begranted unless the proposed investment

(a) Would conflict with existingconstitutional provisions and laws regulating thedegree of required ownership by Philippinenationals in the enterprise; or

(b) Would pose a clear and present dangerof promoting monopolies or combinations inrestraint of trade; or

(c) Would be made in enterprise engagedin an area adequately being exploited byPhilippine nationals; or

(d) Would conflict or be inconsistent withthe Investment Priorities Plan in force at the time

the investment is sought to be made; or

(e) Would not contribute to the sound andbalanced development of the national economyon a self-sustaining basis.

Investments made in the form of foreignexchange or other assets actually transferred tothe Philippines shall also be registered with theCentral Bank. The Board shall assess andappraise the value of such assets other thanforeign exchange.

CHAPTER II

LICENSE TO DO BUSINESS

Article 48. Authority to Do Business. Noalien, and no firm association, partnership,corporation or any other form of businessorganization formed, organized, chartered orexisting under any laws other than those of thePhilippines, or which is not a Philippine national,or more than forty per cent (40%) of theoutstanding capital of which is owned orcontrolled by aliens shall do business or engagein any economic activity in the Philippines or beregistered, licensed, or permitted by theSecurities and Exchange Commission or by anyother bureau, office, agency, political subdivisionor instrumentality of the government, to dobusiness, or engage in any economic activity inthe Philippines without first securing a writtencertificate from the Board of Investments to theeffect:

(1) That the operation or activity of suchalien, firm, association, partnership, corporationor other form of business organization, is notinconsistent with the Investment Priorities Plan;

(2) That such business or economic activitywill contribute to the sound and balanceddevelopment of the national economy on a self-sustaining basis;

(3) That such business or economic activityby the applicant would not conflict with theConstitution or laws of the Philippines;

(4) That the field of business or economicactivity is not one that is being adequatelyexploited by Philippine nationals; and

(5) That the entry of applicant therein willnot pose a clear and present danger of

promoting monopolies or combinations inrestraint of trade.

Article 49. Requirements to be Imposed bythe Board. Upon granting said certificate, theBoard shall impose the following requirementson the alien or the firm, association, partnership,corporation or other form of businessorganization that is not organized or existingunder the laws of the Philippines

(1) To appoint a citizen of the Philippines, oflegal age, good moral character and reputation,and sound financing standing, as resident agent,

who shall be authorized to accept summons andother legal process in behalf of the applicant;

(2) To establish an office in the Philippinesand to notify the Securities and ExchangeCommission in writing of the applicant's exactaddress and of every contemplated transferthereof or of the opening of new offices, at leastfifteen (15) days before the same are to beeffected; and once effected, not later than ten(10) days afterwards;

(3) To bring assets into the Philippines to

constitute the capital of the office or offices, ofsuch kind and value as the Board may deemnecessary to protect those who may deal withthe applicant, and to maintain that capitalunimpaired during the period it does business inthe Philippines;

(4) To present prior proof that citizens of thePhilippines and corporations or other businessorganizations organized or existing under the


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laws of the Philippines are allowed to dobusiness in the country or individual state withinthe federal country of which applicant is a citizenor in which it is domiciled: Provided, however,That if the state or country of domicile of theapplicant imposes on, or requires of, Philippinenationals other conditions, requirements orrestrictions besides those set forth in this Code,the Board of Investments shall impose the saidother conditions, requirements or restrictions onthe applicant, if in its judgment, the impositionthereof shall foster the sound and balanceddevelopment of the national economy on a self-sustaining basis;

(5) To submit to the Securities andExchange Commission certified copies ofapplicant's charter and by-laws and allamendments thereto, if any, with their translationinto an official language within twenty (20) days

after their adoption or after the grant of theprescribed certificate by the Board ofInvestments and annually of applicant's financialstatements showing all assets, liabilities and networth and results of operations, setting outseparately those pertaining to the branch office;

(6) To keep a complete set of accountingrecords with the resident agent, which shall fullyand faithfully reflect all transactions within thePhilippines, and to permit inspections thereof bythe Securities and Exchange Commission, theBureau of Internal Revenue and the Board of

Investments;

(7) To give priority to resident creditors asagainst non-resident creditors and owners orstockholders in the distribution of assets withinthe Philippines upon insolvency, dissolution orrevocation of the license;

(8) To give the Securities and ExchangeCommission at least six (6) months advancenotice in writing of applicant's intention to stopdoing business within the Philippines; and togive such public notice thereof as the Securitiesand Exchange Commission may require for the

protection of resident creditors and othersdealing with the applicant; and

(9) Not to terminate any franchise, licensingor other agreement that applicant may have witha resident of the Philippines authorizing thelatter to assemble, manufacture or sell within thePhilippines the products of the applicant, exceptfor violation thereof or other just cause and uponpayment of compensation and reimbursement of

investment and other expenses incurred by thelicensee in developing a market for the saidproducts: Provided, however, That in case ofdisagreement, the amount of compensation orreimbursement shall be determined by thecountry where the licensee is domiciled or hasits principal office who shall require the applicantto file a bond in such amount as, in its opinion, issufficient for this purpose.

The above requirements shall be in addition tothose set forth in the Corporation Code of thePhilippines for authorizing foreign corporationsto transact business in the Philippines.

Article 50. Cause for Cancellation ofCertificate of Authority or Payment of Fine. Aviolation of any of the requirements set forth inArticle 49 or of the terms and conditions whichthe Board may impose shall be sufficient cause

to cancel the certificate of authority issuedpursuant to this Book and/or subject firms to thepayment of fines in accordance with the rulesand regulations issued by the Board: Provided,however, That aliens or foreign firms,associations, partnerships, corporations or otherforms of business organization not organized orexisting under the laws of the Philippines whichmay have been lawfully licensed to do businessin the Philippines prior to the effectivity of R.A.5455, shall, with respect to the activities forwhich they were licensed and actually engagedin prior to the effectivity of said Act, not be

subject to the provisions of Article 48 and 49 butshall be subject to the reporting requirementsprescribed by the Board: Provided, further, Thatwhere the issuance of said license has beenirregular or contrary to law, any personadversely affected thereby may file an actionwith the Regional Trial Court where said alien orforeign business organization resides or has itsprincipal office to cancel the said license. Insuch cases, no injunction shall issue withoutnotice and hearing; and appeals and otherproceedings for review shall be filed directly withthe Supreme Court.

TITLE II

GENERAL PROVISIONS

Article 51. Mergers and Consolidations.The provisions of this Book Two shall apply toany merger, consolidation, syndicate or anyother combination of firms, associations,


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partnership or other forms of businessorganization that will result in ownership orcontrol by persons or entities that are notPhilippine nationals or have foreign equityparticipation, of more than forty per cent (40%)of the outstanding capital of whateverorganizations results from the merger,consolidation, syndicate or other combination.

Article 52. Local Government Action. Noagency, instrumentality or political subdivision ofthe Government shall take any action in conflictwith or which will nullify the provisions of BookTwo of this Code, or any certificate of authoritygranted hereunder.

Article 53. Automatic Registration.Application filed under this Book shall beconsidered automatically approved if not actedupon within ten (10) working days from official

acceptance thereof.

Article 54. Publication and Posting ofNotices. Immediately after the application hasbeen given due course by the Board, theSecretary of the Board or any official designatedby the Board shall require the applicant topublish the notice of the action of the Boardthereon at his expense once in a newspaper ofgeneral circulation in the province or city wherethe applicant has its principal office, and postcopies of said notice in conspicuous places, inthe office of the Board or in the building wheresaid office is located; setting forth in such copiesthe name of the applicant, the business in whichit is engaged or proposes to engage or invest,and such other data and information as may berequired by the Board. No approval or certificateshall be valid without the publication and postingof notices as herein provided.

Article 55. Limited Authority to doBusiness. When appropriate, the Board maygrant permissible investments or authority to dobusiness under Book Two of this Code for alimited period where the need to prove economicviability of such activity warrants the issuance of

a temporary authorization.

Article 56. Periodic Reports. The Boardshall periodically check and verify compliancewith these provisions, either by inspection of thebooks or by requiring regular reports from aliensor foreign firms, domestic enterprises withforeign investments and new entities licensed todo business under Article 48 of this Code.

A summary of said reports shall be periodicallysubmitted by the Board to the President. For thispurpose, the Board may require othergovernment agencies licensing and/or regulatingforeign enterprises or domestic firms with foreignequity, to furnish the Board with reports on suchforeign investments.

Article 57. Penal Clause.

(1) Without prejudice to the provisions of Articles42 and 50 hereof a violation of any provision ofBooks I and II of this Code, or of the terms andconditions of registration, or of the rules andregulations promulgated pursuant thereto, or theact of abetting or aiding in any manner any suchviolation, shall be punished by a fine not toexceed one hundred thousand pesos(P100,000.00) or imprisonment for not morethan ten (10) years, at the discretion of the

Court.

(2) No official or employee of thegovernment, its subdivisions or instrumentalitiesshall appear as counsel for or act as agent orrepresentative of, or in any manner intervene orintercede, directly or indirectly, in behalf of anyparty in any transaction with the Board regardingany application under Books I and II of thisCode. The penalty for violation of this prohibitionis the same as that provided for in the precedingparagraph. If the offender is an appointiveofficial or employee, the maximum of the penaltyherein prescribed shall be imposed, and theoffender shall suffer the additional penalty ofperpetual disqualification from public office,without prejudice to any administrative actionagainst him.

(3) If the offense is committed by a juridicalentity, its president and/or other officialsresponsible therefor shall be subject to thepenalty prescribed above. If the offender or thepresident/official, in cases where the offensewas committed by a juridical entity, is an alien,he shall be deported without further proceedingson the part of the Deportation Board in addition

to the penalty herein prescribed and shall, ifnaturalized, be automatically denaturalized fromthe date his sentence becomes final.

(4) Payment of the tax due afterapprehension shall not constitute a validdefense in any prosecution for violation of anyprovision of this Code.


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BOOK III

INCENTIVES TO MULTINATIONALCOMPANIES ESTABLISHES REGIONAL OR

AREA HEADQUARTERS IN THE PHILIPPINES

CHAPTER I

LICENSING OF THE MULTINATIONALCOMPANY

Article 58. Qualifications of MultinationalCompany. Any foreign business entity formed,organized and existing under any laws otherthan those of the Philippines whose purpose, asexpressed in its organizational documents or byresolution of its Board of Directors or itsequivalent, is to supervise, superintend, inspector coordinate, its own affiliates, subsidiaries, orbranches in the Asia-Pacific Region may

establish a regional or area headquarters in thePhilippines, after securing a license thereforfrom the Securities and Exchange Commission,upon the favorable recommendation of theBoard of Investments.

The Securities and Exchange Commission shall,within thirty (30) days from the effectivity of thisCode, issue the implementing rules andregulations. The following minimumrequirements shall, however, be complied withby the said foreign entity.

(a) A certification from the Philippine

Foreign Trade Senior Officer or in the absenceof such an official, a Philippine Consul in theforeign firm's home country that said foreign firmis an entity engaged in international trade withaffiliates, subsidiaries or branch offices in theAsia-Pacific Region.

(b) A certification from a principal officer ofthe foreign entity to the effect that the saidforeign entity has been authorized by its Boardof Directors or governing copy to establish itsregional headquarters in the Philippines,specifying that:

1. The activities of the regionalheadquarters shall be limited to acting as asupervisory, communications and coordinatingcenter for its subsidiaries, affiliates andbranches in the region;

2. The headquarters will not derive anyincome from sources within the Philippines andwill not participate in any manner in the

management of any subsidiary or branch office itmight have in the Philippines;

3. The headquarters shall notify the Boardof Investments and the Securities and ExchangeCommission of any decision to close down orsuspend operations of its headquarters orterminate the services of any expatriate at leastfifteen (15) days before the same is effected.

(c) Any undertaking that the multinationalcompany will remit into the country such amountas may be necessary to cover its operations inthe Philippines but which amount will not be lessthan fifty thousand United States dollars or itsequivalent in other foreign currencies annually.Within thirty (30) days from receipt of Certificateof Registration from the Securities andExchange Commission, the multinationalcompany will submit to the Securities and

Exchange Commission a Certificate of inwardremittance from a local bank showing that it hasremitted to the Philippines the amount of at leastthirty thousand United States dollars or itsequivalent in other foreign currencies andconverted the same to Philippine currency.Annually, within thirty (30) days from theanniversary date of the multinational company'sregistration as a regional or area headquarterswith the Securities and Exchange Commission,it will submit proof to the Securities andExchange Commission of inward remittanceamounting to at least fifty thousand United

States dollars or its equivalent in other foreigncurrencies during the past year.

(d) Any willful violation by the regional orarea headquarters of a multinational company ofany of the provisions of this Code, or itsimplementing rules and regulations, or otherterms and conditions of its registration, or anyprovision of existing laws, shall constitute asufficient cause for the cancellation of its licenseor registration.

CHAPTER II

INCENTIVES TO EXPATRIATES

Article 59. Multiple entry visa. Foreignpersonnel of regional or area headquarters ofmultinational companies, their respectivespouses, and unmarried children under twenty-one years of age, if accompanying them or iffollowing to join them after their admission into


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the Philippines as non- immigrant shall beissued a multiple entry special visa, valid for aperiod of one year, to enter the Philippines:Provided, That a responsible officer or theapplicant company submits a certificate to theeffect that the person who seeks entry into thePhilippines is an executive of the applicantcompany and will work exclusively for applicant'scompany and will work exclusively for applicant'sregional or area headquarters which is dulylicensed to operate in the Philippines, and thathe will receive a salary and will be paid by theheadquarters in the Philippines an amountequivalent to at least twelve thousand UnitedStates dollars, or the equivalent in other foreigncurrencies per annum.

The admission and stay shall be co-terminuswith the validity of the multiple entry special visa.The stay, however, is extendible yearly upon

submission to the Commission on Immigrationand Deportation of a sworn certification by aresponsible officer of the regional or areaheadquarters; that its license to operate remainsvalid and subsisting; that he has been paid inthe Philippines from the date of originaladmission, the equivalent of at least onethousand United States dollars per month, or itsequivalent in other foreign currencies; and thatthe regional or area headquarters has withheldthe tax due on said compensation and the samehas been paid to the Bureau of InternalRevenue.

Non-immigrant who have been admitted underthe multiple entry special visa, as well as theirrespective spouses and dependents, shall beexempt from: the payment of all fees due underthe immigration and alien registration laws;securing alien certificates of registration; andobtaining immigration clearance certificates, andall types of clearances required by anygovernment department or agency, except thatupon final departure from the Philippines theemployer of the said non-immigrants shall soadvise in writing the Commission on Immigrationand Deportation at least five (5) working daysprior to the non-immigrant's departure, and thefinally departing non-immigrant employee shallbe required to submit to the said office a taxclearance from the Bureau of Internal Revenue.

Article 60. Withholding Tax of 15 %. Aliensemployed by regional or area headquarters ofmultinational corporations shall be subject foreach taxable year upon their gross income

received from the regional or area headquartersestablished in the Philippines by multinationalcompanies as salaries, wages, annuities,compensations, remunerations, andemoluments to a tax equal to fifteen percentumof such gross income.

Article 61. Tax and Duty Free Importation.An alien executive of the regional or areaheadquarters of a multinational company shallenjoy tax and duty free importation of personaland household effects as provided for underSection 105 (h) of the Tariff and Customs Code,as amended, and Section 169 (b) (4) of theInternal Revenue Code, as amended.

Article 62. Travel Tax Exemption.Personnel of multinational companiesperforming technical and supervisory functionswith regional headquarters at, but not engaged

in business in the Philippines and thedependents of such foreign personnel if joiningthem during the period of their assignment in thePhilippines, as certified to by the Board ofInvestments, shall be exempted from thepayment of travel tax imposed under Section 1of Presidential Decree No. 1183, by securing aTravel Tax Certificate from the PhilippineTourism Authority.

CHAPTER III

INCENTIVES TO THE REGIONALHEADQUARTERS

Article 63. Exemption from Income Tax.Regional or area headquarters established inthe Philippines by multinational corporations andwhich headquarters do not earn or deriveincome from the Philippines and which act assupervisory, communications and coordinatingcenter for their affiliates, subsidiaries, orbranches in the Asia-Pacific Regional shall notbe subject to income tax.

Article 64. Exemption from Contractor'sTax. The regional or area headquarters

established in the Philippines by multinationalcorporations, including their alien executives,are exempted from the contractor's tax.

Article 65. Exemption from all Kinds ofLocal Licenses Fees, Dues. The regional or areaheadquarters of multinational companies shallbe exempt from all kinds of local licenses, fees,dues, imposts or any other local taxes orburdens.


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Article 66. Tax and Duty Free Importationof Training Materials; Importation of MotorVehicles. Regional or area headquarters shallalso enjoy tax and duty free importation ofequipment and materials for training,conferences which are needed for the functionsof the regional or area headquarters and whichare not locally available subject to the priorapproval of the Board of Investments.

Regional or area headquarters shall be entitledto the importation of motor vehicles subject tothe prior approval of the Board and the paymentof the corresponding taxes and duties: Provided,That such motor vehicles shall be for theexclusive use of its expatriate executives andthat the number thereof shall not exceed thenumber of its expatriate executives and thatsuch motor vehicles may be replaced everythree (3) years from their importation.

Article 67. Exemption from RegistrationRequirements. The regional or areaheadquarters of multinational companies shallbe exempt from the provisions of Book II of thisCode.

BOOK IV

INCENTIVES TO MULTINATIONALCOMPANIES ESTABLISHING REGIONAL

WAREHOUSES TO SUPPLY SPARE PARTS

OR MANUFACTURED COMPONENTS ANDRAW MATERIALS TO THE ASIA-PACIFIC

REGION AND OTHER FOREIGN MARKETS

Article 68. Qualifications. A multinationalcompany organized and existing under any lawsother than those of the Philippines which isengaged in international trade and suppliesspare parts or manufactured components andraw materials to its distributors or markets in theAsia-Pacific Area and other foreign areas andwhich has established or will simultaneouslyestablish a regional or area headquarters in the

Philippines in accordance with the provisions ofBook III of this Code and the rules andregulations implementing the same may alsoestablish regional warehouse or warehouses inthe Philippines, after securing a license thereforfrom the Board of Investments.

The following minimum requirements shall besubmitted or complied with by the said foreignentity in accordance with the rules and

regulations to be issued by the Board ofInvestments as provided for in Article 7 (2) ofthis Code.

(a) A certification from the Foreign TradeOfficer or in the absence of such an official, aPhilippine Consul in the foreign firm's homecountry that said foreign firm is engaged ininternational trade and supplies or will supplyspare parts or manufactured components andraw materials to its distributors or markets in theAsia-Pacific Region.

(b) A certification from a principal officer ofthe foreign entity to the effect that said foreignentity has been authorized by its Board ofDirectors or governing body to establish itsregional warehouse in the Philippines, specifyingthat:

1. The activities of the regional warehouseshall be limited to serving as a supply depot forthe storage, deposit, safekeeping of its spareparts or manufactured components and rawmaterials including the packing, covering, puttingup, marking, labelling and cutting or altering tocustomer's specification, mounting and/orpackaging into kits or marketable lots thereof, tofill up transactions and sales made by its headoffices or parent companies and to serving as astorage or warehouse of goods purchasedlocally by the home office of the multinational forexport abroad; Provided, That said locallypurchased goods for export may be stored in theregional warehouse only after they have beencleared for export in accordance with the lawsand regulations, including those of the CentralBank and simplified procedures governingexports. The regional warehouse shall notdirectly engage in trade nor directly solicitbusiness, promote any sale, nor enter into anycontract for the sale or disposition of goods inthe Philippines.

2. The regional warehouse will not deriveany income from the sources within thePhilippines and its personnel will not participate

in any manner in the management of anysubsidiary, affiliate or branch office it might havein the Philippines.

3. The personnel of the regionalheadquarters shall be responsible for theoperation of the regional warehouse subject tothe provisions of this Code.


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(c) The multinational company shall pay theBoard of Investments and the appropriateRegional Collector of Customs thecorresponding license fees and storage fees tobe determined by said offices.

(d) An application for the establishment of aregional warehouse shall be made in writing tothe Board of Investments upon recommendationof the Bureau of Customs. The application shalldescribe the premises, the location and capacityof the regional warehouse and the purpose forwhich the building is to be used.

The jurisdiction and responsibility of supervisingthe regional warehouses shall be vested on theBureau of Customs.

The Board of Investments, in consultation withthe Regional Director of Customs of the districtwhere the warehouse will be situated shallcause an examination of the premises to bemade with reference particularly to the location,construction and means provided for thesafekeeping of its articles and if foundsatisfactory, it may authorize its establishmentwithout complying with the requirements of anyother government body and aimed at providingspeedy procedure for its establishment, subjectto the following conditions:

1) That the articles to be stored in the

warehouse are spare parts or manufacturedcomponents and/or raw materials of themultinational company operator for distributionand supply to its Asia-Pacific markets includingpackaging, coverings, brands, labels andwarehouse equipment as provided in Art. 69 (a)hereof;

2) That the entry or importation, storage orre-export of the goods destined for or to bestored in the regional warehouse will not involveany dollar outlay from Philippine sources;

3) That they are of such character as to bereadily identifiable for re-export; and in case oflocal distribution they shall be subject to Article69 paragraph (b) and the guidelinesimplementing Book IV of this Code;

4) That they shall be allowed provisionalentry expeditiously by means of a pro formainvoice of the parent company, identified,examined and appraised by the Regional

Collector of Customs and they shall be directlydelivered to and kept in the regional warehousesand released therefrom only in accordance withArticle 69 paragraphs (a) and (b) and theguidelines implementing Book IV of this Code;

In the absence of a Regional Collector ofCustoms where the volume of the establishmentof regional warehouses does not yet warrant thecreation of said offices, the duties of theRegional Collector of Customs shall beperformed by the Collector of Customs of thedistrict where the regional warehouse will belocated.

5) Each shipment of goods which will bestored in the regional warehouse shall becovered by an affidavit of the multinationalcompany operator setting forth that said articlesshall be exclusively used as supply for its Asia-

Pacific markets and stating the C & F pricethereof;

6) That it shall file an ordinary warehousingbond in an amount equal to ONE HUNDREDPER CENT (100%) of the ascertained customsduties on the articles imported without prejudiceto its filing a general warehousing bond in lieu ofthe ordinary warehousing bond.

7) The percentage of annual allowablewithdrawal for domestic use shall be subject tothe approval of the Board of Investments;Provided, however, That in no case shall suchwithdrawals exceed thirty per cent (30%) of thevalue of goods it has brought in for any givenyear and the payment of the correspondingtaxes and duties.

Article 69. Tax Treatment of ImportedArticles in the Regional Warehouse.

(a) Tax Incentives for Qualified GoodsDestined for Re-exportation to the Asia-Pacificand other Foreign Markets. Except as otherwise

provided in this Code, imported spare parts ormanufactured components, raw materials andother items including any packages, coverings,brands and labels and warehouse equipment asmay be allowed by the Board of Investments forthe use exclusively on the goods stored, exceptthose prohibited by law, brought into the regionalwarehouse from abroad to be kept, storedand/or deposited or used therein and re-exported directly therefrom under the


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supervision of the Regional Collector ofCustoms for distribution to its Asia-Pacific andother foreign markets in accordance with theguidelines implementing Book IV of this Codeincluding to a bonded manufacturing warehousein the Philippines and eventually re-exportedshall not be subject to customs duty, internalrevenue tax, export tax nor to local taxes, theprovisions of

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