Frequently Asked Questions (FAQs)
1. Who are qualified to invest in the Philippines?
Anyone, regardless of nationality, is welcome to do business and invest in the country, in almost all areas of economic activities provided these are not listed in the Foreign Investments Negative List (FINL) of the Foreign Investments Act of 1991.
2. What are these areas of investments covered by the Foreign Investments Act (FIA)?
Under the Foreign Investments Act of 1991 (Republic Act 7042 as amended by RA 8179), foreign investors are allowed to invest 100% equity in companies engaged in almost all types of business activities subject to certain restrictions as prescribed in the Foreign Investments Negative List (FINL).The FINL is a shortlist of investment areas or activities which may be opened to foreign investors and/or reserved to Filipino nationals. The Foreign Investments Negative Lists (FINL) are classified as follows:
- List A – consists of areas of activities reserved to Philippine nationals where foreign equity participation in any domestic or export enterprise engaged in any activity listed therein shall be limited to a maximum of forty percent (40%) as prescribed by the Constitution and other specific laws.
- List B – consists of areas of activities where foreign ownership is limited pursuant to law such as defense or law enforcement-related activities, which have negative implications on public health and morals, and small and medium-scale enterprises.
3. Is it possible for foreigners to invest up to 100% capital in a domestic entity?
Yes, it is possible to do so if it meets the following conditions:
- If the proposed activity he intends to venture in is not among those listed in the FINL.
- If the paid-up capital for domestic market enterprise is at least US$200,000.00, which may be lowered to US$100,000 if the following conditions are met:
- Introduction of advanced technology; or
- Employment of at least 50 direct employees.
- If product/service is for export.
4. What are the requirements in establishing a business in the Philippines?
Doing business in the Philippines (with or without incentives) requires prior registration with the following agencies: a) Securities and Exchange Commission (SEC) for corporation or partnership; and b) Department of Trade and Industry (DTI) for sole or single proprietorship.There are other types of business enterprises that maybe set up under laws other than those of the Philippines which require SEC registration, namely: Branch office, Representative or liaison office, Regional Headquarters (RHQ) and Regional Operating Headquarters (ROHQ).
5. What are possible incentive schemes available for an investor?
The government has come up with a liberal program of fiscal and non-fiscal incentives to attract foreign capital and technology that complements local resources.In terms of investment incentives, the following are offered:
- Incentives Offered Under the Omnibus Investments Code of 1987 (E.O 226)
Projects outside of the economic zones can register with the Board of Investments (BOI) to qualify for the incentives below:
- Income Tax Holiday (ITH) or Exemption from Corporate Income Tax for four(4) years (for “Non-Pioneer” projects) or six (6) years (for “Pioneer” projects), extendible to a maximum of eight (8) years
- Duty-free importation of capital equipment (E.O. 528)
- Additional deduction for labor expense equivalent to 50% of the wages of additional skilled and unskilled labor force.
- Tax and duty free importation of breeding stocks and genetic materials.
- Tax credit on domestic breeding stocks and genetic materials.
- Simplified customs procedures for the importation of equipment, spare parts, raw materials and supplies and exports of processed products.
- Unrestricted use of consigned equipment.
- Employment of foreign nationals in supervisory, technical or advisory positions. Foreign nationals may renew the visa indefinitely for the positions of president, general manager and treasurer (or their equivalent) of foreign-owned registered enterprises.
- Tax credit for taxes and duties paid on raw materials, supplies and semi-manufactured products used in the manufacture of export products and forming part thereof.
- Access to bonded manufacturing warehouse system.
- Exemption from wharfage dues and export tax, duty, impost and fees.
- Exemption from taxes and duties on imported spare parts.
- Additional deduction for necessary and major infrastructure works for those locating in less- developed areas
- Other Incentives Offered Under the Special Economic Zone Act of 1995 and the Bases Conversion and Development Act of 1992
- The Philippine Economic Zone Authority (PEZA) grants similar incentives to those BOI-registered projects, however, upon expiry of the ITH, there is an exemption from all local and national taxes, and in lieu thereof, payment of the special tax of 5% on Gross Income; and Zero % Value Added Tax (VAT) on local purchases of goods and services, including telecommunications, power and water bills.
- Enterprises allowed to operate within the Subic Bay Freeport (SBF) shall, in lieu of paying all other taxes, pay a final tax of 5% of gross income provided their income from local (non-export) sales shall not exceed 30% of their income from all sources.
- Enterprises locating within the Clark Special Economic Zone (former American Airbase at Clark Field) and Poro Point Special Economic and Freeport Zone (formerly Wallace Air Station and its adjoining areas) are granted incentives similar to those given SBF enterprises.
- Two other special economic zones were created under two separate special laws. These are the Cagayan Special Economic Zone Authority (CEZA) and Zamboanga Economic Zone Authority (ZEZA). The incentives granted to those that will locate in these ecozones are similar to the incentives granted to PEZA ecozone enterprises.
6. What are the protections to investments available to investors?
All investors 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:
- Repatriation Of Investments
Foreign investors have the right to repatriate the entire proceeds of the liquidation of the investment in the currency in which the investment was originally made at the exchange rate prevailing at the time of repatriation.
- Remittance Of Earnings
In the case of foreign investments, investors have the right to remit earnings from the investment in the currency in which the investment was originally made and at exchange rate prevailing at the time of remittance.
- Foreign Loans and Contracts
Foreign investors have the right to remit, at the exchange rate prevailing at the time of remittance, such sums as may be necessary to meet the payment of interest and the principal on foreign loans and foreign obligations arising from technological assistance contracts.
- Freedom From Expropriation
There shall be no expropriation by the government of the property represented by the investments or of the property of enterprises except for public use or in the interest of national welfare and defense and upon payment of just compensation. In such cases, foreign investors or registered enterprises shall have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance.
- Right to Requisition of Investment
There shall be no requisition of the property presented by the investment or of the property of enterprises, except in the event of war or national emergency and only for the duration. Just compensation for the requisitioned property may be remitted in the currency in which the investment was originally made and the exchange rate prevailing at the time of remittance.
In addition, under various investment agreements of the Philippines with other States, investors are accorded the following, among others:
- Free Transaction of Capital
The Philippines allows all transfers relating to investments to be made freely and without delay into and out of its territory, subject to compliance with certain requirements imposed by laws and regulations.
- National Treatment
The Philippines treats all investments equally whether made by foreign or local investors to the extent allowed by Philippine laws.
- Fair and Equitable Treatment
The Philippines affords to investments fair and equitable treatment and full protection and security in accordance with customary international law.