Investment and Incentives Law.docx

7/29/2019 Investment and Incentives Law.docx

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Investment and Incentives Law

Notes

BCDA

The Bases Conversion and Development Authority (BCDA) is a government instrumentality vested

with corporate powers under Republic Act (RA) 7227 (Bases Conversion and Development Act of

1992), signed into law by former President Corazon C. Aquino last March 13, 1992. The BCDA Charter

was as amended by RA 7917 in 1995, and further amended by RA 9400 in 2007.

Mandated to transform former US military bases into alternative productive civilian use.

contribute to the modernization of the Armed Forces of the Philippines.

to impact regional synergy and socio-development, and to generate economic opportunities for all

arising from gains in its special economic zones.

AGENCIES:

- Bases Conversion and Development Authority.

- The Subic Bay Metropolitan Authority.

Other ecozones created under R.A. 9400

Subic Special Economic Zone

Clark Special Economic Zone

Clark Free Port Zone Poro Point Freeport Zone

Morong Special Economic Zone

John Hay Special Economic Zone

R.A. 7916

AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISMS FOR THE CREATION,

OPERATON, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE

PHILIPPINES, CREATING FOR THIS PURPOSE, THE PHILIPPINE ECONOMIC ZONE AUTHORITY

(PEZA), AND FOR OTHER PURPOSES.

Purposes, Intents and Objectives. It is the purpose, intent and objective of this Act:

(a) To establish the legal framework and mechanisms for the integration, coordination, planning and

monitoring of special economic zones, industrial estates / parks, export processing zones and other

economic zones;

(b) To transform selected areas in the country into highly developed agro industrial, industrial,

commercial, tourist, banking, investment, and financial centers, where highly trained workers and efficient

services will be available to commercial enterprises;

(c) To promote the flow of investors, both foreign and local, into special economic zones which would

generate employment opportunities and establish backward and forward linkages among industries in

and around the economic zones;

(d) To stimulate the repatriation of Filipino capital by providing attractive climate and incentives for

business activity;
http://www.bcda.gov.ph/file_attachments/0000/1716/RA_7917.pdfhttp://www.bcda.gov.ph/file_attachments/0000/1629/RA_9400.pdfhttp://www.bcda.gov.ph/file_attachments/0000/1629/RA_9400.pdfhttp://www.bcda.gov.ph/file_attachments/0000/1716/RA_7917.pdf


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(e) To promote financial and industrial cooperation between the Philippines and industrialized countries

through technology-intensive industries that will modernize the countrys industrial sector and improve

productivity levels by utilizing new technological and managerial know-how; and

(f) To vest the special economic zones on certain areas thereof with the status of a separate customs

territory within the framework of the Constitution and the national sovereignty and territorial integrity of the

Philippines.

"Special Economic Zones (SEZ)" hereinafter referred to as the ECOZONES, are selected areas with

highly developed or which have the potential to be developed into agro-industrial, Industrial

tourist/recreational, commercial, banking, investment and financial centers. An ECOZONE may contain

any or all of the following:

- Industrial Estates (IEs),

- Export Processing Zones (EPZs),

- Free Trade Zones,- and Tourist/Recreational Centers.

Fiscal Incentives.

Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives asprovided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, orthose provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus InvestmentCode of 1987.

- tax credits for exporters using local materials as Inputs shall enjoy the same benefits providedfor in the Export Development Act of 1994.

- Exemption from National and Local Taxes.- Except for real property taxes on land owned bydevelopers, no taxes, local and national, shall be imposed on business establishments operating withinthe ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterpriseswithin the ECOZONE shall be paid and remitted as follows:

a. Three percent (3%) to the National Government;

b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurers

office of the municipality or city where the enterprise is located.

Fiscal Incentives to PEZA-Registered Economic Zone Enterprises

1. Economic Zone Export Manufacturing Enterprise

Income Tax Holiday (ITH) 100% exemption from corporate income tax

4 years ITH for Non-pioneer Project

6 years ITH for Pioneer Project

ITH Extension years may be granted if Project complies with the following criteria, (one criterion is

equivalent to one ITH extension year), provided that the total ITH entitlement period shall not

exceed eight (8) years:

> The average net foreign exchange earnings of the project for the first three (3) years of

operations is at least US$500,000.00 and,


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> The capital equipment to labor ratio of the project does not exceed US$10,000.00 to 1 for the

year immediately preceding the ITH extension year being applied for.

> The average cost of indigenous raw materials used in the manufacture of the registered product

is at least fifty per cent (50%) of the total cost of raw materials for the preceding years prior to the

ITH extension year.

o 3 years ITH for Expansion project (ITH applies to incremental sales)

Upon expiry of the Income Tax Holiday - 5% Special Tax on Gross Income and excemption from

all national and local taxes (Gross Income refers to gross sales or gross revenues derived from

the registered activity , net of sales discounts, sales returns and allowances and minus cost of

sales or direct costs but before any deduction is made for administrative expenses or incidental

losses during a given taxable period)

Tax and duty free importation of raw materials, capital equipment, machineries and spare parts.

Exemption from wharfage dues and export tax, impost or fees

VAT zero-rating of local purchases subject to compliance with BIR and PEZA requirements

Exemption from payment of any and all local government imposts, fees, licenses or taxes.

However, while under Income Tax Holiday, no exemption from real estate tax, but machineries

installed and operated in the economic zone for manufacturing, processing or for industrial

purposes shall be exempt from real estate taxes for the first three (3) years of operation of such

machineries. Production equipment not attached to real estate shall be exempt from real property

taxes

Exemption from expanded withholding tax

2. Information Technology Enterprise:

Income Tax Holiday (ITH) 100% exemption from corporate income tax:

4 years ITH for Non-pioneer project

6 years ITH for Pioneer project

ITH Extension year may be granted if Project complies with the following criteria (one criterion is

equivalent to one ITH extension year,), provided that the total ITH entitlement period shall not

exceed eight (8) years:

> The average net foreign exchange earnings of the project for the first three (3) years of

operations is at least US$500,000.00 and,

> The capital equipment to labor ratio of the project does not exceed US$10,000.00 to 1 for the

year immediately preceding the ITH extension year being applied for.

o 3 years ITH for Expansion project (ITH applies to incremental sales)

Upon expiry of the Income Tax Holiday - 5% Special Tax on Gross Income and excemption from

all national and local taxes. (Gross Income refers to gross sales or gross revenues derived from




Tax and duty free importation of equipment and parts.

Exemption from wharfage dues on import shipments of equipment.

VAT zero-rating of local purchases of goods and services, including land-based

telecommunications, electrical power, water bills, and lease on the building, subject to compliance


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with Bureau of Internal Revenues and PEZA requirements

Exemption from payment of any and all local government imposts, fees, licenses or taxes.

However, while under Income Tax Holiday, no exemption from real estate tax, but machineries

installed and operated in the economic zone for manufacturing, processing or for industrial

purposes shall not be subject to payment of real estate taxes for the first three (3) years of

operation of such machineries. Production equipment not attached to the real estate shall be

exempt from real property taxes.

Exemption from expanded withholding tax.

3. Tourism Economic Zone Locator Enterprise

Four (4) years of Income Tax Holiday ITH (as qualified under the National Investment Priorities

Plan)

Upon expiry of the Income Tax Holiday - 5% Special Tax on Gross Income and exemption

from all national and local taxes (Gross Income refers to gross sales or gross revenues derived

from the registered activity , net of sales discounts, sales returns and allowances and minus cost

of sales or direct costs but before any deduction is made for administrative expenses or incidental


Tax and duty-free importation of capital equipment

VAT Zero Rating on local purchases of goods and services, including land-

based telecommunications, electric power, and water bills


4. Medical Tourism Enterprise

Four (4) years of Income Tax Holiday on income solely from servicing foreign patients

Upon expiry of the Income Tax Holiday - 5% Special tax on Gross Income upon in lieu of all

national and local taxes. (Gross Income refers to gross sales or gross revenues derived from




Tax and duty-free importation of medical equipment, including spare parts and equipment

supplies, required for the technical viability and operation of the registered activity/ies of the

enterprise.




5. Agro-Industrial Economic Zone Enterprise

Four (4) years of Income Tax Holiday

Upon expiry of the Income Tax Holiday - 5% Special tax on Gross Income and exemption from all

national and local taxes . (Gross Income refers to gross sales or gross revenues derived from




Tax and duty free importation of production equipment and machineries, breeding stocks, farm


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implements including spare parts and supplies of the equipment and machineries

Exemption from export taxes, wharfage dues, impost and fees



Exemption from payment of local government fees such as Mayors Permit, Business Permit,

permit on the Exercise of profession/Occupation/Calling, Health Certificate Fee, Sanitary

Inspection Fee, and Garbage Fee

6. Economic Zone Logistics Services Enterprise

Exemption from duties and taxes on raw materials, semi-finished goods for re-sale to - or for

packing/covering, cutting, altering for subsequent sale to PEZA-registered Export Manufacturing

Enterprises, for direct export or for consignment to PEZA-registered export enterprise.

VAT Zero Rating on raw materials for checking, packing, visual inspection, storage and shipping

to be sourced locally

7. Economic Zone Developer / Operator

7.a. Manufacturing Economic Zone Developer / Operator

Special 5% Tax on Gross Income and exemption from all national and local taxes, except real

property tax on land owned by the Econimic Zone Developer. (Gross Income refers to gross

sales or gross revenues derived from the registered activity , net of sales discounts, sales returns

and allowances and minus cost of sales or direct costs but before any deduction is made for

administrative expenses or incidental losses during a given taxable period)

VAT Zero rating of local purchases


7.b. IT Park Developer / Operator


property tax on land owned by the IT Park Developer. (Gross Income refers to gross sales or

gross revenues derived from the registered activity , net of sales discounts, sales returns and

allowances and minus cost of sales or direct costs but before any deduction is made for




7.c. Tourism Economic Zone Developer / Operator


property tax on land owned by the Tourism Economic Zone Developer. (Gross Income refers to

gross sales or gross revenues derived from the registered activity , net of sales discounts, sales

returns and allowances and minus cost of sales or direct costs but before any deduction is madefor administrative expenses or incidental losses during a given taxable period)




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7.d. Medical Tourism Economic Zone Developer / Operator


property tax on land owned by Medical Tourism Zone Developer. (Gross Income refers to gross

sales or gross revenues derived from the registered activity , net of sales discounts, sales returns

and allowances and minus cost of sales or direct costs but before any deduction is made for




7.e. Agro-Industrial Economic Zone Developer / Operator


property tax on land owned by the Agro-Industrial Economic Zone Developer. (Gross Income

refers to gross sales or gross revenues derived from the registered activity , net of sales

discounts, sales returns and allowances and minus cost of sales or direct costs but before any

deduction is made for administrative expenses or incidental losses during a given taxable period)



7.f. Retirement Economic Zone Developer / Operator


property tax on land owned by the Retirement Economic Zone Developer. (Gross Income refers

to gross sales or gross revenues derived from the registered activity , net of sales discounts,

sales returns and allowances and minus cost of sales or direct costs but before any deduction is

made for administrative expenses or incidental losses during a given taxable period)



8. Facilities Enterprises

8.a. Economic Zone Facilities Enterprise


property tax on land owned by developers. (Gross Income refers to gross sales or gross

revenues derived from the registered activity , net of sales discounts, sales returns and





8.b. IT Park Facilities Enterprise




allowances and minus cost of sales or direct costs but before any deduction is made foradministrative expenses or incidental losses during a given taxable period)




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8.c. Retirement Economic Zone Facilities Enterprise








9. Economic Zone Utilities Enterprise




allowances and minus cost of sales or direct costs but before any deduction is made foradministrative expenses or incidental losses during a given taxable period)



Republic Act No. 8756

AN ACT PROVIDING FOR THE TERMS, CONDITIONS AND LICENSING REQUIREMENTSOF REGIONAL OR AREA HEADQUARTERS, REGIONAL OPERATING HEADQUARTERS,

AND REGIONAL WAREHOUSES OF MULTINATIONAL COMPANIES, AMENDING FOR THEPURPOSE CERTAIN PROVISIONS OF EXECUTIVE ORDER NO. 226, OTHERWISE KNOWN

AS THE OMNIBUS INVESTMENTS CODE OF 1987

Regional or Area Headquarters (RHQ)

-shall mean an office whose purpose is to act as an administrative branch of a multinational

company engaged in international trade which principally serves as a supervision, communications and

coordination center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign

markets and which does not earn or derive income in the Philippines.

Incentives:

1. Corporate Income Tax Incentive

-not subject to income tax

2. Value-Added Tax Exempt

Regional Operating Headquarters (ROHQ)

-shall mean a foreign business entity which is allowed to derive income in the Philippines by

performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-

Pacific Region and in other foreign markets.

Incentives:

1. Corporate Income Tax Incentive

-ten percent (10%) of their taxable income

2. Value-Added Tax- 10%


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The regional operating headquarters may engage in any of the following qualifyingservices:

- General administration and planning;- Business planning and coordination;- Sourcing/procurement of raw materials and components;

- Corporate finance advisory services;- Marketing control and sales promotion;- Training and personnel management;- Logistics services;- Research and development services, and product development;- Technical support and maintenance;- Data processing and communication; and- Business development.

Incentives Available to Alien Employees of RHQ and ROHQ:

1. Multiple Entry Visa.- Foreign personnel of regional or area headquarters and regional operating headquarters

of multinational companies, their respective spouses and unmarried children under twenty-one

(21) years of age.

- Valid for 3 years

2. Withholding Tax of 15% on Compensation Income- For alien employees

- Also applicable to Filipino employees at their option

3. Tax and Duty Free Importation- of personal and household effects (for alien executive/s)

4. Travel Tax Exemption-`for personnel of RHQ and ROHQ and their dependents

INCENTIVES TO RHQ and ROHQ ( Common)

1. Exemption From All Kinds of Local Taxes, Fees, or Charges- Except RPT

2. Tax and Duty Free Importation of Training Materials and Equipment; Importation of Motor

Vehicles

- Provided such materials and equipments are not available locally.

R.A. 7844 EXPORT DEVELOPMENT ACT OF 1994

Purpose:

- To evolve export development into a national effort.

Key operating principles. - A macro-economic policy framework that supports export development shall

be provided, especially in key areas of concern to exporters:


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[a] Monetary and foreign exchange policies shall establish and maintain a competitive exchange rate,

supported by measures to provide safety nets for various sectors that may be adversely affected by the

implementation of such policies.

[b] Fiscal and credit policies shall provide adequate funds for public and private investments and

business expansion, while keeping the cost of credit comparable to international levels ensuring access

to loanable funds for SMEs as well as highly technical export enterprises, especially those in thecountryside.

[c] Agricultural policies shall build up viability and competitiveness of the country's agriculture sectors

and facilitate their linkage with industry to strengthen the agri-industrial base of the country's export thrust.

[d] Trade, tariff and customs policies shall engender competitiveness of domestic industries and

facilitate their participation in international trade.

[e] Technical support policies to improve the quality of export products shall be adopted, particularly

those relating to technology transfer, R & D, technical training and related activities

[f] Urgent attention must be given to policies affecting infrastructure in order to ensure the adequate

supply and quality of power, water [e.g., for irrigation], transportation [e.g., shipping and cargo handling],

and communication to support the flow of goods and services in the context of the national export

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[g] The link between export growth and countryside development must be strengthened through policies

favorable to SMEs, regional industrial centers, and export processing zones to boost rural and farm-

based entrepreneurship in identified geographic economic growth areas of the country.

[h] Labor and industrial relations policies must recognize the inevitable industrial shifts that will occur

in the effort to achieve international competitiveness. Focus shall be given to the formulation of accords

between labor and management which shall provide for sustained increase in productivity and

competitiveness

[i] All government agencies whose actions affect exporters, such as the Board of Investments [BOI],

Bureau of Customs [BOC] and Bureau of Internal Revenue [BIR] shall simplify procedures to minimize

bureaucratic red tape.

[j] Provisions of existing laws deemed detrimental to the export sector shall be repealed in subsequent

acts.

"Exporter" means any person, natural or juridical, licensed to do business in the Philippines, engaged

directly or indirectly in the production, manufacture or trade of products or services which earns at least

fifty percent [50%] of its normal operating revenues from the sale of its products or services abroad forforeign currency : Provided,That in the case of services, the same shall be limited to information

technology services, construction services and other services as defined jointly by the Department of

Finance [DOF] and the Department of Trade and Industry [DTI]. Services rendered by overseas contract

workers are not covered by the definition.

Incentives. - In addition to existing incentives provided by the Board of Investments, the following

incentives shall likewise be granted to exporters:

[a] Exemption from Presidential Decree No. 1853, (Requiring Deposits of Duties at the Time of

Opening of LOC covering imports and for other purposes) provided that the importation shall be used forthe production of goods and services for export.

[b] Tax credit for imported inputs and raw materials primarily used for the production and packaging

of export goods, which are not readily available locally , shall be valid for five [5] years. Provided,That

the tax credit shall be issued within thirty [30] days from exportation.

[c] Tax credit for increase in current year's export revenue.


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[d] For exporters of non-traditional products who use or substitute locally produced raw materials, capital

equipment and/or spare parts, tax credits equivalent to twenty-five percent [25%] of the duties that

would have been paid had these inputs been imported

[e] In the interim, while the Eximbank is not yet established, government financial institutions [GFIs]

including the Development Bank of the Philippines [DBP] , the Philippine National Bank [PNB] and the

Land Bank of the Philippines shall extend credit facilities to be used for plant and equipmentexpansion purposes, among others. These credit facilities shall offer preferential and simplified credit

schemes to exporters.

Documents

Investment and Incentives Law.docx