Executive Order No. 226
THE OMNIBUS INVESTMENTS CODE OF 1987
ARTICLE 1
Short Title
This Order shall be known as the "Omnibus
Investments Code of 1987"
ARTICLE 2
Declaration of Investment
Policies
To accelerate the sound development of the national economy in
consonance with the principles and objectives of economic nationalism and in
pursuance of a planned economically feasible and practical dispersal of
industries and the promotion of small and medium scale industries, under
conditions which will encourage competition and discourage monopolies, the
following are declared policies of the State:
1. The State shall encourage private Filipino and
foreign investments in industry, agriculture, forestry, mining, tourism and
other sectors of the economy which shall:
Provide significant
employment opportunities relative to the amount of the capital being invested;
increase productivity of the land, minerals, forestry, aquatic and other
resources of the country, and improve utilization of the products thereof
improve technical skills of the people employed in the enterprise;
Provide a foundation for the
future development of the economy; meet the tests of international
competitiveness; accelerate development of less developed regions of the
country; and result in increased volume and value of exports for the economy.
2. The State shall ensure holistic development by
safeguarding the well-being of the social, cultural and ecological life of the
people. For this purpose, consultation with affected communities will be
conducted whenever necessary.
3. The State shall extend to projects which will
significantly contribute to the attainment of these objectives, fiscal
incentives without which said projects may not be established in the locales,
number and/or pace required for optimum national economic development. Fiscal
incentive systems shall be devised to compensate for market imperfections, to
reward performance contributing to economic development, be cost-efficient and
be simple to administer.
4. The State considers the private sector as the prime
mover for economic growth. In this regard, private initiative is to be
encouraged, with deregulation and self-regulation of business activities to be
generally adopted where dictated by urgent social concerns.
5. The State shall principally play a supportive role,
rather than a competitive one, providing the framework, the climate and the
incentives within which business activity is to take place.
6. The State recognizes that there are appropriate
roles for local and foreign capital to play in the development of the
Philippine economy and that it is the responsibility of Government to define
these roles and provide the climate for their entry and growth.
7. The State recognizes that industrial peace is an
essential element of economic growth and that it is a principal responsibility
of the State to ensure that such a condition prevails.
8. Fiscal incentives shall be extended to stimulate the
establishment and assist initial operations of the enterprise, and shall terminate
after a period of not more than 10 years from registration or start-up of
operation unless a specific period is otherwise stated.
The foregoing declaration of investment policies shall apply to all
investment incentive schemes.
ARTICLE 3
The Board of Investments
The Board of Investments shall implement the provisions of Books One to
Five of this Code.
ARTICLE 4
Composition of the Board
The Board of Investments shall be composed of seven (7) governors:
The Secretary of Trade and Industry,
Three (3) Undersecretaries of Trade and Industry to be chosen by the
President; and
Three (3) representatives from other government agencies and the
private sector
The Secretary of Trade and Industry shall be concurrently Chairman of
the Board and the Undersecretary of the Department of Trade and Industry for
Industry and Investments shall be concurrently the Vice-Chairman of the Board
and its Managing Head.
The three (3) representatives from the other government agencies and
the private sector shall be appointed by the President for a term of four (4)
years:
Provided, That upon the expiration of his term, a governor shall serve
as such until his successor shall have been appointed and qualified: Provided,
further, That no vacancy shall be filled except for the unexpired portion of
any term, and that no one may be designated to be a governor of the Board in an
acting capacity but all appointments shall be ad interim or permanent.
ARTICLE 5
Qualifications of Governors
of the Board
The governors of the Board shall be citizens of the Philippines, at
least thirty (30) years old, of good moral character and of recognized
competence in the fields of economics, finance, banking, commerce, industry,
agriculture, engineering, law, management or labor.
ARTICLE 6
Appointment of Board
Personnel
The Board shall appoint its technical staff and other personnel subject
to Civil Service Law, rules and regulations.
ARTICLE 7
Powers and Duties of the
Board
The Board shall be responsible for the regulation and promotion of
investments in the Philippines. It shall meet as often as may be necessary
generally once a week on such day as it may fix. Notice of regular and special
meetings shall be given all members of the Board. The presence of four (4)
governors shall constitute a quorum and the affirmative vote of four (4)
governors in a meeting validly held shall be necessary to exercise its powers
and perform its duties, which shall be as follows:
(1)
Prepare annually the Investment Priorities Plan as
defined in Article 26, which shall contain a listing of specific activities
that can qualify for incentives under Book 1 of this Code, duly supported by
the studies of existing and prospective demands for such products and services
in the light of the level and structure of income, production, trade, prices
and relevant economic and technical factors of the regions as well as existing
facilities;
(2)
Promulgate such rules and regulations as may be
necessary to implement the intent and provisions of this Code relevant to the
Board;
(3)
Process and approve applications for registration
with the Board, imposing such terms and conditions as it may deem necessary to
promote the objectives of this Code, including refund of incentives when
appropriate, restricting availment of certain incentives not needed by the
project in the determination of the Board, requiring performance bonds and
other guarantees, and payment of application, registration, publication and
other necessary fees and when warranted, may limit the availment of the tax
holiday incentive to the extent that the investor's country law or treaties
with the Philippines allows a credit for taxes paid in the Philippines;
(4)
After due hearing, decide controversies concerning
the implementation of the relevant books of this Code that may arise between
registered enterprises or investors therein and government agencies, within
thirty (30) days after the controversy has been submitted for decision:
Provided, That the investor or the registered enterprise may appeal the
decision of the Board within thirty (30) days from receipt thereof to the
President;
(5)
Recommend to the Commissioner of Immigration and
Deportation the entry into the Philippines for employment of foreign nationals
under this Code;
(6)
Periodically check and verify, either by inspection
of the books or by requiring regular reports, the proportion of the
participation of Philippine nationals in a registered enterprise to ascertain
compliance with its qualification to retain registration under this Code;
(7)
Periodically check and verify the compliance by
registered enterprises with the relevant provisions of this Code, with the
rules and regulations promulgated under this Code and with the terms and
conditions of registration;
(8)
After due notice, cancel the registration or suspend
the enjoyment of incentives benefits of any registered enterprise and/or
require refund of incentives enjoyed by such enterprise including interests and
monetary penalties, for
(a)
Failure to maintain the qualifications required by
this Code for registration with the Board or
(b)
For violation of any provisions of this Code, of the
rules and regulations issued under this Code, of the terms and conditions of
registration, or of laws for the protection of labor or of the consuming
public:
Provided, That the registration
of an enterprise whose project timetable, as set by the Board is delayed by one
year, shall be considered automatically cancelled unless otherwise reinstated
as a registered enterprise by the Board;
(9)
Determine the organizational structure taking into
account Article 6 of this Code; appoint, discipline and remove its personnel
consistent with the provisions of the Civil Service Law and Rules;
(10) Prepare or contract for the preparation of
feasibility and other pre-investment studies for pioneer areas either upon its
own initiative; or upon the request of Philippine nationals who commit
themselves to invest therein and show the capability of doing so: Provided,
That if the venture is implemented, then the amount advanced by the Board shall
be repaid within five (5) years from the date the commercial operation of said
enterprise starts;
(11) When feasible and considered desirable by the Board,
require registered enterprises to list their shares of stock in any accredited
stock exchange or directly offer a portion of their capital stock to the public
and/or their employees;
(12) Formulate and implement rationalization programs for
certain industries whose operation may result in dislocation, overcrowding or
inefficient use of resources, thus impeding economic growth. For this purpose,
the Board may formulate guidelines for progressive manufacturing programs,
local content programs, mandatory sourcing requirements and dispersal of
industries. In appropriate cases and upon approval of the President, the Board
may restrict, either totally or partially, the importation of any equipment or
raw materials or finished products involved in the rationalization program;
(13) In appropriate cases, and subject to the conditions
which the Board deems necessary, suspend the nationality requirement provided
for in this Code or any other nationalization statute in cases of ASEAN
projects or investments by ASEAN nationals in preferred projects, and with the
approval of the President, extend said suspension to other international
complementation arrangements for the manufacture of a particular product on a
regional basis to take advantage of economies of scale;
(14) Extend the period of availment of incentives by any
registered enterprise; Provided, That the total period of availment shall not
exceed ten (10) years, subject to any of the following criteria:
(a)
The registered enterprise has suffered operational
force majeure that has impaired its viability;
(b)
The registered enterprise has not fully enjoyed the
incentives granted to it for reasons beyond its control;
(c)
The project of the registered enterprise has a
gestation period which goes beyond the period of availment of needed
incentives; and
(d)
The operation of the registered enterprise has been
subjected to unforeseen changes in government policies, particularly,
protectionism policies of importing countries, and such other supervening
factors which would affect the competitiveness of the registered firm;
(15) Regulate the making of investments and the doing of
business within the Philippines by foreigners or business organizations owned
in whole or in part by foreigners;
(16) Prepare or contract for the preparation of industry
and sectoral development programs and gather and compile statistical,
technical, marketing, financial and other data required for the effective
implementation of this Code;
(17) Within four (4) months after the close of the fiscal
year, submit annual reports to the President which shall cover its activities
in the administration of this Code, including recommendations on investment
policies;
(18) Provide, directly or through Philippine diplomatic
missions, such information as may be of interest to prospective foreign
investors:
(19) Collate, analyze and compile pertinent information
and studies concerning areas that have been or may be declared preferred areas
of investments; and
(20) Enter into agreements with other agencies of
government for the simplification and facilitation of systems and procedures
involved in the promotion of investments, operation of registered enterprises
and other activities necessary for the effective implementation of this Code;
(21) Generally, exercise all the powers necessary or
incidental to attain the purposes of this Code and other laws vesting
additional functions on the Board.
Powers and Duties of the Chairman
The Chairman shall have the following powers and duties:
(1)
To preside over the meetings of the Board;
(2)
To render annual reports to the President and such
special reports as may be requested;
(3)
To act as liaison between investors seeking joint
venture arrangements in particular areas of investment;
(4)
Recommend to the Board such policies and measures he
may deem necessary to carry out the objectives of this Code; and
(5)
Generally, to exercise such other powers and perform
such other duties as may be directed by the Board of Governors from time to
time.
ARTICLE 9
Powers and Duties of the
Vice-Chairman
The Vice-Chairman shall have the following powers and duties:
(1)
To act as Managing Head of the Board;
(2)
To preside over the meetings of the Board in the absence
of the Chairman;
(3)
Prepare the Agenda for the meetings of the Board and
submit for its consideration and approval the policies and measures which the
Chairman deems necessary and proper to carry out the provisions of this Code;
(4)
Assist registered enterprises and prospective
investors to have their papers processed with dispatch by all government
offices, agencies, instrumentalities and financial institutions; and
(5)
Perform the other duties of the Chairman in the
absence of the latter, and such other duties as may be assigned to him by the
Board of Governors.
ARTICLE 10
Board shall mean the Board of Investments created under this Code.
ARTICLE 11
Registered Enterprise shall
mean any individual, partnership, cooperative, corporation or other entity
incorporated and/or organized and existing under Philippine laws; and
registered with the Board in accordance with this Book; Provided,
however, That the term registered enterprise shall not include commercial
banks, savings and mortgage banks, rural banks, savings and loan associations,
building and loan associations, development banks, trust companies, investment
banks, finance companies, brokers and dealers in securities, consumers'
cooperatives and credit unions, and other business organizations whose
principal purpose or principal source of income is to receive deposits, lend or
borrow money, buy and sell or otherwise deal, trade or invest in common or
preferred stocks, debentures, bonds or other marketable instruments generally
recognized as securities, or discharge other similar intermediary, trust or
fiduciary functions.
ARTICLE 12
Technological assistance contracts shall mean contracts for:
(1)
The transfer, by license or otherwise, of patents,
processes, formulas or other technological rights of foreign origin; and/or
(2)
Foreign assistance concerning technical and factory
management, design, planning, construction, operation and similar matters.
ARTICLE 13
Foreign loans shall mean any credit facility or financial assistance
other than equity investment denominated and payable in foreign currency or
where the creditor has the option to demand payment in foreign exchange and
registered with the Central Bank and the Board.
ARTICLE 14
Foreign Investments shall mean equity investments owned by a
non-Philippine national made in the form of foreign exchange or other assets
actually transferred to the Philippines and registered with the Central Bank
and the Board, which shall assess and appraise the value of such assets other
than foreign exchange.
ARTICLE 15
Philippine national shall mean a citizen of the Philippines or a
domestic partnership or association wholly-owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty per cent (60%) of
the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty per cent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a corporation and its
non-Filipino stockholders own stock in a registered enterprise, at least sixty
per cent (60%) of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the Philippines and at
least sixty percent (60%) of the members of the Board of Directors of both
corporations must be citizens of the Philippines in order that the corporation
shall be considered a Philippine national.
ARTICLE 16
Preferred areas of investments shall mean the economic activities that
the Board shall have declared as such in accordance with Article 28 which shall
be either non-pioneer or pioneer.
ARTICLE 17
Pioneer enterprise shall mean a
registered enterprise
(1)
Engaged in the manufacture, processing or
production, and not merely in the assembly or packaging of goods, products,
commodities or raw materials that have not been or are not being produced in
the Philippines on a commercial scale of
(2)
Which uses a design, formula, scheme, method,
process or system of production or transformation of any element, substance or
raw materials into another raw material or finished goods which is new and
untried in the Philippines or
(3)
Engaged in the pursuit of agricultural, forestry and
mining activities and/or services including the industrial aspects of food
processing whenever appropriate, pre-determined by the Board, in consultation
with the appropriate Department, to be feasible and highly essential to the
attainment of the national goal in relation to a declared specific national
food and agricultural program for self sufficiency and other social benefits of
the project or
(4)
Which produces
non-conventional fuels or
manufactures equipment which utilize non-conventional sources of energy or uses
or converts to coal or other non-conventional fuels or sources of energy in its
production, manufacturing or processing operations: Provided, That the
final product in any of the foregoing instances, involves or will involve
substantial use and processing of domestic raw materials, whenever available;
taking into account the risks and magnitude of investment; Provided, further,
That the foregoing definitions shall not in any way limit the rights and
incentives granted to less-developed-area enterprises provided under Title V,
Book 1 hereof.
ARTICLE 18
Non-pioneer enterprise shall include all registered producer
enterprises other than pioneer enterprises.
ARTICLE 19
Expansion shall include modernization and rehabilitation and shall mean
increase of existing volume or value of production or upgrading the quality of
the registered product or utilization of inefficient or idle equipment under
such guidelines as the Board may adopt.
ARTICLE 20
Measured capacity shall mean the estimated additional volume of
production or service which the Board determines to be desirable in each
preferred area of investment in order to supply the needs of the economy at
reasonable prices, taking into account the export potential of the product, including
economies of scale which would render such product competitive in the world
market. Measured capacity shall not be less than the amount by which the
measurable domestic and country's potential export market demand exceeds the
existing productive capacity in said preferred areas. For export market
industries, when warranted, the Board shall base measured capacity on the
availability of domestic raw materials after deducting the needs of the
domestic market therefor.
ARTICLE 21
Tax Credit shall mean any of
the credits against taxes and/or duties equal to those actually paid or would
have been paid to evidence which a tax credit certificate shall be issued by
the Secretary of Finance or his representative, or the Board, if so delegated
by the Secretary of Finance. The tax credit certificates including those issued
by the Board pursuant to laws repealed by this Code but without in any way
diminishing the scope of negotiability under their laws of issue are
transferable under such conditions as may be determined by the Board after
consultation with the Department of Finance. The tax credit certificate shall
be used to pay taxes, duties, charges and fees due to the National Government:
Provided, That the tax credits issued under this Code shall not form part of
the gross income of the grantee/transferee for income tax purposes under
Section 29 of the National Internal Revenue Code and are therefore not taxable:
Provided, further, That such tax credits
shall be valid only for a period of ten (10) years from date of issuance.
ARTICLE 22
Export products shall mean manufactured or processed products the total
F.O.B. Philippine port value of the exports of which did not exceed five
million dollars in the United States currency in the calendar year 1968 and
which meet the local content requirement, if any, set by the Board, and
standards of quality set by the Bureau of Product Standards, or, in default of
such standards, by the Board or by such public or private organization,
chamber, group or body as the Board may designate. The above definition
notwithstanding, the Investment Priorities Plan may include other products for
exports subject to such conditions and limited incentives as may be determined
by the Board.
ARTICLE 23
Export sales shall mean the Philippine port F.O. B. value, determined
from invoices, bills of lading, inward letters of credit, landing certificates,
and other commercial documents, of export products exported directly by a
registered export producer or the net selling price of export products sold by
a registered export producer to another export producer, or to an export trader
that subsequently exports the same: Provided, That sales of export products to
another producer or to an export trader shall only be deemed export sales when
actually exported by the latter, as evidenced by landing certificates or
similar commercial documents: Provided, further, That without actual
exportation the following shall be considered constructively exported for
purposes of this provision:
(1)
Sales to bonded manufacturing warehouses of export-oriented
manufacturers;
(2)
Sales to export processing zones;
(3)
Sales to registered export traders operating bonded
trading warehouses supplying raw materials used in the manufacture of export
products under guidelines to be set by the Board in consultation with the
Bureau of Internal Revenue and the Bureau of Customs;
(4)
Sales to foreign military bases, diplomatic missions
and other agencies and/or instrumentalities granted tax immunities, of locally
manufactured, assembled or repacked products whether paid for in foreign
currency or not: Provided, further, That export sales of registered export
traders may include commission income: and Provided, finally, That exportation
of goods on consignment shall not be deemed export sales until the export
products consigned are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and
personal use to Filipinos abroad and other non-residents of the Philippines as
well as returning Overseas Filipinos under the Internal Export Program of the
government and paid for in convertible foreign currency inwardly remitted
through the Philippine banking systems shall also be considered export sales.
ARTICLE 24
Production cost shall mean the total of the cost of direct labor, raw materials,
and manufacturing overhead, determined in accordance with generally accepted
accounting principles, which are incurred in manufacturing or processing the
products of a registered enterprise.
ARTICLE 25
Processing shall mean
converting of raw materials into marketable form through physical, mechanical,
chemical, electrical, biochemical, biological or other means or by a special
treatment or a series of actions, such as slaughtering, milling, pasteurizing,
drying or dessicating quick freezing, that results in a change in the nature or
state of the products. Merely packing or packaging shall not constitute
processing.
ARTICLE 26
Investment Priorities Plan shall mean the
overall plan prepared by the Board which includes and contains:
(a)
The specific activities and generic categories of
economic activity wherein investments are to be encouraged and the
corresponding products and commodities to be grown, processed or manufactured
pursuant thereto for the domestic or export market;
(b)
Specific public utilities which can qualify for
incentives under this Code and which shall be supported by studies of existing
and prospective regional demands for the services of such public utilities in
the light of the level and structure of income, production, trade, prices and
relevant economic and technical factors of the regions as well as the existing
facilities to produce such services;
(c)
Specific
activities where the potential for utilization of indigenous non-petroleum based
fuels or sources of energy can be best promoted; and
(d)
Such other information, analyses, data, guidelines
or criteria as the Board may deem appropriate.
The specific and generic activities to be included in the Investment
Priorities Plan with their status as pioneer or non-pioneer shall be determined
by the Board in accordance with the criteria set forth in this Book.
ARTICLE 27
Investment Priorities Plan
Not later than the end of March of every year, the Board of
Investments, after consultation with the appropriate government agencies and
the private sector, shall submit to the President an Investment Priorities
Plan: Provided, however, that the deadline for submission may be extended by
the President.
ARTICLE 28
Criteria in Investment Priority
Determination
No economic activity shall be included in the Investment Priorities
Plan unless it is shown to be economically, technically and financially sound
after thorough investigation and analysis by the Board.
The determination of preferred areas of investment to be listed in the
Investment Priorities Plan shall be based on long-run comparative advantage,
taking into account the value of social objectives and employing economic
criteria along with market, technical; and financial analyses.
The Board shall take into account the following:
(a) Primarily, the economic soundness of the specific
activity as shown by its economic internal rate of return;
(b) The extent of contribution of an activity to a
specific development goal;
(c) Other indicators of comparative advantage;
(d) Measured capacity as defined in Article 20; and
(e) The market and technical aspects and considerations
of the activity proposed to be included.
In any of the declared preferred areas of investment, the Board may
designate as pioneer areas the specific products and commodities that meet the
requirements of Article 17 of this Code and review yearly whether such
activity, as determined by the Board, shall continue as pioneer, otherwise, it
shall be considered as non-pioneer and accordingly listed as such in the
Investment Priorities Plan or removed from the Investment Priorities Plan.
ARTICLE 29
Approval of the Investment
Priorities Plan
The President shall proclaim the whole or part of such plan as in
effect; or alternatively return the whole or part of the plan to the Board of
Investments for revision.
Upon the effectivity of the plan or portions thereof, the President
shall issue all necessary directives to all departments, bureaus, agencies or
instrumentalities of the government to ensure the implementation of the plan by
the agencies concerned in a synchronized and integrated manner. No government
body shall adopt any policy or take any course of action contrary to or
inconsistent with the plan.
ARTICLE 30
Amendments
Subject to publication requirements and the criteria for investment
priority determination, the Board of Investments may, at any time, add
additional areas in the plan, alter any of the terms of the declaration of an
investment area or the designation of measured capacities, or terminate the
status of preference. In no case, however, shall any amendment of the plan
impair whatever rights may have already been legally vested in qualified
enterprises which shall continue to enjoy such rights to the full extent
allowed under this Code. The Board shall not accept applications in an area of
investment prior to the approval of the same as a preferred area nor after
approval of its deletion as a preferred area of investment.
ARTICLE 31
Publication
Upon approval of the plan, in whole or in part or upon approval of an
amendment thereof, the plan or the amendment, specifying and declaring the
preferred areas of investment and their corresponding measured capacity shall
be published in at least one (1) newspaper of general circulation and all such
areas shall be open for application until publication of an amendment or
deletion thereof, or until the Board approves registration of enterprises which
fill the measured capacity.
ARTICLE 32
Qualifications of a
Registered Enterprise
To be entitled to registration under the Investment Priorities Plan, an
applicant must satisfy the Board that:
(1)
He is a citizen of the Philippines, in case the
applicant is a natural person, or in case of a partnership or any other
association, it is organized under Philippine laws and that at least sixty
percent (60%) of its capital is owned and controlled by citizens of the
Philippines; or in case of a corporation or a cooperative, it is organized
under Philippine laws and that at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned and held by Philippine
nationals as defined under Article 15 of this Code, and at least sixty percent
(60%) of the members of the Board of Directors are citizens of the Philippines.
If it does not possess the required degree of ownership as mentioned above by
Philippine nationals, the following circumstances must be satisfactorily
established:
(a)
That it proposes
to engage in a pioneer project as defined in Article 17 of this Code,
which, considering the nature and extent of capital requirements, processes,
technical skills and relative business risks involved, is in the opinion of the
Board of such a nature that the available measured capacity thereof cannot be
readily and adequately filled by Philippine nationals; or, if the applicant is
exporting at least seventy percent (70%) of its total production, the export
requirement herein provided may be reduced in meritorious cases under such
conditions and/or limited incentives as the Board may determine;
(b)
That it obligates itself to attain the status of a
Philippine national, as defined in Article 15, within thirty (30) years from
the date of registration or within such longer period as the Board may require
taking into account the export potential of the project: Provided, That a
registered enterprise which exports one hundred percent (100%) of its total
production need not comply with this requirement;
(c)
That the pioneer area it will engage in is one that
is not within the activities reserved by the Constitution or other laws of the
Philippines to Philippine citizens or corporations owned and controlled by
Philippine citizens;
(2)
The applicant is proposing to engage in a preferred
project listed or authorized in the current Investment Priorities Plan within a
reasonable time to be fixed by the Board or, if not so listed, at least fifty
percent (50%) of its total production is for export or it is an existing
producer which will export part of production under such conditions and/or
limited incentives as the Board may determine; or that the enterprise is
engaged or proposing to engage in the sale abroad of export products bought by
it from one or more export producers; or the enterprise is engaged or proposing
to engage in rendering technical, professional or other services or in
exporting television and motion pictures and musical recordings made or
produced in the Philippines, either directly or through a registered trader.
(3)
The applicant is capable of operating on a sound and
efficient basis and of contributing to the national development of the
preferred area in particular and of the national economy in general; and
(4)
If the applicant is engaged or proposes to engage in
under takings or activities other than preferred projects, it has installed or
undertakes to install an accounting system adequate to identify the investments,
revenues, costs, and profits or losses of each preferred project undertaken by
the enterprise separately from the aggregate investment, revenues, costs and
profits or losses of the whole enterprise or to establish a separate
corporation for each preferred project if the Board should so require to
facilitate proper implementation of this Code.
ARTICLE 33
Application
Applications shall be filed with the Board, recorded in a registration
book and the date appearing therein and stamped on the application shall be
considered the date of official acceptance.
Whenever necessary, the Board, through the People's Economic Councils,
shall consult the communities affected on the acceptability of locating the
registered enterprise within their community.
ARTICLE 34
Approval and Registration
Procedures
The Board is authorized to adopt rules and regulations to facilitate
action on applications filed with it, prescribe criteria for the evaluation of
several applications filed in one preferred area; devise standard forms for use
of applicants and delegate to the regional offices of the Department of Trade
and Industry the authority to receive and process applications for enterprises
to be located in their respective regions.
Applications filed shall be considered automatically approved if not
acted upon by the Board within twenty (20) working days from official
acceptance thereof.
ARTICLE 35
Criteria for Evaluation of
Applications
The following criteria will be considered in the evaluation of
applications for registration under a preferred area:
(a)
The extent of ownership and control by Philippine
citizens of the enterprises;
(b)
The economic rates of return;
(c)
The measured capacity: Provided, That estimates of
measured capacities shall be regularly reviewed and updated to reflect changes
in market supply and demand conditions: Provided, further, That measured
capacity shall not result in a monopoly in any preferred area of investment
which would unduly restrict trade and fair competition nor shall it be used to deny
the entry of any enterprise in any field of endeavor or activity;
(d) The amount of foreign exchange earned, used or saved
in their operations;
(e) The extent to which labor, materials and other
resources obtained from indigenous sources are utilized;
(f) The extent to which technological advances are
applied and adopted to local conditions;
(g) The amount of equity and degree to which the
ownership of such equity is spread out and diversified; and
(h) Such other criteria as the Board may determine.
ARTICLE 36
Appeal from Board's Decision
Any order or decision of the Board shall be final and executory after
thirty (30) days from its promulgation. Within the said period of thirty (30)
days, said order or decision may be appealed to the Office of the President.
Where an appeal has been filed, said order or decision shall be final and
executory ninety (90) days after the perfection of the appeal, unless reversed.
ARTICLE 37
Certificate of Registration
A registered enterprise under this Code shall be issued a certificate
of registration under the seal of the Board of Investments and the signature of
its Chairman and/or such other officer or employee of the Board as it may
empower and designate for the purpose. The certificate shall be in such form
and style as the Board may determine and shall state, among other matters:
(a) The name of the registered enterprise;
(b) The preferred area of investment in which the
registered enterprise is proposing to engage;
(c) The nature of the activity it is undertaking or
proposing to undertake, whether pioneer or non-pioneer, and the registered
capacity of the enterprise; and
(d)
The other terms and conditions to be observed by the
registered enterprise by virtue of the registration.
ARTICLE 38
Protection of Investment
All investors and registered enterprises are entitled to the basic
rights and guarantees provided in the Constitution. Among other rights
recognized by the Government of the Philippines are the following:
(a) Repatriation of Investments
In the case of foreign
investments, the right to repatriate the entire proceeds of the liquidation of
the investment in the currency in which the investment was originally made and
at the exchange rate prevailing at the time of repatriation, subject to the
provisions of Section 74 of Republic Act No. 265, as amended. For investments
made pursuant to Executive Order No. 32 and its implementing rules and
regulations, remittability shall be as provided therein.
(b) Remittance of Earnings
In the case of foreign
investments, the right to remit earnings from the investment in the currency in
which the investment was originally made and at the exchange rate prevailing at
the time of remittance, subject to the provisions of Section 74 of Republic Act
No.265 as amended;
(c) Foreign Loans and Contracts
The right to remit at the
exchange rate prevailing at the time of remittance such sums as may be
necessary to meet the payments of interest and principal on foreign loans and
foreign obligations arising from technological assistance contracts, subject to
the provisions of Section 74 of Republic Act. No. 265 as amended;
(d) Freedom from Expropriation
There shall be no
expropriation by the government of the property represented by investments or
of the property of the enterprise except for public use or in the interest of
national welfare or defense and upon payment of just compensation. In such
cases, foreign investors or 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 at the time of
remittance, subject to the provisions of Section 74 of Republic Act. No. 265 as
amended;
(e) Requisition of Investment
There shall be no
requisition of the property represented by the investment or of the property of
enterprises, except in the event of war or national emergency and only for the
duration thereof. Just compensation shall be determined and paid either at the
time of requisition or immediately after cessation of the state of war or
national emergency. Payments received as compensation for the requisitioned
property may be remitted in the currency in which the investment was originally
made and at the exchange rate prevailing at the time of remittance, subject to
the provisions of Section 74 of Republic Act No. 265, as amended.
ARTICLE 39
Incentives to Registered
Enterprises
All registered enterprises shall be granted the following incentives to
the extent engaged in a preferred area of investment:
(a) Income Tax Holiday
(1) For six (6) years from commercial operation for
pioneer firms and four (4) years for non-pioneer firms, new registered firms
shall be fully exempt from income taxes levied by the National Government. Subject to such
guidelines as may be prescribed by the Board, the income tax exemption will be
extended for another year in each of the following cases:
i. The project meets the prescribed ratio of capital
equipment to number of workers set by the Board;
ii. Utilization of indigenous raw materials at rates set
by the Board;
iii. The net foreign exchange savings or earnings amount
to at least US$500,000.00 annually during the first three (3) years of
operation.
The preceding paragraph
notwithstanding, no registered pioneer firm may avail of this incentive for a
period exceeding eight (8) years.
(2) For a period of
three (3) years from commercial operation, registered expanding firms shall be
entitled to an exemption from income taxes levied by the National Government
proportionate to their expansion under such terms and conditions as the Board
may determine; Provided, however, That during the period within which this
incentive is availed of by the expanding firm it shall not be entitled to
additional deduction for incremental labor expense.
(3) The Provision of
Article 7 (14) notwithstanding, registered firms shall not be entitled to any
extension of this incentive.
(b) Additional Deduction for Labor Expense
For the first five (5) years
from registration a registered enterprise shall be allowed an additional
deduction from the taxable income of fifty percent (50%) of the wages
corresponding to the increment in the number of direct labor for skilled and
unskilled workers if the project meets the prescribed ration of capital
equipment to number of workers set by the Board: Provided, That this additional
deduction shall be doubled if the activity is located in less developed areas
as defined in Art. 40.
(c) Tax and Duty Exemption on Imported Capital Equipment
Within five (5) years from
the effectivity of this Code, importations of machinery and equipment and
accompanying spare parts of new and expanding registered enterprises shall be
exempt to the extent of one hundred per cent (100%) of the customs duties and
national internal revenue tax payable thereon; Provided, That the importation
of machinery and equipment and accompanying spare parts shall comply with the
following conditions:
(1)
They are not manufactured domestically in sufficient
quantity, of comparable quality and at reasonable prices;
(2)
They are reasonably needed and will be used
exclusively by the registered enterprise in the manufacture of its products,
unless prior approval of the Board is secured for the part-time utilization of
said equipment in a non-registered activity to maximize usage thereof or the
proportionate taxes and duties are paid on the specific equipment and machinery
being permanently used for non-registered activities; and
(3)
The approval of the Board was obtained by the
registered enterprise for the importation of such machinery, equipment and
spare parts.
In granting the approval of
the importations under this paragraph, the Board may require international
canvassing but if the total cost of the capital equipment or industrial plant
exceeds US$5,000,000, the Board shall apply or adopt the provisions of
Presidential Decree Numbered 1764 on International Competitive Bidding.
If the registered enterprise
sells, transfers or disposes of these machinery, equipment and spare parts
without prior approval of the Board within five (5) years from date of
acquisition, the registered enterprise and the vendee, transferee, or assignee
shall be solidarily liable to pay twice the amount of the tax exemption given
it.
The Board shall allow and
approve the sale, transfer or disposition of the said items within the said
period of five (5) years if made:
(1)
To another registered enterprise or registered
domestic producer enjoying similar incentives;
(2)
For reasons of proven technical obsolescence; or
(3)
For purposes of replacement to improve and/or expand
the operations of the registered enterprise.
(d) Tax Credit on Domestic Capital Equipment
A tax credit equivalent to
one hundred percent (100%) of the value of the national internal revenue taxes
and customs duties that would have been waived on the machinery, equipment and
spare parts, had these items been imported shall be given to the new and
expanding registered enterprise which purchases machinery, equipment and spare
parts from a domestic manufacturer: Provided, That
(1)
That the said equipment, machinery and spare parts
are reasonably needed and will be used exclusively by the registered enterprise
in the manufacture of its products, unless prior approval of the Board is
secured for the part-time utilization of said equipment in a non-registered
activity to maximize usage thereof;
(2)
That the equipment would have qualified for tax and
duty-free importation under paragraph (c) hereof; (c) that the approval of the
Board was obtained by the registered enterprise; and (4) that the purchase is
made within five (5) years from the date of effectivity of the Code. If the
registered enterprise sells, transfers or disposes of these machinery,
equipment and spare parts, the provisions in the preceding paragraph for such
disposition shall apply.
(e) Exemption from Contractor's Tax
The registered enterprise
shall be exempt from the payment of contractor's tax, whether national or
local.
(f) Simplification of Customs Procedures
Customs procedures for the
importation of equipment, spare parts, raw materials and supplies, and exports
of processed products by registered enterprises shall be simplified by the Bureau
of Customs.
(g) Unrestricted Use of Consigned Equipment
Provisions of existing laws
notwithstanding, machinery, equipment and spare parts consigned to any
registered enterprise shall not be subject to restrictions as to period of use
of such machinery, equipment and spare parts: Provided, That the appropriate
re-export bond is posted unless importation is otherwise covered under
subsections (c) and (m) of this Article: Provided, further, That such consigned
equipment shall be for the exclusive use of the registered enterprise.
If such equipment is sold,
transferred or otherwise disposed of by the registered enterprise the related
provision of Article 39 (c) (3) shall apply. Outward remittance of foreign
exchange covering the proceeds of such sale, transfer or disposition shall be
allowed only upon prior Central Bank approval.
(h) Employment of Foreign Nationals
Subject to the provisions of
Section 29 of Commonwealth Act Number 613, as amended a registered enterprise
may employ foreign nationals in supervisory, technical or advisory positions
for a period not exceeding five (5) years from its registration, extendible for
limited periods at the discretion of the Board: Provided, however, That when
the majority of the capital stock of a registered enterprise is owned by
foreign investors, the positions of president, treasurer and general manager or
their equivalents may be retained by foreign nationals beyond the period set
forth herein.
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. 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.
(i) Exemption on Breeding Stocks and Genetic Materials
The importation of breeding
stocks and genetic materials within ten (10) years from the date of
registration or commercial operation of the enterprise shall be exempt from all
taxes and duties: Provided, That such breeding stocks and genetic materials are
(1)
Not locally available and/or obtainable locally in
comparable quality and at reasonable prices;
(2)
Reasonably needed in the registered activity; and
(3)
Approved by the Board.
(j) Tax Credit on Domestic Breeding Stocks and Genetic Materials
A tax credit equivalent to
one hundred percent (100%) of the value of national internal revenue taxes and
customs duties that would have been waived on the breeding stocks and genetic
materials had these items been imported shall be given to the registered
enterprise which purchases breeding stock and genetic materials from a domestic
producer: Provided,
(1)
That said breeding stocks and genetic materials
would have qualified for tax and duty free importation under the preceding
paragraph;
(2)
That the breeding stocks and genetic materials are
reasonably needed in the registered activity;
(3)
That approval of the Board has been obtained by the
registered enterprise; and
(4)
That the purchase is made within ten (10) years from
date of registration or commercial operation of the registered enterprise.
(k) Tax Credit for Taxes and Duties on Raw Materials
Every registered enterprise
shall enjoy a tax credit equivalent to the National Internal Revenue taxes and
Customs duties paid on the supplies, raw materials and semi-manufactured
products used in the manufacture, processing or production of its export
products and forming part thereof, exported directly or indirectly by the
registered enterprise: Provided, however, That the taxes on the supplies, raw
materials and semi-manufactured products domestically purchased are indicated
as a separate item in the sales invoice.
Nothing herein shall be
construed as to preclude the Board from setting a fixed percentage of export
sales as the approximate tax credit for taxes and duties of raw materials based
on an average or standard usage for such materials in the industry.
(l) Access to Bonded Manufacturing / Trading Warehouse
System
Registered export oriented
enterprises shall have access to the utilization of the bonded warehousing
system in all areas required by the project subject to such guidelines as may
be issued by the Board upon prior consultation with the Bureau of Customs.
(m) Exemption from Taxes and Duties on Imported Spare
Parts
Importation of required
supplies and spare parts for consigned equipment or those imported tax and duty
free by a registered enterprise with a bonded manufacturing warehouse shall be
exempt from customs duties and national internal revenue taxes payable thereon:
Provided, however, That at least seventy percent (70%) of production is
exported; Provided, further, That such spare parts and supplies are not locally
available at reasonable prices, sufficient quantity and comparable quality;
Provided, finally, That all such spare parts and supplies shall be used only in
the bonded manufacturing warehouse of the registered enterprise under such
requirements as the Bureau of Customs may impose.
(n) Exemption from Wharfage Dues and any Export Tax,
Duty, Impost and Fee
The provisions of law to the
contrary notwithstanding, exports by a registered enterprise of its
non-traditional export products shall be exempted from any wharfage dues, and
any export tax, duty, impost and fee.
ARTICLE 40
A registered enterprise regardless of nationality located in a
less-developed-area included in the list prepared by the Board of Investments
after consultation with the National Economic and Development Authority and
other appropriate government agencies, taking into consideration the following
criteria:
Low per capita gross domestic product;
Low level of investments; high rate of unemployment and/or
underemployment; and
Low level of infrastructure development including its accessibility to
developed urban centers,
Shall be entitled to the following incentives in addition to those
provided in the preceding article:
(a) Pioneer Incentives
An enterprise in a
less-developed-area registered with the Board under Book 1 of this Code,
whether proposed, or an expansion of an existing venture, shall be entitled to
the incentives provided for a pioneer registered enterprise under its law
registration.
(b) Incentives for Necessary and Major Infrastructure
and Public Facilities
Registered enterprises
establishing their production, processing or manufacturing plants in an area
that the Board designates as necessary for the proper dispersal of industry or
in an area which the Board finds deficient in infrastructure, public utilities,
and other facilities, such as irrigation, drainage or other similar waterworks
infrastructure may deduct from taxable income an amount equivalent to one
hundred percent (100%) of necessary and major infrastructure works it may have
undertaken with the prior approval of the Board in consultation with other
government agencies concerned; Provided, That the title to all such
infrastructure works shall upon completion, be transferred to the Philippine
Government; Provided, further, That any amount not deducted for a particular
year may be carried over for deduction for subsequent years not exceeding ten
(10) years from commercial operation.
ARTICLE 41
Power of the President to
Rationalize Incentives
The President may, upon recommendation of the Board and in the interest
of national development, rationalize the incentives scheme herein provided;
extend the period of availment of incentives or increase rates of tax exemption
of any project whose viability or profitability require such modification.
ARTICLE 42
Refund and Penalties
In case of cancellation of the certificate granted under this Code, the
Board may, in appropriate cases, require the refund of incentives availed of
the imposed corresponding fines and penalties.
ARTICLE 43
Benefits of Multiple Area
Enterprises
When a registered enterprise engages in activities or endeavors that
have not been declared preferred areas of investments, the benefits and
incentives accruing under this Code to registered enterprises and investors
therein shall be limited to the portion of the activities of such registered
enterprise as is a preferred area of investment.
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