Philippine Government Incentives by Activity Type
By: Noel C Ducusin
Now that you know the types of incentives issued by the Philippine government for foreign investors, you might be wondering why there are still separate government bodies that manage or implement these incentives. If you are already on our mailing list, the link to the article that discusses the list of government incentives as well as the parent governing body that oversees it was provided in the email last March 1 - for your convenience, we have also pasted that link at the bottom of this current email. For those of you who would like to know this information, please consider becoming a member of our community by clicking of the join link below.
This article will introduce you to these secondary government agencies and show you how they differ from one another regarding the assumptions behind the incentives they issue including any pre-qualifications needed. The bottom line is that the reason there are separate government agencies is that they specialize in different things and address different industries or types of activities.
Philippine Export Zone Authority (PEZA)
As the name implies, the assumption behind the incentives given by this particular government agency is that the company applying for incentives is export-oriented. That is the bottom line. If your industry is not export-oriented, then you must look elsewhere for your incentives.
It's very important to note that this government body requires that your company locate itself in designated physical zones. These zones can be in specific industrial parks or specific buildings. You have the choice of where to locate but essentially, you must locate within their designated zones.
These zones are treated like special customs territories within the country and this is why the importation of your raw materials are customs and duty-free with the understanding that these materials will just be processed by you within the designated zone and eventually re-exported to your customers abroad.
At least 70% of your processed/manufactured goods must be exported or else the government incentives will no longer apply. With regard to the remaining 30% of production, you're allowed to sell this domestically. However, these domestic sales must be recorded separately as they will not be entitled to government incentives as well.
Other companies may also be allowed to locate within the designated zone with the condition that they are at least, in some way or another, supporting an existing export locator, e.g. by way of facilities, warehousing, or other directly related support. Companies that play these supporting roles, though allowed to locate inside the designated export zone, are usually not granted special incentives.
Finally, if your company is a direct supplier of parts or components to an existing locator, then even though your sale of these parts and components are physically done domestically, it will still legally be considered a form of "export", specifically a "constructive export", since you are supplying to an export locator in the zone. In these cases, you will still be entitled to government incentives.
You can reach the official website of the Philippine Export Zone Authority here.
Board Of Investments (BOI)
Unlike the Export Zone Authority, the Board of Investments is not particularly concerned about exports. You can still be an export-oriented company and avail of the incentives managed by this particular regulator but being an export-oriented company is not a qualification.
The main concern of this regulator is whether or not your particular industry or activity fits within their investment priorities plan. They have a list of such industries and activities that they consider priority industries and if your business falls within that list, then you will be granted government incentives.
Unlike in the Export Zone Authority, you are not required to locate in a designated physical area. You, therefore, have a lot more options where to locate, and generally, the entire country is open to you.
To view the investment priorities plan, you can view it here.
To view the official website of the board of investments, click here.
Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
As the name implies, this is the place you should look if your business is in the tourism sector.
The arrangement here is similar to that of the export zone Authority where you may only locate in physically designated zones. There is one exception wherein incentives can be applied for by someone outside the tourism zone this assumes that the applicant is near the designated physical zone and that the applicant is an accommodation establishment, e.g a hotel.
The type of zones where you can invest will be the cultural heritage tourism zone, health, and wellness tourism zone, ecotourism zone, General Leisure tourism zone, and mixed-use tourism zone.
There is a minimum investment required to available incentives of around US$5 million exclusive of land acquisition. You need to apply if you will invest in a lower amount which will only apply to an investment in a cultural heritage tourism zone or ecotourism zone.
At this time, incentives are only given to primary tourism enterprises which are travel and tour facilities, services and transport facilities, accommodation establishments, convention and exhibition facilities, tourism estate management facilities, and other facilities that may thereafter be designated by the tourism Sec.
You can view the official website of the TIEZA here.
Government Incentives Specifically Designated By The President Of The Philippines.
The President of the Philippines may, in the interest of national economic development and upon the recommendation of the Fiscal Incentives Review Board, authorize incentives for a highly desirable project if it meets the following conditions:
The project has a comprehensive sustainable development plan with clear inclusive business approaches, and high level of sophistication and innovation, and minimum investment capital of fifty billion pesos (P50,000,000,000.00) or its equivalent in US dollars, or a minimum direct local employment generation of at least ten thousand (10,000) within three (3) years from the issuance of the certificate of entitlement.
Obviously, this is a special case. This is not there out of most foreign investors but if this is yours, then it is possible subject to the capitalization requirements just mentioned assuming that you can also show that your business is highly desirable in the national interest.
What we have discussed here is the simplified big picture to serve us your framework to navigate the details.
As long as you keep this in mind, you will know where you're going.
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About the Author
Atty. Noel C. Ducusin is the senior and founding partner of the N. Ducusin & Partners Law Offices - a law firm based in Metropolitan Manila, Republic of the Philippines that specializes in Corporate Advisory, Cross Border Regulatory Matters, Mergers & Acquisitions, and Commercial Litigation.
Atty. Ducusin is also the President & Sole Director of DoingBusinessPH OPC - a company dedicated to empowering foreign investors to do business in the Philippines through online executive education programs, digital books, seminars, as well as online and offline events.
His mission for this Community is to help foreign investors, business owners, and managers by breaking down complex legal concepts and dense technical material into simple, straightforward, and actionable legal information for better business decisions.
This is not the place for academic writing and legalese will not be tolerated here.
The simpler and the more practical the better.
“Everything should be made as simple as possible, but no simpler.” – Albert Einstein