Philippine Board of Incentives (BOI Incentives)
The Philippine Board of Investments (BOI), an attached agency of Department of Trade and Industry (DTI), is the lead government agency responsible for the promotion of investments in the Philippines.
Taking the lead in the promotion of investments, BOI assists Filipino and foreign investors to venture and prosper in desirable areas of economic activities. Investors are welcome to experience the potentials of the booming Philippine Industry sectors. Profitable business opportunities abound in the food processing, construction, metal products, telecommunications, power and infrastructure projects among others.
BOARD OF INVESTMENTS (BOI) Registered Company
Enterprises registered with the Board of Investments are entitled to the following incentives:
FISCAL INCENTIVES:
Income Tax Holiday
Newly registered firms are fully exempt from income taxes for the following periods: six years from commercial operation for pioneer firms and four years for non-pioneer firms. This can be extended for another year in each following cases:
- The project use indigenous materials
- The project meets the BOI-prescribed ration of capital equipment to number of workers; or
- The net foreign exchange savings or earnings amount to at least US $500,000 annually during the first three years of operation.
Expanding firms are entitled to a period of three years from commercial operations, and an exemption from income taxes proportion to their expansion. They are, however, not entitled to additional deductions for incremental labor expense during the period within which this incentive is availed of.
Additional Deduction of Labor Expense
For the first five years from registration, a registered enterprise is allowed an additional deduction from taxable income of 50% of the wages corresponding to the incremental direct labor, that is, the number of skilled and unskilled workers, if the projects meet the BOI-prescribed ration of capital equipment to number of workers.
Tax Credit on Domestic Capital Equipment
A tax credit equivalent to 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 enterprise, whether national or local.
Tax Credit on Duty Portion of Domestic Breeding Stocks and Genetic Materials
Within 10 years from the date of registration, a tax credit equivalent to 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 genetic materials from a domestic producer.
Tax Credit for Taxes and Duties on Raw Materials Used in the Manufacture, Processing, or Production of its Export Products and Forming Parts Thereof
Every registered enterprise shall enjoy a tax credit equivalent to the national internal revenue taxes and customs duties paid on supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and forming parts thereof.
Access to Bonded Manufacturing/Trading Warehouse System
Registered export-oriented enterprises shall have access to the utilization of the bonded warehouse system in all areas required by the project subject to such guidelines as may be issued by the BOI upon prior consultation with the Bureau of Customs.
Exemption From Taxes and Duties on Imported Supplies and Spare Parts on the Consigned Equipment
Importation of required supplies and spare parts of the registered enterprises with a bonded manufacturing warehouse shall be exempt from customs duties and national internal revevue taxes payable thereon.
Exemption From The Wharfage Dues and Any Export Tax, Duty, Impost and Fee
Exports by a registered enterprise of its non-traditional export products shall be exempted from any wharfage, and any export tax, duty, impost and fee.
NON-FISCAL INCENTIVES:
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 have been simplified.
"Newly-registered firms are fully exempt from income taxes - six years from commercial operation for pioneer firms and four years for non-pioneer firms."
Source: Board of Investments (BOI)
Philippine Economic Zone Authority (PEZA Incentives)
PEZA - attached to the Department of Trade and Industry - is the Philippine government agency tasked to promote investments, extend assistance, register, grant incentives to and facilitate the business operations of investors in export-oriented manufacturing and service facilities inside selected areas throughout the country proclaimed by the President of the Philippines as PEZA Special Economic Zones.
It oversees and administers incentives to developers/operators of and locators in world-class, ready-to-occupy, environment-friendly, secured and competitively priced Special Economic Zones (see List of Economic Zones)
PEZA’s dynamic, responsive and client-oriented ethics have earned the trust and confidence of investors in its Special Economic Zones, the local business sector, and the foreign chambers of commerce in the Philippines (see Testimonials). All Industrial Economic Zones are manned by a PEZA officer and staff to immediately attend to stakeholders' needs and concerns. Information Technology companies are attended to by Head Office.
PEZA is ISO 9001:2000 certified.
The creation of PEZA, the development of Special Economic Zones throughout the country, and the very competitive incentives available to investments inside PEZA Special Economic Zones are embodied in the Special Economic Zone Act of 1995, a law passed by the Philippine Congress.
As provided in the Special Economic Zone Act, the PEZA Board is chaired by the Secretary of the Department of Trade and Industry. Vice-Chair is the Director General (Chief Executive Officer) of PEZA. Members of the Board are Undersecretaries representing nine (9) key government Departments, to ensure efficient coordination between PEZA and their respective Departments on matters pertaining to investors’ operations inside the Special Economic Zones.
The PEZA Head Office is located in Metro Manila (National Capital Region)
INCENTIVES TO ECOZONE ENTERPRISE
ECOZONE Developers/Operators shall be entitled to the following incentives:
Exemption from National and Local Taxes and Licenses :
Except for real property taxes on land, an ECOZONE Developer/Operator shall be exempt from payment of all national and local taxes.
In lieu thereof, the ECOZONE Developer/Operator shall pay a five percent (5%) final tax on gross income.
Additional Deduction for Training Expenses
An additional equivalent to one-half (1/2) of the value of training expenses incurred in developing skilled or unskilled labor or foe managerial or other management development programs incurred by enterprises in the ECOZONE can be deducted from the national governments share of three percent (3%) of the five percent (5%) final tax on gross income.
ECOZONE Developers/Operators registered with PEZA before the effectivity of Republic Act No. 8748 on June 20, 1999 shall continue to be entitled to incentives under the terms and conditions provided in their registered agreement.
Incentives To Ecozone Export and Free Trade Enterprises
Exemption from Duties and Taxes on Merchandise
Merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description brought into the ECOZONE Restricted Area by an ECOZONE Export or Free Trade Enterprise to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufacture, mixed with foreign or domestic merchandise whether directly or indirectly related in such acitivity, shall not be subject to customs and internal revenue laws and regulations on the Philippines nor to local tax ordinances. Importations of certain goods or merchandise under this paragraph shall be subject to the following conditions:
Importation of Capital Equipment
Conditions for Duty and Tax Free Importation - An ECOZONE Export or Free Trade Enterprise may import machineries, equipment and spare parts exempt from payment of any and all tariff duties and internal revenue taxes due thereon subject to the following conditions:
- The machinery and equipment are directly and actually needed and will be used exclusively by the ECOZONE Export or Free Trade Enterprise in its registered activity;
- The importation of spare parts shall be restricted only to component spare parts for the specific machinery and/or equipment authorized to be imported; and
- Subject to reasonable allowances, the rated capacity of the capital equipment to be imported must be within the registered capacity of the ECOZONE Export or Free Trade Enterprise.
Sale or Disposition of Capital Equipment - Any sale, transfer, assignment, donation or other form of disposition of originally imported capital equipment/machinery including spare parts, brought into the ECOZONE duly and tax-free, within five (5) years from date of acquisition shall require prior approval of the Board.
Importation of Construction materials
ECOZONE Export or Free Trade Enterprises entitled to tax and duty free importation of goods or merchandise may import construction materials and other articles that shall form part of its factory, warehouse or office building, including fixtures thereof, enclosures, driveways and auxillary structures, subject to the following conditions:
- The factory, warehouse or office building shall be constructed at the expense of the ECOZONE Export or Free Trade Enterprise;
- The construction materials to be imported are not manufactured domestically in sufficient quantity, not of comparable quality and not sold locally at reasonable prices. Construction materials shall not be considered available in sufficient quantity if they cannot be made available to the ECOZONE Export or Free Trade Enterprise at the time of need or within a reasonable period.
- The construction materials to be imported are reasonably needed and will be used exclusively in the construction of the factory, warehouse or office building to be used by the ECOZONE Export or Free Trade Enterprise solely for its registered operations;
- The approval of PEZA is obtained by the ECOZONE Export or Free Trade Enterprise before the purchase order is made or before the corresponding letters of credit are opened; and
- The construction materials shall be brought directly and physically inside the ECOZONE restricted area or such area as may be designated by PEZA for this purpose and in no instance shall these be sold, transferred, assigned, donated or be disposed of in any manner in the customs territory.
Importation of Specialized Office Equipment and Furniture
Specialized office equipment and furniture such as computers, antistatic chairs, tables and others of similar nature may be imported by ECOZONE Export or Free Trade Enterprise exempt from customs duties and taxes payable thereon, if the said equipment is not manufactured domestically in sufficient quantity, not of comparable quality and not sold at reasonable price. Otherwise, ordinary office equipment and furniture, whenever applicable shall be procured locally.
Importation of Professional Instruments and Household Effects
The professional instruments and implements, tools and trade, occupation or employment, wearing apparel and personal household effects of foreign nationals who shall settle in the Philippines in connection with their registered activity, may be imported exempt from the payment of import duties and taxes: Provided, (a) That the foreign national is an executive or is employed in an ECOZONE Export or Free Trade Enterprise; and (b) That the above-mentioned articles shall not be in commercial quantities nor for hire; and (c) That the approval of PEZA is obtained by the ECOZONE Export or Free Trade Enterprise before the purchase order is made or before the corresponding letters or credit are opened.
Exemption from National and Local Taxes and Licenses
Tax Credit for Import Substitution
Entitlement - ECOZONE Export or Free Trade Enterprises exporting non-traditional products which use or substitute locally produced raw materials, capital equipment and/or spare parts shall be granted a tax credit equivalent to twenty-five percent (25%) of the duties that would have been paid had these inputs been imported: Provided, That this incentive shall be available until December 31, 1977, unless extended by the President of the Philippines.
To be eligible for tax credit, the ECOZONE Export or Free Trade Enterprise exporting a non-traditional product must have used locally produced raw materials, capital equipment and/or spare parts or has substituted locally produced raw materials, capital equipment and/or spare parts for similar articles previously imported.
Determination of Whether Products is Traditional or Non-Traditional - The determination of whether an export product is traditional or non-traditional shall be governed by the criteria to be jointly issued by the Secretary of Finance, Secretary of Trade and Industry and Export Development Council.
Exemption from Wharfage Dues, Export Tax, Impost or Fee
An ECOZONE Export or Free Trade Enterprise shall be exempt from payment of wharfage dues and any export tax, impost or fee on the exportation of its registered export products or, in the case of an ECOZONE Free Trade Enterprise, on foreign merchandise transshipped through its ECOZONE facilities.
Other Incentives
Income Tax Holiday
Period of Availment - New ECOZONE Export or Free Trade Enterprises shall be fully exempt from income taxes levied by the National Government for the period as follows:
- New registered pioneer firms - Six (6) years from commercial operations.
- New registered non-pioneer firms - four (4) years from commercial operations.
- Expanding firms - Three (3) years from commercial operation of the expansion.
Entitlement for new expansion projects
New projects - In exceptional cases, ECOZONE Export or Free Trade Enterprise undertaking new activities disctinct from their registered operations may qualify as new projects subjects to the setting up of separate books of accounts. In such cases, the income tax holiday shall only to sales of the new products.
Expansion projects - The income tax holiday for expansion projects
Expansion
Expansion may include modernization or rehabilitation which, to be registrable, may or may not result in increased capacity but in any case, subject to the following conditions:
a) Phases/stages of production sought to modernized/rehabilitated must be identified; and
b) It must result in any of the following:
(i) substantial reduction of production cost,
(ii) significant increase in production efficiency including debottlenecking;
(iii) meaningful upgrading of product quality;
(iv) keeping abreast with the state of the art in the production of the registered product.
Additional Period of Availment
For ECOZONE Export and Free Trade Enterprises, the income tax holiday incentive may be extended for an extra year in each of the following cases but in no case to exceed a total period of eight (8) years for pioneer registered enterprises:
- If the ratio of the total imported and domestic capital equipment to the number of workers for the project does not exceed US$10,000.00 to one worker, or as prescribed by the Board;
- If the average cost of indigenous raw materials used in the manufacture of the registered product is at least fifty percent (50%) of the total cost of raw materials for the preceding years prior to the extension unless the Board prescribes a higher percentage;
- If the net foreign exchange savings or earnings amount to at least US $500,000.00 average annually during the first three (3) years of operations to be determined by the Board at the end of such three-year period: Provided, that the foregoing exchange savings criterion shall apply, as a general rule, to ECOZONE Export or Free Trade Enterprises whose products are totally imported into the country at the time of registration and duly indicated as imports subtitution in the firms approved project proposal.
- For the purposes of availment of this incentive, the ECOZONE Export or Free Trade Enterprise shall apply in writing to PEZA for the additional period and shall submit proof of compliance with the criteria above-mentioned.
Source: The Special Economic Zone Act of 1995, Philippine Export Zone Authority
