To attract foreign and domestic investors into the country, the government usually offers various tax incentives, principally through the Board of Investments (BOI) pursuant to EO 226, as amended, otherwise known as the Omnibus Investments Code of 1987.
One important facet of the law is the provision of incentives, fiscal and non-fiscal, to preferred areas of investments, pioneer or non-pioneer, export production as well as rehabilitation or expansion of existing operation.
Pioneer enterprises are registered enterprises engaged in the manufacture, processing or production of commodities or raw materials that are not yet being produced in the Philippines on a commercial scale.
Incentives granted to registered enterprises, depending on their category, may include income tax holidays, tax credits on raw materials, supplies and semi-manufactured products, additional deduction from taxable income for labor expense, additional deduction from taxable income for necessary and major infrastructure works, exemption from wharfage dues and export tax, duty, impost and fees, hiring of foreign laborers, simplified custom procedures and other tax incentives.
To encourage investments in desirable areas of activity, EO 226 provides incentives to the following: (a) enterprises registered with the BOI; (b) enterprises locating in less developed areas (LDAs)363; (c) multinational companies (MNCs) establishing their regional or area headquarters (RHQs) or regional operating headquarters (ROHQs) in the Philippines; (d) MNCs establishing their regional warehouses in the Philippines for purposes of supplying spare parts or manufactured components and raw materials to the Asia-Pacific Region and other foreign markets; and (e) enterprises locating in export processing zones.
Incentives granted to BOI-registered enterprises:
1. Tax Exemptions
- Income Tax Holiday (ITH)
- Exemption from Taxes and Duties on Imported Spare Parts
- Exemption from Wharfage Dues and Export Tax, Duty, Impost and Fees
- Tax Exemption on Breeding Stocks and Genetic Materials
2. Tax Credits
- Tax Credit on Tax and Duty Portion of Domestic Breeding Stocks and Genetic Materials
- Tax Credit on Raw Materials and Supplies
3. Additional Deductions from Taxable Income
- Additional Deduction for Labor Expense (ADLE)
Incentives to enterprises located in LDAs:
1. Six (6) Years ITH for Projects Located in a LDA; and
2. Additional Deduction for Necessary and Major Infrastructure Works
Incentives to RHQs and ROHQs
1. Exemption from income tax of RHQs established in the Philippines by MNCs and which headquarters do not earn or derive income from the Philippines but act as supervisory, communications and coordinating centers for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets;
2. Entitlement of ROHQs to a preferential income tax rate of 10% as provided for under the NIRC, as amended by RA 8424. Any income derived from Philippine sources by the ROHQ when remitted to the parent company shall be subject to the tax on branch profit remittances as provided in Section 28 (a)(5) of the NIRC, as amended;
3. Exemption from value-added tax (VAT) of RHQs established in the Philippines by MNCs. In addition, the sale or lease of goods and property and the rendition of services to RHQs shall be subject to 0% VAT rate as provided for in the NIRC. ROHQs are subject to a 12% VAT rate as provided under the NIRC;
4. Exemption from all kinds of local taxes, fees or charges imposed by a local government unit except real property tax on land improvements and equipment of RHQs and ROHQs of MNCs;
5. Tax and duty free importation of equipment and materials for training and conferences which are needed and used solely for their functions as RHQs and ROHQs and which are not locally available subject to the prior approval of the BOI; and
6. Entitlement of RHQs and ROHQs to the importation of new motor vehicles, subject to the payment of the corresponding taxes and duties.
Incentives to enterprises locating in export processing zones
1. Foreign merchandise, raw materials, equipment, spare parts, etc. brought into the zone shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances;
2. BOI- registered enterprise incentives; and
3. Exemption from local taxes and licenses except real estate taxes.