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Philippine Economic Zone Authority Tax Incentives

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Philippines PEZA – Philippine Economic Zone Authority

Companies that register and locate within an area that is under the Philippine Economic Zone Authority (PEZA) are entitled to various tax incentives and other advantages.

Usually enterprises located in a PEZA approved ecozone are required to export 100% of their production.

Incentives for Ecozone and IT Locators

100% foreign ownership allowed except in activities which are limited by the Foreign Investment Negative List

Income Tax Holiday (ITH) or exemption from corporate income tax for 4 years, extendable to a maximum of 8 years; after which a special 5% tax on gross income (sales less direct costs) shall be paid in lieu of all national and local taxes.  The income tax holiday is not available for locators in the Subic Bay Metropolitan Authority (SBMA) and Clark Freeport Zone, they are entitled to the special 5% tax on gross income as described above.

Exemption from duties and taxes on imported capital equipment, spare parts, supplies, raw materials. Tax credits will issued on breeding stocks or genetic materials when they are sourced locally.

PEZA may grant the right to the locator on a case to case basis the sale of up to 30% of production to the domestic market.

Exemption from wharfage dues and export taxes, imposts and fees.

Permanent resident status for foreign investors and immediate family members.

Employment of foreign nationals.

Simplified import and export procedures.

Other incentives under Executive Order 226 (Omnibus Investment Code of 1987), as may be determined by the Philippine Economic Zone Authority Board.

For companies that will not avail of PEZA incentives see the rules on foreign ownership of Philippine companies

Tax incentives by the Philippines Board of Investments

Foreign Ownership of Corporations in the Philippines

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The Foreign Investment Act (R.A. 7042, 1991, amended by R.A. 8179, 1996) liberalized the entry of foreign investment into the Philippines. Under the Act, foreign investors are generally treated like their domestic counterparts and must register with the Securities and Exchange Commission (SEC) (in the case of a corporation or partnership) or with the Department of Trade and Industry’s Bureau of Trade Regulation and Consumer Protection (in the case of a sole proprietorship).

Businesses with Foreign Investment Restrictions

Within the 1991 Foreign Investment Act (FIA) there are two negative lists also know as the “Foreign Investment Negative List” which defines the foreign investments which are limited or restricted by the constitution and specific laws. Negative List A & Negative List B

Domestic Corporations

The general rule of ownership for a Philippine Domestic Market Enterprise is 60% Filipino ownership and 40% foreign ownership of a business.**

More than 40% and up to 100% foreign ownership of a Domestic Market Enterprise is allowed as long as the paid-in capital is a minimum of USD 200,000.00. Employing a minimum of 50 direct employees or using advanced technology may allow a paid-in capital of less than USD 100,000.00 (R.A. 7042 as amended by R.A. 8179).**

Retail Trade Enterprises

100% foreign ownership is allowed for Philippine retail trade enterprises: (a) with paid-up capital of USD 2,500,000.00 or more provided that investments for establishing a store is not less than USD 830,000.00; or (b) specializing in high end or luxury products, provided that the paid-up capital per store is not less than USD 250,000.00 (Sec. 5 of R.A. 9762). No foreign equity is allowed in Retail Trade Enterprises with less than the above mentioned capital.

Export Businesses

An export enterprise is defined as a business who exports at least 60% of its output.
Export Business Enterprises may be 100% fully foreign owned and may file with the SEC for an exemption of the paid-up capital requirement of USD 200,000.00.

KPO, BPO, Back Office and call centers are considered Export Enterprises.

** Unless otherwise indicated in the Philippine Foreign Investment Negative List