Incentives and Foreign Investment Law Reviewer
Incentives and Foreign Investment Law Reviewer
Incentives and Foreign Investment Law Reviewer
MIDTERMS Coverage: 1. Omnibus Investments Code 2. Foreign Investments Act 3. Cases i. Garcia cases (due process requirements) ii. Appealing decisions of the BOI I. Relevant Constitutional Provision ARTICLE II Declaration of Principles and State Policies Section 9. The State shall promote a just and dynamic social order that will ensure the prosperity and independence of the nation and free the people from poverty through policies that provide adequate social services, promote full employment, a rising standard of living, and an improved quality of life for all. Section 10. The State shall promote social justice in all phases of national development. Section 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers and promote their welfare. Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos. Section 20. The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments. Section 21. The State shall promote comprehensive rural development and agrarian reform. ARTICLE VI The Legislative Department Section 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. (4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress. ARTICLE VII Executive Department Section 20. The President may contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as may be provided by law. The Monetary Board shall, within thirty days from the end of every quarter of the calendar year, submit to the Congress a complete report of its decision on applications for loans to be contracted or guaranteed by the Government or government-owned and controlled corporations which would have the effect of increasing the foreign debt, and containing other matters as may be provided by law. ARTICLE XII National Economy and Patrimony Section 1. The goals of the national economy are: 1. 2. a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people 3. an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices. In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership. Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. All natural resourced EXCEPT AGRICULTURAL LAND cannot be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Period <= 25 yrs + 25 yrs extension The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens. The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish- workers in rivers, lakes, bays, and lagoons. The President may enter into agreements with foreign-owned corporations involving either 1. 2. technical or financial assistance
for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution. Section 3. Lands of the public domain: 1. 2. 3. 4. agricultural (may be further classified, may be alienated) forest or timber mineral lands and national parks. Period <= 25 yrs + 25 yrs extension Limit: <= 1000 ha OWN - <= 12ha
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ART. 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.
3.
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. ART 5. Qualifications of Governors of the Board. 1. 2. 3. at least thirty (30) years old of good moral character and of recognized competence in the fields of economics, finance, banking, commerce,
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ART. 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 development goal; (c) Other indicators of 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. ART. 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.
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C. D.
Has the capacity to CONTRIBUTE to the development of the preferred are and of the national economy in general Proposing to engage in NOT PREFERRED projects - it must have 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.
Criteria for Evaluation of Applications. a. b. c. The extent of ownership and control by Philippine citizens of the enterprises; The economic rates of return; 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; The amount of foreign exchange earned, used or saved in their operations; The extent to which labor, materials and other resources obtained from indigenous sources are utilized; The extent to which technological advances are applied and adopted to local conditions; The amount of equity and degree to which the ownership of such equity is spread out and diversified; and Such other criteria as the Board may determine.
Foreign corporation
applications NOT ACTED UPON within 20 WORKING DAYS shall be deemed approved decision can be appealed to the OFFICE OF THE PRESIDENT within 30 DAYS from its promulgation if appealed, decision of the board shall be FINAL and executory after 90 DAYS after perfection of appeal unless the OP reverses it issued a certificate of registration
ii. iii.
OR exports 70% of its total production Obligates to attain PHILIPPINE NATIONAL STATUS within 30 years from registration EXCEPTION: 100% EXPORT
B.
Type of Business a. proposing to engage in a preferred project listed or authorized in the current
Certificate of Registration. -
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Board may require INTERNATIONAL CANVASSING but if value exceed $5 Million, the provisions of PD 1764 on INTERNATIONAL COMPETITIVE BIDDING shall apply.
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No restriction as to use of equipment consigned to the registered enterprise upon payment of re-importation bond for the exclusive use of the registered enterprise if sold or transferred, rule on imported machinery shall apply 4. The privilege to operate a bonded manufacturing/trading warehouse
Exemption From Wharfage Dues And Export Tax, Duty, Impost And Fees Tax Exemption On Breeding Stocks And Genetic Materials not locally available or not available in a comparative price reasonably needed by the enterprise prior approval by Board secured Tax Credits on domestic equipment reasonable needed and exclusively used for registered business would have been tax-exempt had they been imported prior approval of Board secured made within 5 years from effectivity of Code
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. TITLE IV INCENTIVES TO LESS-DEVELOPED-AREA REGISTERED ENTERPRISE LESS DEVELOPED AREA determined by the Board upon consultation with the NEDA and other government agencies CRITERIA: o o o o LOW PER CAPITA GROSS DOMESTIC PRODUCT LOW LEVEL OF INVESTMENTS HIGH RATE OF UNEMPLOYMENT AND/OR UNDEREMPLOYMENT 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. 1. Incentives for Necessary and Major Infrastructure and Public Facilities. Income Tax deduction equal to 100% of costs for necessary and major infrastructure works prior approval of the Board in consultation with other government agencies concerned; all such infrastructure works shall upon completion, be transferred to the Philippine Government
exempt from CONTRACTORS TAX on RAW MATERIALS equivalent to tax due on such Board may set a fixed percentage of export sales as tax reasonable needed and exclusively used for registered business would have been tax-exempt had they been imported prior approval of Board secured made within 10 years from registration on purchase of genetic material and breeding stocks
Incentves:
7. B. Non-Fiscal Incentives 1.
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 o if majority of shares owned by foreign nationals, the positions of PRESIDENT, TREASURER and GENERAL MANAGER maybe retained by foreign nationals. Types of Investment
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. Nationality requirements not as strict in less developed areas
2.
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III.
4.
3.
Is a foreign corporation required to register with the SEC if it wants to do business in the Philippines? NO What are the consequences of not registering with the SEC? Foreign corporation not registered CANNOT SUE but can counter-sue should the Domestic Corporation file a case against it first Summary of Doing Business: The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be condensed in four statements: (1) if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts; (2) if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction; (3) if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporations corporate personality in a suit brought before the Philippine courts; and (4) if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction. MR. Holdings, Ltd. V. Bajar, 380 SCRA 617 (2002); Agilent Technolgies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp., G.R No. 154618, 14 April (2004). Expenses Liabilities Deposit of Securities NONE required Establishment and Registration Costs: Filing fee: .2% of authorized capital stock but not less than P1,000 Legal Research fee: 1% of fling fee but not less than P10.00 By-laws fee: P500
Doing Business 1.
incorporated and existing under the laws of the Philippines wholly owned or at least majority owned by a foreign parent company separate juridical entity from parent company
Minimum capital requirement = $200K EXCEPT: 1. advanced technology approved by DOST ($100K) 2. direct
Corporate Income Tax = 30% of NET income or MCIT (2% of GROSS income) Remittance of Dividends = 30% EXCEPT: 15% if country of parent company 1. grants 15% tax
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2.
DST: P1 for each P200 par value of shares Additional Fees: a. P2,000 if registering under Foreign Investments Act b. Fees for permits and applications with BIR and DTI Filing fee: .2% of authorized capital stock but not less than P1,000 Legal Research fee: 1% of fling fee but not less than P10.00 Additional Fees: a. P2,000 if registering under Foreign Investments Act b. Fees for permits and applications with BIR and DTI Filing fee: .1% of actual inward remittance but not less than P2,000 Legal Research fee: 1% of fling fee but not less than P10.00 Fees for permits and applications with BIR and DTI
3.
Branch
Minimum capital requirement = $200K EXCEPT: 1. advanced technology approved by DOST ($100K) 2. direct employment of at least 50 persons ($100K)
Corporate Income Tax = 30% of NET income or MCIT (2% of GROSS income) Branch Profit Remittance Tax = 15% of total profits applied or earmarked for remittance without deduction of tax component (shall not include income derived from activity not related to business)
Parent company can allocate to its branch a proportional part of branchs expenses
Deposit Government Securities = at least P100K with SEC within 60 days from issuance of license Additional securities= 2% of the gross income in excess of P5M within 6 months after each fiscal year NONE required
Representative Office
promotes products of parent company but cannot enter into contracts with local entities on behalf of parent company does not derive income from the Philippines contracts must be entered into by the HEAD OFFICE and the local entity
NO TAX LIABILITY
Acceptable activities of a representative office: a. dissemination of foreign market information; b. promotion for export of Philippine products c. acting as a message centre or a communication centre between interested parties and the head office;
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NO income tax if it does not derive income from the Philippines Employees of RAH = 15% of gross income or NIRC rates
NONE required
Filing fee: P5,000 Legal Research fee: 1% of fling fee but not less than P10.00 BOI requirement of annual inward remittance = Not less than $50,000 for expenses
Income Tax = 10% of taxable income Branch Profit Remittance Tax = 15% of total profits applied or earmarked for remittance without deduction of tax
NONE required
Filing fee: 1% of actual remittance but not less than 1% of the Philippine currency equivalent of $200K Legal Research fee: 1% of
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d. e. f. g.
h. i. j. -
Joint Venture
If foreign interest exceeds 40%, minimum capital requirement = $200K EXCEPT: 1. advanced technology approved by DOST ($100K) 2. direct employment of at least 50 persons ($100K) 3. exports at
Corporate Income Tax = 30% of NET income or MCIT (2% of GROSS income) Dividends = 30% EXCEPT: 15% if country of parent company 1. grants 15% tax sparing 2. does not impose tax on dividends
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Merger or Consolidation
merger occurs when one or more existing corporations are absorbed by another corporation which survives and continues the combined business. Consolidation occurs when two or more existing corporations consolidate or join their businesses to form a new, single, consolidated corporation. Subject to constitutional prohibition against monopolies and restraint of trade
Merger or consolidation NOT TAXABLE New corporation liable for CIT= 30%
NONE required
Filing fee: .2% of authorized capital stock but not less than P3,000 Merger with application to increase capital stock: .2% of increase in capital stock or subscription price OR .2% of authorized capital stock but not less than P3,000 whichever is higher Consolidated companys authorized capital stock different from total equity of constituent corporations: 2% of capital stock in constituent corporations OR
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Refers to contracts or agreements entered into involving the: a. transfer of systematic knowledge for the manufacture of a product or the application of a process; rendering of a service, including management contracts; transfer, assignment or licensing of all forms of intellectual property rights, including licensing of computer software, except computer software developed for mass market. no longer required to be registered if it complies with IP Code should not have adverse effects on competition and trade must provide for effective quality control by the licensor over the product or service covered by the contract must allow continued access to improvements in the transferred technology
Income Tax = 30% can be reduced to at most 10% by treaty Royalty subject to 12% VAT
No allocation
NONE required
b.
c.
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