A REVIEW ON THE “OMNIBUS IN-VESTMENTS CODE” (EO 226)

AND ITS IMPACT TO THE ECON-OMY

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A Public Policy PaperPresented to

Prof. Saviniano M. Perez, Jr.Adviser

Graduate School, José Rizal University, Mandaluyong City

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In Partial Fulfillmentof the Requirements of the Course of

Philippine Administrative and Legal System

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ByJohn Chen-Te Ko

January 2007

CHAPTER IINTRODUCTION

1.1 Background of the Study

Stimulation of investment as a means of financing economic growth is an

integral part of the development plan of any nation. Investment and its positive

economic effects may serve to achieve particular societal goals, to correct

market imperfections, to guide domestic production and to underscore

comparative advantage. Foreign direct investment (FDI) may provide the

additional advantages of allowing access to new markets and technologies and

increasing competition in the domestic market.

A developing nation attempts to encourage and mobilize domestic savings

for investment, but is often faced with inadequate levels of domestic savings.

Therefore, they develop economic policies which attract foreign investment as

well, within the confines of their stated national development objectives. The

Philippines fits this pattern.

When the Aquino administration assumed power of the Philippines in

1986, the country was facing massive external debt, high poverty and

unemployment levels, a large public sector deficit, and low levels of savings and

investment, due to a general lack of confidence among the foreign and domestic

business communities. The negative investment environment has been

exacerbated by the continuing pressures on the economy from high population

growth (2.4% per year), rural-urban migration, deteriorating agricultural

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production, continued political instability and a worsening infrastructure. The

Philippine government was therefore confronting a need to attract the investment

which would stimulate economic growth without having obvious lures for

investors. The solution, as practiced by most developing countries, is to design a

package of incentives which enhance the revenues or reduce the costs for firms,

thus compensating them for some of the local deficiencies. A successful package

creates an environment conducive to both the foreign and the domestic

investors. The Philippines is reassessing their investment policy in this light, with

the goal of creating consistent and clear inducements meeting well-articulated

objectives.

The reassessment was triggered by a belief that investment, both

domestic and foreign, is not being promoted in an efficient and effective way.

While current incentives cost the Government through foregone revenue, the

resulting investment levels continue to disappoint and are lower than those in

other ASEAN countries. The reassessment has opened active debate over the

direction of their investment policy and has produced numerous proposals for

change in the investment regime, the most important of which are examined in

this study. The Government of the Philippines has already made significant

progress toward reform of the investment environment; this report is designed to

be a tool that will assist with the analysis and efforts underway.

It is clear that the major obstacles to the attraction of foreign investment in

particular are the political instability and the lack of adequate infrastructure, areas

which will not be improved within the short run. While some Filipinos are calling

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for the redirection of resources from incentives toward improvement of the

infrastructure, this is not a realistic scenario. In fact, the investment regime can

and should be redesigned to attract both domestic and foreign investment.

Currently, the framework for investment is embodied in the “Omnibus

Investment Code of 1987” also known as Executive Order 226 (EO 226), the

policies of the Board of Investments, various executive orders and laws, and the

Constitutions of 1987. As a package, the message being sent to the investor is

somewhat contradictory and obtuse. The lack of clarity is partially the result of

the effects of two factors influencing the investment environment; the exigencies

of economic conditions and a historic pull toward protectionism. While there is a

recognized need to attract investment, foreign investment is potentially deterred

by limitations on equity participation, land ownership, borrowing, and the

seemingly discretionary interpretation of certain policies. Because many of these

policies can be circumvented, their existence may be seen as an unnecessary

deterrent by investors. The domestic investor may perceive a bias toward the

foreign investor either in their access to domestic credit or a slant in incentives

toward capital intensive investment. Other incentives appear to be redundant,

contradictory or unduly arbitrary, of concern to both foreign and domestic

investors.

1.2 Objectives of the Study

The general objectives of this study are: (1) to review the investment

incentives provided to industry in the EO 226; (2) to determine the need for the

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continuation of investment incentives based on standard economic efficiency and

equity criteria, and (3) to formulate appropriate recommendations for the

removal/phase out or for the improvement of the existing system. In specific

terms, the study will provide an economic framework for evaluating the need for

investment incentives. Based on this framework, it will re-assess the existing

fiscal incentives to industries in terms of their social cost and benefits, their

competitiveness vis-à-vis the incentives provided by other countries in the

regions, and their effectiveness in stimulating the desired response from affected

economic agents, and the impacts to the national economy.

This study aims to assist the Government of the Philippines in their design

perfection of an investment incentive package which is not unduly influenced by

either side of the debate, but adheres to objectives consistent with the overall

development policy of the Philippines. According to the Medium-Term

Development Plan of the Philippines (2004-2010), the creation of 6 millions of

jobs is one of the goals to be achieved. Investments shall be encouraged in

employment-generating, export-oriented, agro-based, and import-substituting

industries where the country has comparative advantage and where productive

capacity is adequate. Domestic and foreign investments shall be encouraged

particularly in areas where domestic resources are lacking and where

contribution to the economy is maximized in terms of generating employment and

promoting export-oriented activities, and encourage activities that pave the way

for the desired transfer of technology and access to foreign markets. The role of

foreign investment is complementary to that of domestic investment and should

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be channeled to activities generating high value-added. Additional guidelines are

given in the Constitution which gives Congress the authority to reserve certain

areas of investments to Filipino citizens or Filipino-owned corporations.

The objectives of investment incentive policy in the Philippines are to

attract investment in areas that generate employment, exports, rural-

development, technology transfer and generally contribute the economy. New

foreign investment is restricted from entering into areas already sufficiently

exploited by Filipinos or into areas specified by Congress as being in the national

interest, including retail trade, exploitation of natural resources, national defense

and fishing etc. The restriction to foreign investment will be discussed in the

following chapter.

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CHAPTER IITHE POLICY

This Section summarizes and describes the foreign investment policy and

the investment incentives policy of the Government of the Philippines. Following

this description, this study describes also the types of incentives granted by

various government agencies, and the administrative mechanisms involved in the

provision of incentives to specific activities and sectors. It traces as well the

changes in the incentive system over time, presenting the existing system in

historical perspective so as to engender a better appreciation of the need

reforms, and evaluating the effectiveness and cost of the existing policies.

2.1 Historical Review on Changes in the Investment Incentives

Since the beginning of the post-war period, various tax incentives laws

have been enacted as part of the country’s industrialization strategy. The first

such law was Republic Act (RA) 35 which was enacted in 1946. It granted “new

and necessary” industries exemptions from certain internal revenue taxes

(including the income tax, the sales tax, the advance sales tax on imported

materials, the real estate tax, the fixed privilege tax on business and the

residence tax) for a period of four years from the date of organization of the

enterprise.

RA 901 amended RA 35 in 1953. It broadened the tax incentives granted

to new and necessary industries by including exemptions from customs duties for

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capital equipment. Subsequently, these two laws were superseded by RA 3127,

also known as the “Basic Industries Act of 1961”. It provided tax exemptions on

machinery, equipment and spare parts made by “basic industries” until

December 1970. Initially, 18 industries were classified as basic. Later, RA 4093

deleted 12 industries from the original list and added 10 more.

In 1967, the ”Investment Incentives Act” (RA 5186) granted a wide range

of tax incentives (including accelerated depreciation, net operating loss carry

over, tax deduction for expansion reinvestment, tax exemption on imported

capital equipment, tax credit for domestic capital equipment, tax credit for

withholding tax on interest, tax credit for the sales, compensating and specific

taxes and duties on raw materials used in export production) and other benefits

(like post operative tariff protection, anti-dumping protection, protection from

government competition, liberalized rules in the employment of foreign nationals,

preference in grant of government loans) to firms investing priority industrial

sectors. It created the Board of Investments (BOI) to administer the program. The

BOI classified registered investments as either “pioneer” (those which introduce

new products or new processes) or “preferred” (those in which existing capacity

was deemed to fall short of domestic market demand and estimated export

potential).

The “Export Incentive Act” (RA 6135) was legislated in 1970 as a

complementary measure to RA 5186. While it provided largely the same

incentives to exporters as RA 5186, it liberalized the rules governing the eligibility

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of exporting firms to such incentives1. Under RA 6135, export firms whose

products were not listed under the Export Priorities Plan were automatically

eligible to register if they export 50 percent or more of their output in contrast to

RA 5186 which required that the activity be listed in the Investment Priorities Plan

before it may be considered for BOI registration.

A number of presidential decrees issued during “Martial Law” amended

RA 5186 and RA 6135. PD 92 (1973) expanded the list of tax incentives to

include the additional deduction from taxable income of one-half of the value of

labor training expense and extended the availability of the tax credit on taxes and

duties on raw materials from 10 years to an indefinite period. However, it

abolished the double deduction of promotional expense and shipping costs and

limited the expansion reinvestment allowance. On the other hand, PD 485 (1974)

allowed for the additional deduction from tax income of direct labor cost and local

raw material cost and granted partial, instead of full, exemption from duties and

taxes on capital equipment to firms whose imported capital equipment per worker

ratio exceeds a given level.

It has been noted that because the principal type of incentives provided

are based on the amount of investments being made, both RA 5186 and RA

6135, as amended, favor the use of capital relative to labor in the preferred

industries.

In 1981, Presidential Decree 1789, otherwise known as the “Omnibus

Investment Code”, consolidated RA 5186 and RA 6135, as amended. However, it

1 One of the additional incentives available under RA 6135 was the additional deduction from taxable income of shipping costs and promotional expense for exports and the exemption from the export tax.

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did not introduced significant changes in the fiscal incentives provided to

industries.

PD 1789 was again repealed in 1983 by Batas Pambansa (BP) 391, also

known as the “Investment Incentive Policy Act”. The promulgation of BP 391

represented a major revamp of the fiscal incentive system. It withdrew a number

of the incentives granted under PD 1789. the accelerated depreciation

allowance, the expansion reinvestment allowance, and the double deduction of

training expense, direct labor cost and local raw material cost, the deduction of

operational and operating expense, deduction of 1 percent of incremental export

sales and the exemption from all national taxes aside from the income tax were

abolished. On the other hand, it introduced the tax credit for net value earned

and the tax credit for net local content. Aside from the new tax credit provisions,

BP 391 granted the following incentives: exemption/deferment of taxes and

duties on imported capital equipment, net operating loss carry over, tax credit for

domestic capital equipment, exemption from export taxes, tax credit for

withholding tax on interest payments on foreign loans and tax credit for taxes and

duties on imported raw materials for export production. Thus, there was a shift

from investment-based incentives to performance-based incentives.

Consequently, the bias towards greater capital intensity in BOI-registered

projects was mitigated.

Parallel to the legislation mentioned above, a number of laws likewise

provided incentives to specific industries or activities. The more important ones

pertain to the firms located in the Export Processing Zone (PD 66), to cottage

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industries (RA 3470), firms located in the PHIVIDEC Industrial Estate, mining

(RA 137), and shipbuilding (RA 1407). However, PD 1155 (1984) withdrew all tax

incentives except those granted by the BOI and the Export Processing Zone

Administration (EPZA). In recent years, new legislation providing special

incentives to various industries were passed once again.

2.2 Overall Description of Current Policies

The Philippines has one of the most liberal policy and regulatory

frameworks for investments in Southeast Asia. When investing in the country,

businessmen are guided by clearly spelled out laws, rules, and regulations that

govern the making of investments in the country. The following are six important

laws that investors need to consider when contemplating an investment in the

Philippines:

1. Executive Order No. 226 (E.O. No. 226), otherwise known as the “Omnibus

Investments Code” of 1987: Implemented by the Board of Investments (BOI),

the “Omnibus Investments Code” of 1987 provides a comprehensive set of

incentives for local and foreign enterprise engaged in activities considered by

the government as high priority for national development.

2. Republic Act No. 7042 (R.A. No. 7042), also known as the “Foreign

Investments Act” of 1991: The “Foreign Investments Act” (FIA) of 1991

liberalized the entry of foreign investments Into the Philippines. Its passage by

Congress marked the end of decades of protectionism for local businesses.

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This law established the Foreign Investments Negative List which enumerates

the activities where foreign equity participation is limited.

3. R.A. No. 7916 or the “Special Economic Zone Act” of 1995: R.A. No. 7916 or

the “Special Economic Zone Act” of 1995 was signed into law on February 24,

1995. The law was passed to encourage economic growth through the

development of special economic zones, called Ecozones.

4. R.A. No. 7227 or “Bases Conversion and Development Act” of 1992: Passed

on March 13, 1992, this law created the Bases Conversion Development

Authority, the Subic Special Economic and Freeport Zone, and the Subic Bay

Metropolitan Authority and provided for their powers and their functions.

5. R.A. No. 7652, otherwise known as the “Investor's Lease Act”: Enacted on

June 4, 1993, this allows for long-term lease (maximum of 50 years,

extendible by 25 years) of private lands by foreign investors for the purpose of

investment.

6. R.A. No. 7844, also called the “Export Development Act” of 1994: This law

provides for incentives to exporters to encourage investments in the export

sector.

There are also special laws that provide for investment incentives in

specific industries such as mining, iron and steel, and book publishing. Further,

R.A. No. 6957, as amended by R.A. No. 7718, otherwise known as the “Build-

Operate-Transfer (BOT) Law”, spells out the policy and regulatory framework for

the participation of private sector entities in the development of infrastructure

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projects and the provision of services that are normally the responsibility of the

government.

The Philippine government encourages foreign investments in enterprises

that significantly expand the livelihood and employment opportunities for

Filipinos. Incentives are structured to enhance the economic value of farm

products, promote the welfare of Filipino consumers, and expand the scope,

quality and quantity of exports. The incentives are also intended to enhance the

transfer of technologies in agriculture, industry, and support services. Foreign

investments are also welcomed as a supplement to Filipino capital and

technology in the enterprises that service the domestic market.

The Omnibus Investment Code of 1987 (EO 226) is the general law that

provides the most comprehensive listing of incentives available to qualified

business enterprises. Under the Omnibus Investment Code the Board of

Investments (BOI) publishes an annual Investment Priorities Plan (IPP). The IPP

contains a list of economic activities that are deemed priority investment areas

and a list of less developed areas that are designated key development areas.

(1) Incentive Policy

Book I, Investment with Incentives, of the EO 226 (1987) prescribes

incentives available to qualified firms engaged in preferred sectors and

geographic areas included in the annual IPP, administered by the Department of

Trade and Industry's BOI. Unlike previous IPPs, which classified investment

areas into a national list and regional list, the 2006 IPP presents the list of priority

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investment areas entitled to incentives into five classes -- preferred activities;

other preferred activities; mandatory activities; mandatory inclusions; and

Autonomous Region of Muslim Mindanao (ARMM) List. Consistent with the 2004-

2010 Medium-Term Philippine Development Plan, business activities that fall

under the listed preferred activities are agribusiness, healthcare and wellness

products and services, information and communications technology, electronics,

motor vehicle products, energy, infrastructure, tourism, shipbuilding/shipping,

jewelry, and fashion garments. The other preferred activities cover: other export

activities not identified under the preferred activities; industry clusters supporting

areas listed under preferred activities, and mandatory inclusions; and

modernization activities under the preferred activities, mandatory activities, and

industry clusters. Covered by mandatory inclusion were: industrial tree

plantations; iron and steel projects; exploration, mining, quarrying and processing

of minerals; publication or printing of books or textbooks; and refining, storage,

marketing, and distribution of petroleum products. The 2006 IPP (refer to Annex

E) also encompasses: ecological solid waste management; provision of clean

water; projects involving the rehabilitation, self-development and self-reliance of

disabled persons; and projects covered by bilateral agreements.

Screening mechanisms for companies seeking investment incentives

appear to be routine and nondiscriminatory, but the application process can be

complicated. Incentives granted by the BOI often depend on actions by other

agencies, such as the Department of Finance.

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1. BOI Incentives

The basic incentives offered to all BOI-registered companies include:

Income tax holiday: new projects with pioneer status receive six years

up to a maximum of eight years income tax holiday, and four years for

new projects with non-pioneer status. New or expansion projects in less

developed areas regardless of status receive a six year income tax

holiday, or three years for expansion and modernization projects

(limited to incremental sales revenue). Both pioneer and non-pioneer

enterprises located in less developed areas may secure a bonus year if:

the ratio of total imported and domestic capital equipment to number of

workers for the project does not exceed US$10,000 per worker; the net

foreign exchange savings or earnings amount to at least US$500,000

annually for the first three years of operation; or, indigenous raw

materials used are at least 50 percent of the total cost of raw materials

for the preceding years;

Additional deduction for wages: for the first five years from

registration, additional deduction from taxable income equivalent to 50

percent of the wages of additional direct-hire workers, provided the

project meets a prescribed capital equipment-to-labor ratio set by the

BOI. Firms that benefit from this incentive cannot simultaneously claim

an income tax holiday;

Additional deduction from taxable income for necessary and major

infrastructure works for companies located in areas with deficient

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infrastructure, public utilities, and other facilities: a company may deduct

from taxable income an amount equivalent to expenses incurred in the

development of necessary and major infrastructure works. This

deduction is not applicable for mining and forestry-related projects;

Tax and duty exemption on imported breeding stocks and genetic

materials and/or tax credits on local purchases thereof (equivalent to

the taxes and duties that would have been waived if imported), for

purchases made within ten years from a company's registration with the

BOI or from the start of its commercial operation;

Exemption from wharfage dues and any export tax, duty, impost, and

fees on non-traditional export products made within ten years from a

company's registration with the BOI;

Tax and duty exemption on importation of required supplies/spare

parts for consigned equipment by a registered enterprise with a bonded

manufacturing warehouse;

Importation of consigned equipment for ten years from date of BOI

registration, subject to posting a re-export bond;

Employment of foreign nationals: enterprises may employ foreign

nationals in supervisory, technical, or advisory positions within a five-

year period from registration (extendible for limited periods at the

discretion of the BOI) under simplified visa requirements. The position

of president, general manager, and treasurer of foreign-owned

enterprises are not subject to this limitation. GRP regulations require

15

the training of Filipino understudies for the positions held by foreigners.

If foreign controlled, registered firms may indefinitely retain foreigners in

the positions of president, treasurer, general manager, or their

equivalents;

To encourage the regional dispersal of industries, BOI-registered

enterprises that locate in less developed areas, regardless of whether

the companies are classified as "pioneer" or "non-pioneer", are

automatically entitled to "pioneer" incentives. In addition, such

enterprises can deduct from taxable income an amount equivalent to

100 percent of outlays for infrastructure works. They may also deduct

100 percent of incremental labor expenses from taxable income for the

first five years from registration (double the rate allowed for BOI-

registered projects not located in less developed areas).

2. Incentives for Exporters

An enterprise may still be entitled to incentives even if the activity is not

listed in the IPP so long as:

at least 50% of production is for exports, if Filipino-owned enterprise; or

at least 70% of production is for exports, if majority foreign-owned en-

terprise (more than 40% foreign equity),

In addition to the general incentives available to BOI-registered

companies, a number of incentives provided under Book I of the Omnibus

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Investment Code apply specifically to registered export-oriented firms. These

include:

Tax credit for taxes and duties paid on imported raw materials used in

the processing of export products;

Exemption from taxes and duties on imported spare parts (applies to

firms exporting at least 70 percent); and,

Access to customs bonded manufacturing warehouses. Firms that

earn at least 50 percent of their revenues from exports may register for

incentives under the Export Development Act (EDA, R.A. 7844, 1994).

Exporters registered under the EDA may also be eligible for BOI

incentives, provided the exporters are registered according to BOI rules

and regulations, and the exporter does not take advantage of the same

or similar incentives twice. Incentives under the EDA include a tax credit

that ranges from 2.5 percent to 10 percent of annual incremental export

revenue.

The BOI has been flexible in enforcing individual export targets, provided

that exports as a percentage of total production do not fall below the minimum

requirement (50 percent for local firms and 70 percent for foreign firms) needed

to qualify for BOI incentives. BOI-registered foreign controlled firms that qualify

for export incentives are subject to a 30 year divestment period, at the end of

which at least 60 percent of equity must be Filipino-controlled. Foreign firms that

export 100 percent of production are exempt from this divestment requirement.

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3. Incentives for Regional Headquarters, Regional Operating

Headquarters, and Regional Warehouses:

Book III of the Omnibus Investments Code (1987, amended by R.A. 8756,

1999) provides incentives for multinational enterprises to establish regional or

area headquarters (RHQs) and regional operating headquarters (ROHQs) in the

Philippines. RHQs are branches of multinational companies headquartered

outside the Philippines that do not earn or derive income in the Philippines, that

act as supervisory, communications, or coordinating centers for their

subsidiaries, affiliates, and branches in the region. On the other hand, ROHQs

are branches established in the Philippines by multinational companies that are

allowed to derive income to their affiliates in the region by providing services

such as: 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 to the RHQs include: exemption from income tax; exemption

from branch profits remittance tax; exemption from value-added tax; sale or lease

of goods and property and services to the RHQ subject to zero percent value-

added tax; exemption from all kinds of local taxes, fees, or charges imposed by a

local government unit (except real property taxes on land improvement and

equipment); and, tax and duty-free importation of training and conference

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materials and equipment needed solely used for the RHQ/ROHQ functions.

ROHQs enjoy many of the same incentives as RHQs but, being income

generating, are subject to a 10 percent value-added tax, applicable branch profits

remittance tax, and a preferential 10 percent corporate income tax. In addition,

eligible multinationals establishing ROHQs must invest at least $200,000 yearly

to cover operations. Privileges extended to foreign executives working at RHQs

and ROHQs include tax and duty-free importation of personal and household

effects, multiple entry visas for the executive and his/her family, travel tax

exemption, as well as exemption from various types of government-required

clearances and from fees under immigration and alien registration laws.

Multinationals establishing regional warehouses for the supply of spare

parts, manufactured components, or raw materials for their foreign markets also

enjoy fiscal incentives on imports that are re-exported. Re-exported imports are

exempt from customs duties, internal revenue taxes, and local taxes. Imported

merchandise intended for the Philippine market is subject to applicable duties

and taxes.

4. Non-tax Incentives

Simplification of Customs Procedures: Under E.O. No. 226, customs

procedures for the importation of equipment, spare parts, raw materials

and supplies, and the export of products by BOI-registered enterprises

have been simplified by the Bureau of Customs.

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Unrestricted Use of Consigned Equipment: There are no restrictions

on the use by BOI-registered enterprises of consigned equipment

provided a re-export bond is posted. E.O. No. 226 provides further that

if the consigned equipment and spare parts were imported tax and duty-

free, the re-export bond may be waived.

Employment of Foreign Nationals: Foreign nationals may be

employed in supervisory, technical or advisory positions within five

years from a project's registration, extendible for limited periods to be

determined by the BOI. The positions of president, general manager,

and treasurer or their equivalents, of foreign-owned registered firms

may be retained by foreign nationals for a longer period.

(2) Restriction Policy to Foreign Investment

Book II of the EO 226 has been repealed by the Foreign Investments Act

of 1991 (R.A. 7042).

Foreign Investments Act (R.A. 7042, 1991, amended by R.A. 8179, 1996)

is the basic law that governs foreign investment in the Philippines. When it was

passed in 1991 by then President Corazon C. Aquino, this law, otherwise known

as the Foreign Investments Act (FIA) of 1991, represented a landmark piece of

legislation that reversed years of protection for domestic companies and relaxed

restrictions on the participation of foreigners as equity investors in local

companies. The FIA also spells out the processes and conditions under which

foreign investors may transact business in the Philippines. Since its passage, the

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FIA has been further liberalized making the entry of foreign investments into the

country less cumbersome.

Under the FIA, foreign investors are treated like their domestic

counterparts and must register with the Securities and Exchange Commission

(SEC) (in the case of a corporation or partnership) or with the Department of

Trade and Industry's Bureau of Trade Regulation and Consumer Protection (in

the case of a sole proprietorship). Investors generally find this process to be

slow, but routine and non-discriminatory. The Philippine government has some

foreign investment incentive programs, which are covered in this same report, in

the section entitled "Performance Requirements and Incentives." The Philippines

does not mandate any screening of potential foreign investments.

Table 1: Key Features of Foreign Investments Act of 1991

No restriction on 100% ownership of export enterprises

No restriction on ownership of domestic enterprises unless in areas in the

Foreign Investments Negative List (FINL)

Waiver of FINL restriction if 60% output is exported

Foreign companies are generally allowed to conduct business in the

Philippines subject to restrictions spelled out in the Foreign Investment Negative

List (FINL). The FINL is a short list of areas of economic activities where foreign

investments are restricted or limited (see Table 2 for current FINL). It has two

components: The 1991 Foreign Investment Act (FIA) contains two "negative lists"

that outline areas where foreign investment is restricted or limited. This list is

normally updated every two years. The restrictions stem from a constitutional

provision, Section 10 of Article XII, which permits Congress to reserve to

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Philippine citizens certain areas of investment. The Regular Foreign Investment

Negative List was last updated through E.O. 389, signed on November 30, 2004.

These restrictions are viewed as a significant contributing factor to the

Philippines' weak record in attracting foreign investment, relative to competing

Asian economies. Waivers are not available under the Foreign Investment

Negative List.

List A enumerates investment sectors and activities for which foreign

equity participation is restricted by constitutional or other legal constraints. For

example, the practice of licensed professions such as engineering, medicine,

accountancy, environmental planning, and law are fully reserved for Philippine

citizens. Other investment areas reserved for Filipinos include retail trade

enterprises (with paid-up capital of less than US$2.5 million, or less than

US$250,000 for retailers of luxury goods); mass media (except recording); small-

scale mining; private security; cockpit ownership; operation & management;

utilization of marine resources, including small-scale utilization of natural

resources in rivers/lakes/bays & lagoons; and, manufacture of firecrackers and

pyrotechnic devices. Non-Philippine nationals are also restricted from the

manufacture, repair, stockpiling and/or distribution of nuclear, biological,

chemical, and radiological weapons and anti-personnel mines. Foreign equity

participation in private radio communications networks is limited to 20 percent.

Up to 25 percent foreign ownership is allowed for enterprises engaged in

employee recruitment and for public works construction and repair (with the

exception of Build-Operate-Transfer “BOT” and foreign-funded or assisted

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projects, that is, foreign aid, where there is no upper limit). Foreign ownership of

30 percent is allowed for advertising agencies, while 40 percent foreign

participation is allowed in natural resource exploration, development, and

utilization. The President may also authorize 100 percent foreign ownership for

large- scale operations.

Foreign investors are limited to 40 percent equity in educational

institutions, public utilities operation and management, commercial deep-sea

fishing, government procurement contracts, adjustment companies, operations of

BOT projects in public utilities, and ownership of private lands. For rice and corn

processing, foreign equity is limited to 40 percent, with the exception that 100

percent foreign participation is allowed with the proviso that the foreign investor

shall divest a minimum of 60 percent of their equity to Philippine citizens within a

30 year period from start of operation.

Retail trade enterprises with paid-up capital of US$2.5 million but less than

US$7.5 million were limited to 60 percent foreign ownership until March 2002;

100 percent foreign ownership is now allowed, provided that the initial investment

to establish a store is more than US$830,000. Enterprises engaged in financing

and investment activities that are regulated by the SEC, including securities

underwriting, are also limited to 60 percent foreign ownership.

List B enumerates areas where foreign ownership is restricted or limited

(generally to 40 percent) for reasons of national security, defense, public health,

safety, and morals. Sectors covered include explosives, firearms, military

hardware, massage clinics, and gambling. This list also seeks to protect local

23

small- and medium-sized firms by restricting foreign ownership to no more than

40 percent in non-export firms capitalized at less than US$200,000 and for

domestic market enterprises that involve advanced technology or employ at least

50 direct employees with paid-in equity capital of less than US$100,000.

In addition to the restrictions noted in the "A" and "B" lists, the Philippines

generally imposes a foreign ownership ceiling of 40 percent on firms seeking in-

centives with the BOI under the investment priorities plan. While there are excep-

tions to the ceiling, divestment of foreign capital participation to reach the 40 per-

cent foreign equity level is required within 30 years from date of registration with

BOI. As a general policy, the Department of Labor and Employment (DOLE) al-

lows the employment of foreigners provided there are no qualified Philippine citi -

zens who can fill the position. The positions of elective officers (i.e., president,

general manager, and treasurer) are exempt from this labor market test.

Table 2: Foreign Investments Negative List (EO No. 11, Oct. 24, 1998 )

List A: Limited by Constitution or Special Laws

No Foreign Equity

Mass media except recording

Licensed professions

Engineering, Medicine and allied professions, Accountancy, Criminology,

Chemistry, Customs brokerage, Environmental planning, Forestry, Geol-

ogy, Interior design, Landscape architecture, Law, Librarianship, Marine

deck officers, Marine engine officers, Master plumbing, Sugar technology,

Social work, Teaching

Retail trade Cooperatives

Private security agencies

Small-scale mining Utilization of marine resources

24

Cockpit ownership, operation, and management

Manufacture, repair, stockpiling, and/or distribution of nuclear weapons

Manufacture, repair, stockpiling and/or distribution of biological, chemical,

and radiological weapons (Note: Domestic investments are also prohib-

ited.)

Manufacture of firecrackers and other pyrotechnic devices

25% Foreign Equity

Mass media except recording

Locally funded public works projects except infrastructure/ development

projects covered in R.A. No. 7718 and foreign-funded or-assisted projects

for international competitive bidding

30% Foreign Equity

Advertising

40% Foreign Equity

Natural resources exploration, development, utilization (Note: Full foreign

participation is allowed through financial or technical assistance agreement

with the President )

Land ownership

Public utilities

Educational institutions

Rice and corn industry

Contracts for the supply of materials, goods and commodities to govern-

ment-owned or-controlled corporation, company, agency or municipal cor-

poration

Project proponent and facility operator of a BOT project requiring a public

utilities franchise

Operation of deep-sea commercial fishing vessels

Adjustment companies

Ownership of condominiums

60% Foreign Equity

25

Financing companies regulated by the SEC

Investment houses regulated by the SEC (Note: No foreign national may

he allowed to own shares of stock in financing companies or investment

houses unless the country of which he is a national accords the same re-

ciprocal rights to Filipinos.)

List B: Limited for Reasons of Security, Defense, Health, Morals and Protection of

Small-and Medium-Scale Enterprises

40% Equity

Manufacture, repair, storage, and/or distribution used in the manufacture

thereof requiring Philippine National Police (PNP) clearance (firearms,

parts of firearms and ammunition, gunpowder, dynamite, blasting supplies,

ingredients used in making explosives, telescopic sights, sniperscope and

other similar devices)

Manufacture, repair, storage and/or distribution of products requiring De-

partment of National Defense (DND) clearance (guns and ammunition for

warfare, military ordnance and parts, gunnery, bombing and fire control

systems and components, guided missiles, missile systems and compo-

nents, tactical aircraft and parts, space vehicles and component systems,

combat vessels and auxiliaries, weapons repair and maintenance equip-

ment, military communications equipment- night vision equipment, stimu-

lated coherent radiation devices, components and accessories, armament

training devices)

Manufacture and distribution of dangerous drugs

Sauna and steam bathhouses, massage clinics, and other like activities

regulated by law because of possible risks to public health and morals

Other forms of gambling, e.g., race track operation

Domestic market enterprises with paid-in equity capital of less than the

equivalent of US$200,000

Domestic market enterprises which involve advanced technology or employ

at least 50 direct employees with paid-in equity capital of less than the

equivalent of US$100,000

26

27

CHAPTER IIITHE POLICY IMPACT TO THE ECONOMY

In this Chapter, the various effects of the existing investment incentive

system on the economy will be quantified. This study will measure the impact of

the incentive policy to the national economy. In turn, these effects form

foundations of some of the observed comparable competitiveness of the fiscal

incentive system. In a sense, then, as understanding of the direction and

magnitude of the impact of incentives on government revenue and investment

performance are essential to an appreciation of broader influence of the system

on the rest of the economy.

3.1 Impact on Foreign and Domestic Investment

To evaluate the effectiveness of the current foreign investment and

investment incentives policies of the Philippines, this report has compared the

recent performance of the Philippine economy and those of other neighboring

economies in attracting foreign investment. Although factors other than

government investment policies affect levels of investment, the analysis helps

identify results that can be expected from pursuing alternative investment

policies.

Table 3 compares the performance of the Philippines with that of other

ASEAN countries as to level of inflows of foreign direct investments. This

measure gives a good overall picture of foreign investment performance. As the

28

Table shows, the Philippines has maintained comparable performance in line

with other ASEAN countries during 1990s, but lost ground during the political

disturbances of the 2000s and still lags behind.

The decline in domestic and foreign investment in the Philippines was

severe, paralleling the experience of Indonesia, Cambodia, Lao and Myanmar.

Singapore, Vietnam and Malaysia show higher rates of foreign investment.

 Trends in gross domestic investment can be also used to compare the

effectiveness of government investment policy and development policy in

general. Table 4 compares the performance of the Philippines with that of other

ASEAN countries as to level of gross domestic investment (as a percent of

29

Table 3:

Source: ASEAN Secretariat website

GDP). From the following table, it is understood that the Philippines tends to lose

its competitiveness in attracting private investment as time goes by.

Table 4: Gross Domestic Investment (% of GDP) in ASEAN

Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Cambodia 12.2 12.9 15.2 14.3 11.3 15.9 13.5 18.7 20.1 25.1 25.8 26.4

Indonesia 31.1 31.9 30.7 31.8 16.8 11.4 15.8 23.5 20.4 17.3 21.3 21.3

Lao PDR - 24.5 29.0 26.2 24.9 22.7 20.5 21.0 21.2 22.2 22.6 -

Malaysia 41.2 43.6 41.5 43.0 26.7 22.4 27.1 23.9 24.0 21.6 22.6 19.8

Myanmar 12.4 14.2 12.3 12.5 12.4 13.4 12.4 11.6 10.1 11.0 - -

Philippines 23.5 21.6 23.0 23.8 19.3 17.8 17.4 19.0 17.7 16.7 17.1 15.7

Singapore 33.5 34.5 37.0 38.6 32.2 32.4 32.3 26.5 23.7 15.6 19.4 18.6

Thailand 40.2 41.4 41.7 33.7 20.4 20.5 22.7 24.1 23.8 24.9 27.1 31.6

Vietnam 25.5 27.1 28.1 28.3 22.5 22.2 23.9 31.2 33.2 35.4 35.5 35.4

Source: Asian Development Outlook 2006

3.2 Impact on Government Revenue

Gauging the cost of tax incentives implies being able to measure foregone

tax revenues, for which a precise estimate would require access to tax return

type data from exempted firms. A much less precise method is to compare tax

revenues of the Philippines with those of similar neighboring countries, adjusting

for differences in tax bases. Table 5 compares the “tax efforts” change of other

ASEAN countries in taxing income, profits, and capital gains (personal and

business income taxes combined) during the recent 10 years.

As the Table shows, there is a wide disparity between the tax efforts of the

various countries, with Indonesia and Malaysia taxing income much more heavily

than Singapore or the Philippines in 1995. Indonesia which followed by Malaysia

30

had the strongest income tax effort in 1995. However, in 2004, the Philippines

increased its income tax effort alone, while the other countries decreased. This

made the Philippines become currently a country with the heaviest tax burden in

ASEAN. It explains also why the FDI performance of the Philippines has slowed

down vis-à-vis other ASEAN economies.

Table 5: Taxes on Income, Profits, and Capital Gains (% of revenue) in ASEAN

Host Country 1995 2004

Cambodia _ 6

Indonesia 46 28

Lao PDR - -

Malaysia 37 37

Myanmar 20 16

Philippines 33 40

Singapore 26 28

Thailand - 32

Vietnam - -

Source: 2006 World Development Indicators

31

CHAPTER IVPOLICY ISSUES

4.1 Analysis of Specific Foreign Investment Proposals

The Philippines has a policy of welcoming foreign direct investment

consistent with the overall development goals of the countries. This policy is

evident from the rhetoric of administration and in the offering of incentives to

investors. Chapter 1 of the “Omnibus Investments Code” of 1987 (EO 226)

declares, “The State recognizes that there are appropriate roles for local and

foreign capital to play in the development of the Philippine economy and it is the

responsibility of Government to define these roles and provide the climate for

their entry and growth.”

Certain areas of an economy are necessarily off-limits or limited for foreign

investment. The Philippines constitutionally or otherwise protects, and will

continue to protect in a reformed investment policy, foreign participation in the

exploration, development and utilization of natural resources; operation of public

utilities; mass media; advertising, unless at least 70% Filipino-owned; banking;

public works construction and national defense; retail trade; and fishing

operations, among others.

Despite Government recognition of the benefits of foreign investment, the

regulations on foreign equity participation in permitted areas are often perceived

as less than inviting. It is our contention that, given the Government’s stated

recognition that foreign investment has a positive role in the country’s

32

development, the rules for foreign investment should be more transparent and

less discretionary.

Specific policies have been questioned as to their effectiveness at luring

foreign investment and otherwise attaining the development objectives of the

Philippines. This study is going to examine the negative list.

Negative List

Book II of EO 226 has been repealed by Foreign Investments Act (R.A.

7042) which outlines the areas where foreign investment would be prohibited. In

the sense that this measure would upgrade the country’s investment laws to be

more competitive with the ASEAN neighbors and would increase foreign

investment and employment opportunities.

To be effective, a negative list must form the primary guideline for

determining allowable foreign investment, widening the areas open to foreign

investment and promoting greater capital inflow. The list should be short and

simple, forming a solid boundary between permissible areas for unlimited foreign

investment and prohibited areas for majority foreign equity. The list should not be

undermined by additional criteria that are vague and subject to administrative

discretion. The concept of such a list as part of investment liberalization has been

supported by the Foreign Chambers of Commerce in the Philippines, provided

that the list is composed of a few areas showing a strong rationale for protection.

They suggest that the list not be based on concepts such as “overcrowded

industry” and should not include industries where one or two firms dominate the

market.

33

A short negative list of this type was adopted by Korea, prohibiting foreign

investment in areas such as agriculture; publishing; public utilities; transportation;

and certain medical, entertainment, and financial industries. The adopted

negative list of Indonesia is more comprehensive and more complex. While nine

areas relating to agricultural product cultivation and manufacturing are closed to

investment, all other areas on the list are open to investment depending on the

planned level of exports. In the case of Korea, Indonesia and Taiwan as well,

negative lists have been generally successful as vehicles for guiding investment

and as replacements for priority lists.

In its current incarnation, RA 7042 is not an effective negative list. In

addition to listing areas where foreign ownership will be strictly prohibited, it

retains many of the current conditions for ownership above 40% including the

use of high technology, absence of Filipino interest to own 60% of the project,

and a lack of direct competition with locally produced items. The retention of

these various, a discretionary level of allowable ownership counteracts the

simplifying effect of a negative list. The substitution of a negative list as outlined

in the RA 7042 for the Investment Priorities Plan would not be viewed as a

serious liberalization of the investment laws.

4.2 General Critique of Investment Incentives Policy

As discussed, the objectives of the investment incentives policy of the

Philippines has been the promotion of investments in employment generating,

export oriented, agro-based, and import substituting industries where the country

34

has comparative advantage and where productive capacity is adequate. Foreign

investments in particular are intended to be channeled into high value added

activities where domestic resources are lacking, and into activities that attract

technology and give access to foreign markets.

Many developing countries have used special tax concessions, income tax

holidays in particular, to attract investment from both foreign and domestic

sources and to channel it into priority areas of development. Tax incentives for

special purposes, that is, those that target specific industries or activities, have

come under heavy criticism in the recent tax policy literature for several important

reasons, all of which appear to be relevant to the Philippine experience.

1. Special tax incentives generally serve multiple goals. As economic

conditions change, necessary amendments add layers of complexity. Despite

efforts to simplify them, they remain difficult for taxpayers to understand,

difficult to administer, and are frequently subject to political manipulation.

2. Special tax incentives are a costly means of achieving economic

objectives. If the incentives are small, the economic gains are usually limited.

If they are large, they typically cause serious erosion of the tax base.

3. Despite sometimes prodigious legislative efforts to the contrary,

special tax incentives are by nature inequitable and economically inefficient.

They create effective tax rates that vary both between and within sectors,

and thus misallocate capital stock. They also create the impression of

discrimination against certain industries.

35

4. Income tax holidays, in particular, constitute an inefficient method

of promoting investment in new enterprises, which are typically unprofitable

in the early years and thus unlikely to be enterprises that are profitable from

the outset and might not have needed incentives.

5. A final, frequently cited concern about tax holidays relates to their

ineffectiveness in attracting foreign investment from countries that tax

corporate income earned abroad, but give tax credits for income tax paid in

the host country (notably the U.S., U.K., Australia and Japan). Unless the

host country negotiates a “tax sparing” agreement with the foreign taxing

authority (under which tax credits awarded by the host country are deductible

or creditable), the tax incentives have the effect of transferring tax revenues

from the host country to the home country of the firm, and the company

derives little or no benefit (or incentive).2 The Philippines does not have tax

sparing agreements with any of the major developed countries yet.

In recognition of the defects of special targeted tax concessions, and in

consonance with the worldwide trend toward expanded tax bases and lower tax

rates among developing countries, several developing countries have recently

executed tax reforms in which special incentives were eliminated and general tax

rates for businesses were reduced. Notably, tax reforms in Indonesia, Colombia,

and Malawi eliminated most special tax incentives in favor of a broader tax base

and lower general tax rates on businesses.

2 The Philippine government has negotiated double taxation avoidance provisions in its treaties with a number of small European countries and Asian developing countries: Sweden, Norway, Denmark, Finland etc. There are limited or reduced tax sparing provisions in the income tax treaties with Japan, Korea and Belgium.

36

Special fiscal incentives in the Philippines appear to be a costly and

relatively ineffective means of promoting investment nowadays. This finding is

consistent with the experience of other developing countries. In comparison with

other ASEAN countries, the Philippines has the most restrictive foreign

investment policies, and fiscal policies that are the most highly skewed toward

promotion of preferred industries.

37

CHAPTER VCONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusions

The Philippines benefited from the declining competitiveness of the newly

industrialized economies (NIEs) and Japan in labour-intensive activities in the

late 1980s, so too has China benefited from similar circumstances in the ASEAN

economies. But while the NIEs and Japan moved successfully to higher value-

added activities, the Philippines has encountered difficulties in effecting its

transformation. The focus on investment diversion to China should not deflect

attention from the domestic causes of this adjustment problem. As more and

more countries compete for export-oriented investments, the period of time

during which adjustment must be undertaken has shortened. At the same time,

the speed with which countries can transform their economies into manufacturing

powerhouses has also increased. Globalization offers substantial opportunities

for participating countries, but it also requires an ability for rapid adjustment to

benefit the most from these opportunities.

To explain the record of the Philippines in attracting FDI inflows requires

an understanding not only of its policies and events, but also of factors

influencing its potential supply of such investment and of changes. The ebb and

flow of Japanese FDI and the rise of China have had a significant impact both on

inflows into the Philippines and on perceptions concerning future inflows. But at

the same time, these external events have not operated within a vacuum. The

38

Philippines would never have attracted Japanese and American investment in

the first place if it had not had a competitive workforce and relatively

accommodating policies towards foreign investors. Country such as the

Philippines was in the right place at the right time in the late 1980s, but it also

had the regulatory environment to attract export-oriented investors.

Will existing policies of the Philippines be enough to sustain inflows in the

future? The financial crisis has made this question even more pertinent given the

sharp drop in other forms of capital inflows. The answer depends partly on

whether European and American investors will take up the slack left from

declining growth in Japanese investment in the Philippines and on whether the

gold rush into China has abated. But the answer will also depend on whether the

Philippines has the appropriate investment policies in place in the new, more

competitive environment for global FDI inflows.

5.2 Recommendations

The findings of this study recommend some directions for reforms in the

existing incentive system as following aspects:

(1) Foreign Investment Proposals

The tax holiday should be abolished for all new investments. Existing

investments should be allowed to enjoy the remainder of their allowable tax

holiday. To encourage foreign investment, the Government needs to implement

rules which offer investors clear, non-arbitrary guidelines. A short, simple

39

negative list based on Constitutional guidelines, would preserve legitimate

national interests while stimulating investment.

It is advised that the mandatory transfer of equity within the current

regulations. To facilitate transfer, companies should be allowed to make tax-

advantaged transfers of its own stock to the employees of the company. In

addition, a minimum required level of Filipino ownership in large firms should be

considered.

In light of the Constitutional restrictions on foreign ownership of land, the

horizontal application of the condominium law should be adopted and an

automatic roll-over of leases into their 25-year extension should be considered.

Safeguards should also be adopted to deter land speculation.

There is no convincing evidence of crowding-out of local borrowers due to

domestic borrowing by foreign firms. Therefore, current proposals to further

restrict foreign firms’ access to credit should not be adopted. While financial

institutions require a degree of regulation, increased foreign ownership of

financial institutions should be allowed.

(2) Negative List Proposals

To encourage foreign investment in the Philippines, the Government

needs to implement rules which offer the investor clear, non-arbitrary guidelines.

Foreign Chambers of Commerce in the Philippines, local and small business

have all presented their intention of the need to effect changes in the country’s

investment laws and policies including the liberalization of the entry and

operations of foreign investment. The current guidelines set forth in Foreign

40

Investments Act (R.A. 7042) do not meet the current economic environment

change, such as the claim for abolishing the local land ownership system; totally

open the retail industry to foreign investors.

A negative list for the Philippines should be based on the prohibitions

articulated in the Constitution and selected legislative Acts only. Areas reserved

for total and majority foreign ownership could include public utilities,

transportation, exploitation of land and other natural resources, fishing and other

aquatic rights, mass media, advertising and educational institutions. These

categories are comparable to those included in the negative lists of Indonesia

and Korea and would preserve legitimate national interests while stimulating

investment.

(3) Investment Incentives and Administration Proposals

It is proposed that three universal incentives for investment: accelerated

depreciation, net loss carryover and 10 percent duty on imported capital

equipment. As a package, these incentives will reduce current investment

distortions and increase the attractiveness of the Philippines to investors. This

research recommends that targeted incentives for R&D and pollution control also

be made available to all firms.

The Investment Priorities Plan (IPP), in its current formulation, is an

ineffective means of guiding investment or granting incentives. Under the existing

system, the BOI essentially “picks winners” via the IPP scheme. In principle, the

BOI’s choice of activities to be included in the IPP is based on some assessment

of long run comparative advantage. Many policy makers have pointed to Japan

41

and Korea as the role model in this regard. However, the evidence from other

countries as well as the Philippines’ own experience in recent years highlight the

pitfalls of this strategy, i.e., the possibility of bureaucratic failure resulting in

government’s propensity to pick losers rather winners.

Given this perspective, it is recommended that the BOI transforms the IPP

into a highly focused list.3 It should be replaced by an abbreviated list of preferred

industries, selected by BOI for their developmental contribution, which would be

eligible for reasonable additional incentives. These incentives should not be

viewed as a way to correct market imperfections which should be corrected

directly. The number of preferred sectors, not counting the export sector, should

not exceed five sectors. The idea is to provide the government the opportunity to

support and promote activities/sectors in line with the country’s dynamic

comparative advantage. At the same time, it should put some limits on the

“probability of errors in judgment that could be made, and should a mistake be

made, limit the magnitude of losses (Medalla 1994).” In the Philippine context,

such an approach is imperative considering the adverse implications that a broad

coverage will have on the government’s fiscal position. Moreover, it should be

emphasized that a wide coverage in terms of number of sectors promoted will

only diffuse the preference given to said sectors, thus, reducing the cost-

effectiveness of the fiscal incentive scheme.

It is also proposed that the support given to selected sectors be time-

bound, say five years. This could help institutionalize a system characterized by

3 The trend in recent years to reduce the number of industries listed in the IPP (from 261 in 1990 to some 50 sectors in 1994) is a move in the right direction. However, greater focus is neces-sary.

42

greater predictability and one where preferred industries automatically graduate

from inclusion in the IPP.

It is strongly suggested that the industry analysis function be lodged with

the Department of Trade and Industry (DTI) and/or National Economic and

Development Authority (NEDA). It is argues that the separation of the regulatory

function and the industrial/investment promotion function will enhance the

transparency and objectivity of the system. Nevertheless, the BOI should

continue to closely undertake the administration of fiscal incentives as well as the

monitoring of registered firms.

43

ANNEX ABIBLIOGRAPHY

Alba Romeo & Co. 2004. Doing Business in the Philippines. BDO Global Coordination B.V.

Asian Development Bank. 2005. Philippines: Moving Toward a Better Investment Climate. Economics and Research Department, Development Indicators and Policy Research Division. ADB.

Asian Development Bank. 2006. Asian Development Outlook 2006. Asian Development Bank.

Diaz Murillo Dalupan. 2000. Doing Business in the Philippines. L.C. Diaz & Co. The Philippines.

Lamberte, Mario B. 1995. Investment Policy for Transition to a Market Economy: The Philippine Case. Discussion Paper Series No. 95-04. Philippine Institute for Development Studies

Lipana, Tammy H.; Cooper, Paul R. 2005. Doing Business and Investing in the Philippines. Isla Lipana & Co./PricewaterhouseCoopers.

Manasan, Rosario G. 1986. Impact of BOI Incentives on Rate of Return, Factor Prices and Relative Factor Use: A Comparative Analysis of Incentives Under the Omnibus Investments Code of 1981 (P.D. 1789) and the Investment Incentive Policy Act (B.P. 391), Staff Paper Series 86-01. The Philippines.

Manasan, Rosario G. 1995. Review of Fiscal Incentives Under the Omnibus Investments Code (Executive Order 226): Draft Final Report. The Philippines.

OECD, 2006. Policy Framework for Investment. OECD Publishing.

Sunley, Emil M. 1990. A Review of the Investment Policy and Incentives of the Republic of the Philippines. Deloitte & Touche. U.S.

Thomsen, Stephen. 1999. South-East Asia: The Role of Foreign Direct Invest-ment Policies in Development. Working Papers on International Investment. OECD.

World Bank. 2006. World Development Indicators. The World Bank

44

Relevant Websites:

ASEAN Secretariathttp://www.aseansec.org/

Asian Development Bankhttp://www.adb.org/

Board of Investment of DTIhttp:// www.boi.gov.ph /

Department of Trade and Industryhttp://business.gov.ph/

Embassy of the United States in Manilahttp:// usembassy.state.gov /

45

ANNEX BCURRICULUM VITAE

JOHN CHEN-TE KO

Home Address: 41st Fl., Tower 1, RCBC Plaza, 6819 Ayala Avenue, Makati City

Metro Manila, The Philippines

E-mail Address: kochente3@yahoo.com.tw

Date of Birth: 07 June, 1963

Marital Status: Married, 1 daughter

Education: Bachelor of Arts, National Central University, Taiwan 1981-1985

Work Experience:

1st Commercial Secretary, Economic Division, Taipei Economic and Cultural Office (TECO) in the Philippines, 22 July 2004 to present

2nd Commercial Secretary, Industrial Development and Investment Center, Ministry of Economic Affairs, Taiwan, 29 August 2001 to 21 July 2004

2nd Commercial Secretary, Economic Counselor Office, Embassy of the Republic of China in Malawi, Africa, 01 November 1998 to 28 August 2001

2nd Commercial Secretary, Far East Trade Service Office in the Ivory Coast, Africa, 22 November 1995 to 31 October 1998

3rd Commercial Secretary, CAPEC, Paris, France, 09 October 1992 to 21 November 1995

Sales Representative, Sales Division, Great Overseas International Corporation, Taipei, Taiwan, July 1988 to September 1990

46

ANNEX CTHE OMNIBUS INVESTMENTS CODE OF 1987

(EO 226)

WHEREAS, the Government is committed to encourage investments in desirable areas of activities;

WHEREAS, to facilitate investment, there is a need to adopt a cohesive and consolidated investments incentives law;

WHEREAS, it is imperative to integrate basic laws on investment, to clarify and harmonize their provisions for the guidance of domestic and foreign investors.

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

PRELIMINARY TITLECHAPTER I

TITLE AND DECLARATION OF POLICYARTICLE 1. Short Title. - This order shall be known as the "Omnibus

Investments Code" of 1987. ARTICLE 2. Declaration of Investment Policies. - To accelerate the

sound development of the national economy in consonance with the principles and objectives of economic nationalism and in pursuance of a planned economically feasible and practical dispersal of industries and the promotion of small and medium scale industries, under conditions which will encourage competition and discourage monopolies, the following are declared policies of the State: (1) The State shall encourage private Filipino and foreign investments in industry,

agriculture, forestry, mining, tourism and other sectors of the economy which shall: provide significant employment opportunities relative to the amount of the capital being invested; increase productivity of the land, minerals, forestry, aquatic and other resources of the country, and improve utilization of the products thereof; improve technical skills of the people employed in the enterprise; provide a foundation for the future development of the economy; meet the tests of international competitiveness; accelerate development of less developed regions of the country; and result in increased volume and value of exports for the economy.

(2) The State shall ensure holistic development by safeguarding the well-being of the social, cultural and ecological life of the people. For this purpose, consultation with affected communities will be conducted whenever necessary.

(3) The State shall extend to projects which will significantly contribute to the attainment of these objectives, fiscal incentives without which said projects may not be established in the locales, number and/or pace required for

47

optimum national economic development. Fiscal incentive system shall be devised to compensate for market imperfections, to reward performance contributing to economic development, be cost-efficient and be simple to administer.

(4) The State considers the private sector as the prime mover for economic growth. In this regard, private initiative is to be encouraged, with deregulation and self-regulation of business activities to be generally adopted where dictated by urgent social concerns.

(5) The State shall principally play a supportive role, rather than a competitive one, providing the framework, the climate and the incentives within which business activity is to take place.

(6) The State recognizes that there are appropriate roles for local and foreign capital to play in the development of the Philippine economy and that it is the responsibility of Government to define these roles and provide the climate for their entry and growth.

(7) The State recognizes that industrial peace is an essential element of economic growth and that it is a principal responsibility of the State to ensure that such a condition prevails.

(8) Fiscal incentives shall be extended to stimulate the establishment and assist initial operations of the enterprise, and shall terminate after a period of not more than 10 years from registration or start-up of operation unless a specific period is otherwise stated.

The foregoing declaration of investment policies shall apply to all investment incentive schemes.

CHAPTER IIBOARD OF INVESTMENTS

ARTICLE 3. The Board of Investments. - The Board of Investments shall implement the provisions of Books One to Five of this Code.

ARTICLE 4. Composition of the Board. - The Board of Investments shall be composed of seven (7) governors: The Secretary of Trade and Industry, three (3) Undersecretaries of Trade and Industry to be chosen by the President, and three (3) representatives from other government agencies and the private sector. The Secretary of Trade and Industry shall be concurrently Chairman of the Board and the Undersecretary of the Department of Trade and Industry for Industry and Investments shall be concurrently the Vice-Chairman of the Board and its Managing Head. The three (3) representatives from other government agencies and the private sector appointed by the President for a term of four (4) years: Provided, That upon the expiration of his term, a governor shall serve as such until his successor shall have been appointed and qualified: Provided, further, That no vacancy shall be filled except for the unexpired portion of any term, and that no one may be designated to be a governor of the Board in an acting capacity but all appointments shall be ad interim or permanent.

ARTICLE 5. Qualifications of Governors of the Board. - The governors of the Board shall be citizens of the Philippines, at least thirty (30) years old, of good moral character and of recognized competence in the fields of economics,

48

finance, banking, commerce, industry, agriculture, engineering, law, management or labor.

ARTICLE 6. Appointment of Board Personnel. - The Board shall appoint its technical staff and other personnel subject to Civil Service Law, rules and regulations.

ARTICLE 7. Powers and Duties of the Board. - The Board shall be responsible for the regulation and promotion of investments in the Philippines. It shall meet as often as may be necessary generally once a week on such day as it may fix. Notice of regular and special meetings shall be given all members of the Board. The presence of four (4) governors shall constitute a quorum and the affirmative vote of four (4) governors in a meeting validly held shall be necessary to exercise its powers and perform its duties, which shall be as follows: (1) Prepare annually the Investment Priorities Plan as defined in Article 26, which

shall contain a listing of specific activities that can qualify for incentives under Book I of this Code, duly supported by the studies of existing and prospective demands for such products and services in the light of the level and structure of income, production, trade, prices and relevant economic and technical factors of the regions as well as existing facilities;

(2) Promulgate such rules and regulations as may be necessary to implement the intent and provisions of this Code relevant to the Board;

(3) Process and approve applications for registration with the Board, imposing such terms and conditions as it may deem necessary to promote the objectives of this Code, including refund of incentives when appropriate, restricting availment of certain incentives not needed by the project in the determination of the Board, requiring performance bonds and other guarantees, and payment of application, registration, publication and other necessary fees and when warranted may limit the availment of the tax holiday incentive to the extent that the investor's country law or treaties with the Philippines allows a credit for taxes paid in the Philippines;

(4) After due hearing, decide controversies concerning the implementation of the relevant books of this Code that may arise between registered enterprises or investors therein and government agencies, within thirty (30) days after the controversy has been submitted for decision: Provided, That the investor or the registered enterprise may appeal the decision of the Board within thirty (30) days from receipt thereof to the President;

(5) Recommend to the Commissioner of Immigration and Deportation the entry into the Philippines for employment of foreign nationals under this Code;

(6) Periodically check and verify, either by inspection of the books or by requiring regular reports, the proportion of the participation of the Philippine nationals in a registered enterprise to ascertain compliance with its qualification to retain registration under this Code;

(7) Periodically check and verify the compliance by registered enterprises with the relevant provisions of this Code, with the rules and regulations promulgated under this Code and with the terms and conditions of registration;

(8) After due notice, cancel the registration or suspend the enjoyment of

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incentives benefits of any registered enterprise and/or require refund of incentives enjoyed by such enterprise including interests and monetary penalties, for (a) failure to maintain the qualifications required by this Code for registration with the Board or (b) for violations of this Code, of the rules and regulations issued under this Code, of the terms and conditions of registration, or of laws for the protection of labor or of the consuming public: Provided, That the registration of an enterprise whose project timetable, as set by the Board is delayed by one year, shall be considered automatically cancelled unless otherwise reinstalled as a registered enterprise by the Board;

(9) Determine the organizational structure taking into account Article 6 of this Code; appoint, discipline and remove its personnel consistent with the provisions of the Civil Service Law and Rules;

(10) Prepare or contract for the preparation of feasibility and other pre-investment studies for pioneer areas either upon its own initiative; or upon the request of Philippine nationals who commit themselves to invest therein and show the capability of doing so; Provided, That if the venture is implemented, then the amount advanced by the Board shall be repaid within five (5) years from the date the commercial operation of said enterprise starts;

(11) When feasible and considered desirable by the Board, require registered enterprises to list their shares of stock in any accredited stock exchange or directly offer a portion of their capital stock to the public and/or their employees;

(12) Formulate and implement rationalization programs for certain industries whose operation may result in dislocation, overcrowding or inefficient use of resources, thus impeding economic growth. For this purpose, the Board may formulate guidelines for progressive manufacturing programs, local content programs, mandatory sourcing requirements and dispersal of industries. In appropriate cases and upon approval of the President, the Board may restrict, either totally or partially, the importation of any equipment or raw materials or finished products involved in the rationalization program;

(13) To the extent that such activities are allowed by the Constitution and relevant laws, to recommend to the President of the Philippines, the suspension of the nationality requirement provided in this Code in cases of ASEAN projects, or investments by ASEAN nationals, regional ASEAN or multinational financial institutions including their subsidiaries in preferred projects and/or projects allowed through either financial or technical assistance agreements entered into by the President, and in the case of regional complementation for the manufacture of a particular product which seeks to take advantage of economies of scale. For the purpose of this Act, a multilateral financial institution shall refer to a financial agency or entity, and its affiliates which satisfy the following qualifications:

“(1) The institution is either owned or controlled by member countries but does not possess any national identity;

“(2) The institution sources its funds from capital stock subscriptions and contributions by member countries; and

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“(3) The primary responsibility of the institution is to provide funds for development purposes and international economic stability.”

(14) Extend the period of availment of incentives by any registered enterprise; Provided, That the total period of availment shall not exceed ten (10) years, subject to any of the following criteria: (a) The registered enterprise has suffered operational force majeure that has

impaired its viability. (b) The registered enterprise has not fully enjoyed the incentives granted to it

for reasons beyond its control; (c) The project of the registered enterprise has a gestation period which goes

beyond the period of availment of needed incentives; and (d) The operation of the registered enterprise has been subjected to

unforeseen changes in government policies, particularly, protectionism policies of importing countries, and such other supervening factors which would affect the competitiveness of the registered firm;

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

(16) Prepare or contract for the preparation of industry and sectoral development programs and gather and compile statistical, technical, marketing, financial and other data required for the effective implementation of this Code;

(17) Within four (4) months after the close of the fiscal year, submit annual reports to the President which shall cover its activities in the administration of this Code, including recommendations on investment policies;

(18) Provide, directly or through Philippine Diplomatic Missions, such information as may be of interest to prospective foreign investors;

(19) Collate, analyze and compile pertinent information and studies concerning areas that have been or may be declared preferred areas of investments; and

(20) Enter into agreements with other agencies or government for the simplification and facilitation of systems and procedures involved in the promotion of investments, operation of registered enterprises and other activities necessary for the effective implementation of this Code;

(21) Generally, exercise all the powers necessary or incidental to attain the purpose of this Code and other laws vesting additional functions on the Board.

ARTICLE 8. Powers and Duties of the Chairman. - The Chairman shall have the following powers and duties: (1) To preside over the meetings of the Board; (2) To render annual reports to the President and such special reports as may be

requested; (3) To act as liaison between investors seeking joint venture arrangements in

particular areas of investment; (4) Recommend to the Board such policies and measures he may deem

necessary to carry out the objectives of this Code; and

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(5) Generally, to exercise such other powers and perform such other duties as may be directed by the Board of Governors from time to time.

ARTICLE 9. Powers and Duties of the Vice-Chairman. - The Vice-Chairman shall have the following powers and duties: (1) To act as Managing Head of the Board; (2) To preside over the meetings of the Board in the absence of the Chairman; (3) Prepare the Agenda for the meetings of the Board and submit for its

consideration and approval the policies and measures which the Chairman deems necessary and proper to carry out the provisions of this Code;

(4) Assist registered enterprises and prospective investors to have their papers processed with dispatch by all government offices, agencies, instrumentalities and financial institutions; and

(5) Perform the other duties of the Chairman in the absence of the latter, and such other duties as may be assigned to him by the Board of Governors.

BOOK IINVESTMENTS WITH INCENTIVES

TITLE IPREFERRED AREAS OF INVESTMENTS

CHAPTER IDEFINITION OF TERMS

ARTICLE 10. "Board" shall mean the Board of Investments created under this Code.

ARTICLE 11. "Registered Enterprise" shall mean any individual, partnership, cooperative, corporation or other entity incorporated and/or organized and existing under Philippine laws; and registered with the Board in accordance with this Book: Provided, however, That the term "registered enterprise" shall not include commercial banks, savings and mortgage banks, rural banks, savings and loan associations, building and loan associations, developmental banks, trust companies, investment banks, finance companies, brokers and dealers in securities, consumers cooperatives and credit unions, and other business organizations whose principal purpose or principal source of income is to receive deposits, lend or borrow money, buy and sell or otherwise deal, trade or invest in common or preferred stocks, debentures, bonds or other marketable instruments generally recognized as securities, or discharge other similar intermediary, trust of fiduciary functions.

ARTICLE 12. "Technological assistance contracts" shall mean contracts for: (1) the transfer, by license otherwise, of patents, processes, formulas or other technological rights of foreign origin; and/or (2) foreign assistance concerning technical and factory management, design, planning, construction, operation and similar matters.

ARTICLE 13. "Foreign loans" shall mean any credit facility or financial assistance other than equity investment denominated and payable in foreign currency or where the creditor has the option to demand payment in foreign exchange and registered with the Central Bank and the Board.

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ARTICLE 14. "Foreign Investments" shall mean equity investments owned by a non-Philippine national made in the form of foreign exchange or other assets actually transferred to the Philippines and registered with the Central Bank and the Board, which shall assess and appraise the value of such assets other than foreign exchange.

ARTICLE 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or association wholly-owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a registered and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine national.

ARTICLE 16. "Preferred areas of investments" shall mean the economic activities that the Board shall have declared as such in accordance with Article 28 which shall be either non-pioneer or pioneer.

ARTICLE 17. "Pioneer enterprise" shall mean a registered enterprise (1) engaged in the manufacture, processing or production, and not merely in the assembly or packaging of goods, products, commodities or raw materials that have not been or are not being produced in the Philippines on a commercial scale or (2) which uses a design, formula, scheme, method, process or system of production or transformation of any element, substance or raw materials into another raw material or finished goods which is new and untried in the Philippines or (3) engaged in the pursuit of agricultural, forestry and mining activities and/or services including the industrial aspects of food processing whenever appropriate, pre-determined by the Board, in consultation with the appropriate Department, to be feasible and highly essential to the attainment of the national goal in relation to a declared specific national food and agricultural program for self-sufficiency and 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 or converts to coal or other non-conventional fuels or sources of energy in its production, manufacturing or processing operations. Provided, That the final product in any of the foregoing instances, involves or will involve substantial use and processing of domestic raw materials, whenever available; taking into account the risks and magnitude of investment: Provided, further, That the foregoing definitions shall not in any way limit the rights and incentives granted to less-developed-area enterprises provided under Title V, Book I, hereof.

ARTICLE 18. "Non-pioneer enterprise" shall include all registered producer enterprises other than pioneer enterprises.

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ARTICLE 19. "Expansion" shall include modernization and rehabilitation and shall mean increase of existing volume or value of production or upgrading the quality of the registered product or utilization of inefficient or idle equipment under such guidelines as the Board may adopt.

ARTICLE 20. "Measured capacity" shall mean the estimated additional volume of production or service which the Board determines to be desirable in each preferred area of investment in order to supply the needs of the economy at reasonable prices, taking into account the export potential of the product, including economies of scale which would render such product competitive in the world market. Measured capacity shall not be less than the amount by which the measurable domestic and country's potential export market demand exceeds the existing productive capacity in said preferred areas. For export market industries, when warranted, the Board shall base measured capacity on the availability of domestic raw materials after deducting the needs of the domestic market therefore.

ARTICLE 21. "Tax credit" shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, if so delegated by the Secretary of Finance. The tax credit certificates including those issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability under their laws of issue are transferable under such conditions as may be determined by the Board after consultation with the Department of Finance. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the National Government: Provided, That the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore not taxable: Provided, further, That such tax credits shall be valid only for a period of ten (10) years from date of issuance.

ARTICLE 22. "Export products" shall mean manufactured or processed products the total F.O.B. Philippine port value of the exports of which did not exceed five million dollars in the United States currency in the calendar year 1968 and which meet the local content requirement, if any, set by the Board, and standards of quality set by the Bureau of Product Standards, or, in default of such standards, by the Board or by such public or private organization, chamber, group or body as the Board may designate. The above definition notwithstanding, the Investment Priorities Plan may include other products for export subjects to such conditions and limited incentives as may be determined by the Board.

ARTICLE 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of exports products exported directly by a registered export producer or the net selling price of export product sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same: Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or

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similar commercial documents: Provided, further, That without actual exportation the following shall be considered constructively exported for purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) sales to registered export-traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not: Provided, further, That export sales of registered export trader may include commission income: and Provided, finally, That exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee.

Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales.

ARTICLE 24. "Production cost" shall mean the total of the cost of direct labor, raw materials, and manufacturing overhead, determined in accordance with generally accepted accounting principles, which are incurred in manufacturing or processing the products of a registered enterprise.

ARTICLE 25. "Processing" shall mean converting of raw materials into marketable form through physical, mechanical, chemical, electrical, biochemical, biological or other means or by a special treatment or a series of actions, such as slaughtering, milling, pasteurizing, drying or desiccating, quick freezing, that results in a change in the nature or state of the products. Merely packing or packaging shall not constitute processing.

ARTICLE 26. "Investment Priorities Plan" shall mean the over all plan prepared by the Board which includes and contains: (a) The specific activities and generic categories of economic activity wherein

investments are to be encouraged and the corresponding products and commodities to be grown, processed or manufactured pursuant thereto for the domestic or export market;

(b) Specific public utilities which can qualify for incentives under this Code and which shall be supported by studies of existing and prospective regional demands for the services of such public utilities in the light of the level and structure of income, production, trade, prices and relevant economic and technical factors of the regions as well as the existing facilities to produce such services;

(c) Specific activities where the potential for utilization of indigenous no-petroleum based fuels or sources of energy can be best promoted; and

(d) Such other information, analyzes, data, guidelines or criteria as the Board may deem appropriate.

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The specific and generic activities to be included in the Investment Priorities Plan with their status as pioneer or non-pioneer shall be determined by the Board in accordance with the criteria set forth in this Book.

CHAPTER IIINVESTMENT PRIORITIES PLAN

ARTICLE 27. Investment Priorities Plan. - Not later than the end of March of every year, the Board of Investments, after consultation with the appropriate government agencies and the private sector, shall submit to the President an Investment Priorities Plan: Provided, however, That the deadline for submission may be extended by the President.

ARTICLE 28. Criteria in Investment Priority Determination. - No economic activity shall be included in the Investment Priorities Plan unless it is shown to be economically, technically and financially sound after thorough investigation and analysis by the Board.

The determination of preferred areas of investment to be listed in the Investment Priorities Plan shall be based on long-run comparative advantage, taking into account the value of social objectives and employing economic criteria along with market, technical, and financial analyses.

The Board shall take into account the following: (a) Primarily, the economic soundness of the specific activity as shown by

its economic internal rate of return; (b) The extent of contribution of an activity to a specific developmental

goal; (c) Other indicators or comparative advantage; (d) Measured capacity as defined in Article 20; and (e) The market and technical aspects and considerations of the activity

proposed to be included. In any of the declared preferred areas of investment, the Board may

designate as pioneer areas the specific products and commodities that meet the requirements of Article 17 of this Code and review yearly whether such activity, as determined by the Board, shall continue as pioneer, otherwise, it shall be considered as non-pioneer and accordingly listed as such in the Investment Priorities Plan or removed from the Investment Priorities Plan.

ARTICLE 29. Approval of the Investment Priorities Plan. - The President shall proclaim the whole or part of such plan as in effect; or alternatively, return the whole or part of the plan to the Board of Investments for revision.

Upon the effectivity of the plan or portions thereof, the President shall issue all necessary directives to all departments, bureaus, agencies or instrumentalities of the government to ensure the implementation of the plan by the agencies concerned in a synchronized and integrated manner. No government body shall adopt any policy or take any course of action contrary to or inconsistent with the plan.

ARTICLE 30. Amendments. - Subject to publication requirements and the criteria for investment priority determination, the Board of Investments may, at

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any time, add additional areas in the plan, alter any of the terms of the declaration of an investment area or the designation of measured capacities, or terminate the status of preference. In no case, however, shall any amendment of the plan impair whatever rights may have already been legally vested in qualified enterprises which shall continue to enjoy such rights to the full extent allowed under this Code. The Board shall not accept applications in an area of investment prior to the approval of the same as a preferred area nor after approval of its deletion as a preferred area of investment.

ARTICLE 31. Publication. - Upon approval of the plan, in whole or in part, or upon approval of an amendment thereof, the plan or the amendment, specifying and declaring the preferred areas of investment and their corresponding measured capacity shall be published in at least one (1) newspaper of general circulation and all such areas shall be open for application until publication of an amendment or deletion thereof, or until the Board approves registration of enterprises which fill the measured capacity.

CHAPTER IIIREGISTRATION OF ENTERPRISES

ARTICLE 32. Qualifications of a Registered Enterprise. - To be entitled to registration under the Investment Priorities Plan, an applicant must satisfy the Board that: (1) He is a citizen of the Philippines, in case the applicant is a natural person, or

in case of a partnership or any other association, it is organized under Philippine laws and that at least sixty percent (60%) of its capital is owned and controlled by citizens of the Philippines; or in case of a corporation or a cooperative, it is organized under Philippine laws and that at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by Philippine nationals as defined under Article 15 of this Code, and at least sixty per cent (60%) of the members of the Board of Directors are citizens of the Philippines. If it does not possess the required degree of ownership as mentioned above by Philippine nationals, the following circumstances must be satisfactorily established:

(a) That it proposes to engage in a pioneer projects as defined in Article 17 of this Code, which, considering the nature and extent of capital requirements, processes, technical skills and relative business risks involved, is in the opinion of the Board of such a nature that the available measured capacity thereof cannot be readily and adequately filled by Philippine nationals; or, if the applicant is exporting at least seventy per cent (70%) of the total production, the export requirement herein provided may be reduced in meritorious cases under such conditions and/or limited incentives as the Board may determine;

(b) That it obligates itself to attain the status of a Philippine national, as defined in Article 15, within thirty (30) years from the date of registration or with such longer period as the Board may require taking into account the export potential of the project: Provided,

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That a registered enterprise which exports one hundred percent (100%) of its total production need not comply with this requirement;

(c) That the pioneer area it will engage in is one that is not within the activities reserved by the Constitution or other laws of the Philippines to the Philippine citizens or corporations owned and controlled by Philippine citizens;

(2) The applicant is proposing to engage in a preferred project listed or authorized in the current Investment Priorities Plan within a reasonable time to be fixed by the Board or, if not so listed, at least fifty percent (50%) of its total production is for export or it is an existing producer which will export part of production under such conditions and/or limited incentives as the Board may determine; or that the enterprise is engaged or proposing to engage in the sale abroad of export products bought by it from one or more export producers; or the enterprise in engaged or proposing to engage in rendering technical, professional or other services or in exporting television and motion pictures and musical recordings made or produced in the Philippines, either directly or through a registered trader.

(3) The applicant is capable of operating on a sound and efficient basis of contributing to the national development of the preferred area in particular and of the national economy in general; and

(4) If the applicant is engaged or proposes to engage in undertaking or activities other than preferred projects, it has installed or undertakes to install an accounting system adequate to identify the investments, revenues, costs, and profits or losses of each preferred project undertaken by the enterprise separately from the aggregate investment, revenues, costs and profits or losses of the whole enterprise or to establish a separate corporation for each preferred project if the Board should so require to facilitate proper implementation of this Code.

ARTICLE 33. Application. - Applications shall be filed with the Board, recorded in a registration book and the date appearing therein and stamped on the application shall be considered the date of official acceptance.

Whenever necessary, the Board, through the People's Economic Councils, shall consult the communities affected on the acceptability of locating the registered enterprise within their community.

ARTICLE 34. Approval and Registration Procedures. - The Board is authorized to adopt rules and regulations to facilitate action on applications filed with it; prescribe criteria for the evaluation of several applications filed in one preferred area; devise standard forms for the use of applicants and delegate to the regional offices of the Department of Trade and Industry the authority to receive and process applications for enterprises to be located in their respective regions.

Applications filed shall be considered automatically approved if not acted upon by the Board within twenty (20) working days from official acceptance thereof.

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ARTICLE 35. Criteria for Evaluation of Application. - The following criteria will be considered in the evaluation of applications for registration under a preferred area: (a) The extent of ownership and control by Philippine citizens of the enterprises; (b) The economic rates of return; (c) The measured capacity: Provided, That estimates of measured capacities

shall be regularly reviewed and updated to reflect changes in market supply and demand conditions; Provided, Further, That measured capacity shall not result in a monopoly in any preferred area of investment which would unduly restrict trade and fair competition nor shall it be used to deny the entry of any enterprise in any field of endeavor or activity;

(d) The amount of foreign exchange earned, used or saved in their operations; (e) The extent to which labor, materials and other resources obtained from

indigenous sources are utilized; (f) The extent to which technological advances are applied and adopted to local

conditions; (g) The amount of equity and degree to which the ownership of such equity

spread out and diversified; and (h) Such other criteria as the Board may determine.

ARTICLE 36. Appeal from Board's Decision. - Any order or decision of the Board shall be final and executory after thirty (30) days from its promulgation. Within the said period of thirty (30) days, said order or decision may be appealed to the Office of the President. Where an appeal has been filed, said order or decision shall be final and executory ninety (90) days after the perfection of the appeal, unless reversed.

ARTICLE 37. Certificate of Registration. - A registered enterprise under this Code shall be issued a certificate of registration under the seal of the Board of Investments and the signature of its Chairman and/or such other officer or employee of the Board as it may empower and designate for the purpose. The certificate shall be in such form and style as the Board may determine and shall state, among other matters: (a) The name of the registered enterprise; (b) The preferred area of investment in which the registered enterprise is

proposing to engage; (c) The nature of the activity it is undertaking or proposing to undertake, whether

pioneer or non-pioneer, and the registered capacity of the enterprise; and (d) The other terms and conditions to be observed by the registered enterprise by

virtue of the registration.

TITLE IIBASIC RIGHTS AND GUARANTEES

ARTICLE 38. Protection of Investments. - All investors and registered enterprises are entitled to the basic rights and guarantees provided in the Constitution. Among other rights recognized by the Government of the Philippines are the following:

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(a) Repatriation of Investments. - In the case of foreign investments, the right to repatriate the entire proceeds of the liquidation of the investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of repatriation, subject to the provisions of Section 74 of Republic Act No. 265 as amended; For investments made pursuant to Executive Order No. 32 and its implementing rules and regulations, remittability shall be as provided therein.

(b) Remittance of Earnings. - In the case of foreign investments, the right to remit earnings from the investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance, subject to the provisions of Section 74 of Republic Act No. 265 as amended;

(c) Foreign Loans and Contracts. - The right to remit at the exchange rate prevailing at the time of remittance such sums as may be necessary to meet the payments of interest and principal on foreign loans and foreign obligations arising from technological assistance contracts, subject to the provisions of Section 74 of Republic Act No. 265 as amended;

(d) Freedom from Expropriation. - There shall be no expropriation by the government of the property represented by investments or of the property of the enterprise except for public use or in the interest of national welfare or defense and upon payment of just compensation. In such cases, foreign investors or enterprises shall have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made and at the exchange rate at the time of remittance, subject to the provisions of Section 74 of Republic Act No. 265 as amended;

(e) Requisition of Investment. - There shall be no requisition of the property represented by the investment or of the property of enterprises, except in the event of war or national emergency and only for the duration thereof. Just compensation shall be determined and paid either at the time of requisition or immediately after cessation of the state of war or national emergency. Payments received as compensation for the requisitioned property may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance, subject to the provisions of Section 74 of Republic Act No. 265 as amended.

TITLE IIIINCENTIVES TO REGISTERED ENTERPRISES

Amended by Republic Act No. 7918ARTICLE 39. Incentives to Registered Enterprises. - All registered

enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment; (a) Income Tax Holiday. -

(1) For six (6) years from commercial operation for pioneer firms and four (4) years for non-pioneer firms, new registered firms shall be fully exempt from income taxes levied by the National Government. Subject to such

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guidelines as may be prescribed by the Board, the income tax exemption will be extended for another year in each of the following cases:

i. the project meets the prescribed ratio of capital equipment to number of workers set by the Board;

ii. utilization of indigenous raw materials at rates set by the Board; iii. the net foreign exchange savings or earnings amount to at least

US$500,000.00 annually during the first three (3) years of operation. The preceding paragraph notwithstanding, no registered pioneer firm may avail of this incentive for a period exceeding eight (8) years.

(2) For a period of three (3) years from commercial operation, registered expanding firms shall be entitled to an exemption from income taxes levied by the National Government proportionate to their expansion under such terms and conditions as the Board may determine; Provided, however, That during the period within which this incentive is availed of by the expanding firm it shall not be entitled to additional deduction for incremental labor expense.

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

(b) Additional Deduction for Labor Expense. - For the first five (5) years from registration, a registered enterprise shall be allowed an additional deduction from the taxable income of fifty percent (50%) of the wages corresponding to the increment in the number of direct labor for skilled and unskilled workers if the project meets the prescribed ratio of capital equipment to number of workers set by the Board: Provided, That this additional deduction shall be doubled if the activity is located in less developed areas as defined in Art. 40.

(c) Tax and Duty Exemption on Imported Capital Equipment. - Within five (5) years from the effectivity of this Code, importations of machinery and equipment and accompanying spare parts of new and expanding registered enterprise shall be exempt to the extent of one hundred percent (100%) of the customs duties and national internal revenue tax payable thereon: Provided, That the importation of machinery and equipment and accompanying spare parts shall comply with the following conditions:

(1)They are not manufactured domestically in sufficient quantity, of comparable quality and at reasonable prices;

(2)They are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval of the Board is secured for the part-time utilization of said equipment in a non-registered activity to maximize usage thereof or the proportionate taxes and duties are paid on the specific equipment and machinery being permanently used for non-registered activities; and

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

In granting the approval of the importations under this paragraph, the Board may require international canvassing but if the total cost of the capital equipment or industrial plant exceeds US$5,000,000, the Board shall apply or

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adopt the provisions of Presidential Decree Numbered 1764 on International Competitive Bidding.

If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts without prior approval of the Board within five (5) years from date of acquisition, the registered enterprise and the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of the tax exemption given it.

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

(aa) to another registered enterprise or registered domestic producer enjoying similar incentives;

(bb) for reasons of proven technical obsolescence; or (cc) for purposes of replacement to improve and/or expand the

operations of the registered enterprise. (d) Tax Credit on Domestic Capital Equipment. - A tax credit equivalent to one

hundred percent (100%) of the value of the national internal revenue taxes and customs duties that would have been waived on the machinery, equipment and spare parts, had these items been imported shall be given to the new and expanding registered enterprise which purchases machinery, equipment and spare parts from a domestic manufacturer: Provided, That (1) That the said equipment, machinery and spare parts are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval 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 tax and duty-free importation under paragraph (c) hereof; (3) that the approval of the Board was obtained by the registered enterprise; and (4) that the purchase is made within five (5) years from the date of effectivity of the Code. If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts, the provisions in the preceding paragraph for such disposition shall apply.

(e) Exemption from Contractor's Tax. - The registered enterprise shall be exempt from the payment of contractor's tax, whether national or local.

(f) Simplification of Customs Procedure. - Customs procedures for the importation of equipment, spare parts, raw materials and supplies, and exports of processed products by registered enterprises shall be simplified by the Bureau of Customs.

(g) Unrestricted Use of Consigned Equipment. - Provisions of existing laws notwithstanding, machinery, equipment and spare part consigned to any registered enterprises shall not be subject to restrictions as to period of use of such machinery, equipment and spare parts: Provided, that the appropriate re-export bond is posted unless the importation is otherwise covered under subsections (c) and (m) of this Article. Provided, further, that such consigned equipment shall be for the exclusive use of the registered enterprise. If such equipment is sold, transferred or otherwise disposed of by the registered enterprise the related provision of Article 39 (c) (3) shall apply.

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Outward remittance of foreign exchange covering the proceeds of such sale, transfer or disposition shall be allowed only upon prior Central Bank approval.

(h) Employment of Foreign Nationals. - Subject to the provisions of Section 29 of Commonwealth Act Number 613, as amended, a registered enterprise may employ foreign nationals in supervisory, technical or advisory positions for a period not exceeding five (5) years from its registration, extendible for limited periods at the discretion of the Board: Provided, however, That when the majority of the capital stock of a registered enterprise is owned by foreign investors, the position of president, treasurer and general manager or their equivalents may be retained by foreign nationals beyond the period set forth herein.

Foreign nationals under employment contract within the purview of this incentive, their spouses and unmarried children under twenty-one (21) years of age, who are not excluded by Section 29 of Commonwealth Act Numbered 613, as amended, shall be permitted to enter and reside in the Philippines during the period of employment of such foreign nationals.

A registered enterprise shall train Filipinos as understudies of foreign nationals in administrative, supervisory and technical skills and shall submit annual reports on such training to the Board. (i) Exemption on Breeding Stocks and Genetic Materials. - The importation of

breeding stocks and genetic materials within ten (10) years from the date of registration or commercial operation of the enterprise shall be exempt from all taxes and duties: Provided, That such breeding stocks and genetic materials are (1) not locally available and/or obtainable locally in comparable quality at reasonable prices; (2) reasonably needed in the registered activity; and (3) approved by the Board.

(j) Tax Credit on Domestic Breeding Stocks and Genetic Materials. - A tax credit equivalent to one hundred percent (100%) of the value of national internal revenue taxes and customs duties that would have been waived on the breeding stocks and genetic materials had these items been imported shall be given to the registered enterprise which purchases breeding stocks and generic materials from a domestic producer: Provided, 1) That said breeding stocks and generic materials would have qualified for tax and duty free importation under the preceding paragraph; 2) that the breeding stocks and genetic materials are reasonably needed in the registered activity; 3) that the approval of the board has been obtained by the registered enterprise; and 4) that the purchase is made within ten (10) years from date of registration or commercial operation of the registered enterprise.

(k) Tax Credit for Taxes and Duties on Raw Materials. - Every registered enterprise shall enjoy a tax credit equivalent to the National Internal Revenue taxes and Customs duties paid on the supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and forming parts thereof: Provided, however, that the taxes on the supplies, raw materials and semi- manufactured products domestically purchased are indicated as a separate item in the sales invoice.

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Nothing herein shall be construed as to preclude the Board from setting a fixed percentage of export sales as the approximate tax credit for taxes and duties of raw materials based on an average or standard usage for such materials in the industry.

(l) Access to Bonded Manufacturing/Trading Warehouse System. - Registered export oriented enterprises shall have access to the utilization of the bonded warehousing system in all areas required by the project subject to such guidelines as may be issued by the Board upon prior consultation with the Bureau of Customs.

(m) Exemption from Taxes and Duties on Imported Spare Parts. - Importation of required supplies and spare parts for consigned equipment or those imported tax and duty free by a registered enterprise with a bonded manufacturing warehouse shall be exempt from customs duties and national internal revenue taxes payable thereon, Provided, However, That at least seventy percent (70%) of production is exported; Provided, further, That such spare parts and supplies are not locally available at reasonable prices, sufficient quantity and comparable quality; Provided, finally, That all such spare parts and supplies shall be used only in the bonded manufacturing warehouse of the registered enterprise under such requirements as the Bureau of Customs may impose.

(n) Exemption from Wharfage Dues and any Export Tax, Duty, Impost and Fee . - The provisions of law to the contrary notwithstanding, exports by a registered enterprise of its non- traditional export products shall be exempted of its non-traditional export products shall be exempted from any wharfage dues, and any export tax, duty, impost and fee.

TITLE IVINCENTIVES TO LESS-DEVELOPED-AREA

REGISTERED ENTERPRISEARTICLE 40. A registered enterprise regardless of nationality located in a

less-developed-area included in the list prepared by the Board of Investments after consultation with the National Economic & Development Authority and other appropriate government agencies, taking into consideration the following criteria: low per capita gross domestic product; low level of investments; high rate of unemployment and low level of infrastructure development including its accessibility to developed urban centers, shall be entitled to the following incentives in addition to those provided in the preceding article: (a) Pioneer incentives. - An enterprise in a less-developed-area registered with

the Board under Book I of this Code, whether proposed, or an expansion of an existing venture, shall be entitled to the incentives provided for a pioneer registered enterprise under its law of registration.

(b) Incentives for necessary and Major Infrastructure and Public Utilities. - Registered enterprise establishing their production, processing or manufacturing plants in an area that the Board designates as necessary for the proper dispersal of industry or in area which the Board finds deficient in infrastructure, public utilities, such as irrigation, drainage or other similar

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waterworks infrastructure may deduct from taxable income an amount equivalent to one hundred percent (100%) of necessary and major infrastructure works it may have undertaken with the prior approval of the Board in consultation with other government agencies concerned; Provided, That the title to all such infrastructure works shall upon completion, be transferred to the Philippine Government: Provided, further, That any amount not deducted for a particular year may be carried over for deduction for subsequent years not exceeding ten (10) years from commercial operation.

TITLE VGENERAL PROVISIONS

ARTICLE 41. Power of the President to Rationalize Incentives. - The President may, upon recommendation of the Board and in the interest of national development, rationalize the incentives scheme herein provided; extend the period of availment of incentives or increase rates of tax exemption of any project whose viability or profitability require such modification.

ARTICLE 42. Refund and Penalties. - In case of cancellation of the certificate granted under this Code, the Board may, in appropriate cases, require the refund of incentives availed of and impose corresponding fines and penalties.

ARTICLE 43. Benefits of Multiple Area Enterprises. - When a registered enterprise engages in activities or endeavors that have not been declared preferred areas of investments, the benefits and incentives accruing under this Code to registered enterprises and investors therein shall be limited to the portion of the activities of such registered enterprise as is a preferred area of investment.

BOOK IIFOREIGN INVESTMENTS WITHOUT INCENTIVES

Book II of the Omnibus Investments Code of 1987 has been repealed by the Foreign Investment Act of 1991 (R.A. 7042)

BOOK III“INCENTIVES TO MULTINATIONAL COMPANIES ESTABLISHING

REGIONAL OR AREA HEADQUARTERS AND REGIONAL OPERATING HEADQUARTERS IN THE PHILIPPINES”

Definition of Terms. Purpose of this Act, the term: (1) Multinational Company shall mean a foreign company or a group of

foreign companies with business establishments in two or more countries:

(2) 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, communication 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: and

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(3) 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.

CHAPTER ILICENSING OF REGIONAL OR AREA HEADQUARTERS

ARTICLE 58. Qualifications of Regional of Area Headquarters. - Any foreign business entity formed, organized and existing under any laws other than those of the Philippines whose purpose, as expressed in its organizational documents or by resolution of its Board of Directors or its equivalent, is to supervise, superintend, inspect or coordinate, its own affiliates, subsidiaries, or branches in the Asia-Pacific Region may establish a regional or area headquarters in the Philippines, after securing a license therefore from the Securities and Exchange Commission, upon the favorable recommendation of the Board of Investments.

The Securities and Exchange Commission shall, within thirty (30) days from the effectivity of this Code, issue the implementing rules and regulations. The following minimum requirements shall, however, be complied with by the said foreign entity. (a) A certification from the Philippine Consulate/Embassy or a duly authenticated

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

(b) A duly authenticated certification from the principal officer of the foreign entity to the effect that the said foreign entity has been authorized by its Board of Directors or governing body establish its regional or area headquarters in the Philippines, specifying that:

1. The activities of the regional headquarters or area headquarters shall be limited to acting as a supervisory, communications and coordinating center for its subsidiaries, affiliates and branches in the region;

2. The regional or area headquarters will not derive any income from sources within the Philippines and will not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines nor shall it solicit or market goods and services whether on behalf of its mother company or its branches, affiliates subsidiaries or any other company; and

3. The regional or area headquarters shall notify the Board of Investments and the Securities and Exchange Commission of any decision to close down or suspend operations of its headquarters at least fifteen (15) days before the same is effected.

(c) Any undertaking that the multinational company will remit into the country such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than Fifty thousand United States dollars or

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its equivalent in other foreign currencies annually. Within thirty (30) days from receipt of Certificate of Registration from the Securities and Exchange Commission, the multinational company will submit to the Securities and Exchange Commission a certificate of inward remittance from a local bank showing that it has remitted to the Philippines the amount of at least Fifty thousand United States dollars or its equivalent in other foreign currencies and converted the same to Philippine currency. Annually, within thirty (30) days from the anniversary date of the multinational company's registration as a regional or area headquarters with the Securities and Exchange Commission, it will submit proof to the Securities and Exchange Commission of inward remittance amounting to at least Fifty thousand United States dollars or its equivalent in other foreign currencies during the past year.

(d) Any violation by the regional or area headquarters of a multinational company of any of the provisions of this Code, or its implementing rules and regulations, or other terms and conditions of its registration, or any provision of existing laws, shall constitute a sufficient cause for the cancellation of its license or registration.

CHAPTER IILicensing of Regional Operating Headquarters

ARTICLE 59. Qualification of Regional Operating Headquarters (ROHQs). – Any foreign business entity formed, organized and existing under any laws other than those of the Philippines to service its own affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Regional and other foreign markets. ROHQs will be allowed to derive income by performing the qualifying services enumerated under paragraph (b) 1 hereunder. ROHQs of non-banking and non-financial institutions are required to secure a license from the Securities and Exchange Commission, upon the favorable recommendation of the Board of Investments. ROHQ of banking and financial institutions, on the other hand, are required to secure licenses from the Securities and Exchange Commission and the Bangko Sentral ng Pilipinas, upon the favorable recommendation of the Board of Investments.

The Securities and Exchange Commission and the Bangko Sentral ng Pilipinas shall, within thirty (30) days from the effectivity of this Code, issue the implementing rules and regulations.

“The following minimum requirements shall be complied with by the said foreign entity: (a) A certification from the Philippine Consulate/Embassy, or a duly authenticated

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

(b) A duly authenticate certification from the principal officer of the foreign entity to the effect that the said foreign entity has been authorized by its Board of Directors of governing body to establish its regional operating headquarters in the Philippines, specifying that:

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(1) The regional operating headquarters may engage in any of the following qualifying services:

‧ 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 communications; and ‧ Business development ROHQs are prohibited from offering qualifying services to entities other

than their affiliates, branches or subsidiaries, as declared in their registration with the Securities and Exchange Commission nor shall they be allowed to directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company.

(2) The regional operating headquarters shall notify the Board of Investments, the Securities and Exchange Commission and the Bangko Sentral ng Pilipinas, as the case maybe, of any decision to close down or suspend operations of its headquarters at least fifteen (15) days before the same is effected.

(c) An undertaking that the multinational company will initially remit into the country such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than Two Hundred Thousand States Dollars ($200,000.00) or its equivalent in other foreign currencies and converted the same to Philippine currency. Within thirty (30) days from receipt of certificate of registration, the multinational company will submit to the Securities and Exchange Commission a certificate of inward remittance from a local bank showing that it has remitted to the Philippines the amount of at least Two Hundred Thousand United States Dollars ($200,000.00) or its equivalent in other foreign currencies and converted the same to Philippine currency.

(d) Any violation by the regional operating headquarters of a multinational company of the provisions of this code, or its implementing rules and regulations, or other terms and condition of its registration, or any provisions of existing laws, shall constitute a sufficient cause for the cancellation of its license or registration.

Chapter IIIIncentives to Expatriates

ARTICLE 60. 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, if accompanying them or if following to join them after their admission into the Philippines as non-immigrant shall be issued a multiple entry special visa

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within seventy two hours upon submission of all required documents and which shall be valid for a period of three (3) years to enter the Philippines; Provided, That a responsible officer of the applicant company submits a duly authenticated certificate to the effect that the person who seeks entry into the Philippines is an executive of the applicant company and will work exclusively for applicant’s regional or area headquarters which is duly licensed to operate in the Philippines and that he will receive a salary that will be paid by the headquarters in the Philippines an amount equivalent to at least twelve thousand United States dollar ($12,000.00) or the equivalent in other foreign currencies per annum.

The admission and stay shall be coterminus with the validity of the multiple entry special visa. The stay, however, is extendible to three years upon submission to the Bureau of Immigration of a sworn certification by a responsible officer of the regional or area headquarters or regional operating headquarters; that its license to operate remains valid and subsisting and that the regional or area headquarters has withheld tax due on compensation and the same has been to the Bureau of Internal Revenue.

Non-immigrants who have been admitted under the multiple entry special visa, as well as their respective spouses and independents, shall be exempt from; the payment of all fees under the immigration and alien registration laws; securing alien certificates of registration; and obtaining immigration clearance certificates, and all types of clearance required by the government department or agency except that upon final departure from the Philippines the employer of the said non-immigrants shall so advise in writing the Bureau of Immigration at least (5) working days prior to the non-immigrant’s departure, and the finally departing non-immigrant employee shall be required to submit to the said office a tax clearance from the Bureau of Internal Revenue.

ARTICLE 61. Witholding Tax of 15% on Compensation Income. - Aliens employed by the regional or area headquarters and regional operating headquarters of multinational companies shall be subject for each taxable year upon their gross income received as salaries, wages, annuities, compensations, remuneration and emolument to tax equal to fifteen percentum (15%) of such gross income. The same tax treatment is applicable to Filipinos employed and occupying the positions as those aliens employed by the multinational companies. Provided, That said Filipinos shall have the option to be taxed at either 15% of gross income or at the regular tax rate on their taxable income in accordance with the National Internal Revenue Code as amended by Republic Act No, 8424.

ARTICLE 62. Tax and Duty Free Importation. – An Alien executive of the regional or area headquarters and regional operating headquarters of a multinational company shall enjoy tax and duty free importation of personal and household effects as provided for under Section 105(h) of the tariff and Customs Code, as amended, and Section 109(I) of the national Internal Revenue Code, as amended: Provided, that the personal and household effects shall arrive in the Philippines within ninety (90) days before or after conversion of the alien executive’s admission category to multiple entry visa issued under this act.

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ARTICLE 63. Travel Tax Exempt. – Personnel of regional or area headquarters and regional operating headquarters of multinational companies and the dependent of such foreign personnel if joining them during the period of their assignment in the Philippines, as certified by the Board of Investments shall be exempted from the payment of travel tax imposed under section 1 of Presidential Decree No. 1183, as amended.

CHAPTER IVINCENTIVES TO REGIONAL OR AREA HEADQUARTERS

AND REGIONAL OPERATING HEADQUARTERSARTICLE 64. Corporate Income tax incentive to Regional or Area

Headquarters and Regional Operating Headquarters. - Regional or area headquarters established in the Philippines by Multinational Companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and other foreign markets shall not be subject to income tax. Regional Operating headquarters shall be subject to a tax rate of ten percent (10%) in their taxable income as provided for under Internal Revenue Code, as amended by Republic Act No. 8424: Provided: That any income derived from the Philippine sources by the ROHQ when remitted to the parent company shall be subject to the tax on branch profit remittances as provided for the section 28(a)(5) to the National Internal Revenue Code.

ARTICLE 65. Value-Added Tax. – The Regional or Area Headquarters established in the Phlippines by Multinational companies shall be exempted to the value added tax. In addition, the sale or lease of goods and property and the rendition of services to Regional or Area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the National Internal Revenue Code, as amended.

Regional operating headquarters shall be subject to ten percent (10%) value added tax as provided for under the national Internal Revenue Code, as amended.

ARTICLE 66. Exemption from All Kinds of Local Taxes, Fees or Charges. - The regional or area headquarters and regional operating headquarters of multinational companies shall be exempted from all kinds of local taxes, fees or charges imposed by a local government unit except real property tax on land improvements and equipment.

ARTICLE 67. Tax and Duty Free Importation of Training Materials and Equipment; Importation of Motor Vehicles – Regional or area headquarters and regional operating headquarters shall enjoy tax and duty free importation of equipment and materials for training and conferences which are needed and used solely for their functions as regional or area headquarters or regional operating headquarters and which are not locally available subject to the prior approval of the Board of Investments.

The sale or disposition of equipment within two (2) years after importation, entered tax and duty free, shall require prior approval of the Board of

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Investments and prior payment of applicable taxes and duties waived in favor of RHQ/ROHQ.

Regional or area headquarters and regional operating headquarters shall be entitled to the importation of new motor vehicles subject to the payment of the corresponding taxes and duties.

BOOK IVINCENTIVES TO MULTINATIONAL COMPANIES ESTABLISHING

REGIONAL WAREHOUSES TO SUPPLY SPARE PARTS, COMPONENTS, SEMI-FINISHED PRODUCTS AND RAW MATERIALS TO THE ASIA-PACIFIC

REGIONAL AND OTHER FOREIGN MARKETSARTICLE 68. Qualifications. - A multinational company organized and

existing under any laws other than those of the Philippines which is engaged in international trade and supplies spare parts, components, semi-finished products and raw materials to its distributors or markets in the Asia-Pacific area and other foreign areas and which has established or will simultaneously establish a regional or area headquarters and/or regional operating headquarters in the Philippines in accordance with the provisions of Book III of this Code and the rules and regulations implementing the same may also establish regional warehouse or warehouses in ecozones in the Philippine Economic Zone Authority (PEZA). With respect to regional warehouse located or will locate in ecozones with special charters, such license shall be secured from the concerned ecozone authorities. For existing regional warehouses, said license shall be secured from the Board of Investments unless they choose to relocate inside ecozones; Provided, that: (1) The activities of the regional warehouse shall be limited to serving as a supply

depot for the storage, deposit, safekeeping of its spare parts, components, semi-finished products and raw materials including the packing, covering, putting up, marking, labeling and cutting or altering to customer’s specification, mounting and/or packaging into kits or marketable lots thereof, to fill up transactions and sales made by its head offices or parent companies and to serving as a storage or warehouse of goods purchased locally by the home office of the multinational for export abroad. The regional warehouse shall not directly engage in trade nor directly solicit business, promote any sale, nor enter into any contract for the sale or disposition of goods in the Philippines: Provided, That a regional warehouse may be allowed to withdraw imported goods from said warehouse/s for delivery to an authorized distributor in the Philippines: Provided, however, That the corresponding taxes, customs duties and charges under the Tariff and Customs Code have been paid by the headquarters of the said multinational upon arrival of such goods: Provided, further, That the delivery of said goods to the aforesaid distributor in the Philippines shall be treated as a sale made by the headquarters rather than that of its head office, and shall be reflected in a separated book of accounts, any representation as to who is the seller to the contrary notwithstanding: Provided, furthermore, That the aforementioned sale shall be governed by the provisions on value-added tax in accordance

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with the National Internal Revenue Code, as amended by Republic Act No. 8424: Provided, finally, That the income from the aforementioned sale to said headquarters from sources within the Philippines and shall be subject to the corporate income tax of a resident foreign corporation under the National Internal Revenue Code, as amended, the provision of any law to the contrary notwithstanding.

(2) The personnel of a regional warehouse will not participate in any manner in the management of any subsidiary, affiliate or branch office it might have in the Philippines other than the activities allowed under this Act.

(3) The personnel of a regional or area headquarters or regional operating headquarters shall be responsible for the operation of the regional warehouse subject to the provision of this Code.

(4) The multinational company shall pay the Board of Investments, the PEZA or concerned ecozone authorities, as the case may be, and the appropriate Collector of Customs concerned the corresponding license fees and storage fees to be determined by said offices.

(5) An application for the establishment of a regional warehouse located outside an ecozone shall be made in writing to the Board of Investments, to the PEZA, or to concerned ecozone authorities in the case of regional warehouse located in ecozones. The application shall describe the premises, the located and capacity of the regional warehouse and the purpose for which the building is to be used.

The jurisdiction and responsibility of supervising the regional warehouses located outside ecozones shall be vested on the Bureau of Customs, and the Board of Investments, or the PEZA or concerned ecozone authorities for warehouse within ecozones.

The Board of Investments, the PEZA or concerned ecozone authorities, in consultation with the Regional Director of Customs of the district where the warehouse will be situated shall cause an examination of the premises to be made and if found satisfactory, it may authorize its establishment without complying with the requirements of any other government body, subject to the following conditions: (1) That the articles to be stored in the warehouse are spare parts, components,

semi-finished products and raw materials of the multinational company operator for distribution and supply to its Asia-Pacific and other foreign markets including packaging, coverings, brands, label and warehouse equipment as provided in Article 69 (a) hereof;

(2) That the entry or importation, storage or reexport of the goods destined for or to be stored in the regional warehouse will not involve any dollar from Philippine sources;

(3) That they are of such character as to be readily identifiable for reexport; and in case of local distribution they shall be subject to Article 68(1), Article 69 paragraph (b) and the guidelines implementing Book IV of this Code;

(4) That it shall file an ordinary warehouse bond in an amount equal to one hundred percent (100%) of the ascertained customs duties on the articles

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imported without prejudice to its filing a general warehousing bond in lieu of the ordinary warehousing bond;

(5) The percentage of annual allowable withdrawal from warehouses located outside ecozone for domestic use shall be subject to the approval of the Board of Investments, or of the PEZA or concerned ecozone of their jurisdiction; Provide, however, That in the case of existing warehouse, in no case shall their withdrawals exceed thirty percent (30%) of the value of goods they have brought in for any given year and the payment of the corresponding taxes and duties shall have been made upon the arrival of such goods imported; Provide, further, That the PEZA or concerned ecozone authorities may allow withdrawal exceeding thirty percent (30%) of the value of goods under such terms and conditions the PEZA or concerned ecozone authorities may impose.

Art. 69. Tax Treatment of Imported Articles in the Regional Warehouse. – (a) Tax Incentives for Qualified Goods Destined for Reexportation to the Asia-Pacific and Other Foreign Markets. – Except as otherwise provided in this Code, imported spare parts, components, semi-finished products, raw materials and other items including any packages, coverings, brands and labels and warehouses equipment as may be allowed by the Board of Investments, the PEZA or concerned ecozone authorized, as the case may be, for use exclusively on the goods stored, except those prohibited by law, brought into the regional warehouse from abroad to be kept, stored and/or deposited or used therein reported directly therefrom under the supervision of the Collector of Customs concerned for distribution to its Asia-Pacific and other foreign markets in accordance with the guidelines implementing Book IV of this Code including to a bonded manufacturing warehouse in the Philippines and eventually reexported shall not be subject to customs duty, internal revenue tax, export tax nor to local taxes, the provisions of law to the contrary notwithstanding.

(b) Payment of Applicable Duties and Taxes on Qualified Goods Subject to Laws and Regulations Covering Imported Merchandise if destined for the Local Market. – Any spare parts, components, semi-finished products, raw materials and other items sent, delivered, released or taken from the regional warehouse to the local market in accordance with the guidelines implementing Book IV of this Code shall be subject to the payment of income taxes, customs duties, taxes and other charges provided for under Section 68 hereof and for which purpose, the proper commercial invoice of the head offices or parent companies shall be submitted to the Collector of Customs concerned; and shall be subject to laws and regulations governing imported merchandise; Provided, That in case any of the foregoing items are sold, batered, hired or used for purposes other than they were intended for without prior compliance with the guidelines implementing Book IV of this Code and without prior payment of the duty, tax or other charges which would have been due and payable at the time of entry if the articles had been entered without the benefit of this Order, shall be subject to forfeiture and the importation shall constitute a fraudulent practice against customs revenue punishable under Section 3602, as amended, of the Tariff and Customs Code of the Philippines: Provided, further, That a sale

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pursuant to a judicial order shall not be subject to the preceding proviso without prejudice to the payment of duties, taxes and other charges.

Art. 70. Exemption from the Maximum Storage Period Under the Tariff and Customs Code; Period of Storage in the Regional Warehouse. - The provision of the law in Section 1908 of Tariff and Customs Code of the Philippines, as amended, to the contrary notwithstanding, articles duly entered for warehousing may remain in the regional warehouses for period of two (2) years from the time of their transfer to the regional warehouse, which period may be extended with the approval of the Board of Investments for an additional period of one (1) year upon payment of the corresponding storage fee on the unexported articles, as provided for under Article 68 (4) for each extension until they are reexported in accordance with the guidelines implementing Book IV of this Code. Any articles withdrawn, released or removed contrary to the provisions of said guidelines shall be forfeited pursuant to the provisions of Article 69, paragraph (b) hereof.

Art 71. Rules and Regulations on the Jurisdiction, Operation and Control over Qualified Goods in Regional Warehouse. The Board of Investments, the PEZA, concerned ecozone authorities and the Bureau of Customs shall jointly issue special rules and regulations on the receiving, handling, custody, entry, examination, classifications, delivery, storage, warehousing, manipulation and packaging, release for reexportation or for importation and delivery to a Philippine distributor and for the safekeeping, recording, inventory and liquidation of said qualified goods, any existing law notwithstanding. Such rules and regulations shall be formulated in consultation with the applicants/operators of regional warehouse.

ART. 72. Cancellation of License or Registration. – Any willful violation by the regional or area headquarters or regional operating headquarters of a multinational company which has established a regional warehouse or warehouses contrary to or in violation of the provisions of existing laws and the implementing guidelines of Book IV of this Code shall constitute a sufficient cause for the cancellation of its license or registration in addition to the penalties herein above provided in Article 69, paragraph (b) hereof.

The Board, the PEZA or concerned ecozone authorities, as the case may be, shall have the authority to impose such fines in amounts that are just and reasonable in cases of late submission or noncompliance on the part of registered enterprises, with reporting and other requirements under this Code and its implementing rules and regulations.

ART. 73. Implementing Rules and Regulations. – To implement the provisions of Books III and IV of this Code, the Department of Trade and Industry, in coordination with the Department of Foreign Affairs, the Board of Investments, the Philippines Economic Zone Authority, the ecozone authorities with special charters, the Securities and Exchange Commission, the Bureau of Internal Revenue, the Bureau of Customs, Bangko Sentral ng Pilipinas, Philippine Tourism Authority, and the Bureau of Immigration shall jointly promulgate such rules and regulations which shall take effect thirty (30) days

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after their publication in at least two (2) national newpapers of general circulation in the Philippines.

BOOK VSPECIAL INVESTORS RESIDENT VISA

ARTICLE 74. Qualifications. - Any alien who possesses the following qualifications may be issued a Special Investors Resident Visa. 1. He had not been convicted of a crime involving moral turpitude; 2. He is not afflicted with any loathsome, dangerous or contagious disease; 3. He has not been institutionalized for any mental disorder or disability; 4. He is willing and able to invest the amount of at least US$75,000.00 in the

Philippines; Provided, That the foregoing invested amount shall be lowered to US$50,000 for aliens availing of Executive Order No. 63 and Executive Order No. 1037 subject to the conditions imposed by said legislations: Provided, further, That for purposes of compliance with this particular condition, the alien-applicant should prove that he has remitted such amount in acceptable foreign currency to the Philippines.

ARTICLE 75. Reportorial Requirements. - As a holder of the Special Investors Resident Visa, an alien shall be entitled to reside in the Philippines while his investment subsists. For this purpose, he should submit an annual report, in the form duly prescribed for the purpose, to prove that he has maintained his investment in the country. Should said alien withdraw his said investment from the Philippines, then the Special Investors Resident Visa issued to him will automatically expire.

BOOK VIINCENTIVES OF EXPORT PROCESSING ZONE ENTERPRISES

ARTICLE 76. Employment of Foreign Nationals. - The provisions of law to the contrary notwithstanding, Export Processing Zone Authority, hereinafter referred to as the "Authority" may authorize an alien or an association, partnership, corporation or any other form of business organization formed, organized, chartered or existing under any law other than those of the Philippines, or which is not a Philippine national, or the working capital of which is fully owned or controlled by aliens to do business or engage in an industry inside the export processing zone. Subject to the provisions of Section 29 of Commonwealth Act No. 613, as amended, a zone registered enterprise may employ foreign nationals in supervisory, technical or advisory positions for a period not exceeding five (5) years from its registration, extendible for limited periods at the discretion of the Authority: Provided, however, That when the majority of the capital stock of a zone registered enterprise is owned by foreign nationals, the positions of president, treasurer, and general manager or their equivalents may be retained by foreign nationals beyond the period set forth herein.

Foreign nationals employed within the purview of this Book, their spouses, and unmarried children under twenty-one years of age who are not excluded by Sec. 29 of C.A. No. 613, as amended, shall be permitted to enter and reside in

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the Philippines during the period of employment of such foreign nationals. They shall be issued a multiple entry visa, valid for a period of three years, to enter and leave the Philippines without further documentary requirements other than valid passports or other travel documents in the nature of passports. The validity of the multiple entry special visa shall be extendible yearly. Foreign Nationals who have been issued multiple entry special visas under this provision, as well as their respective spouses and dependents, shall be exempt from obtaining alien certificates of registration and emigration clearance certificates and all types of clearances required by any government department or agency. For this purpose, the Commission on Immigration and Deportation and the Authority shall jointly issue the necessary implementing rules and regulations.

A registered enterprise shall train Filipinos as understudies of foreign nationals in administrative, supervisory and technical skills and shall submit annual reports of such training to the Board.

ARTICLE 77. Tax Treatment of Merchandise in the Zone. – (1) Except as otherwise provided in this Code, foreign and domestic

merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise whether directly or indirectly related in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding.

(2) Merchandise purchased by a registered zone enterprise from the customs territory and subsequently brought into the zone, shall be considered as export sales and the exporter thereof shall be entitled to the benefits allowed by law for such transaction.

(3) Domestic merchandise from the zone to the customs territory shall, whether or not combined with or made part of other articles likewise of local origin or manufactured in the Philippines while in the export processing zone, be subject to internal revenue laws of the Philippines as domestic goods sold, transferred or disposed of for local consumption.

(4) Merchandise sent from the export processing zone to the customs territory shall, whether or not combined with or made part of other articles while in the zone, be subject to rules and regulations governing imported merchandise. The duties and taxes shall be assessed on the value of imported materials (except when the final product is exempt) and the internal revenue taxes on the values added.

(5) Domestic merchandise on which all internal revenue taxes have been paid, if subject thereto, and foreign merchandise previously imported on which duty or tax has been paid, or which have been admitted free of duty and tax, may be taken into the zone from the customs territory of the Philippines and be brought back thereto free of quotas, duty or tax.

(6) Subject to such regulations respecting identity and safeguarding of the revenue as the Authority may deem necessary when the identity of an article

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entered into the export processing zone under the immediately preceding paragraph has been lost, such article when removed from the zone and taken to the customs territory shall be treated as foreign merchandise entering the country for the first time, under the provisions of the Tariff and Customs Code.

(7) Articles produced or manufactured in the zone and exported there from shall, on subsequent importation into the customs territory, be subject to the import laws applicable to like articles manufactured in a foreign country;

(8) Unless the contrary is shown, merchandise taken out of the zone shall be considered for tax purposes to have been sent to customs territory.

ARTICLE 78. Additional Incentives. - A zone registered enterprise shall also enjoy all the incentive benefits provided in Article 39 hereof under the same terms and conditions stated therein. In addition zone registered enterprises shall also be entitled to the following: (a) Exemption from Local Taxes and Licenses. - Notwithstanding the provisions

of law to the contrary, zone registered enterprises shall, to the extent of their construction, operation or production inside the zone be exempt from the payment of any and all local government imposts, fees, licenses or taxes except real estate taxes which shall be collected by the Province/City/Municipality responsible for the collection thereof under the provisions of the Real Property Tax Code: Provided, That machineries owned by zone registered enterprises which are actually installed and operated in the Zone for manufacturing, processing or for industrial purposes shall not be subject to the payment of real estate taxes for the first three (3) years of operation of such machineries: Provided, further, That fifty percent (50%) of the proceeds of the real estate taxes collected from all real properties located in the Zone and such other areas owned or administered by the Authority shall be remitted to the Authority by the province/city/municipality responsible for the collection of such taxes under the provisions of the Real Property Tax Code. All real estate taxes accruing to the Authority as herein provided shall be expanded for such community facilities, utilities and/or services as the Authority may determine.

(b) Production equipment or machineries, not attached to real estate, used directly or indirectly, in the production, assembly or manufacture of the registered product of the zone registered enterprise shall be exempt from real property taxes.

FINAL PROVISIONSARTICLE 79. Interpretation. - All doubts concerning the benefits and

incentives granted enterprises and investors by this Code shall be resolved in favor of investors and registered enterprises.

ARTICLE 80. Vested Rights. - Existing registered enterprises which are enjoying the incentives under the laws repealed by Books One and Six of this Code shall continue to enjoy such incentives for the period therein stated: Provided, however, That firms which made investments in new or expansion projects approved or registered by the Board or the Authority on or after

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December 1, 1986 but before the effectivity of this Code may opt to be governed by the provisions of this Code.

ARTICLE 81. Confidentiality of Applications. - All applications and their supporting documents filed under this Code shall be confidential and shall not be disclosed to any person, except with the consent of the application or on orders of a court of competent jurisdiction.

ARTICLE 82. Judicial Relief . - All orders or decisions of the Board in cases involving the provisions of this Code shall immediately be executory. No appeal from the order or decision of the Board by the party adversely affected shall stay such order or decision: Provided, That all appeals shall be filed directly with the Supreme Court within thirty (30) days from receipt of the order or decision.

ARTICLE 83. Effectivity of Implementing Rules and Regulations. - The Board shall promulgate rules and regulations to implement the intent and provisions of this Code and shall have the authority to impose such fines in amounts that are just and reasonable in cases of late submission or non-compliance on the part of registered enterprises, with reporting and other requirements under this Code and its implementing rules and regulations. Such rules and regulations shall take effect fifteen (15) days following its publication in newspaper of general circulation in the Philippines.

ARTICLE 84. Separability Clause. - The provisions of this Code are hereby declared to be separable and, in the event any such provisions is declared unconstitutional, the other provisions which are not affected thereby shall remain in force and effect.

ARTICLE 85. Repealing Clause. - The following provisions or laws are hereby repealed:

(1) Batas Pambansa 44 (2) Batas Pambansa 391 (1983) (3) Presidential Decree 218 (4) Presidential Decree 1419 (5) Presidential Decree 1623, as amended (6) Presidential Decree No. 1789 (1981) (7) Presidential Decree 2032 (8) Executive Order 815 (9) Executive Order 1945 (1985) All other laws, decrees, executive orders, administrative orders, rules and

regulations or parts thereof which are inconsistent with the provisions of this Code are hereby repealed, amended or modified accordingly.

ARTICLE 86. Effectivity. - This Code shall take effect immediately upon approval.

Done in the City of Manila, this 17th day of July, in the year of Our Lord, nineteen hundred and eighty-seven.

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ANNEX DFORIEGN INVESTMENTS ACT OF 1991 (R.A.7042)

(As amended by RA 8179)

AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Title. – This Act shall be known as the “Foreign Investments Act of 1991”.

SEC. 2. Declaration of Policy. - It is the policy of the State to attract, promote and welcome productive investments from foreign individuals, partnerships, corporations, and governments, including their political subdivisions, in activities which significantly contribute to national industrialization and socio-economic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws. Foreign investments shall be encouraged in enterprises that significantly expand livelihood and employment opportunities for Filipinos; enhance economic value of farm products; promote the welfare of Filipino consumers; expand the scope, quality and volume of exports and their access to foreign markets; and/or transfer relevant technologies in agriculture, industry and support services. Foreign investments shall be welcome as a supplement to Filipino capital and technology in those enterprises serving mainly the domestic market.

As a general rule, there are no restrictions on extent of foreign ownership of export enterprises. In domestic market enterprises, foreigners can invest as much as one hundred percent (100%) equity except in areas included in the negative list. Foreign owned firms catering mainly to the domestic market shall be encouraged to undertake measures that will gradually increase Filipino participation in their businesses by taking in Filipino partners, electing Filipinos to the board of directors, implementing transfer of technology to Filipinos, generating more employment for the economy and enhancing skills of Filipino workers.

SEC. 3. Definitions. – As used in this Act: a) the term “Philippine National” shall mean a citizen of the Philippines or a

domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines or a corporation organized abroad and registered as doing business in the Philippine under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where

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the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national; (as amended by R.A. 8179).

b) the term “investment” shall mean equity participation in any enterprise organized or existing under the laws of the Philippines;

c) the term “foreign investment” shall mean an equity investment made by a non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange;

d) the phrase “doing business” shall include soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase “doing business” shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account;

e) the term “export enterprise” shall mean an enterprise wherein a manufacturer, processor or service (including tourism) enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty percent (60%) or more of such purchases;

f) the term “domestic market enterprise” shall mean an enterprise which products goods for sale, or renders services to the domestic market entirely or if exporting a portion of its output fails to consistency export at least sixty percent (60%) thereof; and

g) the term “Foreign Investments Negative List” or “Negative List” shall mean a list of areas of economic activity whose foreign ownership is limited to a maximum of forty percent (40%) of the equity capital of the enterprises engaged therein.

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SEC. 4. Scope. – This Act shall not apply to banking and other financial institutions which are governed and regulated by the General Banking Act and other laws under the supervision of the Central Bank.

SEC. 5. Registration of Investments of Non-Philippine Nationals. – Without need of prior approval, a non-Philippine national, as that term is defined in Section 3 a), and not otherwise disqualified by law may, upon registration with the Securities and Exchange Commission (SEC), or with the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry in the case of single proprietorships, do business as defined in Section 3 d) of this Act or invest in a domestic enterprise up to one hundred percent (100%) of its capital, unless participation of non-Philippine nationals in the enterprise is prohibited or limited to a smaller percentage by existing law and/or under the provisions of this Act. The SEC or BTRCP, as the case may be, shall not impose any limitations on the extent of foreign ownership in an enterprise additional to those provided in this Act: Provided, however, That any enterprise seeking to avail of incentives under the Omnibus Investment Code of 1987 must apply for registration with the Board of Investments (BOI), which shall process such application for registration in accordance with the criteria for evaluation prescribed in said Code: Provided, finally, That a non-Philippine national intending to engage in the same line of business as an existing joint venture, in which he or his majority shareholder is a substantial partner, must disclose the fact and the names and addresses of the partners in the existing joint venture in his application for registration with SEC. During the transitory period as provided in Section 15 hereof, SEC shall disallow registration of the applying non-Philippine national if the existing joint venture enterprise, particularly the Filipino partners therein, can reasonably prove they are capable to make the investment needed for the domestic market activities to be undertaken by the competing applicant. Upon effectivity of this Act, SEC shall effect registration of any enterprise applying under this Act within fifteen (15) days upon submission of completed requirements.

SEC. 6. Foreign Investment in Export Enterprises. – Foreign investment in export enterprises whose products and services do not fall within Lists A and B of the Foreign Investment Negative List provided under Section 8 hereof is allowed up to one hundred percent (100%) ownership.

Export enterprises which are non-Philippine nationals shall register with BOI and submit the reports that may be required to ensure continuing compliance of the export enterprise with its export requirement. BOI shall advise SEC or BTRCP, as the case may be, of any export enterprise that fails to meet the export ratio requirement. The SEC or BTRCP shall thereupon order the non-complying export enterprise to reduce its sales to the domestic market to not more than forty percent (40%) of its total production; failure to comply with such SEC or BTRCP order, without justifiable reason, shall subject the enterprise to cancellation of SEC or BTRCP registration, and/or the penalties provided in Section 14 hereof.

SEC. 7. Foreign Investment in Domestic Market Enterprises. Non-Philippine nationals may own up to one hundred percent (100%) of domestic

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market enterprises unless foreign ownership therein is prohibited or limited by the Constitution existing law or the Foreign Investment Negative List under Section 8 hereof. (As amended by R.A. 8179)

SEC. 8. List of Investment Areas Reserved to Philippine Nationals (Foreign Investment Negative List). – The Foreign Investment Negative List shall have two (2) components lists; A, and B. a) List A shall enumerate the areas of activities reserved to Philippine nationals

by mandate of the Constitution and specific laws. b) List B shall contain the areas of activities and enterprises regulated pursuant

to law: 1) which are defense-related activities, requiring prior clearance and

authorization from Department of National Defense (DND) to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically authorized, with a substantial export component, to a non-Philippine national by the Secretary of National Defense; or

2) which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beerhouses, dance halls; sauna and steam bathhouses and massage clinics.

“Small and medium-sized domestic market enterprises, with paid-in equity capital less than the equivalent two hundred thousand US dollars (US$200,000) are reserved to Philippine nationals, Provided that if: (1) they involve advanced technology as determined by the Department of Science and Technology or (2) they employ at least fifty (50) direct employees, then a minimum paid-in capital of one hundred thousand US dollars (US$100,000.00) shall be allowed to non-Philippine nationals.

Amendments to List B may be made upon recommendation of the Secretary of National Defense, or the Secretary of Health, or the Secretary of Education, Culture and Sports, endorsed by the NEDA, approved by the President, and promulgated by a Presidential Proclamation.

“Transitory Foreign Investment Negative List” established in Sec. 15 hereof shall be replaced at the end of the transitory period by the first Regular Negative List to be formulated and recommended by NEDA, following the process and criteria provided in Sections 8 of this Act. The first Regular Negative List shall be published not later than sixty (60) days before the end of the transitory period provided in said section, and shall become immediately effective at the end of the transitory period. Subsequent Foreign Investment Negative Lists shall become effective fifteen (15) days after publication in a newspaper of general circulation in the Philippines: Provided, however, That each Foreign Investment Negative List shall be prospective in operation and shall in no way affect foreign investment existing on the date of its publication.

“Amendments to List B after promulgation and publication of the first Regular Foreign Investment Negative List at the end of the transitory period shall

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not be made more often than once every two (2) years”. (As amended by R.A. 8179)

SEC. 9. Investment Rights of Former Natural-born Filipinos. – For the purpose of this Act, former natural born citizens of the Philippines shall have the same investment rights of a Philippine citizen in Cooperatives under Republic Act No. 6938, Rural Banks under Republic Act No. 7353, Thrift Banks and Private Development Banks under Republic Act No. 7906, and Financing Companies under Republic Act No. 5980. These rights shall not extend to activities reserved by the Constitution, including (1) the exercise of profession; (2) in defense related activities under Section 8 (b) hereof. Unless specifically authorized by the Secretary of National Defense; and, (3) activities covered by Republic Act No. 1180 (Retail Trade Act). Republic Act No. 5187 (Security Agency Act), Republic Act No. 7076 (Small Scale Mining Act), Republic Act No. 3018. As amended (Rice and Corn Industry Act). And P.D. 449 (Cockpits Operation and Management)”. (As amended by R.A. 8179)

SEC. 10. Other Rights of Natural Born Citizen Pursuant to the Provisions of Article XII, Section 8 of the Constitution. – Any natural born citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippine laws may be a transferee of a private land up to a maximum area of five thousand (5,000) square meters in the case of urban land or three (3) hectares in the case of rural land to be used by him for business or other purposes. In the case of married couples, one of them may avail of the privilege herein granted: Provided that if both shall avail of the same, the total area acquired shall not exceed the maximum herein fixed.

In the case the transferee already owns urban or rural land for business or other purposes, he shall still be entitled to be a transferee of additional urban or rural land for business or other purposes which when added to those already owned by him shall not exceed the maximum areas herein authorized.

A transferee under this Act may acquire not more than two (2) lots which should be situated in different municipalities or cities anywhere in the Philippines: Provided, That the total land area thereof shall not exceed five thousand (5,000) square meters in the case of urban land or three (3) hectares in the case of rural land for use by him for business or other purposes. A transferee who has already acquired urban land shall be disqualified from acquiring rural land and vice versa”. (As amended by R.A. 8179)

SEC. 11. Compliance with Environmental Standards. – All industrial enterprises regardless of nationality of ownership shall comply with existing rules and regulations to protect and conserve the environment and meet applicable environmental standards.

SEC. 12. Consistent Government Action. – No agency, instrumentality or political subdivision of the Government shall take any action in conflict with or which will nullify the provisions of this Act, or any certificate or authority granted hereunder.

SEC. 13. Implementing Rules and Regulations. – NEDA, in consultation with BOI, SEC and other government agencies concerned, shall issue the rules and regulations to implement this Act within one hundred and twenty (120) days

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after its effectivity. A copy of such rules and regulations shall be furnished the Congress of the Republic of the Philippines.

SEC. 14. Administrative Sanctions. – A person who violates any provision of this Act or of the terms and conditions of registration or of the rules and regulations issued pursuant thereto, or aids or abets in any manner any violation shall be subject to a fine not exceeding one hundred thousand pesos (P100,000).

If the offense is committed by a juridical entity, it shall be subject to a fine in an amount not exceeding ½ of 1% of total paid-in capital but not more than five million pesos (P5,000,000). The president and/or officials responsible therefore shall also be subject to a fine not exceeding two hundred thousand pesos (P200,000.00) In addition to the foregoing, any person, firm or juridical entity involved shall be subject to forfeiture of all benefits granted under this Act. SEC shall have the power to impose administrative sanctions as provided herein for any violation of this Act or its implementing rules and regulations.

SEC. 15. Transitory Provisions. - Prior to effectivity of the implementing rules and regulations of this Act, the provisions of Book II of Executive Order 226 and its implementing rules and regulations shall remain in force. During the initial transitory period of thirty-six (36) months after issuance of the Rules and Regulations to implement this Act, the Transitory Foreign Investment Negative List shall consist of the following: A. List A:

1. All areas of investment in which foreign ownership is limited by mandate of Constitution and specific laws. B. List B:

1. Manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military ordnance, explosives, pyrotechnics and similar materials required by law to be licensed by and under the continuing regulation of the Department of National Defense; unless such manufacturing or repair activity is specifically authorized, with substantial export component, to a non-Philippine national by the Secretary of National Defense;

2. Manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beerhouses, dance halls; sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks they may pose to public health and morals;

3. “Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two-hundred thousand US dollars (US$200,000.00), reserved to Philippine nationals: Provided, That if: (1) they involve advanced technology as determined by the Department of Science and Technology or (2) they employ at least fifty (50) direct employee, then a minimum paid-in capital of One hundred thousand US dollars (US$100,000.00) shall be allowed to non-Philippine nationals.

SEC. 16. Repealing Clause. – Articles forty-four (44) to fifty-six (56) of Book II of Executive Order No. 226 are hereby repealed.

All other laws or parts of laws inconsistent with the provisions of this Act are hereby repealed or modified accordingly.

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SEC. 17. Separability Clause. – If any part or section of this Act is declared unconstitutional for any reason whatsoever, such declaration shall not in any way affect the other parts or sections of this Act.

SEC. 18. Effectivitiy. – This Act take effect from fifteen (15) days after approval and publication in two (2) newspapers of general circulation in the Philippines.

Approved, (SGD) JOSE DE VENECIA,

JR.Speaker of the House of

Representatives

(SGD) NEPTALI A. GONZALES

President of the Senate

This Act, which is a consolidation of Senate Bill No. 1399 and House Bill No. 5029 was finally passed by the Senate and the House of Representatives on March 25, 1996.

CAMILO L. SABIO HEZEL P. GACUTAN

Secretary General House of Representatives

Secretary of the Senate

Approved: March 28, 1996 (SGD) FIDEL V. RAMOS President of the Philippines

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ANNEX E2006 INVESTMENT PRIORITIES PLAN (IPP)

Section IGENERAL POLICIES

The grant of incentives to firms under the 2006 IPP is subject to the powers of the Board pursuant to Article 7 paragraph 3 of EO 226, quoted as follows, to wit:“ART 7. Powers and Duties of the Board. x x x (3) Process and approve applica-tions for registration with the Board, imposing such terms and conditions it may deem necessary to promote the objectives of this Code, including refund of in-centives when appropriate, restricting availment of certain incentives not needed by the project in the determination of the Board, x x x,”.I. EQUITY OWNERSHIP‧ As a general rule, there are no restrictions on the extent of foreign ownership of export-oriented enterprises.‧ For purposes of registration, domestic-oriented foreign-owned enterprises shall be allowed, provided that:- the project is not engaged in an activity covered under the areas specified in the Foreign Investment Negative List (FINL)*; and- the paid-up capital is at least the Philippine Peso equivalent of US$200,000 or with minimum paid-up capital of the Philippine Peso equivalent of US$100,000 provided that it (1) will involve advanced technology as determined by the De-partment of Science and Technology or (2) will employ at least fifty (50) direct employees.*The FINL is updated every two (2) years by an Inter-Agency Working Group led by National Economic Development Authority (NEDA).II. EQUITY REQUIREMENT‧ In general, the minimum equity required to finance the project applied for regis-tration with the BOI shall be equal to 25% of project cost.‧ Equity could be in the form of paid-up capital or retained earnings that has been or will be converted into paid-up capital of the applicant firm.III. REGIONAL DISPERSAL OF INDUSTRIESThe dispersal of economic activities in the countryside is encouraged. Unless provided for in these guidelines, projects locating in the National Capital Region (NCR) are provided limited incentives. Accordingly, projects locating in Less De-veloped Areas (LDAs) are granted additional incentives, as follows:‧ Six (6) year income tax holiday (ITH) regardless of status (pioneer or non-pio-neer) or type of project (new or expansion);‧ Additional deductions from taxable income equivalent to 100% of expensesincurred in the development of necessary and major infrastructure facilities.LESS DEVELOPED AREAS REGION/PROVINCECAR Abra, Apayao, Ifugao, Kalinga, Mt. Province, II Quirino, Nueva Vizcaya, IV Aurora, Marinduque, V Masbate, VI Guimaras, VII Siquijor, VIII Biliran, Eastern Samar, Southern Leyte, ARMM Basilan, Maguindanao, Sulu, Tawi-Tawi,

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NOTE: The BOI may, on a case-to-case basis, consider areas within any prov-ince not listed as a Less Developed Area subject to the provision of Article 40 of EO 226. Complementary to the provision of the law granting maximum incentives to registered enterprises in LDAs, firms that locate in congested urban centers may be given limited incentivesIV. EXEMPTION FROM THE LOCATIONAL RESTRICTION1. Projects that will locate in government industrial estates declared as such by national law or by presidential proclamation prior to 01 January 1989, as follows:a. Dagat-Dagatan (P.D. 569 dated 30 October 1974)b. Vitas Industrial Estate, Tondo (E.O. 1086 dated 31 January 1986, as amended/expanded through Presidential Proclamation No. 39 dated 09 Septem-ber 1992 and Proclamation 465 dated 01 August 1994) (Vitas Industrial Estate/Smokey Mountain)c. Bagong Silang Industrial Estate, Caloocan City (Presidential Proclamation No. 843 dated 26 July 1971)d. Food Terminal Inc., Taguig (LOI 900 dated 25 July 1979)e. Navotas Fishing Port Complex (E.O. 772 dated 08 February 1982)2. Projects that will engage in service type activities.3. Export-oriented projectsIn general, a project may be considered as export-oriented when at least fifty per-cent (50%) of production output/services rendered is for export, if Filipino owned, and seventy percent (70%), if foreign-owned. Revenues from services rendered to foreign tourists may be considered as export sales.4. Modernization projects5. New and expansion projects in support to export-oriented jewelry enterprises engaged in electroplating, gemstone appraisal and certification, assaying and hallmarking6. Projects under the R.E.D. Program located within the premises of the firm’s existing operations or contiguous thereto7. Projects of micro and small enterprises (MSEs)V. EXPORT ACTIVITIESThis covers the production/manufacture of non-traditional export products and services in support of exporters as identified under the Medium-Term Philippine Development Plan 2004-2010 (MTPDP) or the Philippine Export Development Plan 2005-2007 (PEDP). To qualify for incentives, industrial goods should have undergone manufacturing. Production of industrial goods and products from recy-cled materials involving simple processing covering any or a combination of ac-tivities such as but not limited to cleaning, sorting, cutting, shredding, pulverizing, grinding, crushing, compacting, dissolving and filtration are not qualified for regis-tration. The BOI may, if national interest requires, withhold registration of projects engaged in the export of a product including industry inputs that are in short sup-ply domestically.VI. PROMOTION OF MICRO, SMALL AND MEDIUM-SIZED ENTERPRISES (MSMEs)In line with the Medium Term Philippine Development Plan (MTPDP), the BOI promotes the development of micro, small and medium-sized enterprises

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(MSMEs) on account of their contribution to employment generation, countryside development, and the cultivation of the Filipino entrepreneurial spiritVII. ASSISTANCE TO MICRO, SMALL AND MEDIUM-SIZED PROJECTS(In addition to the incentives under E.O. 226)1. Assistance in the preparation of simplified project report for BOI registration;2. Availability of an exchange and assistance facility that identifies MSME sup-port companies of a registered enterprise, thereby encouraging intra-sector link-ages;3. Technical assistance through BOI’s regular programs and other supporting in-dustries promotion program;4. Assistance in sourcing financing support;5. Assistance to overseas contract workers who will engage in MSME activities; and,6. Promotion of specific area of economic activities that will support export and priority programs of the government that encourage inter-sector linkages.VIII. POLICIES ON PROJECT TYPE AND STATUS1. New ProjectsOther than the normal definition of a new project, i.e., one to be undertaken by a newly formed/incorporated enterprise, the following are deemed new projects:a. Project to be established by an existing enterprise with existing business oper-ation(s) entirely distinct and different from the proposed project in terms of either final product or service, production process, equipment or raw materials;b. Project to be established by an existing enterprise along the same line of busi-ness as any of its existing operations, provided:1. The new project will involve the establishment of a completely new line which may be put up in a site either outside or contiguous to its existing premises or compound; and2. There is new investment in fixed assets and working capital, whether through stockholders’ equity and/or loan. Investment in additional facility that will result in the increase of production capacity using the firm’s existing line is considered as expansion. “Complete Line” covers production from processing of raw materials to produce the goods including quality control and packing. “Facility” refers to the space or area, physical structure and equipment provided for a particular pur-pose or segment of the production process.c. Projects with assets acquired from PMO/GFIs/GOCCs: This covers projects in-volving assets purchased/leased from the Privatization and Management Office (PMO), government financial institutions (GFIs) and government owned or con-trolled corporations (GOCCs), or entities wherein the government has ownership or interest. Pioneer status may be granted to:‧ Projects utilizing purchased assets with new investment of at least the Philip-pine Peso equivalent of US$100 million covering acquisition cost (contract price), pre-operating cost, rehabilitation cost, if any, and working capital, or‧ Projects utilizing leased assets with new investment of at least the Philippine Peso equivalent of US$20 million covering upfront lease payment equivalent to 1 year upon signing of contract, pre-operating cost, rehabilitation cost and working capital.

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d. When an existing facility is closed and a new one will be opened: When an en-terprise closes its existing facility/project and puts up the same activity in another location or place, which may involve the utilization of some of the existing ma-chinery and equipment, the said activity may be registered as New, subject to the following conditions:1. New investment in fixed assets and working capital, of at least 100% of the value of the firm’s fixed assets based on AFS prior to closure, shall be put up by the proponent, whether through stockholders’ equity and/or loan; and,2. If the existing project is registered with the BOI, the enterprise should notify the Board of the cessation of operations, and the existing registration shall be can-celled prior to the registration of the new project.e. Projects that will involve the utilization of an existing idle facility or plant through lease, purchase or lease-purchase arrangement: These projects are subject to the following:1. New investments shall be equivalent to:‧ At least 100% of the total value of the idle facility/plant being leased/purchased based on the latest AFS; or ‧ 100% of the original value of the idle facility/plant if at least 50% of the facility/plant is depreciated based on the latest AFS; New in-vestment shall refer to capital infusion for the rehabilitation of the idle plant/ma-chinery, acquisition of new machinery, furniture and fixture and the like, including cost of lease equivalent to upfront lease payment of 1 year or cost of purchasing the idle plant and working capital.2. 85% of the original rated capacity of the existing idle facility or plant should be attained; and,3. If the existing project is registered with the BOI, the enterprise should notify the Board of the cessation of operations, and the existing registration shall be can-celled prior to the registration of the new project.f. A non-BOI registered project that will involve the reactivation of operations pro-vided that the facility: (a) has been idle for at least one (1) year or (b) have been rendered inoperable due to substantial damages/losses caused by force ma-jeure. The applicant should submit to the Board a notarized certification from the owner of the idle plant/facilities confirming that the same subject of application has been idle for at least one (1) year. The rehabilitation cost should be at least 50% of the total value of plant, property and equipment excluding land.g. Projects of Micro and Small Enterprises operating for less than one (1) year These are projects of micro and small enterprises with total project cost of not more than PhP15 million that have been in commercial operation for less than one year.h. Multi-phased projects: Projects where capacity build-up will be implemented in several stages may be registered on a per phase basis. The first phase may be registered as a new project and the succeeding phases may be registered as new or expansion in accordance with the general policies on project types (see foregoing Item VIII)i. Upgrading/rehabilitation of existing infrastructure projects: The cost of upgrad-ing/rehabilitation of existing infrastructure projects should be at least 90% of the cost of the activity to be registered. If the cost of upgrading/rehabilitation is less

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than 90%, the project may be registered as a modernization activity.2. Expansion ProjectsThese are activities involving the same products of or services rendered by an existing firm, as follows:a. Projects that will involve the installation of additional capacity-determinant equipment within the same existing plant or facility of the enterpriseb. Projects that will involve the modernization and rehabilitation of an existing fa-cility of activities listed in the IPP that will result to increase in the existing capac-ity Income tax holiday for items (a) and (b) shall be subject to base-figure equiva-lent to the firm’s highest production volume or sales value in the last three (3) years prior to the filing of the application for registration of the project.3. Modernization or Rehabilitation Projectsa. These are projects engaging in the activities listed in the IPP, if applicable.b. In general, modernization programs shall be completed within two (2) years from date of registration.c. Modernization or rehabilitation projects must result in any of the following:i. Substantial reduction of production cost; orii. Significant increase in production efficiency including debottlenecking; oriii. Meaningful upgrading of product quality;iv. Utilization of latest technology; ord. The incremental income resulting from modernization/rehabilitation shall be entitled to ITH subject to a base figure equivalent to the current operating capac-ity or sales of the firm at the time of filing of application for registration.e. The computation of ITH for projects without increase in capacity is as follows:i. for single product/activityNew Investment (in US$)Rate of Exemption (ROE) = ----------------------------- x 100Total Investments (existing + new) relative to the concerned plant (in US$)ii. for multiple products/activities or when ITH entitlement of other products/ activi-ties has lapsed: Sales of the Product subject of retooling % Share to Total Sales = ---------------------- x 100Total SalesNew Investment (in US$)ROE = ----------------------- x 100Total Investments (existing + new) Relative to the concerned plant (in US$) Where:‧ The ROE shall be fixed for the ITH entitlement period.‧ The exchange rate shall be the existing rate at the time of actual investment.‧ For purposes of determining existing investments, the Total Fixed Assets rela-tive to the concerned plant including the land on which the project is situated shall be based on the latest audited financial statements at the time of application for registration.‧ The % share in Total Sales shall be based on actual sales values for the year of availment.4. Existing Export ProjectsExisting producers that will export part of production may qualify for registration

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with limited incentives, i.e., Tax Credit and/or VAT zero rating of their exported products, under certain conditions.IX. PROJECTS CRITICAL TO THE ENVIRONMENT1. New and expansion projects shall be required to secure an Environmental Compliance Certificate pursuant to P.D. No. 1586 (Philippine Environmental Im-pact Statement System).2. All projects that will involve handling, transport, processing and/or storage of toxic, hazardous substances and/or nuclear wastes shall be subject to the provi-sions of R.A. No. 6969 (Toxic and Hazardous Substances and Nuclear Wastes Control Act of 1990) and such other laws and/or relevant Presidential issuances.3. Projects involving the importation of wastes for final disposal as material of no economic value to the country cannot be registered.X. ESTABLISHMENT AND OPERATION OF CENTERS OF EXCELLENCECenter of Excellence (COE) shall serve as venue for any of the following:‧ Knowledge and skills development through the provision of training facilities and programs. The COE shall offer continuing education for purposes of acquir-ing new skills and/or providing advanced training in the area of excellence it is in. This may involve the establishment of specialized schools, finishing schools and schools offering bridging courses/programs. Only the courses/trainings/programs catering to the activities or created in support of the activities listed in the IPP, ex-cept those identified to be not applicable to COE, may qualify for registration and may be granted incentives.The course offered by COE shall be accredited either by CHED (for academic in-stitutions) or by TESDA or other appropriate accrediting bodies (for occupational skills).‧ Research and development and other productivity enhancement activities;‧ Technology scanning, selection and adoption;‧ Incubation program; or‧ Common service facilities.For purposes of BOI registration and availment of incentives, the establishment and operation of COE are not applicable to the following sectors:1. Shipping;2. Production/manufacture of raw materials and intermediate inputs;3. Publication or printing of books or textbooks;4. Activities under the Clean Water Act; and5. Export activities.XI. INDUSTRY CLUSTERSIndustry Cluster refers to geographical concentration of interconnecting compa-nies, specialized suppliers, service providers, firms in related industries and as-sociated institutions (universities, standard agencies, and trade associations) in particular fields that compete but also cooperate. It will enhance industrial com-petitiveness, promote investments in the countryside, develop micro, small and medium enterprises (MSMEs), and support the One Town, One Product (OTOP) Program. These apply to the following listed activities in the IPP:1. Agribusiness;2. Healthcare and Wellness Products and Services;

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3. Information and Communications Technology;4. Electronics;5. Motor Vehicle Products;6. Energy;7. Infrastructure;8. Tourism;9. Shipbuilding/Shipping;10. Jewelry;11. Fashion Garments;12. Fabrication of Machinery and Equipment;13. Industrial Tree Plantation;14. Iron and Steel;15. Exploration, Mining, Quarrying and Processing of Minerals;16. Rehabilitation, Self-Development and Self-Reliance of Disabled Persons;17. Activities covered under Bilateral Agreements; Industry Clusters may cover the following activities:1. Services comprising a portion of the manufacturing process2. Sub-assembly/fabrication of parts/components of the final product3. Product testing and inspection‧ Compliance with ISO/IEC Guide 25; and‧ Accredited with the Bureau of Product Standards within the first year of registra-tion.4. Repair, maintenance and calibration of machinery and equipment used by ex-portoriented companies utilizing high-technology processes Industry cluster shall cover horizontal and vertical linkages. In general, horizontal and vertical linkages are limited to first-tier activities. For wholly-obtained raw materials for vertical-for-ward linkages under “Agribusiness”, “Industrial Tree Plantation” and “Mining”, vertical-forward linkages may go beyond first-tier activities.XII. POLICY ON INTERNATIONAL CERTIFICATIONAll enterprises that will register under 2006 IPP are encouraged to acquire inter-national certification such as ISO 9000 certification, Quality Standards (QS) or other similar certifications to improve efficiency and global competitiveness. En-terprises are encouraged to submit a timeframe of activities leading to the certifi-cation as a measure to monitor each enterprise’s progress towards achieving ac-creditation status.XIII. POLICY ON EQUIPMENTAs a general rule, the acquisition of brand new equipment and the use of produc-tion processes/ equipment that meet environmental standards apply.XIV. POLICY ON SUPPORT SERVICE PROVIDERSSupport service providers catering to activities with manpower requirements for resident licensed key personnel (such as but not limited to captains, pilots, first and second officers, A & B mechanics, planners and engineers), which supply is considered in critical condition as to pose a security risk, may also qualify for reg-istration.XV. POLICY ON PROJECTS LOCATING IN THE AUTONOMOUS REGION OF MUSLIM

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MINDANAOProjects locating in the Autonomous Region of Muslim Mindanao (ARMM) should register with the BOI-ARMM.XVI. PROJECTS WITH SOVEREIGN GUARANTEEAll projects with sovereign guarantee and/or guaranteed rate of return shall not be entitled to income tax holiday (ITH).

Section IISPECIFIC GUIDELINES

I. PREFERRED ACTIVITIESA. AgribusinessThis covers commercial production and commercial processing of agricultural and fishery products including their by-products and wastes.1. Commercial production of agricultural and fishery products. This covers com-mercial production of agricultural crops, livestock and poultry and fishery prod-ucts up to primary processing thereof.2. Commercial processing of agricultural/fishery products including their byprod-ucts and wastes.a) This covers the conversion of agricultural/fishery products, their by-products and wastes to a form ready for further processing or final consumption.b) The production of refined sugar, cooking oil and milling of rice should comply with the applicable provisions of the Philippine Food Fortification Act of 2000 (R.A. 8976).c) The processing of imported raw materials may qualify for registration, provided that this activity is classified as pioneer.d) All food processing projects shall comply with international quality standards.The following may qualify under Industry Clusters:1. Feed Milling, excluding those for game animals, fowls and other species for pet/pleasure purposes.2. Agricultural/Agri-processing Services such as cold storage/blast freezing, post-harvest facilities, production related services (such as equipment pooling, toll processing, etc.), specialized transport or bulk handling of farm products.3. Cold storage facilities may include ice plants; registration of ice plants only may be allowed if located in a Less Developed Area.4. Packaging products manufacturing.5. Fertilizer production, both organic and inorganic.6. Farm equipment, tools and machinery manufacturing.7. Research and Development.8. Production of agricultural chemicals (such as those for pest and disease con-trol, etc.) and veterinary supplies (such as vaccines, medications, etc.) Projects that cost at least the Philippine Peso equivalent of US$10 million may qualify for pioneer status.Notes:1. The term “Agri-processing” for this purpose includes fishery.2. Industry Cluster incentives will be limited to capacity intended or utilized for agribusiness activities.

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B. Healthcare and Wellness Products and ServicesThis covers hospital services, medical and dental services, other human health and wellness services (including services in the field of nursing care, rehabilita-tion and recuperation, spas), retirement villages and related services located ei-ther in identified medical zones or outside Metro Manila when catering mainly to foreigners and non-residents. This also covers the manufacture of drugs and medicines in accordance with the Philippine Drug Formulary of the Department of Health (DOH), supplements limited to Vitamin A, iron and iodine for use in the Food Fortification Law, and herbal medicines.1. Healthcare and Wellness Servicesa) Hospital/Medical ServicesThis covers primary, secondary, and tertiary care hospitals and specialized ser-vices/hospital-based centers of excellence as per Department of Health (DOH) standards.‧ “Primary care hospital” is a non-departmentalized hospital that provides clinical care and management on the prevalent diseases in the locality. Clinical services include general medicine, pediatrics, obstetrics and gynecology, surgery and anesthesia.‧ “Secondary care hospital” is a departmentalized hospital that provides clinical care and management on the prevalent diseases in the locality, as well as partic-ular forms of treatment, surgical procedure and intensive care.‧ “Tertiary care hospital” is a teaching and training hospital that provides clinical care and management on the prevalent diseases in the locality as well as spe-cialized and sub-specialized forms of treatment, surgical procedure and intensive care.‧ “Specialized services/hospital-based Centers of Excellence" refers to focused expertise on certain types of services mostly with low patient numbers, and need critical mass of patients to make treatment centers cost effective. Services gener-ally include training of specialist staff, high quality research programs and use of scarce resources like expertise, high technology equipment and donated organs.Applications for registration must be endorsed by the DOH. Existing hospitals with known good track records shall not be required a DOH endorsement. How-ever, prior to availment of ITH, registered projects must be accredited by the DOH. Primary care hospitals locating outside Metro Manila, Metro Cebu, and Metro Davao may qualify for registration. Prior to availment of ITH, hospitals clas-sified for ‘medical tourism’ must be accredited by the Department of Tourism (DOT). The following may qualify for pioneer status:‧ Tertiary or secondary care hospitals with a minimum capacity of 100 beds and an investment cost of at least the Philippine Peso equivalent of US$10 million‧ Specialized services or Centers of Excellence with the following project cost:- Cancer Center – the Philippine Peso equivalent of US$6 million- Heart/Lung/Kidney Center – the Philippine Peso equivalent of US$10 millionPrior to availment of ITH, projects must be accredited by the DOH.b) Ambulatory Surgical ServicesThis covers services such as elective (non-emergency) surgical procedures rang-ing from minor to major operations, where patients are discharged within the day

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for continuing post-operative care. This includes comprehensive ophthalmologic, dermatologic, cosmetic, and reconstructive surgeries, etc.Applications for registration must be endorsed by the DOH. Projects that cost at least the Philippine Peso equivalent of US$2.0 million may qualify for pioneer sta-tus. Prior to availment of ITH, ambulatory surgical services projects must be ac-credited by the DOH.c) Dental ServicesThis covers the establishment of a dental services facility offering both regular and specialized dental services orthodontic procedures, dental implants and cos-metic dentistry. Projects that cost at the least the Philippine Peso equivalent of US$1.0 million may qualify for pioneer status.d) Other Human Health and Wellness Services including Rehabilitation and Re-cuperation Services This covers health spa, traditional and alternative healthcare services, therapy centers, nursing care programs, and facilities for mental health.‧ Health spaThe following are the qualifications for registration:- The activity must be either a ‘destination spa’ or a ‘resort/hotel spa’ category based on DOT accreditation and classification;- Must be endorsed by the DOH and the DOT, if applicable Health spa projects that will make use and/or apply the ‘Filipino healing modality’ using indigenous essential oils as endorsed by the DOT may qualify for pioneer status.‧ Traditional and alternative healthcare services- Traditional and alternative healthcare is the sum total of knowledge, skills and practices on healthcare, other than those embodied in biomedicine, used in the prevention, diagnosis and elimination of physical or mental disorder. Alternative healthcare modalities include reflexology, acupuncture, massage, acupressure, chiropractics, nutritional therapy, and other similar methods.- Application must be endorsed by the Philippine Institute of Traditional and Alter-native Health Care (PITAHC).- Prior to availment of ITH, projects must be accredited by the DOH.‧ Nursing care facility shall provide in-patient nursing, rehabilitation, and health-related personal care to clients who need continuous healthcare, but do not re-quire hospital services.Following are the qualifications for registration:- Facility must include convalescent homes; and,- Project must be endorsed by the DOH‧ Mental health facility shall provide residential care services including protective supervision and counseling for persons diagnosed with mental retardation. This also covers facility for stress management program, which aims to provide a per-son with effective coping mechanisms for dealing with psychological stress. Ap-plication must be endorsed by the DOH. Prior to availment of ITH, projects must be accredited by the DOH.e) Retirement VillageThis refers to areas suitable for development that will ensure healthful, safe and environmentally-sound community life with prescribed carrying capacities of vil-lage facilities and activities such as but not limited to accommodation, food,

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recreation, medical/health care needs, institutional insurance, security and other amenities, and provided with roads, power and water supply systems, drainage and sewerage systems and other infrastructures. The village should be under a unified and continuous management. The following are the qualifications for reg-istration:‧ A retirement village must have a minimum of four (4) hectares of contiguous land; and,‧ Project cost must be at least the Philippine Peso equivalent of US$5 million of US$5 million Retirement villages with a minimum area of twenty (20) hectares may qualify for pioneer status.f) Medical ZonesMedical zones are selected areas, which are developed into centers for profes-sional health care provided by physicians and nurses, for the treatment of inpa-tients and diagnosis and/or therapy of outpatients, inclusive of emergency medi-cal services, with large numbers of beds for intensive care and long-term care, facilities for surgery and childbirth, bioassay laboratories, trauma centers, chil-dren’s hospitals, seniors’ hospitals, and hospitals for dealing with specific medical needs. It shall include affiliation with universities for medical research and the training of medical personnel. In general, projects locating in an identified medi-cal zone may qualify for BOI registration.2. Healthcare and Wellness ProductsThis covers the manufacture of drugs and medicines in accordance with the Philippine National Drug Formulary (PNDF) of the Department of Health (DOH), food supplements limited to Vitamin A, iron and iodine for use in the Food Fortifi-cation Law, herbal medicines, and active substances of these drugs. “Drugs and medicines” shall mean pharmaceutical products included in the Es-sential Drugs List, otherwise known as the Philippine National Drug Formulary (PNDF), which is a list of drugs prepared and periodically updated by the DOH on the basis of health conditions obtaining in the Philippines as well as in the in-ternationally accepted criteria.“Food supplements” shall be limited to the manufacture of highly concentrated Vi-tamin A, iron or iodine compounds either mixed, coated or incorporated in appro-priate medium added to flour, rice, sugar, oil and salt as required by R.A. 8976 and R.A. 8172 to produce fortified foods. Specifically, it shall cover the following:a) Manufacture of Vitamin A compounds or premixes for the fortification of flour, sugar or oil;b) Manufacture of iodine compounds or premixes for the fortification of salt; and,c) Manufacture of iron compounds or premixes for the fortification of flour and rice “Vitamin A, Iron and Iodine Compounds” shall refer to the element iron or io-dine or vitamin A molecule (retinol) chemically-bound with other elements and/or chemical groups, as in Iron (II) sulfate (FeSO4, Ferrous Sulfate), Potassium Io-date (KIO3), and retinol palmitate.“Herbal medicines” shall mean finished, labeled, medicinal products that contain as active ingredient/s aerial or underground part/s of plant or other materials or combination thereof, whether in the crude state or as plant preparations. Plant material includes juices, gums, fatty oils, essential oils, and other substances of

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this nature. Herbal medicines, however, may contain excipients in addition to the active ingredient(s). Medicines containing plant material(s) combined with chemi-cally defined active substances, including chemically defined, isolated con-stituents of plants, are not considered to be herbal medicines.An “active substance,” otherwise known as the active ingredient, is the chemical component responsible for the claimed therapeutic effect of the pharmaceutical product. Application for registration shall be endorsed by DOH or BFAD, which-ever is applicable or the appropriate government agency. As post-registration re-quirement, the firm shall submit a License to Operate (LTO) issued by BFAD. Projects that cost at least the Philippine Peso equivalent of US$20 million may qualify for pioneer status.C. Information and Communications TechnologyThis covers ICT services, ICT-enabled services and ICT support services ICT Services – software development (system software, middleware, application soft-ware/systems) ICT-enabled Services – refer to business lines that can be trans-formed and delivered through the means of ICT infrastructure. These include call/contact centers, medical/legal/corporate transcription, computer graphics/ani-mation, engineering design, back-office operations or business process outsourc-ing/knowledge process outsourcing (BPO/KPO) activities, such as but not limited to: general accounting & bookkeeping services; expense and revenue reporting/sales auditing; financial analysis and auditing; payroll processing; travel & ex-pense management, HR application development & management; data entry/data processing; inventory control; technology support; litigation support; server management; content conversion. ICT Support Activities – refer to business that supports the operations of development of ICT Services and ICT-Enabled Ser-vices sectors, i.e., R&D center, incubation centers, educational/training institu-tions, community access facilities/shared access facilities and internet service providers (ISP).All ICT projects shall install internal security system compliant with BS 7799 or its equivalent. Call/Contact Centers Projects must have a minimum investment cost of Philippine Peso equivalent of US$2,500 per seat to be qualified for BOI incen-tives. This amount covers the cost of equipment (hardware and software), office furniture and fixture, building improvements and renovation, and fixed assets ex-cept land, building and working capital.1. If equipment used were leased, the same should be converted to assets in terms of commercial interest rates and amortization over a five-year period.2. If equipment were consigned, the same should have a stated value to be con-sidered part of investment cost. The required minimum investment cost of the Philippine Pesos equivalent of US$2,500 per seat is subject to BOI modification as technology and requirement of clients evolve.“ICT Learning Institutions” refer to the establishment and operation of training in-stitution/center specializing in developing skills for the information and communi-cation technology sector. The project must provide training laboratories with reli-able means of internet connection. The enterprise shall submit proof that its cur-riculum has been endorsed by either TESDA or CHED or any other appropriate government agencies or recognized industry associations in the field of training.

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“Community Access Facilities” refers to activities that will provide facilities for massbased use of internet such as internet/cyber cafes, multipurpose communi-cation telecenters, shared access facilities. The firm shall:1. Support the programs of the Local Government Units (LGUs) aimed at comply-ing with ‘Government On-line Program” as certified by the Commission on Infor-mation and Communication Technology (CICT)2. Tie-up with schools/educational institutions in promoting E-learning and in aug-menting the lack of sufficient computer facilities. Documents proving compliance with the above shall be submitted prior to availment of ITH.Expansion Project of Existing IT Companies:Registration for expansion of existing/current ICT projects must comply with all of the following criteria:1. additional employment2. additional investmentFollowing are the qualifications for pioneer status for all ICT projects:1. introduces a major innovation in software development2. with project cost of at least the Philippine Peso equivalent of US$2.5 million to be put up during the first year of operationsD. ElectronicsThis covers all segments within the value-chain structure of the industry such as Original Design Manufacturing (ODM), electronics manufacturing services (EMS), the manufacture of electronic products (except home appliances), IC de-sign, the manufacture of parts and components of electronic products including the inputs for the manufacture of such components, and the manufacture of pro-duction supplies (e.g., molds and dies, precision tools, etc.) used by the electron-ics industry. This also covers the establishment and operation of Centers of Ex-cellence, test and other service facilities catering to the electronic industry.1. Manufacture and test of electronic productsElectronic products includes sub-assemblies and finished products which may be classified but not limited to the following sub-sectors of the electronics industry:a) Semiconductorsb) Electronic Data processingc) Telecommunicationsd) Communications and Radare) Office Equipmentf) Control and Instrumentationg) Medical and Industrialh) Automotive Electronics2. Manufacture of parts and components of electronic products including the in-puts for the manufacture of such components This covers all inputs of electronic products including the materials for the production of such parts and compo-nents.3. Manufacture of production supplies to be used exclusively by the electronics industry. This covers items that are necessary for the production of electronic products and its parts and components such as but not limited to molds and dies, precision tools, anti-static suits, etc.

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4. Research and Development (R&D): This covers research and development activities relating to the electronics sector.5. IC design and its related training requirements and other design engineering services6. Establishment and operation of Centers of Excellence, test and other service facilities catering to the electronics industry. Other service facilities cover activi-ties such as repair, maintenance and calibration of production equipment, repair of electronic devices and equipment for re-export.7. Original Design Manufacturing (ODM): This covers activity wherein both the design and manufacture of a product must be done in the Philippines. Products may be manufactured by the same company, which designed it or may be sub-contracted to other Philippine-based manufacturers. Companies proposing to en-gage in said activity should have a functioning R&D unit as certified by DOST-ASTI. Prior to availment of ITH, any of the following documents must be submit-ted: trademark, copyright, patent, maskworks, or such other related materials that prove ownership of the intellectual property/design.E. Motor Vehicle ProductsThis covers the production and/or manufacture of motor vehicle parts and com-ponents, and the manufacture or assembly of motor vehicles provided that the activity includes a program for the development of motor vehicle parts and com-ponents. This also covers the establishment and operation of Centers of Excel-lence that support the development of he motor vehicle industry.a) Manufacture/Assembly of Motor VehiclesApplicants must be registered participants under E.O. 156 and must comply with its guidelines. Projects complying with any of the following may qualify for Pio-neer status:‧ At least US$100 million (for Passenger Cars, Commercial Vehicles and Buses) and US$4 million (for motorcycles) new investments, which may include acquisi-tion of existing assets or facilities.‧ Exports at least 10,000 units (for Passenger Cars and Commercial Vehicle); 30,000 units (for motorcycle) and 500 units (for buses) per annum of completely-built-up (CBU) motor vehicles.‧ At least US$20 million (for Passenger Cars, Commercial Vehicles and Buses) and US$1 million (for motorcycles) incremental investments for Modernization/Expansion projects.‧ Manufacture of generic vehicles (e.g., ASEAN CARS) that are designed/suited for Asian market;‧ Manufacture/assembly of a basic Philippine Utility Vehicle with high local value added. In the availment of fiscal incentives under E.O. 226, the firm should com-ply with its commitments under E.O. 156.b) Manufacture of parts and components of motor vehicles; Projects complying with any of the following may qualify for Pioneer status:‧ Manufacturing of transmission, engines and tool & die for chassis and engine manufacturing;‧ Cross-border investment merger between companies across border involving a strong component company merging with a weak Philippine based company;

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Provided, that surviving company will make use of Philippine facilities for global sourcing.‧ Common facilities for forging parts and components of motor vehicle in compli-ance with Article 17, E.O. 226;‧ Supporting industries for the manufacture of transmission/engine/common ser-vice facilities for forging of motor vehicle parts and components; Provided, that the supporting industries will have supply and/or service contract/s with the man-ufacturers of transmission/engine/common service facilities for forging of motor vehicle parts and components in compliance with Article 17, E.O. 226.‧ Design customized to ASIAN needs in autos, trucks and buses.F. EnergyThis covers the exploration, development, and/or utilization of energy. This also covers activities using energy technologies leading to energy efficiency and con-servation in accordance with the program of the Department of Energy. All appli-cations for registration shall be endorsed by the Department of Energy that shall include projects’ compliance with world-class environmental standards. This cov-ers exploration or development of indigenous and/or renewable energy, utiliza-tion of such energy in power generation, and energy efficiency and conservation activities.1. Production of indigenous and/or renewable energy sources.2. Power generation projects, including those under the NPC privatization plan, that may qualify for registration are:a) Those utilizing indigenous, and renewable energy such as biomass, waste to energy conversion, solar, wind, geothermal, hydro and tidalb) Those using natural gas and Liquefied Petroleum Gas (LPG) c) Those utilizing fossil fuels as specified in the Power Development Plan using environment-friendly technologyd) Cogeneration or Combined Heat and Power (CHP) plants producing electrical energy and forms of useful thermal energy (such as heat or steam) used for in-dustrial, commercial, heating or cooling purposes Note: Projects under items ‘c’ (except for power generation projects under NPC privatization plan) and ‘d’ shall not be entitled to ITH. Following are the qualifica-tions for pioneer status:a) All projects using renewable energy sources.b) For non-renewable energy sources including power generation projects under the NPC privatization plan, a project must comply with any of the following:‧ The project shall utilize new and clean technology‧ For power generation projects using natural gas and non-renewable energy sources, project cost should be at least the Philippine Peso equivalent of US$20 millionc) Power generation projects built in an area exclusively to address that area’s imminent or prevalent power shortage as endorsed by DOE. (Note: With full in-centives but only to the extent of power delivery)3. Power transmission projects that cost at least Php1.0 billion may qualify for pi-oneer status.4. Energy efficiency and conservation activities that may qualify for registration

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are:a) Production of fuel blends (such as but not limited to coco bio-diesel and bioethanol) – This involves the construction of new plants or the retrofit and ex-pansion of existing facilities.b) Services involving energy labeling and efficiency standards for appliances, ve-hicles, electrical devices and equipment (such as but not limited to activities that aim to promote awareness on vehicle fuel efficiency, and to improve efficiency and performance of appliances, equipment and other energy consuming devices)c) Activities involving heat rate recovery and/or improvement of power plants in compliance with the heat rate standards set by the Energy Regulatory Commis-sion (ERC). Power plants shall have to comply with ERC heat rate compliance of 10,850 BTU/kwh for oil-based and 9,773 BTU/kwh for coalfired power plant.d) Conversion shops providing all of the following services: converting, retrofitting, repairing and maintaining CNG/LPG Vehicles in accordance with rele-vant Philippine National Standard (PNS) and procedures that shall provide war-ranties to stakeholders; Projects with at least the Philippine Peso equivalent of US$200,000 may qualify for registratione) Installation and operation of CNG/LPG refueling stations and related infra-structures and facilities as endorsed by the DOE. Projects costing at least the Philippine Peso equivalent of US$500,000 may qualify for pioneer status. For-eign-owned corporations must comply with the Retail Trade Law (R.A. 8762) Ex-cept for item (a), ITH incentives shall only be applicable to the income derived from the services rendered by the energy service companies to its client. DOE endorsement shall include project’s compliance with the DOE’s energy efficiency and conservation program. The following may qualify for pioneer status:a) Projects utilizing new and clean technology; orb) Projects that cost at least Php1.0 billion.G. InfrastructureThis covers the establishment of infrastructure of the following:‧ Business parks‧ Agri-business parks‧ IT parks and buildings‧ Mass housing‧ Mass transport involving rail system‧ Physical infrastructure such as roads and bridges‧ Telecommunications involving 3rd generation, next generation network telecommunication services, any type of broadband services with infrastructure, and other digital telecommunications systems outside of Metro Manila and Re-gions 3, 4 and 7‧ Logistics- Agricultural services involving post harvest facilities, grains-highway facilities, cold storage, blast freezing, vapor heat treatment (VHT), and ice plants in less developed areas (LDA);- Air and land transport;- Intelligent Transport System (ITS);- Inter-modal terminals and multi-modal passenger and/or cargo terminals;

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- Pipeline operations;- Toxic and hazardous waste (THW) management; and- Water supply, treatment and distribution.‧ Other infrastructure projects under the BOT Law with project cost of Php 1 bil-lion and below1. Business ParksMicro, Small and Medium Enterprises (MSME) Business Parks (MBP) refers to large tracts of land primarily for the use of a community of micro, small, and medium enterprises. “Small and Medium Enterprises” is defined as any business activity or enterprise engaged in industry, agribusiness and/or services whether single proprietorship, cooperative, partnership or corporation which total assets, inclusive of those arising from loans but exclusive of the land on which the partic-ular business entity’s office, plant and equipment are situated, must have a value falling under the following categories:Micro - up to P3,000,000Small - Php3,000,001 – Php15,000,000Medium - Php15,000,001 – Php100,000,000The following are the qualifications for registration:a) The business park shall be under a unified and continuous management and shall not be less than fifteen (15) hectares of contiguous land; b) At least 50% of the total area shall be allocated for micro-enterprises;c) The plot size shall be a minimum of 100 square meters but not more than 1,000 square meters;d) The minimum plot size for micro-enterprises may be utilized by one or more lo-cator micro-enterprises.e) It must be located outside Metro Manila and in areas classified as appropriate for cottage industry-type micro, small and medium enterprises (MSME) in the production, assembly, processing, warehousing, or service provision business, based on site inspection guidelines issued by the Housing and Land Use Regula-tory Board (HLURB) in consultation with government agencies like the concerned DTI-Regional Office, DOST, and UP-ISSI;f) The establishment of MBPs must conform with the land use regulation in spe-cific areas where it will be located as determined/ required by concerned local government unit (LGU), HLURB, and/or the Department of Land Reform (DLR);g) The MBP developer shall provide the following basic structure and facilities:‧ Paved roads within the MBP;‧ Power and water supply;‧ Communication facilities;‧ Sewerage and drainage systems;‧ Pollution control devices; and‧ Community facilities such as clinics, leisure parks, banks, post offices, conve-nience stores, and warehouses.h) The development of the whole business park must be completed within the de-velopment schedule approved by the HLURB. Only income derived from the sale and lease of areas or units to micro, small and medium enterprises and support services enterprises shall be entitled to income tax holiday (ITH) incentive. In-

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come derived from the sale and lease of residential areas or units will not qualify for ITH. Prior to availment of ITH, firm shall submit an HLURB Certificate of Com-pliance on its approved development schedule.2. Agri-business ParksAgribusiness Park is piece of land with an area of at least 25 hectares that takes the form of an agro-industrial estate wherein the locators will be agribusiness en-terprises and support service enterprises/institution. The park can be large to cover the agricultural production areas. Only projects with a minimum investment of PhP 50 million (excluding cost of land) will be registered.3. IT Parks and BuildingsThis covers the establishment and operation of the IT park and building located outside Metro Manila with a minimum land area of five (5) hectares. IT Park is an area which has been developed into a complex capable of providing infrastruc-tures and other support facilities required by IT enterprises, as well as amenities required by professionals and workers involved in IT enterprises, or easy access to such amenities. IT Building is a building, the whole or part of which has been developed to provide infrastructures and other support facilities required by IT enterprises, as well as amenities required by professionals and workers involved in IT enterprises, or easy access to such amenities. IT parks and buildings shall provide the following minimum facilities required by locator IT enterprises:‧ High-speed fiber-optic telecommunication backbone and high-speed interna-tional gateway facility or wide-area network (WAN); or any high speed data telecommunication system that may become available in the future;‧ Clean, uninterruptible power supply; and‧ Computer security and building monitoring and maintenance systems (e.g. computer firewalls, encryption technology, fluctuation controls, etc.). Optionally, IT parks and buildings may also provide IT business and technology incubation centers and facilitate access of locator IT enterprises to IT research and develop-ment centers and training and educational institutions/ facilities. Owners and/or developers of IT parks or buildings shall not be entitled to ITH incentive.4. Mass HousingThis covers the development of mass housing and fabrication of housing compo-nents.a) Development of mass housing projects includes socialized, low cost/eco-nomic, medium rise housing (MRH), and high-rise residential buildings. The fol-lowing are the qualifications for registration:‧ Socialized housing projects or low cost/ economic housing project as deter-mined by Housing and Urban Development Coordinating Council (HUDCC) pre-vailing resolution on price/loan ceilings‧ The cost of housing units of a medium rise housing (MRH) and high-rise resi-dential building shall not exceed the cost of a low cost housing as determined by HUDCC‧ Minimum of twenty (20) livable dwelling units in a single site or building. For high-rise residential buildings, at least 51% of the total floor area, excluding com-mon facilities and parking areas, must be devoted to mass housing.‧ Mass housing project shall conform with the design standards set forth in the

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Rules and Standards to Implement B.P. 220 and other related laws‧ Land development components for housing sites must contain provisions for road system, drainage system, water supply system, power system, sewage sys-tem in conformity with the minimum design standards for B.P. 220 and provisions for amenities and utilities.‧ Mass housing projects must be located in areas zoned and classified for resi-dential use/purposes in conformity with the approved Comprehensive Land Use Plan and Zoning of the concerned Local Government Unit (LGU).‧ New and expanding mass housing projects may be considered for BOI registra-tion. Socialized, low-cost/economic, medium-rise or high-rise housing projects that have already been in existence and have incurred sales of housing pack-ages shall not qualify for registration.‧ A project may be considered as an expansion if it will locate adjacent or con-tiguous to an existing mass housing project owned by the same entity and shall share common facilities with the existing project.‧ Only income derived from the registered expansion area/project shall be enti-tled to ITH. For high-rise residential buildings, entitlement to ITH shall be up to the extent devoted to low cost housing, however, if the total number of low cost housing units is less than 51% of the total floor area, excluding common facilities and parking areas, firm shall not be entitled to ITH. Projects using any of the following technologies/ methodologies may qualify for pioneer status:‧ New production processes of housing components/materials‧ New construction systems/methodologies whereby the cost of materials used account for at least 50% of the direct cost per housing unit‧ New technologies, systems, materials and designs that will effectively bring down the cost of constructing housing packagesb) Fabrication of Mass Housing Components: This covers the manufacture of major mass housing components such as roof/framing systems, partition sys-tems, flooring systems, door/window systems, finishing/ ceiling systems, and plumbing/sewerage systems. The volume of production to be sold to mass hous-ing projects shall account for at least seventy per cent (70%) of the total sales volume.5. Telecommunications involving third generation (3G) telecommunications systems; next generation network (NGN); any type of broadband services with infrastructure; and other digital telecommunications systems located outside of Metro Manila.“Third Generation (3G) and Next Generation Network (NGN) telecommunica-tions” refer to investments in wireless telecommunication infrastructure with the use of latest technology that is compliant with the International Telecommunica-tions Union (ITU) defined standards. ITU defined NGN as a packet-based net-work able to provide services including telecommunication services and able to make use of multiple broadband, QoS enabled transport technologies and in which service-related functions are independent from underlying transport-related technologies. It offers unrestricted access by users to different service providers. It supports generalized mobility, which will allow consistent and ubiquitous provi-

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sion of services to users. The five (5) ITU approved radio standards for the imple-mentation of 3G or International Mobile Telecommunications 2000 (IMT-2000) are as follows:a) IMT – DS (Direct Spread) – Wide Code Division Multiple Access (WCDMA)b) IMT – MC (Multi-Carrier) – Code Division Multiple Access 2000 (CDMA 2000)c) IMT – TC (Time Code) – Code Division Multiple Access Time Division Duplex (CDMA TDD)d) IMT – SC (Single Carrier) – Time Division Multiple Access (TDMA)e) IMT – FT (Frequency Time) – Frequency Division Multiple Access (FDMA)The use of any of the above standards falls under the scope of 3G wireless infra-structure projects. A Certificate of Compliance with any of the above standards issued by the National Telecommunications Commission (NTC) shall be submit-ted prior to availment of ITH. “Other Digital telecommunications systems located outside of Metro Manila used to provide telephony, data communications, inter-net, and multi-media service. These shall include but not be limited to any of the following activities:a) Local exchange services whether wired or wirelessb) Wireless local loop and wireless broadband servicesc) Any type of broadband data services with infrastructured) Telecommunications projects involving satellites such as inter-exchange ser-vice, global mobile personal communications, and international satellite commu-nicationse) Multi-media servicesf) Fixed and portable voice serviceg) Data networking serviceApplications for registration must be endorsed by the National Telecommunica-tions Commission (NTC). All telecommunication projects that cost at least the Philippine Peso equivalent of US$20 million may qualify for pioneer status6. LogisticsThis covers the following:a) Agricultural services involving post harvest facilities, grains-highway facilities, cold storage, blast freezing, vapor heat treatment (VHT) and ice plants in LDAs‧ Post-harvest facilities such as cold storage facilities and blast freezing facilities, bulk handling and specialized transport facilities, food and agriproducts terminal market including livestock auction marketCold storage facilities may include ice plants; registration of ice plants only may be allowed if located in a Less Devel-oped Area‧ Other types of farm services for production activities, e.g., irrigation Agri-prod-ucts terminal market and livestock auction market shall be endorsed by the De-partment of Agriculture and/or the Bureau of Animal Industry.b) Air TransportAir transport operation includes passenger and/or cargo operation classified as a public utility. Lease with option to purchase the aircraft may be allowed. Lease without option to purchase may be allowed provided that the lease agreement is for a minimum of five (5) years. The following may qualify for pioneer status:‧ Serving the missionary/developmental routes, as indicated in the Certificate of

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Public Convenience and Necessity (CPCN); or‧ Providing support services to village enterprises, e.g., consolidation of productsc) Land TransportThis covers the operation of Public Utility Bus (PUBs) operations, Public Utility Articulated Buses (PUABs) including buses using CNG/LPG. The following are the qualifications for registration:‧ Buses must be brand new‧ Retrofitted/re-powered buses with brand new engines using CNG/LPG may be allowed‧ Operators must have their own terminals and garage that can accommodate the total number of buses under their franchises‧ Operators must undertake to operate within the franchise routesd) Intelligent Transport Systems (ITS): Intelligent Transport Systems (ITS) are state-of-the-art technologies used to assist motorists and public transport service providers in increasing their operational efficiency, road management, traffic acci-dent Monitoring and real time-information system in terms of the following appli-cations: travel scale/patterns/characteristics information, traffic management, passenger demand management, road management, advance driving assis-tance, critical freight locator system, “eco-driving system”, electronic fare transac-tions and incident/hazard response. Application for registration must be endorsed by the LTFRB or DOTC.e) Multi-modal passenger and/or cargo terminals, and inter-modal terminals‧ Passenger TerminalsThe following are the qualifications for registration:- Must have new facilities and must provide parking, comfort rooms, ticketing and reservation systems and air-conditioned waiting area; and- Caters to shipping lines or airlines and/or different land transportation systems (rail system, buses, taxis, etc.)‧ Cargo Terminals/Container YardsMust have a plan of ingress and egress to prevent traffic buildup/obstruction of thoroughfares on a 24-hour basis as certified by the appropriate DOTC/MMDA traffic management office‧ Inter-modal TerminalsThe following are the qualifications for registration:- The total area of the terminal must be equal to at least 1/3 of the total vehicles servicing all routes terminating at the said terminal and public utility vehicles (PUVs) for general circulations multiplied by the typical vehicle dimensions.- Must provide facilities such as comfort rooms (male, female, and for people with disabilities), diaper changing areas, PUV layover/parking areas, private vehicle parking, waiting lounges and pedestrian transfer access.f) Pipeline Operations: Application for registration on the establishment of infra-structure for transport of petroleum products, natural gas, petrochemicals, and similar products must include proof of filing of an application for Authority to Op-erate Pipeline System with the DOE and/or appropriate government agency. The transport from mother station to daughter station should be in accordance with PNS standards.

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g) Integrated Logistics: This covers all activities from door-to-door pick-up and delivery of goods, supply chain management to loading and re-loading into any carrier, whereby the location of goods may be tracked electronically at any time. The project should have the following facilities:‧ Warehousing and storage;‧ Distribution; and‧ Transport (any or a combination of land, water, air)Note: Distribution and/or transportation facilities may be outsourced but the inte-grated quality of operations must be maintained. Projects that cost at least the Philippine Peso equivalent of US$20 million may qualify for pioneer status.h) Toxic and hazardous waste (THW) management: This covers the establish-ment of a THW Merchant facility, an integrated and self-contained facility capable of processing a wide range of toxic and hazardous waste (THW) that involves complete treatment, storage and disposal (TSD).‧ Only projects using locally generated THW may qualify‧ Projects costing more than Php1.0 billion may be granted pioneer statusi) Water supply/treatment/distribution/sewerage systemsThis covers the supply of raw water, treatment, and/or distribution in the major ar-eas of water operations on a provincial, municipal or city level, and the construc-tion/upgrading of existing sewerage systems facility.‧ Supply of raw water refers to the extraction of water from its natural source for commercial purposes.‧ Water treatment facility shall cover the minimum basic process flow of a treat-ment plant (i.e. screening, mixing, flocculation, sedimentation, filtration and chlo-rination) with capacity sufficient to handle the volume of raw water for its target subscriber area.‧ Distribution activity must involve the installation of a piping network that in-cludes water main service pipelines and flow metering systems.‧ Construction/upgrading of existing sewerage systems pipeline must include a treatment facility. Projects involving any of the foregoing areas of water opera-tions dedicated solely to either an industrial estate, industrial communities, ser-vice cities, or subdivision development areas are not qualified for registration un-der this listing. Projects that cost at least the Philippine Peso equivalent of US$20 million may qualify for pioneer status.H. TourismThis covers the establishment of tourism estates and tourism economic zones, ecological/ agricultural tourism facilities, and the establishment of tourist accom-modation facilities. This also covers historico-cultural heritage projects, tourist bus operations, and services provided by tourist operators as endorsed by the Department of Tourism (DOT).1. Tourism EstatesThis refers to areas with defined boundaries suitable for development into an in-tegrated tourist complex. Following are the qualifications for registration:a) Provision of facilities such as but not limited to accommodation, food and recreational centers and commercial outletsb) Provision of basic infrastructure such as roads, water supply, power distribu-

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tion, drainage and sewerage systems and other necessary facilities; andc) Area should be at least twenty five (25) hectares that are contiguous and must be under a unified management; Estates in an island less than twenty (25) hectares may also be registered provided the whole island is developed Locators may qualify for registration if the activities are covered by the 2005 IPP. Tourism estates/zones with a minimum area of fifty- (50) hectares may qualify for pioneer status.2. Tourism Economic ZoneThis refers to a tourism development zone/ tourism estate, which has been granted a special economic zone status through issuance of the required Presi-dential Proclamation. A tourism development zone/tourism estate is a tract of land with defined boundaries suitable for development into an integrated resort complex, with prescribed carrying capacities of tourist facilities and activities. Fol-lowing are the qualifications for registration:a) Provision of facilities such as but not limited to sports, recreation centers, ac-commodations, convention and cultural facilities, food and beverages outlets, commercial establishments and other special interest and attraction activities/ es-tablishments;b) Provision of basic infrastructure such as roads, water supply, power distribu-tion, drainage and sewerage systems and other necessary facilities; andc) The tourism development zone/tourism estate shall be under a unified and continuous management, and can either be a component of an ecozone or the whole ecozone itself. Locators may qualify for registration if the activities are cov-ered by the 2006 IPP. Tourism ecozones with a minimum area of fifty-(50) hectares may qualify for pioneer status.3. Tourist Accommodation FacilitiesThis covers the following:a) Hotels, apartels, tourist inns, and pension housesFollowing are the qualifications for registration of a hotel project:‧ Project cost must be at least the Philippine Peso equivalent of US$20,000 /room to exclude cost of land; and,‧ Must have the facilities that would entitle it to a standard class hotel in accor-dance with DOT classificationThe following may qualify for pioneer status:‧ Projects costing at least the Philippine Peso equivalent of US$100,000/room‧ Projects locating in LDAs‧ Hotel modernization projects with a project cost of at least Php360,000/room or Php100 millionb) Resorts that include special interest activities (that may or may not have ac-commodation facilities) such as but not limited to eco-tourism, agritourism, theme parks, conventions and exhibition/trade display centers‧ Eco-tourism projects or those involving environmentally-sound tourism activities which blend with the natural and cultural environment in a given eco-system / specific locality‧ Agri-tourism projects or those involving working farms where the working envi-ronment forms part of the tourism project and promotes an appreciation of local

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culture, heritage and traditions through personal contact with people and maxi-mize the potentials of income generation of existing farms through tourism-re-lated activities The following may qualify for pioneer status:‧ Projects locating outside Metro Manila must have project cost of at least the Philippine Peso equivalent of US$ 10.0 million/project;‧ Projects located in Metro Manila with a minimum investment cost of at least the Philippine Peso equivalent of US$20 million;‧ Projects locating in LDA must have project cost of at least the Philippine Peso equivalent of US$ 5.0 million/project;‧ Agricultural and ecological tourism projects with a minimum lot area of fifty (50) hectares or with project cost of at least the Philippine Peso equivalent of US$50,000; and‧ Other factors/criteria as may be determined by the Board. Income from golf courses and casinos will not be entitled to ITH. Application for registration shall be endorsed by the Department of Tourism.4. Historico-Cultural Heritage ProjectsThis covers the conservation, preservation or restoration of national sites or prop-erties. Projects undertaking the conservation and preservation, restoration or maintenance of historico-cultural heritage that includes any of the following may qualify for registration:a) National shrines, monuments, and/or landmarksb) Local historical sites/properties classified, identified, and listed in the National Registry of Historic Structuresc) Cultural properties, treasures and/or artifacts5. Tourist busesFollowing are the requirements for registration:a) Buses must be brand-new and suited to local conditions;b) Company must be accredited by the DOT;c) Operators must have their own terminals and garage that can accommodate the total number of buses under their franchise; andd) Application must be endorsed by the DOT6. Services provided by tourist operators: This covers packaged services ren-dered to tourists from transport, accommodation, recreation, guided tours and other related services. To qualify for registration:a) Application must be endorsed by the DOT; andb) Must have online facilities for reservations, bookings and payments.I. Shipbuilding/ShippingThis covers shipbuilding, ship repair, shipyard operations (excluding shipbreak-ing), and overseas, domestic and RORO shipping and terminal operations.1. ShipbuildingThis covers shipbuilding, ship repair and shipyard operations (excluding ship-breaking).a) Shipbuilding refers to the design, construction, outfitting and launching of any type of ship.b) Ship Repair refers to the conversion, overhaul, alteration, modification or re-pair of hull, machinery, equipment, outfits and components of any type of ship.

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Prior to start of commercial operation, the registered enterprise must submit a Li-cense to Operate from the Maritime Industry Authority (MARINA). Any of the fol-lowing may qualify for pioneer status:a) Shipyard operation with a minimum berthing capacity of 7,500 DWT; orb) Project cost of at least the Philippine Peso equivalent of US$10 million.2. ShippingThis shall cover overseas, domestic, and RORO shipping, and terminal opera-tions.a) Domestic/inter-island shipping covers pure cargo vessel, passenger carrying vessel, and passenger-cargo vessel operations including Roll-On/Roll-Off Termi-nal System (RRTS) operations. The following are the qualifications for registra-tion:‧ Vessels must not be more than fifteen (15) years old;‧ High-speed passenger crafts must not be more than ten (10) years old;‧ Vessels other than hi-speed crafts and tankers must be at least 200 tons gross tonnage; and‧ RORO vessels must be at least 250 tons gross tonnage for those serving pri-mary routes and at least 100 tons gross tonnage for those serving the secondary, tertiary and developmental routes.‧ Lease or charter with option to purchase the vessel may be allowed. Pure lease or charter without option to purchase may be allowed provided it has a minimum lease or charter agreement of at least five (5) years. The following may qualify for pioneer status:‧ RORO operator/enterprise serving the secondary, tertiary or developmental routes, as indicated in the Certificate of Public Convenience (CPC)‧ Projects with the following minimum project cost based on the ship type in-volved in the project:Ship Type involved in the ProjectMinimum Project Cost per Vessel (the Philippine Peso equivalent of)Passenger-Cargo Vessel or RORO/ Passenger Vessel US$ 5 millionCargo Ship and Tanker US$ 3 millionHigh-Speed Craft US$ 2 millionb) Overseas shippingThe following are the qualifications for registration:‧ MARINA accredited Philippine shipping enterprise;‧ Vessels must be currently registered under the Philippine Flag; and,‧ Vessels must be at least 500 tons gross tonnage and must not be more than fif-teen (15) years old‧ Lease or charter with option to purchase the vessel may be allowed. Pure lease or charter without option to purchase may be allowed provided it has a minimum lease or charter agreement of at least five (5) years. Applications for registration must be endorsed by the MARINA. Prior to start of commercial operation of each vessel, the registered enterprise must submit a Certificate of Seaworthiness is-sued by MARINA. The following may qualify for pioneer status:‧ Projects that cost at least the Philippine Peso equivalent of US$10 million per vessel.

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‧ Acquisition of brand new vessels.J. JewelryThis covers the manufacture of fine jewelry and costume jewelry. This covers, among others, the following:1. Manufacture of fine jewelry;2. Manufacture of costume jewelry;3. Cutting and polishing of stones;4. Pearl farming/culturing5. Refining of metals; manufacture and/or processing of other raw materials and parts used in the manufacture of jewelry; and,6. Activities in support of jewelry manufacturing, such as electroplating, precious stone appraisal and certification, assaying and hallmarking. For activities in sup-port of jewelry manufacturing, the following qualifications are further required:1. Assaying – the firm/facility shall secure accreditation from the Bureau of Prod-uct Standards (BPS)2. For Precious Stone Appraisal and Certification – precious stone appraisal and certification shall be in accordance with the BPS standardsK. Fashion GarmentsThis covers the production of fashion garments as endorsed by the Department of Trade and Industry (DTI). Fashion garments essentially refers to wearing ap-parel for a specific season with a distinct style and color based on international trends. Wearing apparel shall include men’s, women’s, children’s and infants’ wear. The following are the qualifications for registration:1. Existing enterprises with branded or trademarked wearing apparel shall submit a Certificate of Registration (CR) from the Intellectual Property Office (IPO).2. New enterprises with pending application for registration with the IPO may also qualify. Denial of IPO registration shall result to the cancellation of BOI registra-tion and refund of incentives. Projects that cost at least the Philippine Peso equivalent of US$1 million may qualify for pioneer status.L. Machinery and equipment, raw materials and intermediate inputs in sup-port of the activities listed in the IPPThis covers the fabrication of machinery and equipment and the production/man-ufacture of raw materials and intermediate inputs in support of the activities listed in the IPP. Production of intermediate inputs involving simple processing cover-ing any or a combination of activities such as but not limited to cleaning, sorting, cutting, shredding, pulverizing, grinding, crushing, compacting, dissolving and fil-tration are excluded. Industry Cluster and modernization activities as well as the establishment and operation of Centers of Excellence are limited only to the fab-rication of Machinery and Equipment. Incentives shall be limited to the capacities supplied to the activities listed in the IPP.II. MANDATORY INCLUSIONSA. Industrial Tree Plantation under P.D. 705This covers the establishment of forest plantations, which include timber and nontimber species such as rubber, bamboo, rattan, etc. (excluding fruit trees) for commercial and industrial purposes. New project refers to the development of any public or private land to plantation of timber and non-timber producing

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species to supply the raw material requirements of forest-based industries. It also includes plantation with existing tree crops, which have not yet reached commer-cial harvest. Forest plantation in public and private lands must have been ap-proved and issued forest management/development agreements such as:1. Socialized Industrial Forest Management Agreement (SIFMA)2. Integrated Forest Management Agreement (IFMA)3. Private Forest Development Agreement (PFDA)4. Community-based Forest Management Agreement (CBFMA)Note: Income tax holiday (ITH) incentive shall commence from start of commer-cial harvest of forest plantation.B. Iron and Steel under R.A. 7103This covers the following:1. Primary steel products in the form of refined iron ore, ingots, slabs or blooms/billets;2. Intermediate steel products such as:‧ Plates‧ Hot-rolled or cold-rolled flat products or their equivalents (e.g. tin mill black plates for tinplates)‧ Tinplates‧ Bars/rods that are not currently produced in the PhilippinesModernization must result in any of the following:1. At least ninety six percent (96%) yield for long products;2. At least ninety eight percent (98%) yield for flat products; or3. At least five percent (5%) reduction in electricity usage.C. Exploration, Mining, Quarrying and Processing of Minerals under R.A. 7942All projects must have the necessary permits/licenses from competent authori-ties. This covers the following:1. Exploration and development of mineral resources including those covered by mineral agreements may qualify for pioneer status.Note: Not entitled to Income Tax Holiday (ITH).2. Mining, quarrying and processing of metallic and non-metallic minerals (except those involving riverbed operations, cave mining and beach mining)a) Mining and/or quarrying integrated with mineral processing shall be entitled to ITH. Production of direct shipping ore is not entitled to ITH.b) Mineral processing without mining or quarrying shall be entitled to full incen-tives. Simple processing such as sorting, crushing, washing, drying and other similar activities must be combined or integrated with one or more other simple processing operations to be entitled to ITH. Provided that reduction to powder/granular size (e.g. grinding), classification and/or chemical washing/scrubbing of non-metallic minerals may be granted ITH.c) Mining and processing of aggregates is not entitled to ITH.d) Marble processing projects, whether or not integrated with mining and quarry-ing, must export at least fifty percent (50%) of production, if Filipino owned or at least seventy percent (70%), if foreign-owned.e) Mineral processing projects must locate outside the National capital Region

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Projects of foreign-owned corporations with approved Financial or Technical As-sistance Agreements (FTAAs) or Mineral Processing Permits (MPPs) are quali-fied for pioneer status, with full ITH incentive. Provided further, that FTAA and MPP projects covered under Art. 17, Title 1 of E.O. 226, as amended, or located in less-developed areas shall be granted full incentives.3. Cement Manufacturinga) Registration should be limited to new projects with complete new production line (clinker base). Existing firms putting up a complete new production line (clinker base) may also qualify for registration provided that the existing plant (clinker base) is operating at 85% capacity utilization and should be maintained at any given time.b) Cement manufacturing integrated with mining or quarrying shall be limited to a maximum foreign ownership of 40%; without quarrying operation, foreign owner-ship can be up to 100%. To qualify for pioneer status, the project should comply with any of the following:‧ Article 17 of E.O. 226 and entitled to pioneer incentives; or‧ At least 1 million MTPY clinker based and entitled to non-pioneer incentives and no bonus year on ITH.D. Publication or Printing of Books or Textbooks under R.A. 80471This covers the following activities:i) Publication of books and textbooksii) Printing of books and textbooksiii) Reprinting of books and textbooksBook is defined as a printed non-periodical publication of at least forty-eight (48) pages, exclusive of cover pages, published in the country and made available to the public. Textbook is an exposition of generally accepted principles in one sub-ject, intended primarily as a basis of instruction in a classroom or pupil-book-teacher situation. Application for registration shall be endorsed by the National Book Development Board (NBDB). For printing and/or reprinting, applicants shall indicate its copyright ownership or the authority from the copyright owner.E. Refining, Storage, Marketing and Distribution of Petroleum Products un-der R.A. 8479This covers all activities under the downstream oil industry, specifically refining, storage, distribution and marketing of petroleum products.a) Refinery refers to oil refining, oil processing and oil movements and storage within the refinery, defined as follows:‧ Oil refining refers to and covers the activity of manufacturing locally petroleum products through distillation, conversion and treatment of crude oil and other nat-urally occurring petroleum hydrocarbons.‧ Oil processing refers to and covers the activity of manufacturing locally petro-leum products with or without the use of the distillation process.1 Excluded from Industry Clusters‧ Oil movement and storage cover receiving/discharging and storing petroleum within the refinery intended for refining and/or processing and eventual distribu-tion purposes. Investments in oil refining and/or oil processing shall include ex-pansion, modification and rehabilitation in a refinery, resulting in an increase in

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existing volume of production, and/or improvement in the quality of petroleum products in conformance with the Philippine National Standards (PNS), the Clean Air Act, and other applicable laws and regulation. Investments in oil movement and storage shall include expansion, modification and rehabilitation of facilities in the refinery resulting in an increase in existing capacity for storage, handling and distribution in the refinery.b) Storage refers to the business of receiving/discharging and storing petroleum crudes and/or products of others for compensation or profit. This shall include fu-els transshipment or terminalling (pertains to the last point prior to distribution).c) Distribution refers to bunkering and fuels shipping and transport. Fuels ship-ping and transport cover shipping and transport through land such as tank trucks, lorries and pipeline and tankers, and barges for the fuels to get to the points or areas where they are needed. Bunkering covers the activity of selling fuel for di-rect use by a vessel, usually for water and air transport, through a smaller trans-port vessel. Distribution projects are limited to those utilizing brand new equip-ment.d) Marketing covers the following:‧ Retailing of petroleum products refers to selling of petroleum products or fuels in retail generally directed to the end users, through dispensing pumps in gaso-line stations or in packaged containers such as drums for the liquid fuels or metal cylinders for LPG. This includes the establishment and operation of gasoline sta-tions and LPG retailing. For gasoline retailing stations, except those locating in Less Developed Areas (LDAs) listed in this IPP, the applicant shall be required to invest a minimum capital of the PhP10 million per station, excluding land, or such amount as may be determined jointly by BOI and DOE for augmentation pur-poses, as the need arises; Provided, that foreign retailers shall comply with the requirements provided under RA 8762, otherwise known as the Retail Trade Lib-eralization Law, and its implementing rules and regulations.‧ Fuels bulk marketing covers the selling of petroleum products or fuels in whole-sale through tank trucks, lorries, tankers, barges or pipelines, which may be sourced from one’s own storage facilities. Investment shall include underground tanks and other equipment intended for fuels retailing through outlets such as gasoline stations and LPG outlets.‧ LPG refilling and marketing – A combination of storage, distribution, and mar-keting activities may also be eligible for registration. For storage, marketing and distribution, only investments of new industry participants may be entitled to in-centives. The applicant shall submit an endorsement from the Department of En-ergy certifying that the applicant is a new industry participant with new invest-ments. Except for availment of incentive on Duty of three (3) percent on imported capital equipment, a DOE certification on actual new investments of the regis-tered enterprise shall be required in the application for incentives availment. Said investments shall be validated by an ocular inspection by DOE. Incentives shall be available for a period of five (5) years from the date of registration except In-come Tax Holiday (ITH), which shall be reckoned from date of commercial opera-tion. Date of commercial operation shall refer to the scheduled start of commer-cial operation, which is indicated in the firm’s specific registration terms and con-

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ditions, which shall be based on the following:‧ For refineries, it will be the date when the registered enterprise actually first be-gins production of the registered product for commercial purposes. In cases of expansion, modification and rehabilitation of refineries, the start of commercial operation shall be the date after the scheduled completion of the said activities.‧ For storage, it will be the date when the registered enterprise actually first re-ceived the registered product for storage.‧ For distribution, it will be the date when the registered enterprise actually first transferred the registered product for distribution.‧ For marketing, it will be the date when the registered enterprise actually first sold the registered product.‧ For combinations involving storage, distribution, and marketing, it will be the date referred to in “marketing;” Provided no separate transactions for either stor-age or distribution is undertaken; otherwise, it will be the earliest date of commer-cial operation, as defined, among the combined registered activities. ITH shall be applicable to income derived from the activity covered by the registration reck-oned five (5) years from date of commercial operation:Provided that in case of gasoline retailing stations, except those locating in LDAs, the incentive shall be available only to those with minimum capital requirement, excluding land, of PhP 20 Million or such amount as may be determined jointly by BOI and DOE for augmentation purposes, as the need arises. Availment of ITH incentive shall be based on new investments made. New investments should ac-count for at least 20% of the total investments (inclusive of equipment and plant facilities at acquisition cost) or a minimum of Philippine Peso equivalent of US $2 million, whichever is lower.F. Ecological Solid Waste Management under R.A. 90031This covers:1. Recycling or Treatment Facility integrated with Manufacturing Facility to pro-duce semi-finished or finished product using as inputs at least 50% recyclable materials from local or domestic sources.a) Recycling refers to the treating of used or waste (i.e., biodegradable, non-biodegradable, recyclable and special) materials through a process of 1 Excluded from Industry Clusters making them suitable for beneficial use and for other purposes, and includes any process by which solid waste materials are transformed into new products in such a manner that the original products may lose their identity, and which may be used as raw materials for the production of other goods or services.b) The Income Tax Holiday incentive shall be based on the amount of locally sourced recycled material used to produce a semi-finished/finished product.c) If ratio of locally sourced recyclable material to the total raw material is less than 50%, Income Tax Holiday rate of exemption shall be computed as follows: Locally sourced recycled material % ITH rate of exemption = ------------- x 100 To-tal raw materiald) Recycling projects with higher level of processing, in addition to the above, shall qualify for registration and (a) ITH availment, in accordance with the guide-lines, if for domestic market, and (b) 100% ITH availment in accordance to export

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commitment, if recycled product is for export e) Complete rehabilitation of existing open and controlled dumpsites. Application for registration should be accompanied by a Closure and Rehabilitation Plan.2. Sanitary landfilla) Sanitary landfill refers to a waste disposal site designed, constructed, operated and maintained in a manner that exerts engineering control over significant po-tential environmental impacts arising from the development and operation of the facility.b) Application for registration must be accompanied by an appropriate ECC or a certification from EMB that the company has a pending application for an appro-priate ECC.c) In case a new sanitary landfill will be applied for registration by the same oper-ators/owners/shareholders within or near the premises of the existing site, the ex-isting site should have reached at least 90% of its maximum loading capacity (as certified by the NSWMC, through the DENR, or EMB) or is ready for closure three (3) months before the start of commercial operation of the new site (as cer-tified by the NSWMC, through the DENR, or EMB).G. Clean Water Act under R.A. 9275This covers projects that involve industrial wastewater treatment and/or that will adopt water pollution control technology, cleaner production and waste minimiza-tion technology.1. Application for registration shall be endorsed by the appropriate government agency as follows:a) LLDA - for projects involving wastewater treatment and water pollution tech-nology within its area of jurisdiction, i.e., Laguna de Bay area;b) EMB-DENR – all other wastewater treatment and water pollution technology projects not covered by LLDA; orc) ITDI-DOST – all cleaner production and waste minimization technology projects.2. Applicants shall adopt a technology that conforms with the international stan-dards as certified by DOST or other internationally known certifying body. The certification should be submitted upon filing of application for registration with the BOI.3. In-house facilities may qualify for registration provided they will service other clients.4. Projects that entail simple activities such as, 5S, Good Housekeeping, are not qualified for registrationH. Rehabilitation, Self-Development and Self-Reliance of Disabled Persons under R.A. 7277This Act is also known as the "Magna Carta for Disabled Persons”. Disabled Per-sons are those suffering from restriction or different abilities, as result of a men-tal, physical or sensory impairment, to perform an activity in the manner or within the range considered normal for a human being. This covers the manufacturing of technical aids and appliances used by disabled persons, which shall include but not limited to the following:‧ Walk-in baths designed for people with disabilities

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‧ Commode chairs‧ Braille books‧ Hoists and lifting chairs designed for incapacitated people, including stair lifts.‧ Wheelchairs, scooters and automobiles using special controls or assistive tech-nology designed for people with disabilities‧ Hearing-aids‧ Artificial limbs, orthotics, prosthetics and orthopedic bracesApplication for registration must include an endorsement from the Department of Social Welfare and Development (DSWD).I. R.A. 6957 - Build, Operate and Transfer (BOT) Law as amended by R.A. 7718 (for projects in excess of Php 1 Billion)This covers the construction, rehabilitation, improvement, betterment, expansion, modernization operation, financing and maintenance of BOT eligible types projects, as listed under Sec. 2.2 of the BOT Law IRR, costing more than Php 1 Billion and which are normally financed, constructed and operated by the private sector, including other infrastructure development projects as may be authorized and endorsed by the appropriate agencies, provided however that such projects have a cost recovery component which covers at least 50% of the project cost, or as determined by the Approving Body. Application for registration must include an endorsement from concerned government agency or corporation or LGU, a copy of supply contract, and other relevant supporting documents. Projects may be undertaken under any of the following schemes or contractual arrangements:1. Build-operate-and-transfer (BOT)2. Build-and-transfer (BT)3. Build-own-and-operate (BOO)4. Build-lease-and-transfer (BLT)5. Build-transfer-and-operate (BTO)6. Contract-add-and-operate (CAO)7. Develop-operate-and-transfer (DOT)8. Rehabilitate-operate-and-transfer (ROT)9. Rehabilitate-own-and-operate (ROO); and10. Other schemes as may be approved by the President of the Philippines, or by law.J. Activities covered under Bilateral AgreementsThis covers specific projects under bilateral agreements entered into by the Philippine government with other foreign governments specifically granting incen-tives to a particular activity subject to the criteria/guidelines spelled-out under this IPP.III. EXPORT ACTIVITIESThis covers export producers, service exporters and activities in support of ex-porters.A. Manufacture of Export Products/Services1. Manufacture of Export ProductsThis covers the production/manufacture of non-traditional export products with capability to export at least 50% of its output, if Filipino-owned, or at least 70%, if foreign-owned. To qualify for incentives, industrial goods for export should have

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undergone manufacturing and mineral products for exports should have under-gone processing. Production of industrial goods involving simple processing cov-ering any or a combination of activities such as but not limited to cleaning, sort-ing, cutting, shredding, pulverizing, grinding, crushing, compacting, dissolving and filtration are excluded. Exports of mineral products without processing shall not be entitled to ITH, e.g., mineral production without processing such as (i) quarrying and mining only, (ii) mining of direct shipping ore, (iii) minor processing such as cleaning, sorting or size reduction. Export of recycled materials with no or with simple processing involving any or a combination of activities such as but not limited to cleaning, sorting, cutting, shredding, pulverizing, grinding, crushing, compacting, dissolving and filtration shall not qualify for registration for purposes of incentives. The BOI may, if national interest requires, withhold registration of an export product including industry inputs that are in short supply domestically.2. Export of ServicesEligible enterprises shall qualify as a service exporter provided that revenues are paid in foreign currency. For service exporters, to be eligible for pioneer status, an enterprise must engage in a specific activity that is new in the country. Mere deployment of people or individual practice of profession abroad shall not qualify for registration.B. Activities in Support to ExportersThis covers the following:1. Services comprising a portion of the manufacturing process;2. Sub-assembly of parts/components of the final export product;3. Fabrication of parts/components of final products wherein the raw materials are provided by the direct exporter;4. Product testing and inspection; and,5. Repair and maintenance.IV. Projects under the Retention, Expansion and Diversification (R.E.D.) Program)This covers activities of existing investors that are encouraged for retention, ei-ther to maintain, expand or diversify their operations in the country. To qualify for registration, the following must be complied with:1. The project should have an investment of at least the peso equivalent of US$5 million or have 500 direct employees;2. The project involves manufacturing; and3. The activity only requires a Project Description by the DENR.If the activity requires an ECC, the project shall be evaluated on a case to case basis Projects should involve expansion, diversification and modernization of the existing activities. Projects with a minimum investment of the peso equivalent of US$10 million may qualify for pioneer status.RETENTION projects are existing activities that are encouraged for continued operation in the Philippines. Retention projects may only be granted non-fiscal in-centives.EXPANSION projects are existing activities that are encouraged to increase ex-isting capacities within the country. These projects shall involve the establish-ment of a completely new line or the addition of capacity-determinant equipment

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to the existing line.DIVERSIFICATION projects are new activities of existing investors that are dis-tinct from existing operations. These projects must differ from the existing activi-ties either in terms of final product, production process, equipment or raw materi-als. Expansion and Diversification projects shall be subject to the locational re-striction policy unless said projects are effected within the premises of its existing operations or contiguous thereto. The BOI, for reasons of public health and morals, may deny applications for registration of projects.V. Relocation ActivitiesThis refers to projects from other countries involving the transfer of production or service facilities to the Philippines. To qualify for registration, the following must be complied with:1. The project should have an investment of at least the peso equivalent of US$5 million or have 500 direct employees;2. The project involves manufacturing; and3. The activity only requires a Project Description from the DENR.If the activity requires an ECC, the project shall be evaluated on a case to case basis Projects with a minimum investment of the peso equivalent of US$10 mil-lion may qualify for pioneer status. In cases where the existing equipment will be included in the relocation project, the general policy on equipment shall apply. The BOI, for reasons of public health and morals, may deny applications for reg-istration of projects. These general policies and specific guidelines shall take ef-fect immediately upon publication in a newspaper of general circulation.

(SGD) RAUL V. ANGELESExecutive DirectorIndustry Development GroupPublished: Manila Times, 07 September 2006

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