FOREIGN INVESTMENT INCENTIVES

The firm will ascertain the eligibility of a business enterprise and activity in order to avail of extensive special tax incentives, and thereafter aid in the registration with PEZA. The firm will also identify Special Economic Zones, IT Parks, Technology Parks, IT Buildings and other ecozones, where these enterprises may strategically locate their operations in order to avail of these incentives.

Tax Incentive Registration:

PEZA ( PHILIPPINE ECONOMIC ZONE AUTHORITY )

Registration with the Philippine Economic Zone Authority (PEZA) entitles the enterprise to income tax holidays four, six, or eight years depending on whether it is a pioneer project or a non-pioneer project. Upon the expiration of the tax holiday, the PEZA registered enterprise is subject to 5% Special Tax on Gross Income in lieu of all local and national taxes. In addition to the registration with PEZA, the operations of the enterprise must be located in one or any of the PEZA zones, buildings, IT Parks or Technology Parks. Additional requirements may be mandated depending on the kind of industry or business activity.

PEZA registration will usually take 3 weeks or approximately 21 working days from the date of submission of all documentary requirements. The processing however would be largely dependent on the availability of the PEZA board and the compliance with the required documents, including additional requirements which may be given, and provided that the PEZA board is duly satisfied with the contents thereof upon evaluation.

BOI (BOARD OF INVESTMENTS)

The Board of Investments (BOI) provides tax breaks and other incentives registered entities that engage in activities identified as investment priorities or those which promote the general economic development of the Philippines and those that are exported oriented (where export is more than 50% of production or 70% if the enterprise is more than 40% owned by foreign investors). The BOI, in consultation with the public sector comes up with an Investment Priorities Plan listing these industries.

The main advantage for an eligible BOI registered firm are 4-8 year income tax holidays and 4-6 year exemption from local business taxes for pioneer and non-pioneer industries. To be eligible for BOI incentives foreign investors will need to have an equity investment in a Philippine corporation.

Pioneer and Non pioneer projects have different requirements. 100% foreign owned enterprises may avail of incentives if they engage in pioneer projects, export at least 70% of their total production or undertake projects less-developed areas of the country as identified by the BOI. These enterprises are obliged to attain 60% Filipino ownership within 30 years from registration unless they export or will be exporting 100% of their production. For enterprises engaged in non-pioneer projects, foreign ownership is limited 40%, unless the enterprise will export more than 70% of its annual production.

Applying for BOI requires submission of a notarized application indicating the type of projects, how the activity relates to those listed in the Investment Priorities Plan, the production capacity geared to export, the capital structure of the enterprise, and the nationality of its investors. In addition, the company must submit a feasibility report, containing five-year projected financial statements.

Below is a table that carefully reviews the difference between PEZA and BOI Registration in the Philippines

PEZA

(Philippine Economic Zone Authority)

BoI

(Board of Investments)

REQUIREMENTS REQUIREMENTS
Physical Location Companies are required to relocate operations inside a PEZA IT Zone or PEZA building Companies are not required to relocate to a designated zone
Eligibility Any new or existing firm is eligible for PEZA benefits, as long as it closes all operations outside PEZA zones and relocates inside a PEZA designated location Any new or existing firm is eligible for BoI benefits
Documentation
  • Project brief- entails the submission of additional documents to confirm the statements made therein
  • Anti-graft certificate
  • Board Resolution Authorizing the designation of a representative
  • SEC Certificate of Registration
  • Project feasibility study- includes reference documents and other information used for the study
  • (3) copies of BOI application Form 501
  • (3) copies of project report and supporting documents
Export Commitment
  • There are no export commitments for registrable IT services
  • For Filipino citizens, at least 50% of total services must be exported
  • For foreigners, at least 70% of total services must be exported
  • For Filipino citizens, there is no export commitment
  • For more than 40% foreign-owned companies, at least 70% of total services must be exported
  • For firms that engage in pioneer activities, 100% of activities may be invested in domestic markets provided that the firm complies with requirements under the Foreign Investments Act (FIA). [paid-up capital of at least USD 200,000 w/c may be lowered to USD 100,000 for projects that involve advanced technology as determined by the Dept. of Science and Technology and hire at least (50) direct employees]
Tax Incentives
  • Offshore profit remittances, not subject to remittance tax;
  • Income Tax Holiday for four (4) years for Non-Pioneer IT Enterprises, or six (6) years for Pioneer IT Enterprises;
  • After the ITH period, the option to pay a special 5% tax on gross income earned, in lieu of all national and local taxes, except real property taxes on land owned by developers;
  • Exemption from payment of import duties and taxes on imported machinery and equipment and raw materials;
  • Additional deduction equivalent to 50% of training expenses, chargeable against the 3% share of the national government in the special 5% tax on gross income;
  • Permanent resident status for foreign investors with initial investments of US$ 150,000.00 or more;
  • Special tax rate of 5% of gross income (measured as sales less direct costs) in lieu of all Philippine taxes after the ITH;
  • Exemption from Branch Profit Remittance tax for PEZA-registered branches of foreign corporations; and
  • Other incentives, as determined by the PEZA Board.
  • Three (3) to Eight (8) year income tax holidays;
  • Four (4) to Six (6) year exemption from local business taxes for pioneer and non-pioneer industries;
  • Exemption from Taxes and Duties on Imported Spare Parts
  • Exemption from Wharf Dues and Export Tax, Duty, Impost and Fees
  • Tax Exemption on Breeding Stocks and Genetic Materials
  • Tax Credits
  • Additional Deductions from Taxable Income
Tax Incentives
  • Software Development and Application: including programming and development of system software for business, media, e-commerce, education, entertainment and many others
  • IT-enabled Services: Call centers, Data Encoding, Transcribing and Processing, Directories, etc.
  • Content Development for the Internet and other forms of media
  • Knowledge Based and Computer Enabled Support Services: Engineering, Architectural design services, and Consultancies
  • Business Process Outsourcing (BPO)
  • IT research
  • other IT-related services
  • ICT Services: software development, computer graphics, animation
  • ICT-enabled Services: business that can be delivered through the use ICT infrastructure [call centers, contact centers, legal transcription, medical transcription, engineering, design, back-office operations, business process outsourcing]
  • ICT-support Services: business that supports the development of ICT Services [R&D Centers, Incubation Centers, Educational/Training Institutions, Community Access Facilities, Internet Service Providers]
Documentation Registration procedure
  • PEZA application is submitted
  • PEZA application is evaluated
  • Application is presented and reviewed before the PEZA board
  • Submission of BoI application
  • Project Outline
  • Feasibility Report
  • Five year Financial Plan
Turnaround Time depends on the availability of the PEZA board 5-21 days