A G UIDE TO

D OING B USINESS IN THE P HILIPPINES

R OMULO M ABANTA B UENAVENTURA

S AYOC & DELOS A NGELES
2011

Table of Contents
1 Introduction
2 The Foreign Investments Act
3 Modes of Doing Business
Domestic Subsidiary
Branch
Representative Office
Regional or Area Headquarters
Regional Operating Headquarters
Joint Venture
Purchase of Shares in an Existing
Corporation
Merger or Consolidation
Technology Transfer Arrangement
Management Contract
4 Incentives to Foreign Investment
Board of Investments
Special Economic Zones
Incentives in Other Laws
5 Relevant Laws
Exchange Controls
Taxation
Labor
Immigration
Anti-trust
Intellectual Property
E-commerce
Product Liability
Firm Background
Annexes

1
2
3
3
4
5
6
6
7
7
8
9
10
11
11
15
17
19
19
19
21
22
23
23
24
24
25

Chapter
1:
Introduction
Legal system
The Philippine legal system is a peculiar mixture of
civil law, common law, indigenous customary law and
contemporary law designed to meet current
conditions, with a separate and distinct Muslim legal
system operating for the Muslim minority. To have a
genuine grasp of the Philippine legal system, it must
be pointed out that the Philippines had been under
four centuries of Spanish domination and about half a
century of American political administration. Spanish
law is civil law and American law is common law.
If one asks whether the legal system is predominantly
civil law or common law, the answer will depend on
ones orientations. One jurist-writer has definitely
stated that the country follows the civil law system. But
even years before that statement, Mr. Justice George
A. Malcolm, speaking for the Supreme Court in a 1920
decision, had made clear, after describing his
exhaustive jurisprudential investigation, that what we
have is a Philippine common law all its own (In re:
Shoop, 41 PHIL. 216 [1920] Malcolm, J)
Although regardless of how one looks at the nature of
the Philippine legal system, it is generally agreed that:
First, laws hold an ascendancy over judicial decisions
in that courts have to apply them and are forbidden to
challenge their wisdom, which is an exclusive function
of the legislature. Second, in the rare event that courts
declare laws unconstitutional, the courts cannot still
replace the legislation that they have voided. Third,
Philippine courts are both courts of law and of equity,
a term broadly defined by Justice J.B.L. Reyes as
justice according to natural law and right. (Justice
Jose B.L. Reyes, The Trend Toward Equity versus
Positive Law in Philippine Jurisprudence, Analytical
Survey of Selected Supreme Court Decision in Civil
Law, 1983, UP Law Center, 1984, p.1)
The Benefits of Investing in the Philippines
In recent years, the Philippine economy has made a
remarkable recovery that has caught the attention of
the international business community. The once "sick
man of Asia" has evolved into the latest Asian
Economic Miracle due to a democratic government
committed to free enterprise and its liberalized
business laws that have opened more investment
areas to 100% foreign equity, have granted incentives
to foreign investors at par with other Asean countries,
and have simplified investment procedures. Aside
from these, its being a strategic location for global
exports, the existence of quality manpower made up
A GU I D E T O DO I N G BU S I N E S S I N T H E PH I L I P P I N E S

of educated, highly trainable, creative, Englishspeaking, computer- literate persons and continually
improving infrastructure have all contributed to making
the Philippines an attractive business location which
assures foreign investors a profitable return on their
investments.
Republic Act No. 7042, more commonly known as the
Foreign Investment Act of 1991 (FIA), sums up the
direction that government policy is taking towards
foreign investments:
"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 investment
shall be welcome as a supplement to Filipino capital
and technology in those enterprises that service
mainly the domestic market."
First, laws hold an ascendancy over judicial decisions
in that courts have to apply them and are forbidden to
challenge their wisdom, which is an exclusive function
of the legislature.
Second, in the rare event that courts declare laws
unconstitutional, the courts cannot still replace the
legislation that they have voided.
Third, our courts, nonetheless, are both courts of law
and of equity, a term broadly defined by Justice J.B.L.
Reyes as justice according to natural law and right.
(Justice Jose B.L. Reyes, The Trend Toward Equity
versus Positive Law in Philippine Jurisprudence,
Analytical Survey of Selected Supreme Court Decision
in Civil Law, 1983, UP Law Center, 1984, p.1)

Chapter 2: The Foreign

Investment Act
The Foreign Investment Act has served to open up
more areas of the Philippine economy to foreign
investment, although maintaining constitutional and
statutory restrictions in certain nationalized
enterprises. By virtue of the FIA, as much as 100 per
cent foreign equity is allowed in areas of activity not
otherwise found in what is now known as the
Foreign Investments Act Negative List (the
Negative List) [See Annex A]
The Negative List enumerates the areas of
economic activities reserved, whether partially or
totally, for Philippine nationals. List A describes
areas of activity, such as mass media, retail trade,

advertising and public utilities, which are reserved

for Philippine nationals by the mandate of the
Constitution and specific laws. List B includes those
areas which are either defense-related, requiring
prior clearance and authorization from the
Department of National Defense, or with
implications on public health and morals.

In further qualifying the activities which are deemed

doing business in the Philippines, the Supreme Court
recently ruled that activities within Philippine
jurisdiction that do not create earnings or profits to the
foreign corporation do not constitute doing business in
the Philippines. (Cargill, Inc. v. Intra Strata Assurance
Corporation, G.R. No. 168266. 15 March 2010)

The FIA has also clarified what would constitute

doing business in the Philippines. The FIA defines
the act of "doing business" to include:

If it is foreseen that a foreign entitys acts would

constitute doing business in the Philippines, then it is
necessary that such entity to be licensed to do
business in the Philippines. Otherwise, an entity doing
business in the Philippines without a license would be
denied the right to sue in Philippine courts, although
they would be subject to suit in the Philippines. The
purpose of the law in requiring entities doing business
in the country be licensed to do so, is to subject such
entities to the jurisdiction of Philippine courts.
Otherwise, a foreign entity doing business here
because of its refusal or neglect to obtain the required
authority to do business may successfully though
unfairly plead such neglect or illegal act so as to avoid
service and impugn the jurisdiction of local courts.
(Avon Insurance PLC v. Court of Appeals, 278 SCRA
312 [1997]).

a. soliciting orders;
b. service contracts;
c. opening offices, whether called liaison
offices or branches;
d. appointing representatives or distributors
domiciled in the Philippines who in any
calendar year stay in the country for a
period of one hundred eighty (180) days
or more;
e. participating in the management,
supervision or control of any domestic
business, firm, entity or corporation in the
Philippines; and
f. any other act or acts that imply a
continuity of commercial dealing or
arrangements, and contemplate to that
extent the acts or works, or the exercise
of some of the functions normally incident
to, and in progressive prosecution of,
commercial gain, or the purpose and
object of the business organization.
c. having a nominee or officer to represent its
interests in such corporation; and
d. appointing a representative or distributor
domiciled in the Philippines which
transacts business in its own name and
for its own account.
The Implementing Rules and Regulations of the Act
further exclude from the definition of "doing business"
the following:
a. publication of a general advertisement
through any print or broadcast media
b. maintaining a stock of goods in the
Philippines solely for the purpose of
having the same processed by another
entity in the Philippines;
c. consignment by a foreign entity of
equipment with a local company to be
used in the processing of products for
export;
d. collecting information in the Philippines;
and
e. performing services auxiliary to an
existing isolated contract of sale which are
not on a continuing basis.

The term "doing business", however, excludes:

a. mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to
do business;
b. exercise of such rights as an investor;

Chapter 3: Modes of Investment

In order to be granted authority to do business in the
Philippines, a foreign entity has several options
owing to the various allowable modes of foreign
investment. It is important to note that mode of
investment has its own requirements,
characteristics and features that may either be
viewed as an advantage or disadvantage,
depending on the investors business goals and
growth plan.
The common forms of business entities used by
foreign companies are the following: domestic
subsidiary; branch; representative office;
regional headquarters; or regional operating
headquarters. Other forms of investment may be
done through a joint venture; purchase of shares
in an existing domestic corporation; merger or
consolidation;
technology
transfer
arrangements; or through a management
Contract with a domestic corporation.
The following is a summary of the basic information
needed for the different modes of doing business:

[Note that the tax rates and registration fees

indicated are those applicable as of the date of this
publication and are subject to change]

subsidiary any portion of its expenses since the

subsidiary is a separate and distinct entity from the
parent company.

A. Domestic Subsidiary

Liabilities. The subsidiary's liabilities are separate

and do not become the liabilities of its foreign "parent"
corporation because of its separate juridical personality.
Recovery for damages and/or liabilities is limited to the
capital and assets of the subsidiary in the Philippines.
The foreign corporation is thus completely shielded
from the liabilities of its subsidiary.

A subsidiary is a corporation which, while

incorporated and existing under Philippines laws, is
either wholly-owned or at least majority-owned by a
foreign "parent" corporation. It is therefore
considered a domestic (Philippine) corporation by
virtue of its incorporation under the laws of the
Philippines, but it is also considered foreign because
its shares of stock are wholly or majority-owned by a
foreign corporation. The advantage of a domestic
subsidiary over a branch office is that a subsidiary
has a separate and distinct juridical personality from
its parent corporation, so that the liability of the
parent corporation to creditors of the subsidiary is
limited to its shareholdings in the domestic
subsidiary. The parent foreign corporation is thus fully
protected from the liabilities of the subsidiary in
excess of its shareholdings in such subsidiary.
Nationality requirements with respect to certain
industries must be observed. [See Annex A]
Capital Requirement. Generally, the required
minimum paid-up capital is Two Hundred Thousand
US Dollars (US$200,000.00) (Republic Act No.
8179). This amount of required minimum paid-up
capital may be reduced to One Hundred Thousand
US Dollars (US$100,000.00) if advanced
technology as determined by the Philippine
Department of Science and Technology is involved or
the business directly employs at least fifty (50)
employees. Higher capitalization requirements may
also be required for certain industries, i.e. mining.
The minimum paid up capital of US$200,000.00 does
not apply to enterprises that export sixty percent
(60%) or more of its output or domestic purchases.
Taxes.
Corporate Income Tax. A subsidiary is liable for
tax at the rate of 30% on its entire net income,
both from sources within and without the
Philippines, or the MCIT, whichever is higher (see
discussion on "Branch").
Tax on Remittance of Dividends. The remittance
of dividends by a subsidiary to its foreign "parent"
corporation is, generally, taxed at 30%. This,
however, may be reduced to 15% where the
country in which the foreign "parent" corporation
either: (a) grants a tax sparing credit of 15% or (b)
does not at all impose any tax on such dividends
received..
Expenses. For purposes of taxation, the parent
company of a subsidiary cannot pass on to its

Deposit of Securities. No deposit of securities with

any entity is required.
Establishment and Registration Costs.
a.

Filing fee: 1/5 of 1% of the authorized

capital stock or the subscription price of the
subscribed capital stock whichever is higher,
but not less than One Thousand Philippine
Pesos (P1,000.00);

b.

Legal research fee: 1% of the filing fee, but

not less than Ten Philippine Pesos
(P10.00); and a minimum research fee

also apply

c.

By-Laws fee: P500.00;

d.

Documentary stamp tax: Equivalent to

P1.00 on each P200.00 par value of
shares issued or fractional part thereof;

e.

For Applications under the Foreign

Investments Act: Additional Two
Thousand Philippine Pesos (P2,000.00)
for applications under the Foreign
Investments Act; and

f.

Other fees: Minimal amount of fees for post

incorporation government permits such as
the mayor's permit, tax identification
number, Value Added Tax and Withholding
Tax Agent's Registration if applicable, BIR
registration of books ofaccount

g. B. Branch
A foreign corporation may set up a branch in the
Philippines by obtaining a license to transact
business. A branch is an extension of the foreign
corporation (i.e., incorporated and existing under
foreign laws), but may engage in exactly the same
activities as its parent company. However, existing
nationality requirements with respect to certain
industries must be observed. [See Annex A]
Since a branch office is a mere extension of its
parent corporation, the branch does not have a

personality separate and distinct from its parent

company. A branch office may, therefore, conclude
sales contracts with local entities in its own name,
and in general, engage in income-producing
activities in the same manner as its parent
company. Further, the parent corporation may be
held responsible for any liability of the branch in
excess of its investment.
Capital Requirement. The required minimum
assigned capital is Two Hundred Thousand US
Dollars (US$200,000.00) (Republic Act No. 8179).
This amount of required minimum assigned capital
may be reduced to One Hundred Thousand US
Dollars (US$100,000.00) if advanced technology as
determined by the Philippine Department of Science
and Technology is involved or the business directly
employs at least fifty (50) employees.
Taxes.
Corporate Income Tax Rate. A branch is
taxed only on net income derived from
Philippine sources at a rate of 30%.
Minimum Corporate Income Tax. In lieu of the
above-mentioned normal corporate income tax
rate, beginning the fourth (4th) year immediately
following the year of the commencement of its
operations, a branch will be subject to the
minimum corporate income tax (MC IT) of two
percent (2%) of gross income if such MCIT is
higher than the corporation's taxable income
computed using the 30% rate. The term gross
income is defined as (i) gross sales less sales
returns, discounts and allowances and cost of
goods sold, or (ii) gross receipts less sales
returns, allowances, discounts and cost of
services. Any excess MCIT over the normal
corporate income tax may be carried forward for
the three (3) immediately succeeding taxable
years and credited against the normal corporate
income tax. The Secretary of Finance may
suspend the imposition of the MCIT on any
corporation which suffers losses on account of
prolonged labor dispute, because of force
majeure, or because of legitimate business
reverses.
Tax on Branch Profit Remittance. The
remittance of profits made by a branch to its head
office is subject to a tax of 15%, which shall be
based on the total profits applied or earmarked
for remittance without any deduction for the tax
component thereof (except those activities which
are registered with the Philippine Economic Zone
Authority). However, if the branch receives
income in the form of dividends, interest or
rentals, among others, which are not effectively

connected with the conduct of its trade or

business in the Philippines, such income when
remitted to the head office abroad shall not be
considered as branch profits and no branch
profits tax is further required to be paid.
Expenses. For purposes of taxation of the
income of the branch office, the parent foreign
corporation can allocate to its branch a
proportional part of its expenses, losses, interest
payments and similar expenses relating to the
conduct of business in the Philippines.
Liabilities. A foreign corporation which does business
through a branch is liable for all damages and/or other
liabilities which may be incurred by its branch.
Theoretically, the assets of the home office may be
made to answer for the liabilities incurred by the
branch.
Deposit of Securities. A branch is required by law
to deposit government securities with actual market
value of at least One Hundred Thousand Philippine
Pesos (P 100,000.00) with the Securities and
Exchange Commission (the "SEC"), within sixty (60)
days from the issuance of the SEC license to
transact business in the Philippines, and thereafter,
within six (6) months after each fiscal year of the
licensee, additional securities equivalent in market
value to two percent 2% of the amount by which the
gross income of the branch exceeds Five Million
Philippine Pesos (P5,000,000).
Establishment and Registration Costs.
a.

Filing Fee: Equivalent to 1% of the actual

inward remittance of the branch converted
into Philippine currency but not less than
P2,000.00.

b.

Legal research fee: 1% of the filing fee,

but not less than Ten Philippines Pesos
(P10.00);

c.

For applications under the Foreign

Investments Act: Additional Two
Thousand Philippine Pesos (P2,000.00)
for applications under the Foreign
Investments Act; and

d.

Others: Minimal amount of fees for post

incorporation government permits such as
the mayor's permit, tax identification
number, Value Added Tax and
Withholding Tax Agent's Registration if
applicable, BIR registration of books of
account.

C. Representative Office
A representative office promotes the products and/or

services of the Company it represents, but cannot

conclude contracts with local entities on behalf of its
parent Company. Such contracts must be directly
entered into between the Company head office and
the local entity. Its activities are limited to the
promotion and dissemination of information about
the Company's products and/or services.
By the nature of the activities allowed of a
representative office, it cannot derive income from
the Philippines. The test of whether an office is a
representative office or not, is whether it derives
income from its operations.
Some of the acceptable activities of a representative
office are the following:
a) dissemination of foreign market
information;
b) promotion for export of Philippine products
specially nontraditional products;
c) acting as a message centre or a
communication centre between interested
parties and the head office;
d) promotion of products presently being
distributed in the Philippines;
e) to render, assist and give technical knowhow and training to existing and future
customers of the Company's products;
f)
to
provide
and
facilitate
better
communication and contact between its
head office and affiliated companies on one
hand and present and future customers on
the other;
g) to inform potential customers of price
quotations of the head office and affiliated
companies;
h) to conduct and make surveys and studies of
the market, economic and financial
conditions in the Philippines; and
i)
attend to the needs of end-users of its
products in the Philippines, advising them on
the proper care and maintenance of their
equipment and to communicate to its head
office problems that call for consultations.
Capital Requirement. The amount initially to be
remitted is at least Thirty Thousand US Dollars
(US$30,000.00).
Taxes. A representative office has no income from
operations and, therefore, has no income tax liability.
Expenses. No allocation can be made to the
representative office since the representative office
obtains no income from the Philippines with which to
offset the expenses.
Deposit Of Securities. No deposit of securities
with any entity is required.

Establishment and Registration Costs.

a. Filing Fee: Equivalent to l/10 of 1% of the actual
inward remittance of the Company converted into
Philippine currency, but not less than Two
Thousand Philippines Pesos (P2,000.00);
b. Legal research fee: 1% of the filing fee, but not
less than Ten Philippines Pesos (P1 0.00); and
c. Other Fees: Minimal amount of fees for post
incorporation government permits such as the
mayor's permit, tax identification number,
Bureau of Internal Revenue ("BIR")
registration, and registration of books of account
and Certificate of Registration with the
Department of Trade and Industry.
D. Regional or Area Headquarters
The Regional or Area Headquarters of a
multinational company is an administrative branch
which principally acts as a supervision,
communications and coordination center for the
subsidiaries, branches or affiliates of a multinational
company in the Asia-Pacific Region. It is not allowed
to do business or earn income from the host country,
unlike a branch or subsidiary. Neither does it deal
directly with the clients of the parent company,
unlike a representative office, when it undertakes
such activities as information dissemination and
promotion of the company's products for export.
Capital Requirement. The required minimum capital
is the amount of not less than Fifty Thousand US
Dollars (US$50,000) or its equivalent in acceptable
foreign currency.
Taxes. It will not be subject to income tax provided it
will not earn or derive income from the Philippines
and merely act as a supervisory, coordination and
communication center for its affiliates, subsidiaries
or branches in the Asia-Pacific Region and other
foreign markets. It is also exempted from the valueadded tax, local licenses, fees and dues, duties on
importation of training materials
Expenses. All its expenses are financed by the
head office or parent company. The foreign firm
should remit into the Philippines the entire amount
necessary to cover the operations of its Regional
Headquarters in the Philippines but not less than
Fifty Thousand US Dollars ($50,000.00) annually or
its equivalent in acceptable foreign currencies.
All funds of the Regional Headquarters shall be
utilized for salaries and other emoluments, including
fringe benefits of personnel, rental of offices,
transportation expenses, communication fees and
similar costs for the maintenance of the regional

headquarters in the Philippines.

Liabilities. Its liabilities, like its expenses, are to be
shouldered by the Parent Company.
Deposit of Securities. No deposit of securities
with any entity is required.
Establishment and Registration Costs.
a. Filing fee: Five Thousand Philippine
Pesos (P5,000.00); and
b. Legal research fee: 1% of the filing fee, but
not less than Ten Philippine Pesos (P1 0.00);
and
c. Board of Investments requirement of
annual inward remittance: at least Fifty
Thousand U.S. Dollars (US$50,000.00) for
operating expenses.
E. Regional Operating Headquarters
A regional operating headquarters of a multinational
company is a branch office established in the
Philippines engaged in any one of the following
services: general administration and planning;
business planning and coordination; sourcing and
procurement of raw materials and components;
corporate finance advisory services; marketing control
and sales promotion; training and personnel
management; logistic services; research and
development services and product development;
technical support and maintenance; data processing
and communication; and business development. It
refers to 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.
Regional operating headquarters 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.
Capital Requirement. The required minimum capital
is the amount of not less than Two Hundred Thousand
US Dollars (US$200,000) or its equivalent in
acceptable foreign currency.
Taxes.
Tax on Income of ROHQ. Regional operating
headquarters shall pay a tax of ten percent (10%)
of their taxable income.

Tax on Branch Profit Remittances. Any

income derived from Philippine sources by the
regional operating headquarters when remitted
to the parent company shall be subject to the
tax on branch profit remittances of 15% which
shall be based on the total profits applied or
earmarked for remittance without any deduction
for the tax component thereof (except those
activities which are registered with the
Philippine Economic Zone Authority).
Expenses. Assuming that it is earning income
from its operations as a regional operating
headquarters, income from such operations shall
finance the regional operating headquarters.
However, if there is no sufficient income, its
expenses may be financed by the multinational
company.
Liabilities. Its liabilities, like its expenses, are to be
shouldered by the multinational company.
Deposit of Securities. No deposit of securities
with any entity is required.
Establishment and Registration Costs.
a.

Filing fee: 1% of the actual remittance,

but not less than 1% of the Philippine
currency equivalent of Two Hundred
Thousand US Dollars (US$200,000.00);
and

b.

Legal research fee: 1% of the filing fee,

but not less than Ten Philippine Pesos (P
10.00).

F. Joint Venture
A foreign corporation can enter into a joint venture
with a domestic corporation by forming a domestic
corporation. A joint venture means a cooperative
arrangement of corporations, whether foreign or
domestic, to jointly perform a single, specific
undertaking or project with each of the partners
contributing to the performance. However, existing
nationality requirements with respect to certain
industries must be observed. (See Table A)
Capital Requirement. If foreign interest exceeds forty
percent (40%) of the outstanding capital stock of the
joint venture corporation, the required minimum paidup capital is Two Hundred Thousand US Dollars
(US$200,000.00). (Republic Act No. 8179). This
amount of required minimum paid-up capital may be
reduced to One Hundred Thousand US Dollars (US$
100,000-00) if advanced technology as determined by
the Philippine Department of Science and Technology
is involved or the business directly employs at least
fifty (50) employees. The minimum paid up capital of

US$200,000.00 does not apply to enterprises that

export sixty percent (60%) or more of its output or
domestic purchases.
Taxes.
Corporate Income Tax. The joint venture
company is taxed on income derived from
sources within and without the Philippines at the
rate of 30%, or the MCIT, whichever is higher.
Tax on Dividends. The foreign corporation
holding shares of stock in the joint venture
company, shall be considered as a non-resident
foreign corporation not doing business in the
Philippines. Dividends received by such foreign
corporation are generally taxed at 30%. This,
however, may be reduced to 15% where the
country in which the non-resident foreign
corporation is domiciled either: (a) grants a tax
sparing credit of 15%, or (b) does not at all
impose any tax on such dividends received.
A tax sparing credit is granted when the laws of
the country of domicile of the foreign parent
corporation consider the parent corporation to
have paid the difference between the normal and
the preferential rates. This may also be available
if there exists a tax treaty between the country of
the foreign parent corporation and the
Philippines. Likewise, the reduced rate of 15% is
applied when the laws of the country of domicile
of the foreign parent corporation do not tax at all
any dividends received
G. Purchase of Shares in an Existing
Corporation
A foreign corporation may also invest in the
Philippines by acquiring shares in an existing
domestic corporation. In doing so, the foreign
corporation may take advantage of the goodwill
already generated by the domestic corporation, as an
ongoing concern. Existing nationality requirements
must be observed. [See Annex A]
Taxes.
Corporate Income Tax. The corporation shall be
subject to the regular 30%, or the MCIT,
whichever is higher.
Tax on the Sale of Shares of Stock. If the
shares of stock purchased belong to an unlisted
corporation, the sellers would be liable for capital
gains tax equivalent to 5% of the first P
100,000.00 and 10% for the excess above P
100,000.00 of net gain. If the shares of stock are
traded and listed in the Philippine Stock
Exchange, a final stock transfer tax will be borne
by the seller equivalent to 1/2 of 1%

of the value of the stock sold, regardless of any

gain or loss.
Tax-Free Exchanges. Where a person
exchanges his property for stock in a
corporation resulting in that person alone, or
together with others, not exceeding four,
gaining control of the corporation, it is
considered a tax-free exchange.
Tax on Dividends. The foreign corporation
holding shares of stock in the domestic
corporation, shall be considered as a non-resident
foreign corporation not doing business in the
Philippines. Dividends received by such foreign
corporation are generally taxed at 30%. This,
however, may be reduced to 15% where the
country in which the non-resident foreign
corporation is domiciled either: (a) grants a tax
sparing credit of 15%, or (b) does not at all impose
any tax on such dividends received.
Deposit of Securities. No deposit of securities
with any entity is required.
Establishment and Registration Costs.
For Original Issues of Shares. A documentary
stamp tax equivalent to One Philippine Peso
(P1.00) on each Two Hundred Philippine Pesos
(P200.00) or fractional part thereof, of the par
value, of such shares of stock shall be collected on
original issues of shares.
For Secondary Sales of Shares. A documentary
stamp tax equivalent to Seventy-five centavos
(P0.75) on each or fractional part thereof of the
par value of such stock shall be collected on
secondary sales of shares of stock.
H. Merger or Consolidation
A foreign-owned domestic subsidiary can merge or
consolidate with a domestic corporation.
A 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.
Although mergers and consolidations are generally
allowed, Philippine law prohibits indiscriminate
combination of corporations that may create
monopolies, restrain trade, or eliminate free
competition to the prejudice of the consuming
public.

Taxes. The transfer or exchange of shares of stock or

other securities pursuant to a plan of merger or
consolidation is exempt from registration under
Philippine securities law. The Philippine Tax Code
generally recognizes the entire amount of gain or loss
upon the sale or exchange of any property. However,
in a merger or consolidation, no gain or loss is
recognized, provided the constituent corporation
exchanges property, stocks or other securities solely
for stocks or other securities of the surviving or
consolidated corporation. If the exchange
contemplates some payment in money or delivery of
other property, no gain or loss will be recognized,
provided the money and/or other property is
distributed to the stockholders of the constituent
corporations pursuant to the merger or consolidation
plan.
The new corporation or the surviving corporation
shall be subjected to a 30% income tax rate.

corporation, the filing fee is 1/5 of 1%

of the total equity of the constituent
corporations or the filing fee for
Articles of Incorporation (1/5 of 1% of
the authorized capital stock or the
subscription price of the subscribed
capital stock whichever is higher, but
not less than One Thousand
Philippine
Pesos
[P1,000.00])
whichever is higher.
c.

Legal research fee: 1% of the filing fee,

but not less then Ten Philippine Pesos
(P10.00);

d.

By-Laws fee: P500.00;

e.

Documentary stamp tax: For the issuance

of new shares, equivalent to One Philippine
Peso (P1.00) on each Two Hundred
Philippine Pesos (P200.00) or fractional part
thereof, of the par value, of such shares of
stock ; and

f.

Others: Minimal amount of fees for post

incorporation government permits such as
the mayor's permit, tax identification number,
Value Added Tax and Withholding Tax
Agent's Registration if applicable, BIR
registration of books of account and
Certificate of Registration with the Bureau of
Domestic Trade.

Expenses. The surviving or newly-formed

corporation bears the expenses.
Liabilities. The surviving or newly-formed
corporation formed bears the liabilities.
Deposit of Securities. No deposit of securities with
any entity is required.
Establishment and Registration Costs. The articles
of merger or consolidation must be submitted to the
SEC for approval and issuance of the certificate of
merger or consolidation. The following must be paid:
a.

Filing Fee: 1/5 of 1% of the equity of the

absorbed corporation/s, but not less than
Three
Thousand
Philippine
Pesos
(P3,000.00).
i. In merger: in case of simultaneous
filing of application for Increase of
the Authorized Capital Stock by the
surviving corporation, the filing fee
for increase in capital stock (1/5 of
1% of the increase in capital stock or
the subscription price of the
subscribed capital stock whichever is
higher, but not less than One
Thousand
Philippine
Pesos
[P1,000.00]) or the filing fee for
Merger (Filing fee of 1/5 of 1% of the
equity of the absorbed corporation/s,
but not less than Three Thousand
Philippine
Pesos
[P3,000.00])
whichever is higher;
ii.

In consolidation: where the total

equity of the constituent corporations
is different from the authorized
capital stock of the consolidated

I. Technology Transfer Arrangement

A foreign corporation may enter into a technology
transfer arrangement. Technology Transfer
Arrangements refer 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;

b.

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. (Sec. 4.2, Intellectual Property
Code).

c.

Provisions of technology transfer contracts 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,
and must allow continued access to improvements in
the transferred technology.

Technology transfer agreements are no longer

required to be registered with the Documentation,
Information, and Technology Transfer Bureau if they
comply with the provisions of, and/or include the
stipulations/ conditions required by Sections 87 and 88
of the Intellectual Property Code. Otherwise, the
agreements will be considered unenforceable. Noncomplying agreements, however, may be allowed
registration under exceptional circumstances provided
in Section 91.
Taxes. Taxes shall be imposed upon the royalty
payments received by the foreign corporation entering
into the Technology Transfer Arrangement. A foreign
corporation not doing business in the Philippines shall
generally pay a tax equivalent to 30% of the gross
income received during the year from all sources
within the Philippines, royalty payments being included
therein. This tax may be pared down to as low as
10%, depending on whether or not there is an existing
tax treaty between the Philippines and another state of
which the foreign corporation is a resident, as defined
in the tax treaty.
The royalties shall likewise be subject to a valueadded tax to be withheld by the payor of such
royalties. At present, the rate of the value-added tax is
twelve percent (12%).
Expenses. No allocation of expenses can be made
since there is no local entity deriving income from the
Philippines.
Liabilities. The foreign corporation is shielded from the
risk of failure of the domestic corporation. It does not
assume the risk that the domestic corporation might
fail. Even if the domestic corporation is not profitable,
it would have to pay royalties for the technology being
supplied to it. Deposit of Securities. No deposit of
securities with any entity is required.
Establishment and Registration Costs. The
following are costs to be incurred by the Licensee in
cases where technology transfer arrangements are to
be registered with the Intellectual Property Office
(IPO):
Filing fee: Two Thousand Five Hundred Philippine
Pesos (P2,500.) plus 1% legal research fund paid to
the Intellectual Property Office ; and
Registration fee: Two Thousand Five Hundred
Philippine Pesos (P2,500.) plus 1% legal research
fund.
J. Management Contract
A foreign corporation may also choose to enter into a
management contract with a domestic corporation.
Under a management contract, the foreign corporation
shall undertake to manage all or substantially all of the
business of a domestic corporation. It may be entered
into for a period of only five years for any one term.

Domestic enterprises engaging in wholly or partially

nationalized activities cannot enter into a management
contract with a foreign corporation.
Taxes. The foreign corporation shall be subject to
30% income tax rate, as a foreign corporation doing
business in the Philippines (that is, a branch), or the
MCIT, whichever is higher.
Expenses. The foreign corporation shall be liable for
its own expenses and not for the expenses of the
domestic corporation.
Liabilities. The foreign corporation will bear its own
liabilities. It is shielded from the risk of the failure of
the domestic corporation.
Deposit of Securities. No deposit of securities with
any entity is required.
Establishment and Registration Costs. This is a
private contract. There will be no filing, license or
registration fees due. However, the existence of the
management contract must be disclosed.

Chapter 4: Incentives to Foreign

Investment
I. Board of Investments
The Omnibus Investment Code of 1987 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) which contains a list of promoted
areas of investments eligible for government
incentives.
The 2010 IPP [See Annex B] was formulated to
generate more investments and more jobs in the
agriculture, industry and services sectors that are
geared up to optimize the opportunities from the
global economic recovery and the implementation of
international engagements.. Its theme, Maximizing
Opportunities of a Stronger Philippine Economy,
reflects the strategic solutions and programs to sustain
a strong and responsive republic that the
administration advocates. It is also made more
significant as it promotes investments in green
business initiatives that also address the climte
change challenge towards a Green Philippines.
Like previous IPPs, the 2010 IPP continues to support
globally competitive economic activities, build up the
capabilities of small and medium enterprises (SME) to
generate jobs, provide food, deliver basic services,
and spur countryside development. In its bid to meet

the demands of globalization and trade liberalization,

the 2005 IPP presents a list of priority economic
activities that address the challenges of building a
strong republic. It also enhances the scope and
coverage of some areas, in support of the programs of
other government agencies.
The 2005 IPP classifies Priority Investment Areas
under the following: Preferred Activities, ,
Mandatory List, Export Activities and the ARMM
List.
The Preferred Activities is divided into a
Contingency List and the Regular List. The
Contingency List is unique in the 2010 FIA, as it
covers existing projects and/or activities
affected by the global economic crisis that will at
least retain investments or increase its current
number of workers. The Contingency List also
covers new projects of micro and small
enterprises. Enterprises registered under this
list may be entitled to an Income Tax Holiday.
The Contingency List, however, is a temporary
inclusion to the IPP to enable existing
enterprises to recover from the effects of the
global crisis and will be delisted upon an official
pronouncement by the NEDA (National
Economic Development Authority) that the crisis
no longer exists.
The Regular List consist of 9 (nine) investment
areas. These are agribusiness and fishery,
infrastructure, manufactured products, business
process outsourcing (BPO), creative industries,
strategic activities, green projects, disaster
prevention, mitigation and recovery projects and
research and development innovation.

Qualification for BOI Incentives:

To qualify for the incentives, an enterprise intending to
engage in a preferred area of investment listed in the
current IPP must be registered with the BOI. The
enterprises applying must either be owned by a citizen
of the Philippines or be a juridical entity sixty percent
(60%) of whose capital is owned or controlled by
citizens of the Philippines. If the applicant is a
corporation, sixty percent (60%) of the capital stock
outstanding and entitled to vote must be owned by
Philippine nationals, as defined in the law, and at least
sixty percent (60%) of the board of directors must be
Filipino citizens. The ownership percentage is waived
under the following conditions:
a. the enterprise proposes to engage in a
pioneer project which is not among the
areas reserved by the Constitution and
the laws of the Philippines for Philippine
citizens or corporations wholly owned and
controlled by such citizens; or
b. the majority foreign-owned enterprise
intends to export at least seventy percent
(70%) of its production; or
c. investments are made in non-pioneer
preferred areas which are not nationalized
in the Constitution, laws and the Negative
Lists A and B of the Foreign Investments
Act, provided the enterprise exports at
least 70% of its total production.
In the first two instances, the enterprise is required to
attain at least sixty percent (60%) Filipino ownership
within thirty (30) years from its registration, unless it
exports one hundred percent (100%) of its production.

Other Preferred Activities covers other export

activities, industry cluster, and modernization
activities.
Mandatory Inclusions covers all areas or activities
where the inclusion in the IPP and/or the grant of
incentives under the Omnibus Investments Code is
mandated by law. New laws which require inclusion
in the list include the Renewable Energy Act of 2008
and the Tourism Act of 2009.

Yet, even if the enterprise is not engaged in an area of

activity listed under the IPP, the enterprise may still
qualify for incentives so long as: (1) (if Filipino-owned)
at least fifty percent (50%) of its production is for
exports, or (2) (if a majority foreign owned
enterprise) at least seventy percent (70%) of its
production is for exports.

Export Activities covers (i) manufacture of export

products; (ii) export services, and (iii) activities in
support of exporters.

Pursuant to Book I of the Omnibus Investments

Code, BOI registered enterprises are given a
number of incentives in the form of tax exemptions
and concessions. These include:

The ARMM List covers priority areas determined by the

regional Board of Investments (RBOI) of the
Autonomous Region of Muslim Mindanao (ARMM) in
accordance with E.O. 458. Economic activities listed in
the ARMM shall be entitled to incentives only when
said activities are undertaken within the ARMM region.

A. Fiscal Incentives

1. Income Tax Holiday (ITH)

a) BOI registered enterprises shall be exempt
from the payment of income taxes reckoned
from the scheduled start of commercial
operations as follows:

i.
ii.
iii.
iv.
v.

New projects with a pioneer status: for six

(6) years;
New projects with a non-pioneer status:
for four (4) years;
Expansion projects: for three (3) years. As a
general rule, exemption is limited to
incremental sales revenue/ volume;
New or expansion projects in less
developed areas: for six (6) years,
regardless of status; and
Modernization projects: for three (3)
years. As a general rule, exemption is
limited to incremental sales revenue/
volume.

b)

ii.

Mining Activities
Under the 2010 IPP, mining activities are
entitled to the ITH only in certain cases:
a)

b) Criteria for Additional Period of Availment:

For new registered firms, the Income Tax Holiday
incentive may be extended for an extra year for each
of the following cases, but in no case to exceed the
total period of eight (8) years for pioneer registered
enterprises:
i.

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 to
one (1) worker.

ii. It the average cost of indigenous raw

materials used in the manufacture of the
registered product is at least fifty (50%)
percent of the total cost of raw materials for
the preceding years prior to the extension
unless the Board (BOI) prescribes a higher
percentage.
iii. If the net foreign exchange savings or
earnings amount to at least US$500,000.00
annually during the first three (3) years of
operation to be determined by the Board
(BOI) at the end of such three-year period:
Provided, That the foreign exchange savings
criterion shall apply as a general rule, to
registered firms whose products are totally
imported into the country at the time of
registration
and duly indicated as imports substituting in
the firm's certificate of registration.
c) The income tax holiday is limited in the following
cases:
i.

Export traders may be entitled to the ITH

only on their income derived from the
following:
a) Export of new products, i.e., those
which have not been exported in
excess of US$100,000 in any of the
two (2) years preceding the filing of

application for registration, or

Export to new markets, i.e., to a
country where there has been no
recorded import of a specific export
product in any of the two (2) years
preceding the filing of the
application for registration.

Exploration and development of

mineral resources including those
covered by mineral agreements
may qualify for pioneer status.
However, these activities are not

entitled to Income Tax Holiday

(ITH).

b)

For mining, quarrying and

processing of metallic and nonmetallic minerals (except those
involving riverbed operations, cave
mining and beach mining):
(1) Mining
and/or
quarrying
integrated
with
mineral
processing* (e.g., flotation)
shall be entitled to ITH.
Production of direct shipping
ore is not entitled to ITH.
(2) Mineral processing* without
mining or quarrying shall be
entitled to full incentives.
(3) Mining and processing of
aggregates is not entitled to
ITH.
(4) Marble processing projects,
whether or not integrated with
mining and quarrying, must
export at least fifty percent
(50%) of production, if Filipinoowned or at least seventy
percent (70%), if foreignowned.
(5) Mineral processing projects
must locate outside the
National Capital Region.

Note: *Simple processing such as sorting,

crushing, washing, drying and other similar
activities, is not 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.

Projects of foreign-owned corporations with

approved Financial or Technical Assistance
Agreements (FTAAs) or Mineral Processing
Permits (MPPs) are qualified 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.
2) Exemption from taxes and duties on imported
spare parts
A registered enterprise with a bonded
manufacturing warehouse shall be exempt from
customs duties and national internal revenue taxes
on its importation of required supplies/spare parts for
consigned equipment or those imported with
incentives.
3) Exemption from wharfage dues and export
tax, duty, impost and fees.
All enterprises registered under the IPP will be given
a ten-year period from date of registration to avail of
the exemption from wharfage dues and any export
tax, impost and fees on its non-traditional export
products.

availed simultaneously with ITH. This additional

deduction shall be doubled if the activity is located in
an LDA.
8) Additional deduction for necessary and major
infrastructure works.
Registered enterprises locating in LDAs or in areas
deficient in infrastructure, public utilities and other
facilities may deduct from taxable income an amount
equivalent to the expenses incurred in the
development of necessary and major infrastructure
works. This privilege, however, is not granted to
mining and forestry-re late d projects as they would
naturally be located in certain areas to be near their
sources of raw materials.
B. Non-fiscal Incentives
All investors and enterprises are entitled to the basic
rights and guarantees provided in the Philippine
Constitution. Among other rights recognized by the
government of the Philippines are the following:
a. the right to repatriate the entire proceeds of the
liquidation of the investments in the currency in which
the investment was originally made at the exchange
rate prevailing at the time of repatriation;

4) Tax exemption for agricultural producers of

breeding stocks and genetic materials within ten
(10) years from the date of registration or commercial
operation.
5) Tax credit on tax and duty portion of domestic
breeding stocks and genetic materials.

Note that foreign investments duly

registered with the Bangko Sentral ng
Pilipinas (BSP) shall be entitled to full
and immediate capital
repatriation and dividends and profit
remittance privileges without prior BSP
approval.

A tax credit equivalent to one hundred percent

(100%) of the value of national internal revenue
taxes and customs duties on local breeding stocks
within ten (10) years from date of registration or
commercial operation for agricultural producers.

b. the right to remit, at the exchange rate prevailing at

the time of remittance, such as may be necessary
to meet the payment of interest and the principal on
foreign loans and foreign obligations arising from
technological assistance contracts;

6) Tax credit on raw materials and supplies.

A tax credit equivalent to the national internal revenue
taxes and duties on raw materials, supplies and semimanufactured products used in the manufacture of
export products and forming part thereof shall be
granted to a registered enterprise.
7) Additional deduction for labor expense.
For the first five (5) years from registration, a
registered enterprise shall be allowed an additional
deduction from taxable income equivalent to fifty
percent (50%) of the wages of additional skilled and
unskilled workers in the direct labor force. This
incentive shall be granted only if the enterprise meets
a prescribed capital to labor ratio and shall not be

Note that upon presentation of the

Bangko Sentral Registration Document
(as proof that the foreign investment
was duly registered with the BSP) with
authorized agent banks (AABs), an
investor may buy and remit the
equivalent foreign exchange at the
exchange rate at the time of actual
remittance, to remit sales, divestment
proceeds or dividends, or profit.

c. protection from expropriation of property

represented by investments, except for public use or
in the interest of national welfare and defense and
only upon payment of just compensation, which may
be remitted in the currency in which the investment
was originally made and at the exchange rate

prevailing at the time of remittance;

d. protection from requisition of property
represented by the investment, except in the event of
war or national emergency and only upon payment of
just compensation, which may be remitted in the
currency in which the investment was originally made
and at the exchange rate prevailing at the time of
remittance;
Other non-fiscal incentives provided under the
Omnibus Investments Code include:
a.

project (new or expansion).

2. Additional deductions from taxable income
equivalent to 100% of expenses incurred in the
development of necessary and major
infrastructure facilities.
D. Incentives for Regional Headquarters (RHQs)
and Regional Operating Headquarters
The applicable taxes and incentives available to
RHQs and ROHQs are:
Corporate Income Tax and VAT

Employment of foreign nationals in

supervisory, technical or advisory positions for
five (5) years from date of registration, The
position of president, general manager and
treasurer of foreign-owned registered enterprises
or their equivalent shall however not be subject to
the foregoing limitations.
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.

RHQs are exempt from income tax and VAT,

while their purchase of goods and services
and lease of goods and property are zerorated.
ROHQs enjoy a 10% preferential rate on
taxable income, are subject to 12% VAT,
and shall pay branch profit taxes if it remits
income derived from Philippine sources.
2. RHQs and ROHQs are granted the
following incentives:
a.

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.

b.
c. Simplification of customs procedures for the
importation of equipment, spare parts, raw
materials, and supplies and exports of
processed products.

d. Importation of consigned equipment for a

period of 10 years from date of registration,
subject to posting of a re-export bond.
e. The privilege to operate a bonded
manufacturing/trading warehouse subject to
Customs rules and regulations.
C. Additional Incentives for Locating Project in
Less Developed Areas
Additional incentives for BOI registered enterprises
locating in a Less Developed Area (LDA), whether
proposed or in an existing venture geared for
expansion, include:
1.

Six (6) year income tax holiday regardless of

status (pioneer or non-pioneer) or type of

b.

c.

Exemption from all kinds of local

taxes, fees and charges, except for
real property tax on land
improvements and equipment;
Tax and duty free importation of
training materials and equipment;
and
Importation of new motor vehicles
subject to the payment of
corresponding taxes and duties.

3. Expatriates of RHQs and ROHQs are entitled to the

following incentives:
a. Multiple entry visa, including those of
spouse and unmarried children below age 21;
A non-immigrant visa shall be issued
within 72 hours upon submission of all
required documents.
The multiple entry visa is valid for a
period of three (3) years and
extendible for another three years
upon submission to the Bureau of
Immigration of a sworn certification by
a responsible officer of the
RHQ/ROHQ that its license to operate
remains valid and that it complied with
all requirements stipulated under
relevant Philippine laws.
b.

Withholding tax of 15% on

compensation income applicable to
both alien and Filipino executives

holding managerial
positions;

and

technical

Enterprises that locate in any of the four

government ecozones in the country are allowed
one hundred (100%) foreign ownership, provided
the total production of firms situated inside the
zones must be entirely for export. In certain
instances, and subject to the approval of PEZA,
thirty percent (30%) of production may be sold in
the domestic market.
c.

d.

Travel tax exemption issued by the

Philippine Tourism Authority (PTA) upon
recommendation of the Board of
Investments (BOI) during the expatriates
assignment in the country; and
Tax and duty free importation of personal
and household effects.

commerce within the ECOZONE.

In its website, the PEZA reports that as of 31 May
2010, there are 217 economic zones operating in
various provinces and regions throughout the
Philippines. Of the 217, 7 are Agro-Industrial
Economic Zones, 134 are IT Parks/Centers, 65
Manufacturing Economic Zones, 2 are Medical
Tourism Parks/Centers and 9 are Tourism Economic
Zones.
Projects registered under PEZA may still avail of BOI
incentives provided there is no double enjoyment of
the same or similar incentives.
Investment Incentives for Ecozone
Developers/Operators

(Source: The 2005 Investment Priority Plan and the

Philippine Board of Investments Website, at
www.boi.gov.ph)

II. Special Economic Zones

A. Ecozones under the Philippine Economic

Zone Authority (PEZA)

In 1995, the Ramos administration enacted the

Special Economic Zone Act, which established
special economic zones, or "ecozones" to respond to
demands for ready-to-occupy locations for foreign
investments.
ECOZONES, are selected areas with highly
developed or which have the potential to be developed
into agro-industrial, industrial, tourist/recreational,
commercial, banking, investment and financial
centers. An ECOZONE may contain any or all of the
following: Manufacturing Economic Zone, Information
Techonology Parks/Centers , Agro-Industrial
Economic Zone, Tourism Economic Zones and
Medical Tourism Parks/Centers
Ecozones are classified by the PEZA into Public
Economic Zones and Private Economic Zones. The
Public Economic Zones are owned and operated by the
government. These are the Baguio City Economic
Zone, Bataan Economic Zone, Cavite Economic Zone,
and Mactan Economic Zone. They are considered as
separate customs territories from the rest of the
Philippines. Private Economic Zones are owned and
established by private entities. Foreign citizens and
companies owned by non-Filipinos in whatever
proportion may set up enterprises in the ECOZONE,
either by themselves or in joint venture with Filipinos in
any sector of industry, international trade and

Income Tax Holiday;

Incentives under the Build-Operate-Transfer
Law, which includes government support for
accessing Official Development Assistance
and other sources of financing;
Provision of vital off-site infrastructure
facilities;
Option to pay a special 5% Gross Income
Tax, in lieu of all national and local taxes;
Permanent resident status for foreign
investors and immediate family members;
Employment of foreign nationals;
Assistance in the promotion of economic
zones to local and foreign locator
enterprises

Incentives for Ecozone and Information

Technology Locators
1. Subic Bay Special Economic and Freeport Zone
The Subic Bay Special Economic and Freeport Zone
boasts of one of the worlds best seaport facilities, and
is ideal for light-to-medium and high-tech industries.
An enterprise that registers with the Subic Freeport
Zone cannot qualify for incentives under the Omnibus
Investments Act. It is noteworthy, however, that the
incentives available to enterprises within this Zone are
similar to those under the Omnibus Investments Code.

These include:
a.
b.
c.
d.

tax and duty free importation of articles for

SBF enterprises;
SBF managed as separate customs
territory, ensuring free flow of articles
within the zone;
businesses within the SBF may be 100
percent foreign-owned;
liberalized banking rules/no foreign
exchange controls;

e.
f.

g.

h.
i.
j.
k.

l.

n.
o.
p.

q.

security and infrastructure of a Special

Economic and Freeport Zone;
freely engaging in any business, trade,
manufacturing, financial or service activity
and importing and exporting freely all types
of goods, subject to regulations of the
Subic Bay Metropolitan Authority;
exemption from national internal taxes and
local taxes, including income tax on all
income from sources within areas
considered as separate customs territory
from the Philippine customs territory;
maximum of five (5) percent final tax on
gross income in lieu of all national and
local taxes;
income tax credits for all taxes paid by
foreign corporations;
allowable income from sources within the
Philippine customs territory of a maximum
of 30 percent of total income;
exemption from franchise, common carrier
or value-added taxes and other percentage
taxes on public and service utilities
operating within the Zone;
preferential income tax treatment on
income earned/derived from business
operations within the secured area of the
Zone or from foreign sources; zero-rated
value-added tax on purchases of raw
materials, capital goods or equipment and
services from entities within the Philippine
customs territory; employment of foreign
nationals, subject to the certification
requirements of the Department of Labor
and Employment;
permanent residency visas for foreign
investors
investing
at
least
US$250,000.00 in the Zones;
temporary residency visas for foreign
employees, their spouses and dependent
children under 21 years of age;
a free market for foreign exchange, gold,
securities and futures that will allow
freedom to engage in business
transactions involving any foreign
currency; and
availability of an Inspection and Disputes
Office for the amicable settlement of labor
disputes.

(Source: The Subic Webpage at www.sbma.com,

and The Regulatory Environment by Romulo,
Mabanta, Buenaventura, Sayoc & de los Angeles
published in the "Philippines, The Next Asian Tiger"
by Jose Galang)
2. Clark Special Economic Zone
The Clark Special Economic Zone boasts of a 4,400
hectare main zone and access to a modern aviation

complex designated as the countrys future

premiere gateway site.
CSEZ enterprises have all the applicable SBF
incentives enumerated above, as well as those
under the Omnibus Investments Act and the Export
Processing Zone.
(Source: Clark Development Corporation Webpage
at www.clark.com.ph)
3. Cagayan Special Economic Zone
The Cagayan Special Economic Zone covers the
entire area embraced by the Municipality of Santa
Ana and the islands of Fuga, Barit, and Mabbag in
the Municipality of Aparri, Province of Cagayan.
Business establishments operating within the Zone
shall be entitled to the existing fiscal incentives
under the PEZA law or those under the Omnibus
Investments Code.
4. Zamboecozone
Business
establishments
within
the
ZAMBOECOZONE shall be entitled to the existing
fiscal incentives as provided for under Presidential
Decree No. 66, the law creating the Export
Processing Zone Authority, or those provided under
the Omnibus Investment Code, and such
incentives, benefits or privileges presently enjoyed
by business establishments operating within the
Subic special economic zone.

III. Incentives in Other Laws

Various other laws provide for the grant of additional
incentives to more specific and specialized areas of
investment. Among these are the following:
A. Build Operate Transfer Law
Projects undertaken under the Build-OperateTransfer Law which cost more than One Billion Pesos
shall be entitled to the incentives under the Omnibus
Investments Code regardless of its inclusion or noninclusion in the yearly Investment Priorities Plan. In
addition, these projects may be granted government
support or contributions, either in the form of: (1)
partial
financing
from
direct
government
appropriations and/or from Official Development
Assistance of foreign government or institutions, up
to fifty percent (50%) of the project cost, and (2) such
government undertakings as cost sharing with the
agency or local government unit (LGU) involved in
the project, or credit enhancements which include a
guarantee by the Government on the performance of
the obligation of the agency or LGU under its contract

Chapter 5: Relevant Laws

with the project proponent.

B. Export Development Act of 1994

I.

Enterprises which earn at least fifty percent (50%) of

their normal operating revenues from the sale of
products or services outside the Philippines for
foreign currency shall be entitled to incentives aside
from those granted under the Omnibus Investments
Code and those granted to enterprises in the
ecozones or in the Subic Free-Port, as follows:

Under Bangko Sentral ng Pilipinas (BSP) Circular

No. 1389, foreign investments are required to be
registered with the BSP if the foreign exchange is to be
sourced from the Philippine banking system..
If foreign investments are not registered with the BSP,
the Philippine company and/or the foreign investor
cannot use the Philippine banking system to convert
any profits and earnings from Philippine Pesos into
other currencies or service the repatriation of capital
outside the Philippines. They can, however, source its
foreign exchange outside the Philippine banking
system (i.e., foreign exchange dealers). The foregoing
is subject to the power of BSP, with the approval of
the President of the Philippines, to restrict the
availability of foreign exchange during an exchange
crisis, when an exchange crisis is imminent or in times
of national emergency.

a. exemption from the requirement of advance

payment of customs duties upon the opening of a
letter of credit;
b. tax credits for increases in current year's export
revenues. The following tax credits are available:
First 5% increase in
annual export revenue
Next 5% increase
Next 5% increase
For increases in excess of
15%

2.5% tax credit

5% tax credit
5% tax credit
10% tax credit

c. support in export financing, guarantee and

insurance from the Export Financing Programme
operated under the Export Financing Institution.
C. Foreign Investors Lease Act
Any foreign investor is allowed to lease private lands
for a period of fifty (50) years, renewable for twentyfive (25) years, as long as the leased land is used
solely for the purposes of or in connection with the
investment, such as the establishment of industrial
estates, factories, assembly or processing plants,
agro-industrial enterprises, land development for
tourism, industrial or commercial use, and similar
priority productive endeavors.
Long-term lease of private lands of tourism projects
shall be limited to those involving investments of not
less than 5 million dollars, seventy percent (70%) of
which must be infused into said project within three
years from the signing of the lease agreement.
D. Philippine Overseas Shipping Development
Act
Foreign investment in a Philippine shipping enterprise
is allowed up to 40 per cent of the capital of such
enterprise. A Philippine shipping enterprise is exempt
from the payment of import duties and taxes on the
importation of ocean going vessels to be registered
under the Philippine flag.

Exchange Controls

II.

Taxation
A. Basis of Taxation:

On Income of Domestic and Resident Foreign

Corporations:
Corporate Income Tax. As a rule, a domestic
corporation is liable to pay income tax at the rate of
thirty percent (30%) based on its worldwide net
income. A resident foreign corporation is generally
taxed at the same rate, but based on its net income
derived from sources within the Philippines. A foreign
corporation is considered a resident when it is
engaged in trade or business in the Philippines and is
licensed by the SEC to engage in trade or business in
the Philippines.

Minimum Corporate Income Tax (MCIT). Beginning

on the fourth taxable year immediately following the
year in which a domestic corporation or resident
foreign corporation commenced its business
operations, a minimum corporate income tax (MCIT)
of two percent (2%) of the gross income shall be
imposed on the corporation, when the MCIT is greater
than the computed regular income tax based on 35%
of net income.
On Income of Non-Resident Foreign
Corporations:
As a rule, non-resident foreign corporations are
taxed at thirty percent (30%) based on their gross
income from sources within the Philippines. Regular
Taxes Applicable to companies
a. Income Tax is a tax on all yearly profits arising

from property, profession, trades or offices or as

a tax on a persons income, emoluments, profits
and the like. For a domestic corporation, the
regular corporate income tax is 30% based on net
income derived from sources within and outside
the Philippines. For a resident foreign
corporation, the regular corporate income tax is
30% based on net income derived from sources
within the Philippines. For a non-resident foreign
corporation, the regular corporate income tax is
30% based on gross income derived from
sources within the Philippines.
b.

Minimum Corporate Income Tax (MCIT): This

is imposed on domestic and resident foreign
corporations at the rate of 2% of gross income
beginning on the fourth taxable year immediately
following the taxable year in which such
corporation commenced business operations,
whenever the amount of MCIT is greater than the
normal tax due (based on the rate of 30%) from
such corporation.

c.

Fringe Benefits Tax: Fringe benefits paid to

managerial and supervisory employees are
subject to a fringe benefit tax of 32% based on
grossed-up monetary value of the benefits. The
grossed-up monetary value of the fringe benefit
shall be determined by dividing the actual
monetary value of the fringe benefit by sixty-five
percent (65%), and seventy percent (70%).

d.

Capital Gains Tax: This is a tax imposed on the

gains presumed to have been realized by the
seller from the sale, exchange, or other
disposition of capital assets located in the
Philippines, including pacto de retro sales and
other forms of conditional sale.
Capital gains tax for sale of real property: Six
percent (6%) of fair market value or selling price,
whichever is higher.
Capital gains tax for sale of shares of stocks
not traded in the stock exchange: Five
percent (5%) based on the first Php100,000.00
net capital gain, and ten percent (10%) for net
capital gain in excess of Php100,000.00.
Percentage tax on the sale of shares of stocks
traded in the stock exchange:
one half of one percent (1/2 of 1%) of
gross selling price
e.

Documentary Stamp Tax (DST): This is a

tax on documents, instruments, loan
agreements and papers evidencing the
acceptance, assignment, sale or transfer of
an obligation, rights, or property incident
thereto. DST rates vary depending on the

type of document made, signed, issued,

accepted or transferred.
f.

Value Added Tax (VAT): This is a

business tax imposed and collected from
the seller in the course of trade or business
on every sale of properties (real or
personal), lease of goods or properties (real
or personal) or vendors of services. It is an
indirect tax, thus, it can be passed on to the
buyer. The VAT rate is now at 12%, based
on gross sales or receipts.

g.

Percentage Tax: This is a business tax

imposed on persons or entities who sell or
lease goods, properties or services in the
course of trade or business whose gross
annual sales or receipts do not exceed
Php550,000.00 and are not VAT-registered.
Percentage tax is at 3% based on gross
quarterly sales/receipt.

h.

Withholding Tax on Compensation is the

tax withheld from individuals receiving purely
compensation income.
Withholding tax on compensation ranges
from 5% to 35%.

i.

Expanded Withholding Tax is a kind of

withholding tax which is prescribed only for
certain payors and is creditable against the
income tax due of the payee for the taxable
quarter year. Withholding tax rates vary
depending on the nature of the income
paid.

C. Other Relevant Taxes

Dividends paid to foreign corporate shareholders.
The remittance of dividends by a domestic corporation
to its foreign "parent" corporation is, generally, taxed
at 35%. This, however, may be reduced to 15% where
the country in which the foreign "parent" corporation
either: (a) grants a tax sparing credit of 20%, or (b)
does not at all impose any tax on such dividends
received.
The rate of withholding tax on dividends is subject to
further reduction under an applicable tax treaty.
Dividends received from foreign companies.
Dividends received from foreign corporations shall be
subject to income tax. For resident foreign
corporations who are only taxed on sources within
the Philippines, Section 42(A)(2)(b) of the Tax Code
of 1997 provides that dividends received from a
foreign corporation shall be treated as income from
sources within the Philippines unless less than fifty
per cent (50%) of the gross income of such foreign
corporation for the three year period ending with the
close of its taxable year preceding the declaration of

such dividends was derived from sources within the

Philippines.
Interest paid to foreign corporate shareholders.
Under Section 28(B) of the Tax Code, as amended,
interest paid to non-resident foreign corporation is
subject to 35% final withholding tax, unless a lower
treaty rate applies. However, if interest is on foreign
loans, a final withholding tax of 20% shall apply
(Section 28(b)(5)(a)), unless reduced by an
applicable treaty.
IP royalties. Payments for royalties are subject to the
following taxes:
a.
b.
c.

If paid to a domestic corporation 20%

(Section 27(d)(1))
If paid to a resident foreign corporation 20%
(Section 28(A)(7)(a))
If paid to a non-resident foreign corporation 35% (Section 28(B)(1)), unless reduced by a
tax treaty

D. Transfer Pricing
Under Section 50 of the 1997 Tax Code, as
amended, the Commissioner of Internal Revenue has
the power to allocate income and expenses between
or among controlled groups of companies in order to
prevent the avoidance of taxes. It places a controlled
taxpayer in tax parity with an uncontrolled taxpayer
by determining the arm's-length price of intercompany transactions.
Pursuant to such provision, the Bureau of Internal
Revenue has issued RAMO 1-98 which provides for
audit guidelines and procedures in the examination of
interrelated group of companies.
E. Imports/Exports
Imports are subject to import duties based on the
various rates prescribed under the tariff and customs
code. In addition, there are special duties imposed in
the following instances:
e. Anti-dumping duty is a special duty imposed on
the importation of articles into the Philippines at
less than its normal value when destined for
domestic consumption in the
exporting country. The rate of duty is equivalent
to the difference between the export price and the
normal value of such articles.
f. Countervailing duty is a special duty imposed
on imported articles which are granted any kind
or form of subsidy by the government in the
country of origin or exportation, the importation of
which has caused or threatens to cause material
injury to a domestic industry or has materially
retarded the growth or prevents the

establishment of a domestic industry.

g. Marking duty is a duty imposed on imported
articles that are not properly marked as to the
country of origin of such articles in accordance
with the requirements set down by the Code.
h. Discriminatory duty is imposed on imported
articles whenever their country of origin imposes
any unreasonable charge or limitation which is
not equally enforced upon the like articles of
every foreign country, or discriminates against
the commerce of the Philippines.
At present, only certain planted trees are imposed
with an export duty. As a rule, exports by an export
producer registered with the Board of Investments of
its non-traditional registered export product shall be
exempted from any export tax, duty, impost and fee,
including wharfage fee.
F. Tax Treaties
The Philippines has entered into tax treaties with
approximately 38 countries, including the United
States.
III. Labor
Philippine labor laws generally cover the
employment of individuals who render services in
the Philippines, regardless of the place where the
individuals were actually or first employed. The
Philippine Overseas Employees Association
regulates the deployment of Filipinos abroad.
A written contract is not a specific requirement under
the law to establish an employer-employee
relationship. Other terms that govern the
employment relationship include any applicable
collective bargaining agreement, wage orders issued
by the Department of Labor, and other laws as well
as implementing rules and directives from the
Department of Labor.
Constitution provides that employees have a right to
participate in policy and decision-making processes
affecting their rights and benefits as may be provided
by law.
Security of Tenure
Employees who have attained regular status, i.e. an
employee who has been engaged to perform activities
which are usually necessary or desirable in the usual
trade or business of the employer, or has rendered at
least one year of service, are entitled to security of
tenure and cannot be terminated except for just or
authorized causes.

The just causes for dismissal are: serious misconduct

or willful disobedience by the employee of the lawful
orders of his employer or representative in connection
with his work; gross and habitual neglect by the
employee of his duties; fraud or willful breach by the
employee of the trust reposed in him by his employer
or duly authorized representative; commission of a
crime or offense by the employee against the person of
his employer or any immediate member of his family or
his duly authorized representative; or other causes
analogous to the foregoing. The authorized causes for
dismissal are the installation of labor saving devices,
redundancy, retrenchment to prevent losses, or the
closing of operation of the establishment.
The normal consequences of a finding that an
employee has been illegally dismissed are that the
employee is entitled to reinstated to his former position
without loss of seniority rights and payment of
backwages. However, in case reinstatement is no
longer possible due to strained relations, the Courts
may order the payment of separation benefits in lieu of
reinstatement in addition to backwages.
Redundancy is deemed to exist when the services of
an employee are in excess of what is reasonably
demanded by the actual requirements of the company.
There are no specific regulations for redundancies.
Although in case of termination of an employee due to
redundancy, the terminated employee is entitled to
separation pay of one (1) month pay or to at least one
(1) month pay for every year of service, whichever is
higher.
Minimum Costs of Employment
Employees are subject to income tax on their
compensation income, which is withheld by the
employer. This is subject to a 5-32% income tax
rate.
Employees generally are not entitled to management
representation, although the
As mandated by law, both employer and employees
are to contribute to the Social Security System for the
social security benefits of the employees; to the
Philippine Health Insurance Corporation for medical
insurance benefits of the employees in accordance
with the National Health Insurance Program; and to
the Home Development and Mutual Fund for certain
employee benefits.
Employers are also required to pay employees an
annual 13th Month Pay equivalent to one (1) month
salary.
Second ment Arrangements
For services provided in the Philippines, an employee
seconded to the Philippines is taxed like any resident
foreign individual, i.e. 32% of his income from within
the Philippines, provided he stays in the Philippines for
at least 180 days. Otherwise, he is not subject to
Philippine income tax.

Work in the Philippines

Under labor laws, foreign nationals who shall be
working in the Philippines, are required to apply for
an Alien Employment Permit. (AEP), subject to
certain exceptions. The AEP is issued after a
determination by the Department of Labor &
Employment (DOLE) that there is no person in the
Philippines who is competent, able and willing at the
time of the application to perform the services for
which the alien shall be employed.
As a general rule, AEPs are approved and released
within a period of three (3) to four (4) weeks from the
date of application.
IV. Immigration
Entry Visa
Foreign nationals may come to the Philippines for
reasons of business, pleasure or health with a
temporary visitor's visa. This visa allows stays for
periods of 59 days, extendable for a maximum of one
year. To extend their stay, visitors must register with
the Bureau of Immigration or with the office of the
municipal or city treasurer in areas outside Manila.
Executive Order No. 408 allows foreign nationals,
except those of specifically restricted nationalities, to
stay in the Philippines for up to 21 days without a
visa.
Work Permits
In general, a foreign national seeking employment in
the Philippines, whether resident or non-resident, must
secure an Alien Employment Permit (AEP)
from the Department of Labor and Employment
(DOLE). An AEP is valid for one year from the date of
issue and may be renewed subject to the approval of
the DOLE. Executives of area or regional
headquarters and OBUs, as well as treaty trader visa
holders, are exempt from the requirement to obtain
alien employment certificates.
A local employer who wishes to employ a foreign
national must apply on the foreign national's behalf
with the DOLE for the permit. The petitioning company
must prove that the foreign national possesses the
required skills for the position and that no Filipino is
available who is competent, able and willing to do the
specific job for which the foreign national is desired.
To ensure a proper transfer of technology, the DOLE
requires the employers of foreign nationals to provide
an Understudy Training Programme (UTP) and to
designate at least two Filipino understudies. The
functions of these employers must be deemed
permanent, and they must require skills or expertise
that are scarce in the Philippines.

The Special Investor Resident Visa

The Special Investor Resident Visa (SIRV) entitles the
holder to reside in the Philippines for an indefinite
period as long as his investment subsists. Any alien,
except restricted nationals under the Foreign Service
Code, may apply for an SIRV provided he meets the
following requirements:
1. He has 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 mental
disorder or disability.
4. He is willing and able to invest the amount of at
least US$75,000.00 in the Philippines.
The government has liberalized visa requirements for
foreign entrants to encourage foreign participation in
the economic development of the Philippines. Among
the liberalized rules are the following provisions:
1.

Foreign
stockholders,
investors,
representatives of investment houses, land
developers and tourism developers are among
the categories entitled to the special visa
incentive, which grants privileges to certain
foreign nationals.
2. Aliens entitled to enter the country under the
provision of a treaty of amity, commerce and
navigation may be admitted as non-immigrants.
They are given treaty-trader visas for the sole
purpose of carrying on
substantial trade between the Philippines and the
state of which they are nationals.
3. Foreign technicians may be admitted to the
Philippines with a pre-arranged employment
visa if their employers can prove that the skills
they possess are not available in the country.
(Source: DTI website, at www.dti.gov.ph)

Intellectual propertyThe Philippines is a member of

the Paris Convention for the Protection of Industrial
Property, the Berne Convention for the Protection of
Literary and Artistic Works, and the World Trade
Organization and, by such membership, adheres to
the Agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPS).
The most common forms of intellectual property that
are granted protection in the Philippines are the
following:
Copyright
Nature of right. Protection is granted to original
literary, scholarly, scientific and artistic works.
How protected. Works are protected by the sole
fact of creation, irrespective of their mode or form
of expression, as well as of their content, quality
or purpose.
How enforced. A person infringing a copyright
shall be liable to an injunction and shall face civil
and criminal liability.
Length of protection. Ordinarily, the
copyrights in works are protected during the
lifetime of the author and fifty years after his
death.
Trade marks and Service Marks
Nature of right. To be registered, a trademark
must be a visible sign capable of distinguishing
the goods or services of an enterprise, provided it
is not confusingly similar to another mark, does
not mislead the public as to the nature, quality
characteristics and geographical origin of the
goods or services, does not consist of signs that
are generic for the goods

V. Anti-trust
The Philippines has very limited anti-trust legislation.
The Constitution espouses a policy that prohibits
monopolies when such is against public interest, and
prohibits unfair competition and combinations in
restraint of trade, while the Revised Penal Code
likewise penalizes monopolies and combinations in
restraint of trade. The Philippine Supreme Court,
however, has recognized that certain industries, by
their very nature, i.e. public services or public utilities,
must be given exclusive franchises without being
violative of the law against monopolies. Nevertheless,
industries which are not natural monopolies have
never been subject to formal administrative or judicial
review on the basis of the alleged existence of an
unlawful monopoly.

or services they seek to identify, nor does it

violate any of the prohibitions against nonregistrability of marks under Section 123.1 of
the Intellectual Property Code.
How protected. The right to a trade mark or
service mark is obtained through registration
with the Bureau of Trademarks of the
Intellectual Property Office.
How enforced. The owner of a registered mark
may recover damages from any person who
infringes his rights. The measure of the damages
suffered shall be either the reasonable profit
which the complaining party would have made,
had the defendant not infringed his rights, or the
profit which the defendant actually made out of
the infringement, or in the event such measure of
damages cannot be readily ascertained with
reasonable certainty, then the court may award
as damages a reasonable percentage based
upon the amount of gross sales of the defendant
or the value of the services in connection with
which the mark or trade name was used in the
infringement of the rights of the complaining

party. In cases where actual intent to mislead the

public or to defraud the complainant is shown, in
the discretion of the court, the damages may be
doubled. The complainant, upon proper showing,
may also be granted injunction.
Length of protection. Protection is granted for
ten (10) years, renewable for ten (10) year
periods as long as the mark is actually used.

Patents
Nature of right. To be patentable, an invention
must be a technical solution of a problem in any
field of human activity, which is new, involves an
inventive step and is industrially applicable. It
may be, or may relate to, a product, or process,
or an improvement of any of the foregoing.
How protected. A patent is granted protection
upon the approval of an application filed with the
Bureau of Patents of the Intellectual Property
Office.
How enforced. The owner of a patent is allowed
to restrain, prohibit and prevent any unauthorized
person or entity from making, using, offering for
sale or importing the product or process. In case
of violation of the patentee's rights, the patentee
is allowed to bring an action for infringement,
which may involve both civil and criminal liability.
Length of protection. Protection lasts for 20
years from filing date without renewal.
Industrial Design

Nature of right. Any composition of lines or

colors or any three dimensional form, whether or
not associated with lines or colors, provided that
such composition or form gives a special
appearance to or can serve as a pattern for an
industrial product or handicraft.
How protected. An industrial design is granted
protection upon registration with the Bureau of
Patents with the Intellectual Property Office.
How enforced. The owner of an industrial
design is granted by law, the same remedies as
an owner of a patent.
Length of protection. Five (5) years plus two
(2) renewals of five (5) years each.

Utility Model

Nature of right. A utility design is any technical

solution of a problem in any field of human
activity that is new, and is industrially
applicable. It may be a product, a process, or a
combination of both.
How protected. A utility model is granted
protection upon registration with the Bureau of
Patents with the Intellectual Property Office.
How enforced. The owner of a utility model is
granted by law, the same remedies as an
owner of a patent.

Length of protection. Protection lasts for seven

(7) years from filing date without renewal.

Lay-out Design of Integrated Circuits

Nature of right. A layout design of integrated
circuits is an original topography (picture of a
surface) of elements, at least one of which is an
active element, and of some or all
interconnections of an integrated circuit, or such
three-dimensional disposition prepared for an
integrated circuit intended for manufacture. Only
layout-designs of integrated circuits that are
original shall benefit from protection under this
Act.
How protected. A layout design of an integrated
circuit is granted protection upon registration with
the Bureau of Patents with the Intellectual
Property Office.
How enforced. The owner of a layout design of
an integrated circuit is granted by law, the same
remedies as an owner of a patent.
Length of protection. Registration of a layoutdesign shall be valid for a period of ten (10) years,
without renewal.
How protected. New Plant Varieties are granted
protection upon grant of a Certificate of Plant
Variety Protection from the National Plant Variety
Protection Board.
Length of protection. Twenty-five (25) years from
date of grant (trees and vines) and twenty (20)
years for all other types of plants.
VI. E-commerce
The Electronic Commerce Act (R.A. No. 8792),
enacted in June of 2000, gave legal recognition to
electronic documents, electronic data messages and
electronic signatures. Further, the Supreme Court
issued Rules on Electronic Evidence, while the
Department of Trade and Industry has issued
implementing rules regarding the recognition of
electronic signatures.
Under the Electronic Commerce Act, where the law
requires an action to be carried out in writing or by using
a paper document, that requirement is met if the action
is carried out by using one or more electronic data
messages or electronic document, provided a reliable
method is used to render such electronic data
messages or electronic documents unique.
VII.

Product liability

Under the law on tort in the Civil Code, manufacturers

and processors of foodstuffs, drinks, toilet articles and
similar goods are made liable for death or injuries
caused by any noxious or harmful substances used,
although no contractual relation exists between them
and the consumers.

Aside from this, an injured party may also bring an

action for product liability damages arising from fault or
negligence, breach of warranty (whether express or
implied), improper packaging, product defects, failure
to warn or provide adequate information, and false
advertising. In all of these causes of action, liability is
imposed only upon those who are directly responsible
for placing the products on the market, i.e., the
manufacturer, producer, importer, or seller of the
product in question.
New Plant Variety
Nature of right. To be
entitled to protection, the
new plant variety must be
distinct, uniform and
stable.
F irm B ack g r o u n d
Romulo, Mabanta, Buenaventura, Sayoc & de los
Angeles traces its roots to the law firm which Allison D.
Gibbs and William Kincaid established in 1901. On
the outbreak of the Spanish-American War in 1898,
the United States sent an expeditionary force to the
Philippines. Among the troops were Allison D. Gibbs,
who joined the Colorado volunteers, and William
Kincaid, who enlisted with the Nebraska volunteers.
Allison D. Gibbs and William Kincaid decided to settle
in the Philippines and engage in the practice of law.
They hanged their shingle in the business center of
Manila at No. 9 Plaza Moraga.
The firm which Allison D. Gibbs formed with William
Kincaid was reorganized several times, but it was the
partnership which he organized with Charles
McDonough which lasted the longest.
When the sons of Allison D. Gibbs, Findley and
Allison J, become lawyers, they joined the firm as
assistant attorneys.
In 1922, Roman Ozaeta also joined the firm as an
assistant attorney. He eventually became a partner in
1931.
The firm of Gibbs, McDonough and Ozaeta had an
extensive practice in commercial law. It handled
cases involving banking, corporation law, insurance,
and public utilities. It pioneered in the law on
intellectual property and successfully handled cases
involving infringement of trademarks and copyright in
La Insular vs. Jao Oge, 47 Phil. 75 [1924]; Philippine
Education Company, Inc.vs. Sotto, 52 Phil. 680
[1929]; and Parke, Davis and Company vs. Kiu Foo
and Company, Ltd., 60 Phil. 928 [1934],
The firm of Gibbs, McDonough and Ozaeta
developed a reputation for outstanding trial work and
appellate practice. Allison D. Gibbs became well-

known as a tax and corporate lawyer. Charles

McDonough earned a name for himself as an
outstanding trial lawyer, especially in criminal law.
Roman Ozaeta was renowned as a meticulous brief
writer.
The firm successfully handled several landmark cases.
Some of the jurisprudence developed in those cases
are still valid.
The firm challenged the constitutionality of Act No.
2972, the Chinese Bookkeeping Act, which prohibited
Chinese merchants from keeping their books of
account in the Chinese language. The case reached
all the way to the United States Supreme Court. In its
decision in the case of Yu Cong Eng vs. Trinidad, 271
U.S. 500 [1926], the United States Supreme Court
struck down the law on the ground that it violated due
process and denied the Chinese merchants the equal
protection of the laws, because most of the Chinese
merchants knew the Chinese language only and the
effect of the law was to keep them in the dark as to
the financial condition of their business.
In 1923, Charles McDounough handled the celebrated
Conley case. Ray Conley, a police detective, was
charged with receiving a bribe from gamblers in
Manila. Charles McDounough prove that the charge
was trumped up. Through his painstaking crossexamination, Charles McDonough caught the witnesses
for the prosecution in a web of contradictions and
improbabilities. Ray Conley was acquitted, and
Governor General Leonard Wood had him reinstated.
This triggered a cabinet crisis the department
secretaries who had had differences of opinion with
Governor General Leonard Wood resigned en
masse.
In 1936, Roman Ozaeta resigned from the firm to
become a judge of the Court of First Instance of
Nueva Ecija. He went on to become Solicitor General
in 1938, an Associate Justice of the Supreme Court in
1941, the Secretary of Justice in 1946, and again an
Associate Justice of the Supreme Court from 1948 to
1950.
Allison D. Gibbs and Charles McDonough died in 1945.
Findley Gibbs and Allison J. Gibbs decided to revive the
law firm of their father. They organized the firm of
Gibbs, Gibbs, Quasha and Chuidian. Findley Gibbs
decided to return to the United States. The firm was
dissolved and Allison J. Gibbs practiced on his own.
After almost fifteen years in the public service, Roman
Ozaeta returned to private practice. For five years, he
was the senior partner of Ozaeta, Roxas, Lichauco
and Picazo. After retiring at the age of 65 years, he
served as of counsel in the law firm established by his
son Herminio, the law office of OGorman, Romulo

and Ozaeta.

of the Philippines, the US Trademark Association and

the Maritime Law Association of the Philippines.
* The 2006
version of this Doing Business Guide was updated
through the efforts of Herminio S. Ozaeta, Jr.;
Fernando C. Sioson; Dorothy B. Dizon; Anna Victoria
M. Veloso; Marie Camille Francesca L. Bautista &
Sheryl B. Tanquilut

In 1957, Alan OGorman and Carlos Romulo, Jr. died

in a plane crash. Roman Ozaeta and Herminio Ozaeta
invited Allison J. Gibbs to join them. He readily
accepted. They formed the firm of Ozaeta, Gibbs and
Ozaeta.
Because of a previous rule of practice which limited the
name of a law office to those of its active and living
partners, the Firm had to undergo changes in its name
several times. Through the changes of name, the Firm
has faithfully adhered to the ideals which inspired
Justice Roman Ozaeta dedicated service in the fines
traditions and highest ideals of a learned and noble
profession.

Part I
PRIORITY INVESTMENT AREAS
The descriptions/coverage and the entitlement of
incentives of the following listed activities shall be
defined and clarified in the General Policies and
Guidelines to be issued by the Board of
Investments (BOI).

In October of 2002, the partners of the Firm celebrated

the 100th anniversary of its founding with the
descendants of the Gibbs family in San Francisco,
California.
The current senior partners are: Ricardo J. Romulo,
Jose F. Buenaventura, and Eduardo de los Angeles.
Atty. Jesus S. J. Sayoc died on June 21, 2002 and
Atty. Roman Mabanta, Jr. died on August 19, 2005.
The Firm is the sole Philippine member of Lex Mundi,
a worldwide network of about 160 independent law
firms, with a combined total of more than 9,000
lawyers in all commercially significant jurisdictions
throughout the world.

All projects with sovereign guarantee and/or

guaranteed rate of return shall not be entitled to
income tax holiday (ITH).
I.

PREFERRED ACTIVITES
A. Agribusiness
This covers commercial production and
commercial processing of agricultural and
fishery products including their by-products
and wastes.

The Firm is composed of 75 lawyers - all of whom

speak English fluently and majority of whom have
received training and graduate degrees from
universities abroad. The Firm offers a full range of
legal services with wide experience in the fields of
corporate and business laws, taxation, energy,
infrastructure, securities, foreign investments, banking,
finance, litigation, intellectual property and aviation
and admiralty.
Partners and associates of the Firm are also active
members and officers of business and civic
associations such as the Makati Business Club, the
Management Association of the Philippines, the
American Chamber of Commerce, the Philippine-U.S.
Business Council, the Philippine-U.K. Business
Council,
Philippine-Japan
Business
Council,
Philippine-Korea Business Council, the PhilippineSingapore Business Council, Philippine Thailand
Business Council, APEC Business Forum, Pacific
Basin Economic Council, Asian Neighbors' Forum, the
various chapters of the Rotary Club, as well as of
professional organizations such as the Inter-Pacific
Bar Association, International Business Association,
Union Internationale des Avocats Asean Law
Association, Tax Management Association of the
Philippines, Asian Patent Attorneys Association,
International Association for the Protection of
Intellectual Property, Intellectual Property Association

B. Healthcare and Wellness Products and

Services
This covers hospital services, medical and
dental services, other human health and
wellness services (including services in the
field of nursing care, rehabilitation and
recuperation, spas), retirement villages and
related services located either in identified
medical zones1 1 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
Medical zones are selected areas declared by the
President upon the recommendation of the Board of
Investments, which are developed into centers for
professional health care provided by physicians and
nurses, for the treatment of inpatients and diagnosis
and/or therapy of outpatients, inclusive of emergency
medical services, with large numbers of beds for
intensive care and long-term care, facilities for surgery
and childbirth, bioassay laboratories, trauma centers,
childrens 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.
1

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.
C. Information
Technology

and

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; multi-modal passenger and/or
cargo terminals; pipeline operations; toxic and
hazardous waste (THW) management; and
water supply, treatment, and distribution. This
also covers infrastructure projects under the
BOT Law.

Communications

This covers IT and IT-enabled services and

ICT support services located either outside
Metro Manila or in identified IT hubs.

H. Tourism
This covers the establishment of tourism
economic zones, tourist accommodation
facilities, tourist estates, and eco-agri tourism
facilities. This also covers historicocultural
heritage projects and services provided by
tourist operators as endorsed by the
Department of Tourism (DOT).

D. Electronics
This covers all segments within the valuechain structure of the industry such as
Original Design Manufacturing (ODM),
electronics manufacturing services (EMS),
the manufacture of electronic products
(except home appliances), IC design, the
manufacture of parts and components of
electronic products including the inputs for the
manufacture of such components, and the
manufacture of production supplies (e.g.,
molds and dies, precision tools, etc.) used by
the electronics industry. This also covers the
establishment and operation of Centers of
Excellence, test and other service facilities
catering to the electronic industry.
E.

F.

Motor Vehicle Products

This covers the production and/or
manufacture of motor vehicle parts and
components, and the manufacture or
assembly of motor vehicles provided that the
activity includes a program for the
development of motor vehicle parts and
components. This also covers the
establishment and operation of Centers of
Excellence that support the development of
the motor vehicle industry.

Shipbuilding/Shipping
This covers shipbuilding, ship repair, shipyard
operations (excluding shipbreaking), and
overseas, domestic and RORO Shipping and
terminal operations.

J.

Jewelry
This covers the manufacture of fine jewelry
and costume jewelry.

K. Fashion Garments
This covers the production of fashion
garments as endorsed by the Department of
Trade and Industry (DTI). Fashion garments
essentially refers to wearing apparel for a
specific season with a distinct style and color
based on international trends.
II.

Energy
This covers the exploration, development,
and/or utilization of energy sources. This also
covers activities using energy technologies
leading to energy efficiency and conservation
in accordance with the program of the
Department of Energy (DOE).

G. Infrastructure
This covers the establishment of
infrastructures such as business parks, mass
housing, mass transport involving rail system,
physical infrastructure such as roads and
bridges, telecommunications involving at least
3rd generation cellular mobile telephone
systems (CMTS) and rural telephony system
located in less developed areas (LDA), and
logistics. Logistics covers: agricultural

I.

OTHER PREFERRED ACTIVITIES

This covers the following:
Other export activities not identified under Part I
(I).
Industry clusters supporting activities under Part I
(I) and (III).
Modernization activities under Part (I) and (III)
and Part (II) (B).
Notes to Part (II):
Other export activities shall be entitled to limited
incentives.
Industry cluster covers horizontal and vertical
linkages. Horizontal and vertical-backward
linkages are limited to first-tier activities only.
Raw materials for vertical-forward linkages under
Agribusiness and Mining should be wholly
obtained.

III.

MANDATORY INCLUSIONS
All areas/activities, which as provided for under
existing laws, specifically require their inclusion in

the IPP.

LAW
P.D. 705 R.A. 7103 R.A. 7942 R.A. 8047 R.A.
8479 R.A. 9003 R.A. 9275 R.A. 7277

IV. ARMM List

ACTIVITY
Industrial Tree Plantation
Iron & Steel
Exploration, mining, quarrying, and processing of
minerals
Publication or printing of books or textbooks 2
Refining, storage, marketing and distribution of
petroleum products2
Ecological Solid Waste Management2
Clean Water Act2
Rehabilitation, Self-Development and Self-Reliance
of Disabled Persons
Activities covered under Bilateral Agreements2

The ARMM List covers priority activities, which have

been independently identified by the Regional Board
of Investments of the ARMM in accordance with
E.O. 458. The BOIARMM can grant registration and
administer incentives to activities listed in the IPP,
provided these are located in ARMM and subject to
the General and Specific Guidelines.
1.

Export Trader and Service Exporters

Support Activities for Exporters

Agriculture, Food and Forestry-Based

Industries
a. Processed Food
Production and processing of
halal meat and halal foods
Leguminous and other vegetablebased protein (textures, palletized
or liquid)
Spices processing (e.g. hot
pepper, black pepper, ginger,
etc.)
Note: May be integrated with
plantation
Vegetable oils (e.g. peanut oil,
rice bran oil, sunflower and
soybean oil) and production of
food crops
Note: Maybe integrated with postharvest processing and other

Export Activities
a.
b.

2.

Excluded from Industry Clusters.

vegetables (such as tomatoes)

Integrated coconut processing
and plantation
Seaweeds
production
and
processing
Cassava processing and root
crops
Note: Maybe integrated with
plantation.

Fruit processing (e.g. durian, mangosteen,

jackfruit, marang, banana, mango,
passion guava, calamansi, and guyabano)
and plantation
Aquaculture (Fish Production and
Processing) such as, but not limited to:
- Frozen fish - Chilled fish
- Canned fish - Abalone
- Crab fattening - Eel production
- Squid processing
-Carp and tilapia production and
processing
-Tropical fish production and processing
- Shrimps/prawn
- Lapu-lapu (Grouper) and other marine
products
Corn flour mill (integrated with plantation)
Young corn production Note: May include
processing/canning
Mushrooms culture and processing
Sweet potato plantation and processing
Crocodile farming and processing

b.

Cutflower Production

c.

Pearl Culture and Processing

d.

Industrial Tree Plantation (include Mangrove,

Rattan, Bamboo, etc.) and wood processing
(cement wood board and fiberboard)
reconstructed veneer.

e.

Shipbuilding / Ship Breaking / Ship Repair and

Watercraft

f.

Abaca Pulp Production and Processing

g.

Palm Oil Plantation, Processing, Refining and

Germinated Oil Palm Seeds

h.

Coffee Processing (maybe integrated with

plantation)

i.

Particle Board (use of agri-based waste

material such as rice straw, wood waste, etc.)

j.

Activated Carbon Manufacturing (use of

coconut shell, wood based, etc.)

k.

Feeds Production (animal feeds and feeds for

aquaculture)
l.

Tobacco Plantation and Processing

m. Production of Beverage Crops, but not limited

to:
Cacao beans
Coffee beans (Arabica variety)
n.

Production of Plantation Crops and Other

Medical Herbs/Essential Oil Plants (including
flower extracts)

o.

Production of Livestock and Poultry (including

Dairy products)
Beef (including cow-calf and feedlot
operations)
Carabao (water buffalo) production
Goats and sheep
Frozen semen and embryos
Note: includes natural method
and artificial insemination and
embryo transfer technology
p.

Bricks and Roofing Tiles Production

q.

Quality Seeds and Seedings of Fruit Trees

and Other Planting Materials Propagated
Asexually or by Tissue Culture

r.

Sugar Cane Plantation, Processing and

c.

Yarns and fabrics

Hand-woven textiles
Specialty fabrics
Tire cord fabrics
Note: Must be integrated with weaving
and dipping units
Ramie (degumed, staple fiber, combed
tops, noels and silvers)
Fish nets
Fabrics made of indigenous raw
materials
Silk reeling

Fertilizers (organic and inorganic)

Solid Waste Materials

d.

Mining (Exploration and Development of

Mineral Resources)
Mining and Quarrying of Metallic and
Non-Metallic Minerals (including small
scale as defined under P.D. 1899, but
to exclude river beds in operations)
Processing of minerals (such as
beneficiation and other metallurgical
methods)
e. Cement at least 1.0 million MTPY Capacity
(clinker based)
4. Consumer Manufactures

Refineries

a. Rubber Products such as:

High pressure and hydraulic rubber
hoses
Rubber bolts
Industrial rubber rollers
Rubber tires

s.

Sericulture

b. Leather Products

t.

Mosquito Coil Processing

5. Infrastructure and Services

3. Basic Industries
a.

b.

Pharmaceuticals
Antibiotics

Penicillin

Streptomycin

Tetracycline

Soft gelatin capsules

Medical Devices

Prosthetics

Diagnosis
Other
pharmaceuticals,
medicines
Textile and Textile Products

herbal

a. Public Utilities (with developmental route of

the five provinces and one city of the ARMM
and other adjacent Cities and Provinces)
Common carriers (land, air and
water transport facilities)
Electric transmission/distribution
Water supply facilities/waterways
and sewerage systems
Buses/cargo trucks
Other specialized mass transport
systems
Power generation like Hydro
Power, and Geothermal
b.

Telecommunications
Gateways

with

International

c.

Tourism
Tourism estates
Subject to guidelines developed jointly
by the Board of Investments ARMM
and Department of Tourism (DOT)
Tourist accommodation facilities
Hotels
Resorts
Other tourist accommodation
facilities such as appartels,
pension houses, tourist inns, and
others
Tourist transport facilities
Air
Water
Tourist buses and taxi/van
Note: *Should be endorsed by the
DOT.
**New and expansion
projects
may
be
registered.

d. Industrial Service Facilities

Common centers:
Testing and quality control
laboratories
Training
and
demonstration
centers
Tool shops and similar facilities

Metal working
Electroplating
Foundry
Forging
Machining
Heat treatment
Brass making
Furniture
Kiln drying
Treatment and processing
facilities
Ceramics
Kiln
Glazing
Food Processing
Bottling and Canning of
Water
Industrial Salt
Vapor heat treatment
Slaughterhouse/abattoir
Automotive
battery
plate
manufacturing
Note: The following criteria must
be met:

Development of Retirement Villages

Shall include health and medical
facilities
including
amenities
required by the Philippine Leisure
and Retirement Authority (PLRA).
Subject to the guidelines to be
approved by BOI-ARMM in
consultation with the PRA, the
Department of Health (DOH), the
Regional
Planning
and
Development Office (RPDO) and
other concerned agencies.

e.

Petrochemical Complex

f.

Industrial Gases (such as oxygen and

nitrogen)

This will cover the following activities:

The project will serve the common

needs of the industry in the locality
and;
The project will improve the
relative status and comparative
advantages of the industry.

g.

Miscellaneous Chemical Products

Biotechnological/biosynthetic chemicals
Essential oils
Fine chemicals

6. Engineering Industries
a.

Engineering Products
Motor
vehicle
parts
and
components
Automobile parts and assembly
Modern offset printing
b. Electronics
and
Telecommunication
Products
7. ARMM Priority Tourism Areas
Listed below are potential tourist destinations,
which need further exploration, and evaluation
for intensified promotions, development and
marketing.
NUCLEUS

GATEWAY

SATELLITE
DESTINATION
Area I Sulu
Jolo
Sulu Province
Area II Tawi-Tawi
Bongao
Tawi-Tawi Province
Area III Lanao del Sur Marawi City Lanao del Sur Province
Area IV Maguindanao Cotabato City Maguindanao Province
Area V Basilan
Isabela
Basilan Province