Philippine Policy Framework on Foreign Investments

8/3/2019 Philippine Policy Framework on Foreign Investments

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Philippine foreign investment brief

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PHILIPPINE FOREIGN INVESTMENT BRIEF ONRENEWABLE ENERGY

The Philippine government is prioritizing renewable energy for the next ten (10) years. In

ordertofacilitatesuchadramaticexpansion thePhilippinegovernmenthas:

1.Givenrenewableenergytechnologiesfavoredinvestmentstatus;

3.ApprovaloftheRenewableEnergyActwitharangeofspecificmarketbasedincentives;

4.BeenworkingwithalocalgovernmentandNongovernmentOrganizationstodevelopaGreen

IndependentPowerProducer(GRIPP)modelforpowerprojects.

5.Lastly,alternativesourceofenergyprojects hashighlevelpoliticalsupport.

TheRenewableEnergyLawof2008(RepublicActNo.9513). Thislawwasapprovedintolawon

December 16, 2008. This law intends to establish the framework for the accelerated

development and advancement of renewable energy resources, and the development of a

strategicprogramtoincreaseitsutilization.Thepertinentprovisionsprovides,asfollows:

Section8.RenewableEnergyMarket (REM). Tofacilitate compliancewith

Section6ofthisAct,theDOEshallestablishtheREMandshalldirectPEMCto

implementchangestotheWESMRulesinordertoincorporatetherulesspecific

totheoperationoftheREMundertheWESM.

The PEMC shall, under the supervision of the DOE, establish a Renewable

EnergyRegistrarwithin one (1) yearfrom the effectivity of thisAct and shall

issue,keepand verifyRECertificates corresponding toenergygeneratedfrom

eligibleRE

facilities.

Such

certificates

will

be

used

for

compliance

with

the

RPS.

Forthispurpose,atransactionfee,equaltohalfofwhatPEMCcurrentlycharges

regularWESMplayers,maybeimposedbyPEMC.

Section 9. Green EnergyOption. TheDOE shall establish aGreen Energy

OptionprogramwhichprovidesenduserstheoptiontochooseREresourcesas

theirsourcesofenergy.InconsultationwiththeNREB,theDOEshallpromulgate

the appropriate implementing rules and regulations which are necessary,

incidentalorconvenienttoachievetheobjectivessetforthherein.

WhatisthepotentialforrenewableenergyinthePhilippines?


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Section 15. Incentives for Renewable Energy Projects andActivities. RE

developersofrenewableenergyfacilities,includinghybridsystems,inproportion

to and to the extent of the RE component,for bothpower and nonpower

applications,as

duly

certified

by

the

DOE,

in

consultation

with

the

BOI,

shall

be

entitledtothefollowingincentives:

(a) Income Tax Holiday (ITH) For the first seven (7) years of its

commercialoperations, theduly registeredREdeveloper shallbeexemptfrom

incometaxesleviedbythenationalgovernment.

Additional investments intheprojectshallbeentitledtoadditional income tax

exemption on the income attributable to the investment: Provided, That the

discovery and development of new RE resource shall be treated as a new

investment and shall therefore be entitled to afreshpackage of incentives:

Provided,further,

That

the

entitlement

period

for

additional

investments

shall

notbemorethanthree(3)timestheperiodoftheinitialavailmentoftheITH.

(b)Dutyfree ImportationofREMachinery,EquipmentandMaterials

Within thefirst ten (10) years upon the issuance of a certification of an RE

developer, the importation of machinery and equipment, and materials and

parts thereof, including control and communication equipment, shall not be

subjecttotariffduties:Provided,however,Thatthesaidmachinery,equipment,

materialsandpartsaredirectlyandactuallyneededandusedexclusivelyinthe

REfacilitiesfortransformationintoenergyanddeliveryofenergytothepointof

use and covered by shipping documents in the name of the duly registered

operator

to

whom

the

shipment

will

be

directly

delivered

by

customs

authorities:

Provided, further, That endorsement of the DOE is obtained before the

importationofsuchmachinery,equipment,materialsandpartsaremade.

(c)SpecialRealtyTaxRatesonEquipmentandMachinery. Any lawto

thecontrarynotwithstanding,realtyandothertaxesoncivilworks,equipment,

machinery,andother improvementsofaRegisteredREDeveloperactuallyand

exclusivelyusedforREfacilitiesshallnotexceedoneandahalfpercent(1.5%)of

their original cost less accumulated normal depreciation or net book value:

Provided,That in caseofan integrated resourcedevelopmentandgeneration

facilityasprovidedunderRepublicActNo.9136,therealpropertytaxshallonly

beimposedonthepowerplant;

(d) Net Operating Loss CarryOver (NOLCO). The NOLCO of the RE

Developerduringthefirstthree(3)yearsfromthestartofcommercialoperation

whichhadnotbeenpreviouslyoffsetasdeductionfromgross income shallbe

carriedoverasadeductionfromgrossincomeforthenextseven(7)consecutive

taxableyears immediatelyfollowing theyearof such loss:Provided,however,

Thatoperatinglossresultingfromtheavailmentofincentivesprovidedforinthis

ActshallnotbeentitledtoNOLCO;

(e)CorporateTaxRate. Afterseven(7)yearsofincometaxholiday,all

REDevelopersshallpayacorporatetaxoftenpercent(10%)on itsnettaxable


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incomeasdefinedintheNationalInternalRevenueActof1997,asamendedby

RepublicActNo.9337.Provided,ThattheREDevelopershallpassonthesavings

totheendusersintheformoflowerpowerrates.

(f) Accelerated Depreciation. If, and only if, an RE project fails to

receiveanITHbeforefulloperation,itmayapplyforAcceleratedDepreciationin

its tax books and be taxed based on such: Provided, That if it applies for

AcceleratedDepreciation,theprojectoritsexpansionsshallnolongerbeeligible

for an ITH.Accelerated depreciation ofplant,machinery,and equipment that

arereasonablyneededandactuallyusedfortheexploration,developmentand

utilizationofREresourcesmaybedepreciatedusingaratenotexceedingtwice

theratewhichwouldhavebeenusedhadtheannualallowancebeencomputed

inaccordancewiththerulesandregulationsprescribedbytheSecretaryofthe

DepartmentofFinanceandtheprovisionsoftheNationalInternalRevenueCode

(NIRC)of

1997,

as

amended.

Any

of

the

following

methods

of

accelerated

depreciationmaybeadopted:

i)Decliningbalancemethod;and

ii)Sumoftheyears digitmethod

(g)ZeroPercentValueAddedTaxRate. The saleoffuelorpowergenerated

from renewable sourcesofenergy suchas,butnot limited to,biomass, solar,

wind, hydropower, geothermal, ocean energy and other emerging energy

sourcesusingtechnologiessuchasfuelcellsandhydrogenfuels,shallbesubject

to

zero

percent

(0%)

value

added

tax

(VAT),

pursuant

to

the

National

Internal

RevenueCode(NIRC)of1997,asamendedbyRepublicActNo.9337.

AllREDevelopersshallbeentitledtozeroratedvalueaddedtaxonitspurchases

of local supplyofgoods,propertiesand servicesneededfor thedevelopment,

constructionandinstallationofitsplantfacilities.

Thisprovisionshallalsoapplytothewholeprocessofexploringanddeveloping

renewable energy sources up to its conversion intopower, including but not

limitedtotheservicesperformedbysubcontractorsand/orcontractors.

(h)CashIncentiveofRenewableEnergyDevelopersforMissionaryElectrification.

A

renewable

energy

developer,

established

after

the

effectivity

of

this

Act,

shall

be entitled to a cash generationbased incentive per kilowatt hour rate

generated,equivalent tofiftypercent (50%)of theuniversal chargeforpower

neededtoservicemissionaryareaswhereitoperatesthesame,tobechargeable

againsttheuniversalchargeformissionaryelectrification;

(i) Tax Exemption of Carbon Credits. Allproceedsfrom the sale of carbon

emissioncreditsshallbeexemptfromanyandalltaxes;


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(j) Tax Credit on Domestic Capital Equipment and Services. A tax credit

equivalent toonehundredpercent (100%)of thevalueof thevalueadded tax

andcustomdutiesthatwouldhavebeenpaidontheREmachinery,equipment,

materialsand

parts

had

these

items

been

imported

shall

be

given

to

an

RE

operatingcontractholderwhopurchasesmachinery,equipment,materials,and

partsfromadomesticmanufacturerforpurposessetforthinthisAct:Provided,

That prior approval by the DOE was obtained by the local manufacturer:

Provided,further,Thattheacquisitionofsuchmachinery,equipment,materials,

andpartsshallbemadewithinthevalidityoftheREoperatingcontract.

Section19.Hybrid and Cogeneration Systems. The tax exemptions and/or

incentivesprovidedforinSection15ofthisActshallbeavailedofbyregistered

REDeveloperofhybridandcogenerationsystemsutilizingbothREsourcesand

conventionalenergy:Provided,however,Thatthetaxexemptionsandincentives

shallapply

only

to

the

equipment,

machinery

and/or

devices

utilizing

RE

resources.

Section 21. Incentives for RE Commercialization. All manufacturers,

fabricatorsandsuppliersoflocallyproducedREequipmentandcomponentsduly

recognizedandaccreditedbytheDOE,inconsultationwithDOST,DOFandDTI,

shall,uponregistrationwiththeBOI,beentitledtotheprivilegessetforthunder

thissection.

ConsistentwithArticle7,Item(20)ofEONo.226,theregistrationwiththeBOI,

asprovidedfor in Section 15 and Section 21 of thisAct, shall be carried out

through

an

agreement

and

an

administrative

arrangement

between

the

BOI

and

the DOE, with the endview of facilitating the registration of qualified RE

facilitiesbasedontheimplementingrulesandregulationsthatwillbedeveloped

by DOE. It isfurthermandated that the applicationsfor registration will be

positivelyacteduponbyBOIonthebasisoftheaccreditationissuedbyDOE.

TheRenewableEnergy Sector isherebydeclaredapriority investment sector

thatwill regularlyformpart of the country's Investment Priority Plan, unless

declaredotherwisebylaw.Assuch,allentitiesdulyaccreditedbytheDOEunder

thisActshallbeentitledtoalltheincentivesprovidedherein.

(a)TaxandDutyfree ImportationofComponents,PartsandMaterials. All

shipmentsnecessary

for

the

manufacture

and/or

fabrication

of

RE

equipment

andcomponentsshallbeexemptedfromimportationtariffanddutiesandvalue

added tax:Provided,however,That the said components,partsandmaterials

are: (i) notmanufactured domestically in reasonable quantity and quality at

competitiveprices;(ii)directlyandactuallyneededandshallbeusedexclusively

in themanufacture/fabricationofREequipment;and (iii) coveredby shipping

documentsinthenameofthedulyregisteredmanufacturer/fabricatortowhom

theshipmentwillbedirectlydeliveredbycustomsauthorities:Provided,further,

Thatprior approval of theDOEwas obtained before the importation of such

components,partsandmaterials;


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(b) Tax Credit onDomestic Capital Components, Parts andMaterials. A tax

creditequivalent toone hundredpercent (100%)of theamount of the value

added taxandcustomsduties thatwouldhavebeenpaidon thecomponents,

partsand

materials

had

these

items

been

imported

shall

be

given

to

an

RE

equipment manufacturer, fabricator, and supplier duly recognized and

accreditedbytheDOEwhopurchasesREcomponents,partsandmaterialsfrom

a domestic manufacturer: Provided, That such components, and parts are

directlyneededandshallbeusedexclusivelybytheREmanufacturer,fabricator

and supplierfor themanufacture,fabrication and sale of the RE equipment:

Provided,further, Thatprior approval by the DOEwas obtained by the local

manufacturer;

(c) IncomeTaxHolidayandExemption. For seven (7)years startingfrom the

dateof recognition/accreditation,anREmanufacturer,fabricatorand supplier

ofRE

equipment

shall

be

fully

exempt

from

income

taxes

levied

by

the

National

Government on net income derived only from the sale of RE equipment,

machinery,partsandservices;and

(d)Zeroratedvalueaddedtaxtransactions Allmanufacturers,fabricatorsand

suppliers of locallyproduced renewable energy equipment shall be subject to

zerorated value added tax on its transactionswith local suppliers of goods,

propertiesandservices.

Section23.TaxRebateforPurchaseofREComponents. Toencourage the

adoptionofREtechnologies,theDOF,inconsultationwithDOST,DOE,andDTI,

shall

provide

rebates

for

all

or

part

of

the

tax

paid

for

the

purchase

of

RE

equipment for residential, industrial, or community use. The DOF shall also

prescribetheappropriateperiodforgrantingthetaxrebates.

SEC. 5.Mandatory Use Biofuel. Pursuant to the abovepolicy, it is hereby

mandatedthatallliquidfuelsformotorsandenginesoldinthePhilippinesshall

containlocallysourcedbiofuelscomponentsasfollows:

5.1WithintwoyearsfromtheeffectivityofthisAct,atleastfivepercent

(5%)bioethanolshallcomprisetheannualtotalvolumeofgasolinefuel

actually sold and distributed by each and every oil company in the

country,subjecttotherequirementthatallbioethanolblendedgasoline

shallcontain

aminimum

of

five

percent

(5%)

bioethanol

fuel

by

volume:

ProvidedThattheethanolblendconformstoPNS.

5.2Withinfouryearsfrom the effectivity ofthisAct,theNBBcreated

underthisAct isempoweredtodeterminethefeasibilityandthereafter

recommendtoDOEtomandateaminimumoftenpercent(10%)blend

of bioethanol by volume into all gasolinefuel distributed and sold by

eachandeveryoilcompanyinthecountry.


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Intheeventofsupplyshortageoflocallyproducedbioethanolduringthe

four yearperiod,oil companies shallbe allowed to import bioethanol

butonlytotheextentoftheshortageasmaybedeterminedbytheNBB.

5.3Within threemonthsfromtheeffectivityof thisAct,aminimumof

onepercent (1%) biodiesel by volume shall be blended into all diesel

engine fuels sold in the country: Provided, That the biodiesel blend

conformstoPNSforbiodiesel.

Within two yearsfrom the effectivity of thisAct, the NBB created under thisAct is

empoweredtodeterminethefeasibilityandthereafterrecommendtoDOEtomandatea

minimum of twopercent (2%) blend of biodiesel by volumewhichmay be increased

taking into account considerations including but not limited to domestic supply and

availabilityoflocallysourcedbiodieselcomponent.

SEC.6. Incentive Scheme. Toencourage investments in theproduction,distribution

anduseof locallyproducedbiofuelsatandabovetheminimummandatedblends,and

withoutprejudice to enjoying applicable incentives and benefits under existing laws,

rulesandregulations,thefollowingadditionalincentivesareherebyprovidedunderthis

Act.

i. Specifictax.Thespecifictaxonlocalorimportedbiofuelscomponent,perliterofvolume shallbezero (0).Thegasolineanddieselfuel component shall remain

subjecttotheprevailingspecifictaxrates.

ii. ValueAdded Tax The sale of rawmaterialused in theproductionof, biofuelssuch as, but not limited to, coconut,jatropha, sugarcane, cassava, corn, andsweetsorghumshallbeexemptfromthevalueaddedtax.

iii. WaterEffluents.Allwatereffluents,suchasbutnot limitedtodistilleryslops&fromtheproductionofbiofuelsusedasliquidfertilizerandforotheragricultural

purposesare considered reuse,andare therefore,exemptfromwastewater

chargesunderthesystem,providedunderSection13ofRANo.9275,alsoknown

asthePhilippineCleanWaterAct:Provided,however,Thatsuchapplicationshall

beinaccordancewiththeguidelinesissuedpursuanttoR.A.No.9275,subjectto

themonitoringandevaluationbyDENRandapprovedbyDA;

iv. FinancialAssistance.Governmentfinancialinstitutions,suchastheDevelopmentBank of the Philippines, Land Bank of the, Philippines, Quedancor and other

government institutionsprovidingfinancial services shall, in accordance with

andtotheextentallowedbytheenablingprovisionsoftheirrespectivecharters

orapplicablelaws,accordhighprioritytoextendfinancingtoFilipinocitizensor

entities, at least sixtypercent (60%) of the capital stock ofwhich belongs to

citizens of the Philippines that shall engage in activities involvingproduction,

storage,handlingand transportofbiofuelandbiofuelfeedstock, including the

blendingofbiofuelswithpetroleum,ascertifiedbytheDOE.


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21.DisadvantagesForeignInvestmentsinthePhilippines.

So muchpoliticsinthePhilippinebusinessactivities; Somuchcorruptionand red tape thatmayhamperorhinder thesmooth implementationof

anyRenewableEnergyprojects.

Inconsistent government policy, complex laws and regulations, including environmentalregulationswhichcouldadverselyaffect thecost,mannerorfeasibilityofdoingtheRenewable

Energy/BiofuelGenerationbusiness.

Realityoflooksdifferent neglectbusinessduetorestrictiveownershipofbusiness.Shorttermlease contracts are little inviting to invest in the future and improve as necessary to remain

competitiveinbusiness;

As a result of existing economical problems many Philippine business ventures have lostcontacttointernationalcompetition. Lowsalariesalone isnoattractionforinvestors.Political

stabilityandlegalsoundbusinessbasisareneededtoofferthesecuritynecessarytoinvestalife

times savings and earnings into a new business venture. While some of may have venture

capitaltoriskorlose othersjustinvesttheirlifetimesavings intoabetterfuture.Suchfuture

needstobestableandsolidinalegalenvironmentthatgivesthenecessarytrustintopoliticians

andlaws.Successfulbusinessneedstobemadewithlongtimeperspectivesinmind lifetime

planningorevenbeyond.Someamongmaywanttoconstructafuturetobe forwarded the

future.AsoundgiftsolidandhealthonlycanbegiventothenextgenerationofFilipinos.

Itwas

also

noted

that

the

country

needs

to

upgrade

and

modernize

its

infrastructure while improving its governance and cutting "nontariff

barriers"suchasredtape.

1. BASICLEGALFRAMEWORK:ForeigninvestmentsinthePhilippinesarebasicallygovernedbythefollowinglaws,rules,regulationsandothergovernmentissuances:

[1] ExecutiveOrderNo.226 TheOmnibusInvestmentsCodeof1987 setsforththerulesand

parameterswithinwhichforeigninvestmentsinthePhilippinesmaybemade,withemphasison

thegrantofincentivestocertainsectors.

[2] RepublicActNo.7042,asamendedbyRepublicActNo.8179 TheForeignInvestmentsAct

of 1991 dwells on foreign investments without incentives; it reduced the minimum paidin

equity from US Dollars Five Hundred Thousand [US$500,000] to US Dollars Two Hundred

Thousand[US$200,000].

BASICLEGALFRAMEWORK


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[3] RepublicActNo.7227 TheBasesConversionandDevelopmentActof1992 setsforththe

grantofincentivestoindustriesandenterpriseswhichestablishtheirplantsandofficeswithin

theSubicBayFreeportZone.

[4] RepublicActNo.7916 TheSpecialEconomicZoneActof1995 treatsofincentivesgranted

toindustriesandenterpriseswhichsituatetheiroperationwithinSpecialEconomicZones.

[5] RepublicActNo.7844 TheExportDevelopmentActof1994 provides for incentivesto

businessenterprisesintheexportindustry.

[6]RepublicActNo.7721 liberalizedtheentryandoperationsof foreignbanksand financial

institutionsinthePhilippines.

[7] RepublicActNo.7652 TheInvestor'sLeaseAct grantstoforeigninvestorstheprivilegeof

leasingprivate landsforaperiodoffifty(50)years[initial]whichmayberenewedforanother

twentyfive(25)years.

[8] Republic Act No. 7718 The BuildOperateTransfer Act [BOT] liberalized the

implementationoftheBuildOperateTransferSchemeincertainprojects,easedtherestrictions

ongovernment financingand settingand impositionof tollsand chargesandwholly foreign

ownedcorporationsareallowedtoundertakecertainprojectsunderthisscheme.

[9] RepublicActNo.7888 grantsauthoritytothePresidentofthePhilippinestosuspendthe

nationalityrequirementundertheOmnibusinvestmentsCode[ExecutiveOrderNo.226]inthe

caseofequityinvestmentsbymultilateralfinancialinstitutionsliketheAsianDevelopmentBank

[ADB]

or

the

International

Finance

Corporation

[IFC].

2. POLICYONCOMPETITION:Monopoliesarenotallowed inthePhilippines. It isa fundamentalpolicythattheStateshall

regulateorprohibitmonopolieswhenpublicinterestsorequires.Nocombinationinrestraintof

tradeorunfaircompetitionshallbeallowed.

3. POLICYONEXPROPRIATIONOFPRIVATEPROPERTYExpropriationofprivatepropertybythegovernmentisapolicywhichisexceptionally

exercised. Inextremeandurgentcaseswhereexpropriationbecomesnecessaryforpublicuse

orintheinterestofnationalwelfare,justcompensationisrequiredbylawtobepaidtothe

privateowneroftheproperty.Underthissituation,theaffectedforeignenterpriseorinvestor

hasthe righttoremitanyandallamountsreceivedasjustcompensationfortheexpropriated

propertyinthecurrencyinwhichtheinvestmentwasoriginallymadeandattheprevailing

foreignexchangerateatthetimeitisremitted.


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4. PHILIPPINECURRENCY

The currency of the Philippines is called the Philippine Peso [PhP]. A floating exchange rate

systemisbeingmaintainedbythePhilippinegovernment. Underthissystem,theexchangerate

isallowedtobedeterminedprincipallybyprevailingmarketforces. Thecentralbankauthority

the Bangko Sentral ng Pilipinas [BSP] intervenes only for the purpose of limiting sharp

fluctuationsintheexchangeratetomaintainorderinthemarketconditions.

4. FOREIGNEXCHANGEReformatorymeasurestoderegulatethePhilippineforeignexchangesystemwereimplemented

sometime in 1992. Consequently, foreign exchange surrender requirements were removed,

access to foreigncurrencydeposit facilitieswas liberalized, restrictionson the repatriationof

foreign

investments

and/or

profit

remittances

were

lifted

and

limitations

on

the

quantitative

restrictionsoncurrentaccounttransactionsdeleted.

Registrationwiththecentralmonetaryauthority BangkoSentralngPilipinas [BSP] of loans

and investmentsaccountswas liftedexcept incaseswhere fundingwillbemadethroughthe

banking system of transactions like repatriation of capital and remittances of dividends and

profitsaswellasforeignexchangerequirementforfuturedebt.

Further,BSPapprovalandregistrationarerequiredincaseofoutwardinvestmentsofresidents

inanamountinexcessofUS$6,000,000.00,perinvestorperyearshouldthefundsthereforbe

sourced from the banking system. Foreign borrowings by the public sector should also be

approved

by

the

BSP.

Thelawallowsthedepositinforeigncurrencyaccountsofanyforeignexchangereceivedinthe

Philippinesorabroad. Italsoallowsthesellingandacquisitionofforeignexchangeoutsideof

thePhilippinebankingsystem.Theonlyrestrictiononforeignexchangetransactionpertainsto

the payment of foreign loans and/or foreign investments, in which case, such may only be

serviced with foreign exchange purchased through authorized agent banks, if the loan is

approved/registeredwiththeBSPor the investment isregisteredtherewith. Thus, incaseof

sales of foreign exchange for payment of foreign obligations [foreign loan or foreign

investment],thepurchasershallberequiredbytheauthorizedagentbanktopresentproofof

BSPapprovaland/orregistrationforeachloanorinvestment.

In caseofpurchaseof foreignexchange foranynontradepurposes,authorizedagentbanks

maysellforeignexchangetoresidentswithoutneedofpriorBSPapprovalsubject,however,to

thefollowing:

[a] Written notarized application and supporting documents from the foreign exchange

purchaseriftheamountexceedsUS$25,000.00.

[b]SimplewrittenapplicationiftheamountdoesnotexceedUS$25,000.00.


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Thislimitationonnontradepurchasecannotbecircumventedbysplittingtheforeignexchange

purchaseintoseparatesmalleramounts.Splittingofpurchaseofforeignexchangeispresumed

ifthebanksellstoanyonepurchaser,acombinedtotalamountexceedingUS$25,000.00within

aperiodoffifteen[15]bankingdays.

Incasesofoutwardpayments,thelawdoesnotprescribeanyparticularcurrencyrequirements.

However,allforeignexchangeproceedsfromexportsandinvisiblesshouldbeprocuredthrough

specifiedcurrenciesnumberingmorethantwenty[20].

Philippinepeso denominated bank accounts may be opened by nonresidents whether an

individual or corporate without need to secure BSP approval. Nonresident depositors may

freelywithdrawtheiraccountsbutnonresidentbankaccountsmayonlybecreditedwiththe

proceedsfrom inwardforeignexchangeremittanceorwith incomeearned inthePhilippines.

Themaintenanceof foreigncurrencydepositaccountswith localbanksbyresidentsandnon

residentsalikeisnotsubjecttoanyfurtherrestrictions.

6.REPATRIATIONOFFUNDS[SALESPROCEEDS,PROFITS,DIVIDENDS,ROYALTIES,LOANPAYMENTS&

LIQUIDATION]

There are no existing restrictive regulations on the repatriation of funds related to BSP

registered foreign investments such as sales or divestment proceeds, profits, dividends,

royalties, loan payments and liquidation. As earlier pointed out, BSP registration of foreign

investments is necessary only in cases where the foreign exchange required to service the

repatriation of capital and remittance of profits, dividends, royalties, loan payments or

liquidation

proceeds

will

be

sourced

from

the

banking

system.

Further, it bears toemphasize that investments ingovernment or listed securities or money

market instruments or bank deposits need not be registered with the BSP or with the

designatedcustodianbankoftheinvestorconcerned.

7.SOURCESOFFINANCING

SOURCE1 ForeignBorrowings

[1] PublicSectorLoans Underthelaw,allpublicsectorloanstakenfromoffshoresourcesand

from Foreign Currency Deposit Units (FCDUs) must be approved by the Bangko Sentral ng

Pilipinas [BSP]. The BSP approval, however, is not required in case of shortterm interbank

borrowingsofpublicsectorbanksandshorttermFCDUloansfortradefinancing.

[2] PrivateSectorLoans TheapprovalofandregistrationwithBSPoftheprivatesectorloans

arerequiredunderthefollowingcircumstances:

[a] if the loan is guaranteed by a public sector entity such as the national government,

government financial institutions, governmentowned or controlled corporations and local

governmentunitsorbyalocalcommercialbank;or


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[b] if the loan is granted by an FCDU and will specifically or directly be funded from, or

collaterizedby,offshoreloansordeposits;or

[c]iftheloanisobtainedbybanksandfinancialinstitutionswithatermexceedingone[1]year

andintendedforrelendingtopublicandprivateenterprises.

Exceptfortheforegoingtypesofloans,othercategoriesofprivatesectorloansarenotsubject

to prior approval by the BSP. Registration with BSP, however, is still required in order to

purchaseforeignexchangefromthebankingsystemtoservicetheloan. Thefollowingmaybe

cited: [a] privatesectorloansfromFCDUsoroffshoresourcesregardlessoftheirmaturitytobe

paid using foreign exchange purchased from outside of the banking system; [b] shortterm

loansofpublicandprivatefinancialinstitutions incurred innormal interbanktransactionsand

withmaturitynotexceedingone[1]year;[c] shorttermloansoftheprivatesectorintheform

ofexportadvancesfrombuyersabroad;[d] shorttermloansof privatesectorborrowersfrom

FCDUssuchasthoseincurred:[i] bycommunityandserviceexporters[providedtheseloansareused to finance exportrelated import costs of goods and services as well as peso cost

requirements];and[ii]by producersormanufacturers,includingoilcompaniesandpublicutility

concerns[providedtheloansareusedtofinanceimportcostsofgoodsandservicesnecessaryin

theproductionofgoodsbytheborrowerconcerned].

Itmustbeemphasizedthatproceeds fromFCDU loansarenotallowedtobedeposited inan

FCDUaccountifthesameshallbeservicedusingforeignexchangepurchasedfromthebanking

system.

[3] Shortterm loansofprivate sectorexportersor importers These loans fromparticipating

creditor

banks

under

the

Revolving

Trade

Facility

(RTF)

Agreement

are

subject

to

the

following

conditions:

[a] the loans are not covered by a guarantee from a government financial institution or

corporation;

[b] the loans shall be exclusively used to finance specific trade transactions in an amount

equivalent to the import bills to be liquidated and/or in the case of export financing

transactions,totheborrower'spreexportfinancingrequirements;

[c] proceedsofloansintendedtopayforforeignexchangerequirementsshallbepaiddirectly

to the supplier or creditor while amounts intended to fund preexport peso costs shall be

inwardlyremittedandsoldtothebankingsystem;

[d] the loansshallbegrantedagainstBSPapprovedshorttermrelendingprogramsofforeign

creditors.Creditors shall submit to theBSP their shortterm relendingprogram forPhilippine

borrowers indicating their proposed credit limit together with a list of prospective

borrowers/beneficiaries. These relending programs shall be valid for one year but shall be

subjecttosemiannualreviewifcommitmentsand/orutilizationforthesemestershallbebelow

fiftypercent[50%]oftotalrelendinglimit;

[e] drawdownandregistrationrequirementsshallbecompliedwith;

[f] anyassignmentoftheloanbythecreditorshallrequirepriorBSPapproval;and


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[g] theborrowershallsubmittoBSPtherequireddocumentsat leastfivedaysafter itscredit

lineisapprovedbythecreditor.

[4]

Priority

projects

Projects

considered

priority

for

foreign

financing

under

the

socio

economicdevelopmentplanincludethefollowing:

[a] exportorientedprojects;

[b] BOIregisteredprojects;

[c] thoselistedintheAnnualPrioritiesPlan(APP);and

[d] other projects which may be declared priority by the National Economic Development

Authority[NEDA]orbytheCongressofthePhilippines.

Thelawrequiresthattheproceedsofallloans,irrespectiveofmaturity,shallexclusivelyfinance

foreign exchange requirements of eligible projects. However, loans of direct and indirect

exportersandpublicsectorborrowersmaybeusedtofinancebothforeignexchangecostsand

localcostsoftheirprojects.

SOURCE2 DomesticBorrowings

Foreign firmsmayavailofdomestic loans.Except for the requirement that thebanks should

report the levelofdomesticborrowingsof foreign firms to theBSP formonitoringpurposes,

therearenorestrictionsondomesticborrowings.

8.INVESTMENT

PROPOSAL

AND

APPROVAL

Anyinvestmentproposalshallcomplywithcertainrequirementsofthelaw. Morespecifically,

thefollowingconditionsapply:

[1] Merger must comply with the legal requirements under the Corporation Code of the

Philippines;

[2] Acquisition must comply with Section 40 of the Corporation Code and subject to the

restrictionsregardingforeignequityownershipunderthe1987Constitution.

[3] RealEstate/Land theforeignequityisuptofortypercent[40%]only.

[4] ManagementContract mustcomplywithSection44oftheCorporationCode.

[5] Joint Venture may be entered into without legal restriction on registration unless the

partiestheretoformanotherbusinessorganizationrequiringregistrationsuchasacorporation

orpartnership.

[6] GreenfieldInvestments mustcomplywiththerequirementsundertheCorporationCode.

[7] Media noforeignequityisallowed.


13/26


Page13

[8] Telecommunications foreignequityisalloweduptofortypercent[40%].

[9] Transportation foreignequityisalloweduptofortypercent[40%].

[10] Agriculture thereisnolimitationifprivatelandisusedforthispurpose. However,foreign

equityisrequireduptofortypercent[40%]incaseofpublicland.

[11]Infrastructure allowedbutsubjecttotheprovisionsoftheBuildOperateTransfer [BOT]

LawandPresidentialDecreeNo.1594.

[12]Mining allowed but subject to the conditions under the Revised Mining Act of 1995.

9.APPLICATIONANDAPPROVALFORMS

Thefollowingapplicationandapprovalformsarerequired:

[1]For formation of a new corporation with more than forty percent [40%] foreign equity

S.E.C.FormNo.F100.

[2]Forestablishmentofabranchofficeofaforeigncorporation S.E.C.FormNo.F103.

[3]BoardofInvestments[BOI]registrationform.

[4]PhilippineEconomicZoneAuthority[PEZA]registrationform.

10.PERIODSWHENPROCESSINGANDAPPROVALOFAPPLICATIONCOMPLETED

TheinvestmentlawsinthePhilippinesexplicitlyprescribethefollowingperiodswithinwhichthe

processing and approval of foreign investment proposal and/or applications should be

completedfromthetimeofsubmissionofallrequireddocuments:

[1] TheBOIshallapproveordisapproveanapplicationwithin twenty [20]workingdaysafter

official acceptance thereof. If application involves less than PhP5,000,000.00 production cost

andapplicantisanexporter,theperiodisseven[7]days. [1987OmnibusInvestmentCode]

[2] The SEC [in the case of corporation or partnership] or the BTRCP [in the case of sole

proprietorship] shall act on the application within fifteen [15] days from official acceptance

thereof. [ForeignInvestmentsAct]

[3] ThePEZAprocessesandevaluatesanapplicationwithintwo[2]weeks. Approvalthereofis

made during the regular monthly meeting of its Board.

11.ENTRYOFNONRESIDENTPERSONNEL

Enterprises registered under the Omnibus Investments Code [Executive Order No. 226] are

permittedtoemployforeignnationalsinsupervisory,technical,oradvisorypositionsduringits

first five years fromregistration. Those majority foreignowned registered enterprises are

allowed to employ foreign nationals as president, treasurer and general managers for an

indefiniteperiodof time. In the caseofOffshoreBankingUnits [OBUs], theyareallowed to


14/26


Page14

employ foreign nationals as executives in their respective units. The same may be said for

executivesinareaheadquartersofmultinationalcorporations.

Fornonresidentpersonnelofforeignfirms,theentryvisarequirementsanddescriptionofthenatureof

theentryrestrictionareasfollows:

a. SpecialInvestorsResidentVisa[SIRV] Thisisissuedtoanyalien,exceptnationalscomingfromNorthKoreaandCambodiaandsuchothercountriesthatmaybeclassifiedrestricted

inthefuture,whomeetsthefollowingqualifications:

1. he/she had not been convicted of a crime involving moral turpitude;

2. he/shehadnotbeenafflictedwithanyloathsome,dangerousorcontiguous

disease;

3.he/shehadnotbeen institutionalized foranymentaldisorderordisability;

and4. he/sheiswillingandabletoinvesttheamountofat leastUS$75,000inthe

Philippines.

Thespecialfeatureofthisvisa isthegranttothe investoroftheprivilegetoreside in

thePhilippines foras longashis investmentexists.He shallbeentitled to importhis

usedhouseholdgoodsandpersonaleffects, taxanddutyfree,asanaliencoming to

settle inthePhilippines forthe firsttimeunderSec.105(h)oftheTariffandCustoms

CodeofthePhilippines.Moreover,theinvestor'sspouseandunmarriedchildrenunder

21yearsofagewhojoinhiminthePhilippinesmaybeissuedthesamevisa.

b.

Pre

arranged

Employment

Visa

This

is

granted

pursuant

to

Sec.

9(g)

of

the

Philippine

ImmigrationLaw. Thisisavailableforemploymentinanyexecutiveormanagerialposition.

c.International Treaty Investors Visa This is granted under Sec. 9(d) of the Philippine

Immigration Law. The required investment isat leastP300,000.00. OnlyGermans, Japanese

andAmericansarepartiestothistreaty.

12.RESTRICTIONSONEMPLOYMENTOFFOREIGNTECHNICALORMANAGERIALPERSONNELAND

ACCOMPANYINGFAMILYMEMBERS

Restrictionsonpositions:

[1] Registered foreign enterprises with the Board of Investments [BOI] may employ foreign

nationalsinsupervisory,technicaloradvisorypositionsforaperiodnotexceedingfive[5]years

fromitsregistration,extendibleforlimitedperiodsatthediscretionoftheBOI.

[2]BOIregistered majority foreignowned enterprises may employ foreign nationals in the

positionsofpresident,treasurerorgeneralmanagerbeyondtheperiodoffive[5]years.

[3]ForeignnationalsundertheCorporationCodemaybeemployedasmembersoftheBoardof

Directorsbywayofelection.


15/26


Page15

[4] Foreignenterprises locatedattheSubicBayFreeportmayemployforeignnationals inany

positionuponpriorapprovaloftheSubicBayMetropolitanAuthority[SBMA]foraperiodoffive

[5]yearswhichmaybeextendedfromyeartoyear.

[5]Foreignenterprisesenteringintogovernmentcontractsandserviceforcoaloperationsand

explorationanddevelopmentofoilandgeothermal resourcesareallowed toemploy foreign

nationalsinanyposition.

Restrictionsonskillsrequirement:

Employment of foreign technicians in foreign enterprises in the Philippines is subject to the

requirement that the skills theypossessarenotavailable in thePhilippines. If there isnone

available in thePhilippines,aprearrangedemploymentvisamaybeextended to the foreign

technician. Further,underthelaw,theiremploymentshouldbeaccompaniedbyanunderstudy

programwhereinatleasttwo[2]Filipinounderstudiesshouldbetrainedontheskillsforwhich

they[foreigntechnicians]wereengaged.

13.MINIMUMWAGESANDOTHERLABORSTANDARDSANDLABORRELATIONSLAW

LaborlawsinthePhilippinesrespectingwages,hoursofwork,overtime,nightdifferentialpay,

service incentive leave, and other labor standards; strikes, picketing, termination of

employment,andotherlaborrelationsrules,haveallbeencodified. Allthesemaybefoundin

theLaborCodeofthePhilippines,asamended.

As regardsminimumwages, theLaborCodeof thePhilippines,asamended,provides for the

basic

standards

for

minimum

wage

fixing

which

is

done

through

the

various

Regional

Tripartite

WagesandProductivityBoards. Eachregionhasitsownsetofminimumwageratesandrules.

Asregardslaborunions,strikesandpicketing,collectivebargaining,voluntarymodesofsettling

labor disputes and other laborrelated rules, the Labor Code of the Philippines has provided

amplesafeguardstoprotecttheinterestofbothlaborandmanagement.

14.TAXATIONLAWONFOREIGNINVESTMENTS

I. Corporateandsimilarentities:a. [1]Foreigncorporationsengaged inbusinessortrade inthePhilippines Their income

derivedfromsourcesinthePhilippinesaretaxedaflatrateofthirtyfivepercent[35%]

basedonnetincome.

b. [2]Foreign corporations not engaged in business or trade in the Philippines TheirincomederivedfromsourcesinthePhilippinesaretaxedaflatrateofthirtyfivepercent

[35%]ongrossincome. Further,interestincomeonforeignloansearnedissubjecttoa

twentypercent[20%]tax.

c. [3]Foreigninternationalcarriers Theyaretaxedattherateoftwoandahalfpercent[2.5%]ontheirgrossPhilippinebillings.

d. [4]Nonresidentforeigncinematographicfilmowners,lessorsordistributors Theyaretaxedattherateoftwentyfivepercent[25%]ongrossincome.


16/26


Page16

e. [5]Foreignmutuallifeinsurancecompanies Theyaretaxedattherateoftenpercent[10%]oftheirgrossinvestmentincomederivedfromsourceswithinthePhilippines.

f.II. Foreignindividuals:

[1]Individualresidentforeigners Theirincome:[a] derivedfromallsourcesinthePhilippines

and in foreign countries taxed from 135% on gross compensation income [arising from an

employeremployeerelationship];andnetonnoncompensation[businessandother]income.

a. [b]twentypercent[20%]onroyalties,prizes,winnings[finaltax].b. [c]twentypercent[20%]on interestonbankdeposit,andonsubstitutearrangements

[finaltax].

c. [d]fivepercent[5%]capitalgainstaxonsaleofrealty[finaltax].

III. [2]ForeignersengagedintradeorbusinessinthePhilippines Theirincome:a. [a] derived from Philippine sources are taxed from 135% on gross compensation

incomeandnetonnoncompensationincome.

b. [b] thirtypercent[30%]onroyalties,interestsanddividends,andothers.IV. [3]Foreignersnotengaged intradeorbusiness inthePhilippines Their incomederivedfrom

Philippinesourcesaretaxedaflatrateofthirtypercent[30%]ongrossPhilippineincome.

15.FISCALINCENTIVESTOFOREIGNINVESTMENTS

a.

FISCAL

INCENTIVES

Omnibus

Investments

Code

of

1987:

Incometaxholiday.

[1]Fullexemptionfrom incometaxforsix(6)yearsfornewlyregisteredpioneerprojectsfrom

thestartofcommercialoperations;and

[2]Fullexemptionfrom incometaxforfour(4)yearsfromthestartofcommercialoperations

fornewlyregisterednonpioneerprojects.

Theseexemptionperiodsmaybeextendedforanotheryeareachunderthefollowingcases:

[a] theprojectusedindigenousrawmaterials;

[b]theprojectmeetstheBOIprescribedratioofcapitalequipmenttothenumberofworkers;

[c]thenetforeignexchangesavingsorearningsamounttoatleastUS$500,000annuallyduring

thefirstthree(3)yearsofthecommercialoperationsoftheproject.

Anyprojectwhichisestablishedinlessdevelopedareas[LDAs]shallbeentitledtotheincentive

forsix(6)years.

Expansionprojectsofdomesticorientedindustriesarenotentitledtotheincometaxholiday

incentive.


17/26


Page17

Taxcreditondomesticcapitalequipment.

[a]Firms registered on or before December 31, 1994 shall be entitled to tax credit

equivalent toonehundredpercent [100%]ofany taxesanddutieswhich couldhave

beenwaivedhadthecapitalequipmentandaccompanyingsparepartsbeen imported

untilDecember31,1997,providedthatthosefirmslocatedoutsidetheNationalCapital

Region[NCR]shallenjoysaidtaxcredituntilDecember31,1999.

[b] FirmsregisteredafterDecember31,1994shallbeentitledtotaxcreditontheduty

portionequivalenttothedifferencebetweenthethreepercent[3%]minimumdutyand

the actual duty rate provided under the Philippine Tariffs and Customs Code, as

amended.

Taxanddutyfreeimportationofcapitalequipment.

[a] FirmsregisteredonorbeforeDecember31,1994shallbeentitledtotaxandduty

free importation of capitalequipment andaccompanying spare parts untilDecember

31, 1997. However, firms locatedoutside the National Capital Region [NCR] shall be

entitledtotheincentiveuntilDecember31,1999.

[b]Firms registered after December 31, 1994 shall be subject to ten percent [10%]

ValueAdded Tax [VAT] upon the implementation of Republic Act No. 7716, the

expandedVATLawandthreepercent[3%]duty.

I. Additionaldeductionforlaborexpense. Forthefirstfive[5]yearsfromregistration,aregisteredenterpriseshallbeallowedanadditionaldeductionfromtaxable incomeof

fiftypercent[50%]ofthewagescorrespondingtothe increment inthenumberofthe

directlaborforskilledandunskilledworkersiftheprojectmeetstheprescribedratioof

capital equipment to the number of workers set by the Board of Investments. This

additionaldeductionshallbedoubled if theactivity is located in lessdevelopedareas

[LDAs].

II. Tax and duty free importation of breeding stocks and genetic materials for ten [10]yearsfromregistrationorcommercialoperationforagriculturalproducers.

Taxcreditondomesticbreedingstocksandgeneticmaterials. Simplificationofcustomsproceduresfortheimportationofequipment,spareparts,raw

materialsandsuppliesandexportsofprocessedproducts.

Unrestricteduseofconsignedequipmentprovidedareexportbondisposted. EmploymentOfForeignNationals. Taxcreditfortaxesanddutiespaidonrawmaterials,suppliesandsemimanufactured

productsusedinthemanufactureofexportproductsandformingpartthereof.

Access to bonded manufacturing/trading warehouse system.Registered exportorientedenterprisesmayhaveaccesstobondedwarehousingsystems.


18/26


Page18

Exemptionfromwharfageduesandanyexporttax,duty,impostandfees. New enterprises registered under the 1995 Investments Priorities Plan [IPP] shall be

granted

a

five

year

period

to

avail

of

the

exemption

from

wharfage

dues

and

any

export

tax, impostandfees.Expansionandexistingprojects,however,arenotentitledtothis

incentive.

Tax and duty exemption of imported spareparts and suppliesfor exportproducers with customs

bondedwarehouseexportingatleastseventypercent[70%]oftheproduction.

b. FISCALINCENTIVES SpecialEconomicZoneActof1995:Fiscal incentives,ingeneral.

EnterprisesoperatingwithintheEconomicZones[ECOZONES]areentitledtothefiscal

incentives

granted

under

Presidential

Decree

No.

66,

[Export

Processing

Zone

Authority

Law], or those provided under Book VI of Executive Order No. 226, [Omnibus

InvestmentsCodeof1987].

Taxcreditforexportersusing localmaterialsas inputs inaccordancewiththeExportDevelopment

Actof1994.

Exemption from taxesunder theNational InternalRevenueCode [NIRC]but in lieuofpaying taxes,

fivepercent[5%]ofthegross incomeearnedbyallbusinessesandenterpriseswithintheECOZONE

shallberemittedtothenationalgovernment.

c. FISCALINCENTIVES ExportDevelopmentActof1994: ExemptionfromPresidentialDecreeNo.1853ontheadvancedpaymentofcustomsduties. Dutyfree importation of machinery and equipment and accompanying spare parts until

December31,1997.

TaxcreditforimportedinputsandrawmaterialsprimarilyusedfortheproductionandpackagesofexportgoodsthatarenotreadilyavailablelocallyuntilDecember31,1999.

Taxcreditforincreaseincurrentyear'sexportrevenues. Firstfivepercent[5%]increaseinannualexportrevenueoverthepreviousyearacreditof2.5%

shallbegrantedtobeappliedonincrementalexportrevenueconvertedtopesos.

Next

five

percent

[5%[

increase

shall

be

entitled

to

a

credit

of

5%.

Nextfivepercent[5%]increaseshallbeentitledtoacreditof7.5%. Inexcessoffifteenpercent[15%]shallbeentitledtoacreditof10%. Taxcreditfortheuseorimportsubstitutionofnontraditionalproducts.

Taxcreditequivalenttotwentyfivepercent[25%]ofdutiesuntilDecember31,1997.ClaimsForTaxCredits.

1. Importedinputs,rawmaterialsandcapitalequipment.


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Page19

1. Increaseincurrentyear'sexportrevenues.1. Importsubstitution.

d. FISCALINCENTIVES BasesConversionandDevelopmentActof1992: ExemptedfromanyandallPhilippinenationalandlocaltaxes. Inlieu,however,ofpayingtaxes,

afinaltaxoffivepercent[5%]ofgrossincomeearnedisimposed.

16.INTELLECTUALPROPERTYRIGHTS

PROTECTION

IntellectualPropertyCodeofthePhilippines:

In order to strengthen protection to intellectual property rights, Republic Act No. 8293 [otherwise

knownas the IntellectualPropertyCodeof thePhilippines] wasapprovedon June6,1997and took

effect on January 1, 1998. This is the codification of all laws on intellectual property rights in the

Philippines. It repealed and superseded the Philippine Law on Patents [R. A. No. 165], the Law on

Trademarks[R.A.No.166], Articles188and189oftheRevisedPenalCodeandtheLawonCopyright

[PresidentialDecreeNo.49]includingPresidentialDecreeNo.285,asamended.

RelatedLawsandIssuances:

Thefollowingaresomerelatedlawsandexecutiveissuances:

PresidentialDecreeNo.1987[DecreeCreatingtheVideogram RegulatoryBoard] Executive Order No. 60 issued on February 26, 1993, creating the Presidential Inter

Agency Committee on Intellectual Property Rights. Several memberagencies of this

Committeehavecreatedspecial task forceson IPRsuchas: theDepartmentofTrade

andIndustry[DTI],DepartmentofJustice[DOJ],NationalBureauofInvestigation[NBI],

BureauofCustoms[BOC]andthePhilippineNationalPolice[PNP].

Executive OrderNo.913 [Strengthening theRuleMakingandAdjudicatoryPowersoftheMinisterofTradeandIndustryinordertofurtherprotectconsumers].

TreatiesonIntellectualPropertyRights[Philippinesisasignatory]:

TheRepublicof thePhilippines isasignatory toseveral international treatieson intellectualproperty

rights,towit:

ConventionEstablishingtheWorldIntellectualPropertyOrganization[since1980] ParisConventionfortheProtectionofIndustrialProperty[since1965] BudapestTreatyontheInternationalRecognitionoftheDepositofMicroorganismsfor

PurposesofPatentProcedure[since1981]

BerneConventionfortheProtectionofLiteraryandArtisticWorks[since1984]


20/26


Page20

InternationalConvention for theProtectionofPerformers,ProducersofPhonographsandBroadcastingOrganizations[since1984]

AgreementonTradeRelatedAspectsofIntellectualPropertyRights[TRIPSAgreement]17.INTERNATIONALINVESTMENTAGREEMENTS

[PHILIPPINES,APARTYSIGNATORY]

Thefollowingisarundownofinternationalagreements[inforceandineffect]towhichthePhilippines

isapartysignatory,whichareofcommercialoreconomicnatureandsignificance:

FriendshipCommerceandNavigationTreaty:1. "The Treaty of Amity, Commerce and Navigation between the Republic of the

Philippines and Japan" where they express their intent to maintain and strengthen

amicablerelationsexistingbetweenthemonamutuallyadvantageousbasis.

BilateralInvestmentTreaties:1. PhilippinesandKingdomofGreatBritainandNorthernIreland2. PhilippinesandKingdomofNetherlands3. PhilippinesandRepublicofItaly4. PhilippinesandSocialistRepublicofVietnam5. PhilippinesandChineseTaipei6. PhilippinesandPeople'sRepublicofChina7. PhilippinesandKingdomofSpain8.

Philippines

and

Romania

9. PhilippinesandRepublicofKorea10.PhilippinesandFrance11.PhilippinesandAustralia12.PhilippinesandCzech13.PhilippinesandThailand14.PhilippinesandIran15.PhilippinesandCanada16.PhilippinesandChile17.PhilippinesandSwitzerland18.PhilippinesandGermany19.TheASEANAgreementforthePromotionandProtectionofInvestments

Alltheforegoingtreatiescommonlyembodythefollowingbasictenets:

[1]Promotionofinvestmentsineithereconomybyinvestorsoftheothereconomythroughthe

creation of favorable conditions of investments to foster their respective economic

developments.

[2]Provision on MostFavouredNation (MFN) Treatment arrangement where respective

investorsareaccordedtreatmentnolessfavorablethanthataccordedtoinvestorsofanythird

State.


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Page21

[3] Provision on expropriation which ordains that if any investors of either economy suffer

losses in the other economy by reason of national emergency, revolution, revolt or similar

events,thehosteconomyshallaccordtreatmenttothateconomynolessfavorablethanthatit

accordstoinvestmentsofanythirdState.

[4] Provisionontransferofinvestmentswhichguaranteesthefreetransferofinvestmentsand

returnsheldintheterritoryofonecontractingeconomytotheothereconomy.

[5]Provisiononsubrogationofrights.

18.DISPUTESSETTLEMENT

Governmentvs.Government:

As a member of the WTO, the Philippines adheres to the procedures for dispute settlement

prescribedbyWTO. Consequently,itconsiderstheseproceduresasbeingapplicabletoanycaseor

controversyfallingwithinWTO'sjurisdiction.

PrivateParty/iesvs.Government:

The Philippines adheres to the dispute settlement procedures prescribed under the

International Convention on the Settlement of Investment Disputes Between States and

NationalsofOtherStates[ICSID]aswellastheConventionontheRecognitionandEnforcement

ofForeignArbitralAwards[NewYorkConvention],beingasignatorythereof.

PrivateParty/ies

vs.

Private

Party/ies:

Thebasic legal framework applicable in the resolutionof conflicts and disputes between private

partiesareasfollows:

Executive Order No. 1008 provides for the creation of an Arbitration Machinery in theConstructionIndustryofthePhilippines.

Republic Act No. 876 provides for arbitration and submission agreements, appointment ofarbitratorsandtheprocedureforarbitrationincivilcontroversies.

Presidential

Decree

No.

442,

as

amended

provides

for

compulsory

and

voluntary

arbitration

in

laborrelatedconflicts.

20.AdvantagesThePhilippinegovernmenthasplacehighpriorityonattractingforeign investmentswhich

createnewjobs,higherincomes,higherpublicsectorrevenue.Thegovernmenthasforthe

past ten (10) years had many ways of achieving such goals for example, by providing

modern,efficientinfrastructure,educatingtheworkforcewithskillsindemandbyindustry,

settingupfreeports,andspecialexportszonesandthelike.Whiletheyareonlyoneofthe


22/26


Page22

tools available to encourage foreign investment in the Philippines in encouraging higher

levels of investment, fiscal incentives are extremely available under existing laws. These

fiscal incentivesaccelerate thepaceand levelof total investments intheeconomy, these

incentivesencouragerenewableenergyinvestmentstodevelopmorerapidlyandshouldbe

used to support this particular sector where the Philippine has strong comparative

advantage.TheRenewableEnergyLawandtheBiofuelsAct,withtheprovisionsfromthe

Foreign InvestmentsActhave listedthe fiscalandnonfiscal incentives fortheRenewable

Energy foreigninvestments.

The following inventory of Philippine regulations would show the enormous incentives,

privilegesavailableforforeigninvestmentsinthePhilippines:

GovernmentRenewableEnergy&WTEInvestmentConcession

A.Openness toForeign InvestmentsThePhilippinegovernment iscommittedapositive

attitudetowardsforeigninvestmentanditsroleintheBoardofInvestmenttoassistforeign

and domestic investors with regulatory requirements, incentives and market guidance

transparency. Philippines being receptive to suggestions and criticisms from the private

sector.Manyforeignanddomesticbusinessescontributereforms intheeconomicsystem.

The American Chamber of Commerce in the Philippines continued to promote its socio

economicRoadmap IIMoreForeign Investmentswhich identifies theopportunities for

moreforeigninvestmentsinthePhilippines.

The

harnessing

and

utilization

of

Renewable

Energy

comprises

a

critical

concern

for

energy

supply in the country. This is evident in the energy sector where in the resources has

lessened the countrysdependencyon importedandpolluting fuel. It is thePhilippine

government policy to facilitate the energy sectors transition to a prominent, viable and

competitivefueloption.Ensuringthesuccessofthistransition.Moreover,currentinitiatives

inthepursuitofmarketbasedenvironmentthat isconducivetoprivatesector investment

andresearchanddevelopment.

Currentfiscalincentivesareavailableforalternativesourceof energy foreigninvestments.

Alternativescenariohasbeendrawnupwhichsetshighertargetsforalternativesourceof

energy capacitybasedon the realizationofmarketbased industryand theavailabilityof

newinternationalfinancingschemes to support alternativeenergysource basedcapacity.

I. The2009INVESTMENTPRIORITIESPLAN(IPP)

1. Book I. Investment with Incentives, of the Omnibus Investment Code (1987)

prescribesincentivestoqualifiedfirmsincludedintheannualinvestmentPrioritiesPlan

(IPP),administeredbytheBoardofInvestments.

2.UnderPreferredActivitiesofthe2008 InvestmentPriorityPlan, income taxholiday

covers thedevelopmentofphysicalinfrastructure,powergenerationusingrenewables,


23/26


Page23

and other energy sources adopting environmentally friendly technologies. 3. Under

Section 2 of the Infrastructure, Power Generation projects as specified in the Power

Development Plan that may qualify for registration include those utilizing indigenous

and renewableenergy sources such asbiofuel,biomass,waste toenergy conversion,

solarwind,geothermal,hydroandtidal.

3.ThebasicincentivesofferedtoallBoardofInvestmentsregisteredcompaniesinclude:

Income Tax Holiday: new projects with pioneer statusreceivefromseven(7)yearsuptomaximumofeightyears

incometaxholiday;

Additionaldeductionforwages:forthefirstfiveyearsafterregistration,Additionaldeductionfromtaxableincome;

Income taxholidayall throughout the fulloperationwhentheforeign investmentisundertheEPIRA;

Additional deduction from taxable income for necessaryand major infrastructure works for companies located in

ruralareas;

a company may deduct from taxable income an amountequivalent toexpenses incurred in thedevelopment WTE

projects;

Employment of foreign nationals: enterprise may employforeign nationals in Supervisory, technical, or advisory

positionundersimplifiedvisarequirements.

Biofuel and Biomass foreign investments are entitled to pioneerincentives

II. INTELLECTUAL PROPERTY RIGHTS The Philippines has made progress in recent

years in protecting intellectual property rights. Foreign inventors and importers are

encouragedtoregisterpatents,trademarksattheBureau ofPatents.

TheIntellectualPropertyCode(RepublicActNo.8293)providesthelegalframeworkfor

IPRprotection inthePhilippines.TheholderoftheBiosphereProcessSystemsPatent

and Trademark is guaranteed an additional right of exclusive importation of his

invention.

III.CONVERSIONANDTRANSFERPOLICIESTherearegenerallynorestrictionsonthe

full and immediate transfer of funds associated with foreign investments like

repatriation, the payment of royalties, lease payments and similar fees. To obtain

foreign exchange from the banking system for debt servicing of foreign loans and

foreigninvestmentsmustberegisteredwiththeBangkoSentralngPilipinas.Thereisno

difficultyinobtainingforeignexchangeunderthePhilippinebankingsystem.Thereare

nomandatoryforeignexchangesurrenderrequirementsimposedonexportearners.In

amovetocurbforeignexchangespeculationandvolatility,theBSPhasrequireda90


24/26


Page24

dayminimumpeso timedeposits since January2000,duringwhichan investor isnot

allowed to purchase foreign exchange from banks for peso proceeds from the pre

terminatedtimedepositsmaybeinvestedinotherinstruments,registeredanew.

IV.LEGALSYSTEM ThePhilippinegovernmentispursuingjudicialreformsregarding

foreigninvestmentswhentheAlternativeDisputeResolution(ADR)Actwassignedinto

law,TheADRwasbasedonthesuccessfulcourtbacklogsintheCourt.ThePhilippinesis

alsoamemberof the InternationalCenter for theSettlementof InvestmentDisputes

(CSID)andtheConventionofArbitrageAwards.

V.ACCOUNTING STANDARDS The Philippines had adopted all the international

financialreportingstandards(IFRS)andrevisedinternalaccountingrules.

These standards are now embodied in the Philippine Financial Reporting Standards

(PFRS) and Philippine Accounting Standards and the adoption of IASBprescribed

standardsin2005.TheBangkoSentralngPilipinashasalloweddebts,smallandmedium

enterprises (SMEs) and firms thatare notpublicly listed, thatarenotdebt/securities

issuers,thatarepublicutilitiesoressentialpublicserviceprovidersareexemptfromthe

newaccountingandfinancialreportingstandards.

TheSecuritiesandExchangeCommissionrequiresthatmanagementcertifyacompanys

financialstatements.ThereisanoutlineofAccreditationandReportorialCompanies.

The regulations institutedasystemofaccreditation forexternalauditorsof firmsthat

issue securities to the investors. That the auditors cannot disclose to the SEC any

materialfindings(i.e.fraud,orerror,losses,orpotentiallossesaggregating10percent

or more) within five days from receipt of the externalaudit findings. The SEC also

issued circulars on new and /or revised Philippine Standards on auditing, review

engagements, assuranceengagements statements.These circularsoutlinedadditional

measuresandpoliciesforcompliancebyexternalauditorstoimproveindependence.

A number of the larger local accountancy firms are affiliated with international

accounting firms, including Pricewaterhouse Company, and Deloite & Touche, BDO

SeidmanandGrantThornton.

VI.BILATERAL

INVESTMENT

AGREEMENTS

The

Philippine

had

signed

bilateral

investment agreements with Argentina, Australia, Austria, Bahrain, Cambodia, Chile,

China, the Czech Republic, Denmark, Equatorial Guinea, Finland, France, Germany,

India, Indonesia, Iran, Myanmar, Netherlands, Pakistan, Portugal, Romania, Russian

Federation, Saudi Arabia, Spain, Sweden, Switzerland, Taiwan, United Kingdom,

Venezuela. The general provision of the Bilateral investment agreement include: the

promotionandnondiscrimination; the free transferofcapital,paymentsofearnings,

freedomexpropriationandnationalization.


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VII.TAXATION.ThePhilippineshasaTaxTreatywiththeUnitedStatesforthepurpose

of avoiding procedures enforcing taxes of both countries. The Treaty also seeks to

encourage Bilateral trade and investments by allowing the exchange of defined tax

rulesandinsomecasespreferentialtaxrates.

Most Favored Nation Clause (royalties): Pursuant to the most favored nation (MFN)

clausebythePhilippineUStaxtreaty,thistreatyallowsalowerrateintheuseorright

touseanypatent,trademark,design,model,plan,secretformulaorprocess;ortheuse

orrighttouseinformationconcerningindustrial,commercial,orscientificexperience.

Permanent Establishments. A foreign company that renders services to Philippine

Clients without settingup a branch office is exempted to pay Philippine taxes if the

services rendered to aPhilippine client requires its personnel stay in the country for

morethan183days.

TaxesonOBUsandFCDUs:TheComprehensiveTaxReformProgram (CTRP)exempts

OBUsandFCDUs,bothPhilippineandforeignfrompaymentofdocumentarystamptax

andbranchprofitremittancetaxes.

VIII.PHILIPPINEENERGYSECTORGOALSFOR2007,under thePhilippineEnergyPlan

(PEP)

1.Reductionofcoalimportsby20%inten(10)years;

2.

Increase

renewable

energy

based

capacity

by

100%

in

ten

(10)

years;

TheEnergySectorAgendafor20052013

1.EnergyIndependence

by aggressively development of renewable energy potential such as

biomass,solar,windandoceanresources.

2.PowerSectorReforms:

3.Implementprivatization process

4.Createaninvestmentclimateattractivetoinvestors.

ThePhilippines iscommittedto formstrategicalliancewithothercountrieswithregardtorenewable

energydevelopmentintheworld.


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CompiledBy:

RUTHP.BRIONES

Chairman/ChiefExecutiveOfficer

GreenergySolutionsInc.

[email protected]+6324301725

www.greenergyph.com

Clean energy is climate change

adaptation, which must be a global

effort. It is an acknowledgment that

mankinds greenhouse gas emissions

are the ones causing dramatic climate

changes. The response must be in two

forms: for unclean energy, higher

efficiency; for clean energy, higher

economics. The inventing must benow; the investing must be now.

RuthP.Briones,PMI

July29,2010

Documents

Philippine Policy Framework on Foreign Investments