As a means of encouraging foreign investment in certain key areas of the Philippine economy, incentives are extended to those who invest in identified businesses. Two agencies, the Board of Investments (“BOI”) and the Philippine Economic Zone Authority (“PEZA”), independently administer a separate set of incentives for companies registered with them. The incentives are similar but PEZA-registered enterprises are required to locate within designated economic zones (including IT Parks mentioned below), which are managed by PEZA. BOI-registered entities are not subject to the same restriction and may locate themselves wherever they see fit.
A. Board of Investments Fiscal and Non-fiscal Incentives
Various incentives are available to qualified businesses through the BOI. A business enterprise that is validly registered with the BOI shall be entitled to fiscal and non-fiscal incentives, which generally include:
1. Tax exemptions, credits, and deductions:
a. Income tax holidays (ranging from 4-6 years if located outside of Metro Manila);
b. Tax credit on raw materials, supplies, and semi-manufactured products;
c. Additional deduction from taxable income for labor expense;
d. Additional deduction from taxable income for necessary and major infrastructure works;
e. Tax and duty exemptions on imported capital equipment;
f. Tax credit on domestic capital equipment;
g. Exemption from contractor’s tax;
h. Tax exemption on importation of breeding stocks and genetic materials;
i. Tax credit on domestic breeding stocks and genetic materials; and
j. Exemption from wharfage dues and any export tax, duty, impost and fee.
2. Non-fiscal incentives:
a. Employment of foreign nationals in supervisory, technical or advisory positions within the first 5 years;
b. Simplification of customs procedure;
c. Unrestricted use of consigned equipment; and
d. Access to bonded manufacturing/trading warehouse system.
B. Philippine Export Zone Authority
Firms registered with the PEZA and operating within the designated economic zones managed by the PEZA are entitled to:
1. A preferential tax rate of 5% on gross income in lieu of all national and local taxes, after the lapse of income tax holiday;
2. A deduction from the national government’s share (3% out of the 5% final tax) of an amount equivalent to ½ of the value of training expenses incurred in developing labor or for management programs; and
3. A tax and duty exemption on importations of capital equipment, raw materials, and other merchandise directly needed in its operations.
C. IT Parks
An IT Park is an area, classified as a special economic zone, which has been developed into a complex, capable of providing infrastructure and other support facilities required by IT enterprises, including amenities required by professionals and workers involved in IT enterprises.
Owners/developers of IT parks located within Metro Manila are not entitled to PEZA incentives unless said owners/developers are already covered by Presidential Proclamations, or have secured a PEZA approval prior to the guidelines. On the other hand, owners/developers of IT parks located outside of Metro Manila are entitled to PEZA incentives, which include:
1. Income tax holiday;
a. Generally, for 4 years; or
b. 6 years when the IT park is located in less developed areas, as determined in the Investments Priority Plan.
2. After the lapse of income tax holiday period, optional special tax of 5% on gross income earned from enterprises located in the IT park in lieu of all national and local taxes except real property taxes;
3. Permanent resident status for foreign investors with initial investments of US$150,000.00;
4. Employment of non-resident aliens required in the IT operations;
5. Simplified customs procedures; and
6. Option to avail of incentives under the Build-Operate-Transfer Law (this includes government support for accessing Official Development Assistance and other financing sources).