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It is a
basic and primordial constitutional
and legal principle in the Philippines that the State shall pursue an
independent
foreign policy. In its relations with other States the paramount
consideration
shall be national sovereignty, territorial integrity, national
interest,
and the right of self-determination.
Foreign investments in the Philippines are basically governed by the following laws, rules, regulations and other government issuances:
[2] Republic Act No. 7042, as amended by Republic Act No. 8179 - The Foreign Investments Act of 1991 - dwells on foreign investments without incentives; it reduced the minimum paid-in equity from US Dollars Five Hundred Thousand [US$500,000] to US Dollars Two Hundred Thousand [US$200,000]. [3] Republic Act No. 7227 - The Bases Conversion and Development Act of 1992 - sets forth the grant of incentives to industries and enterprises which establish their plants and offices within the Subic Bay Freeport Zone. [4] Republic Act No. 7916 - The Special Economic Zone Act of 1995 - treats of incentives granted to industries and enterprises which situate their operation within Special Economic Zones. [5] Republic Act No. 7844 - The Export Development Act of 1994 - provides for incentives to business enterprises in the export industry. [6] Republic Act No. 7721 - liberalized the entry and operations of foreign banks and financial institutions in the Philippines. [7] Republic Act No. 7652 - The Investor's Lease Act - grants to foreign investors the privilege of leasing private lands for a period of fifty (50) years [initial] which may be renewed for another twenty-five (25) years. [8] Republic Act No. 7718 - The Build-Operate-Transfer Act [BOT] -liberalized the implementation of the Build-Operate-Transfer Scheme in certain projects, eased the restrictions on government financing and setting and imposition of tolls and charges and wholly foreign-owned corporations are allowed to undertake certain projects under this scheme. [9] Republic Act No. 7888 - grants authority to the President of the Philippines to suspend the nationality requirement under the Omnibus investments Code [Executive Order No. 226] in the case of equity investments by multilateral financial institutions like the Asian Development Bank [ADB] or the International Finance Corporation [IFC]. Expropriation
of private property by the
government is a policy which is exceptionally exercised. In
extreme and urgent cases where expropriation becomes necessary for
public
use or in the interest of national welfare, just compensation is
required
by law to be paid to the private owner of the property. Under this
situation,
the affected foreign enterprise or investor has the right to
remit
any and all amounts received as just compensation for the expropriated
property in the currency in which the investment was originally made
and
at the prevailing foreign exchange rate at the time it is remitted.
Reformatory measures to deregulate the Philippine foreign exchange system were implemented sometime in 1992. Consequently, foreign exchange surrender requirements were removed, access to foreign currency deposit facilities was liberalized, restrictions on the repatriation of foreign investments and/or profit remittances were lifted and limitations on the quantitative restrictions on current account transactions deleted. Registration with the central monetary authority - Bangko Sentral ng Pilipinas [BSP] - of loans and investments accounts was lifted except in cases where funding will be made through the banking system of transactions like repatriation of capital and remittances of dividends and profits as well as foreign exchange requirement for future debt. Further, BSP approval and registration are required in case of outward investments of residents in an amount in excess of US$6,000,000.00, per investor per year should the funds therefor be sourced from the banking system. Foreign borrowings by the public sector should also be approved by the BSP. The law allows the deposit in foreign currency accounts of any foreign exchange received in the Philippines or abroad. It also allows the selling and acquisition of foreign exchange outside of the Philippine banking system. The only restriction on foreign exchange transaction pertains to the payment of foreign loans and/or foreign investments, in which case, such may only be serviced with foreign exchange purchased through authorized agent banks, if the loan is approved/registered with the BSP or the investment is registered therewith. Thus, in case of sales of foreign exchange for payment of foreign obligations [foreign loan or foreign investment], the purchaser shall be required by the authorized agent bank to present proof of BSP approval and/or registration for each loan or investment. In case of purchase of foreign exchange for any non-trade purposes, authorized agent banks may sell foreign exchange to residents without need of prior BSP approval subject, however, to the following:
[b] Simple written application if the amount does not exceed US$25,000.00. This
limitation on non-trade purchase cannot
be circumvented by splitting the foreign exchange purchase into
separate
smaller amounts. Splitting of purchase of foreign exchange is presumed
if the bank sells to any one purchaser, a combined total amount
exceeding
US$25,000.00 within a period of fifteen [15]
banking days. In cases of outward payments, the law does not prescribe any particular currency requirements. However, all foreign exchange proceeds from exports and invisibles should be procured through specified currencies numbering more than twenty [20]. Philippine-peso denominated bank accounts may be opened by non-residents - whether an individual or corporate without need to secure BSP approval. Non-resident depositors may freely withdraw their accounts but non-resident bank accounts may only be credited with the proceeds from inward foreign exchange remittance or with income earned in the Philippines. The maintenance of foreign currency deposit accounts with local banks by residents and non-residents alike is not subject to any further restrictions. Further, it bears to emphasize that investments in government or listed securities or money market instruments or bank deposits need not be registered with the BSP or with the designated custodian bank of the investor concerned.
[1] Public Sector Loans - Under the law, all public sector loans taken from offshore sources and from Foreign Currency Deposit Units (FCDUs) must be approved by the Bangko Sentral ng Pilipinas [BSP]. The BSP approval, however, is not required in case of short-term interbank borrowings of public sector banks and short-term FCDU loans for trade financing. [2] Private Sector Loans - The approval of and registration with BSP of the private sector loans are required under the following circumstances:
[b] if the loan is granted by an FCDU and will specifically or directly be funded from, or collaterized by, offshore loans or deposits; or [c] if the loan is obtained by banks and financial institutions with a term exceeding one [1] year and intended for relending to public and private enterprises. Except
for the foregoing types of loans, other
categories of private sector loans are not subject to prior approval by
the BSP. Registration with BSP, however, is still required
in order to purchase foreign exchange from the banking system to
service
the loan. The following may be cited: [a] private
sector
loans from FCDUs or offshore sources regardless of their maturity to be
paid using foreign exchange purchased from outside of the banking
system;
[b] short-term loans of public and private financial institutions
incurred in normal interbank transactions and with maturity not
exceeding
one [1] year; [c] short-term loans of the private sector in the
form
of export advances from buyers abroad; [d] short-term loans
of
private sector borrowers from FCDUs such as those incurred: [i]
by
community and service exporters [provided these loans are used to
finance
export-related import costs of goods and services as well as peso cost
requirements]; and [ii] by producers or manufacturers, including
oil companies and public utility concerns [provided the loans are used
to finance import costs of goods and services necessary in the
production
of goods by the borrower concerned].
It must be emphasized that proceeds from FCDU loans are not allowed to be deposited in an FCDU account if the same shall be serviced using foreign exchange purchased from the banking system. [3] Short-term loans of private sector exporters or importers - These loans from participating creditor banks under the Revolving Trade Facility (RTF) Agreement are subject to the following conditions: [a] the loans are not covered by a guarantee from a government financial institution or corporation; [b] the loans shall be exclusively used to finance specific trade transactions in an amount equivalent to the import bills to be liquidated and/or in the case of export financing transactions, to the borrower's pre-export financing requirements; [c] proceeds of loans intended to pay for foreign exchange requirements shall be paid directly to the supplier or creditor while amounts intended to fund pre-export peso costs shall be inwardly-remitted and sold to the banking system; [d] the loans shall be granted against BSP-approved short-term relending programs of foreign creditors. Creditors shall submit to the BSP their short-term relending program for Philippine borrowers indicating their proposed credit limit together with a list of prospective borrowers/beneficiaries. These relending programs shall be valid for one year but shall be subject to semi-annual review if commitments and/or utilization for the semester shall be below fifty percent [50%] of total relending limit; [e] drawdown and registration requirements shall be complied with; [f] any assignment of the loan by the creditor shall require prior BSP approval; and [g] the borrower shall submit to BSP the required documents at least five days after its credit line is approved by the creditor.[4] Priority projects - Projects considered priority for foreign financing under the socio-economic development plan include the following:
[b] BOI-registered projects; [c] those listed in the Annual Priorities Plan (APP); and [d] other projects which may be declared priority by the National Economic Development Authority [NEDA] or by the Congress of the Philippines. The law requires that the proceeds of all loans, irrespective of maturity, shall exclusively finance foreign exchange requirements of eligible projects. However, loans of direct and indirect exporters and public sector borrowers may be used to finance both foreign exchange costs and local costs of their projects. SOURCE 2 - Domestic
Borrowings
Foreign firms may avail of domestic loans. Except for the requirement that the banks should report the level of domestic borrowings of foreign firms to the BSP for monitoring purposes, there are no restrictions on domestic borrowings.
Any investment proposal shall comply with certain requirements of the law. More specifically, the following conditions apply:
[3] Real Estate/Land - the foreign equity is up to forty percent [40%] only. [4] Management Contract - must comply with Section 44 of the Corporation Code. [5] Joint Venture - may be entered into without legal restriction on registration unless the parties thereto form another business organization requiring registration such as a corporation or partnership. [6] Greenfield Investments - must comply with the requirements under the Corporation Code. [7] Media - no foreign equity is allowed. [8] Telecommunications - foreign equity is allowed up to forty percent [40%]. [9] Transportation - foreign equity is allowed up to forty percent [40%]. [10] Agriculture - there is no limitation if private land is used for this purpose. However, foreign equity is required up to forty percent [40%] in case of public land. [11] Infrastructure - allowed but subject to the provisions of the Build-Operate-Transfer [BOT] Law and Presidential Decree No. 1594. [12] Mining
- allowed but subject to the conditions under the Revised Mining Act of
1995.
The
following application and approval forms
are required:
[1] For formation of a new corporation with more than forty percent [40%] foreign equity - S.E.C. Form No. F-100. [2] For establishment of a branch office of a foreign corporation - S.E.C. Form No. F-103. [3] Board of Investments [BOI] registration form. [4] Philippine Economic Zone Authority [PEZA] registration form. The investment laws in the Philippines explicitly prescribe the following periods within which the processing and approval of foreign investment proposal and/or applications should be completed from the time of submission of all required documents: [1] The BOI shall approve or disapprove an application within twenty [20] working days after official acceptance thereof. If application involves less than PhP5,000,000.00 production cost and applicant is an exporter, the period is seven [7] days. [1987 Omnibus Investment Code] Enterprises registered under the Omnibus Investments Code [Executive Order No. 226] are permitted to employ foreign nationals in supervisory, technical, or advisory positions during its first five years from registration. Those majority foreign-owned registered enterprises are allowed to employ foreign nationals as president, treasurer and general managers for an indefinite period of time. In the case of Offshore Banking Units [OBUs], they are allowed to employ foreign nationals as executives in their respective units. The same may be said for executives in area headquarters of multinational corporations. For non-resident personnel of foreign firms, the entry visa requirements and description of the nature of the entry restriction are as follows: a. Special Investors Resident Visa [SIRV] - This is issued to any alien, except nationals coming from North Korea and Cambodia and such other countries that may be classified restricted in the future, who meets the following qualifications:1. he/she had not been convicted of a crime involving moral turpitude;The special feature of this visa is the grant to the investor of the privilege to reside in the Philippines for as long as his investment exists. He shall be entitled to import his used household goods and personal effects, tax and duty-free, as an alien coming to settle in the Philippines for the first time under Sec. 105(h) of the Tariff and Customs Code of the Philippines. Moreover, the investor's spouse and unmarried children under 21 years of age who join him in the Philippines may be issued the same visa. Restrictions on positions: [1] Registered foreign enterprises with the Board of Investments [BOI] 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 BOI. [2] BOI-registered majority foreign-owned enterprises may employ foreign nationals in the positions of president, treasurer or general manager beyond the period of five [5] years. [3] Foreign nationals under the Corporation Code may be employed as members of the Board of Directors by way of election. [4] Foreign enterprises located at the Subic Bay Freeport may employ foreign nationals in any position upon prior approval of the Subic Bay Metropolitan Authority [SBMA] for a period of five [5] years which may be extended from year to year. [5] Foreign enterprises entering into government contracts and service for coal operations and exploration and development of oil and geothermal resources are allowed to employ foreign nationals in any position. Restrictions on skills requirement: Employment of foreign technicians in foreign enterprises in the Philippines is subject to the requirement that the skills they possess are not available in the Philippines. If there is none available in the Philippines, a pre-arranged employment visa may be extended to the foreign technician. Further, under the law, their employment should be accompanied by an understudy program wherein at least two [2] Filipino understudies should be trained on the skills for which they [foreign technicians] were engaged.
Labor laws in the Philippines respecting wages, hours of work, overtime, night differential pay, service incentive leave, and other labor standards; strikes, picketing, termination of employment, and other labor relations rules, have all been codified. All these may be found in the Labor Code of the Philippines, as amended. As regards minimum wages, the Labor Code of the Philippines, as amended, provides for the basic standards for minimum wage fixing which is done through the various Regional Tripartite Wages and Productivity Boards. Each region has its own set of minimum wage rates and rules. As regards labor unions, strikes and picketing, collective bargaining, voluntary modes of settling labor disputes and other labor-related rules, the Labor Code of the Philippines has provided ample safeguards to protect the interest of both labor and management. Corporate and similar entities: [1] Foreign corporations engaged in business or trade in the Philippines - Their income derived from sources in the Philippines are taxed a flat rate of thirty-five percent [35%] based on net income. [2] Foreign corporations not engaged in business or trade in the Philippines - Their income derived from sources in the Philippines are taxed a flat rate of thirty-five percent [35%] on gross income. Further, interest income on foreign loans earned is subject to a twenty percent [20%] tax. [3] Foreign international carriers - They are taxed at the rate of two-and-a-half percent [2.5%] on their gross Philippine billings. [4] Non-resident foreign cinematographic film owners, lessors or distributors - They are taxed at the rate of twenty-five percent [25%] on gross income. [5] Foreign mutual life insurance companies - They are taxed at the rate of ten percent [10%] of their gross investment income derived from sources within the Philippines. Foreign individuals: [1] Individual resident foreigners - Their income:
[b] twenty percent [20%] on royalties, prizes, winnings [final tax]. [c] twenty percent [20%] on interest on bank deposit, and on substitute arrangements [final tax]. [d] five percent [5%] capital gains tax on sale of realty [final tax]. [2]
Foreigners
engaged in trade or business in the Philippines - Their income:
[b] thirty percent [30%] on royalties, interests and dividends, and others. [3]
Foreigners
not engaged in trade or business in the Philippines - Their
income
derived from Philippine sources are taxed a flat rate of thirty percent
[30%] on gross Philippine income.
[1] Full exemption from income tax for six (6) years for newly-registered pioneer projects from the start of commercial operations; and [a] the project used indigenous raw materials; [b] the project meets the BOI-prescribed ratio of capital equipment to the number of workers; [c] the net foreign exchange savings or earnings amount to at least US$500,000 annually during the first three (3) years of the commercial operations of the project.
Expansion projects of
domestic-oriented
industries are not entitled to the income tax holiday incentive.
[a] Firms registered on or before December 31, 1994 shall be entitled to tax credit equivalent to one hundred percent [100%] of any taxes and duties which could have been waived had the capital equipment and accompanying spare parts been imported until December 31, 1997, provided that those firms located outside the National Capital Region [NCR] shall enjoy said tax credit until December 31, 1999.
[a] Firms registered on or before December 31, 1994 shall be entitled to tax and duty free importation of capital equipment and accompanying spare parts until December 31, 1997. However, firms located outside the National Capital Region [NCR] shall be entitled to the incentive until December 31, 1999. [b] Firms registered after December 31, 1994 shall be subject to ten percent [10%] Value-Added Tax [VAT] upon the implementation of Republic Act No. 7716, the expanded VAT Law and three percent [3%] duty.
For the first five [5] years from registration, a registered enterprise shall be allowed an additional deduction from taxable income of fifty percent [50%] of the wages corresponding to the increment in the number of the direct labor for skilled and unskilled workers if the project meets the prescribed ratio of capital equipment to the number of workers set by the Board of Investments. This additional deduction shall be doubled if the activity is located in less developed areas [LDAs].
New enterprises registered under the 1995 Investments Priorities Plan [IPP] shall be granted a five-year period to avail of the exemption from wharfage dues and any export tax, impost and fees. Expansion and existing projects, however, are not entitled to this incentive.
Intellectual Property Code of the Philippines: In order to strengthen protection to intellectual property rights, Republic Act No. 8293 [otherwise known as the Intellectual Property Code of the Philippines] was approved on June 6, 1997 and took effect on January 1, 1998. This is the codification of all laws on intellectual property rights in the Philippines. It repealed and superseded the Philippine Law on Patents [R. A. No. 165], the Law on Trademarks [R. A. No. 166], Articles 188 and 189 of the Revised Penal Code and the Law on Copyright [Presidential Decree No. 49] including Presidential Decree No. 285, as amended. [See Overview on the Intellectual Property Code of the Philippines in a related page]. Related Laws and Issuances: The following are some related laws and executive issuances:
Treaties on Intellectual
Property Rights [Philippines is a signatory]:
The Republic of the Philippines is a signatory to several international treaties on intellectual property rights, to wit:
The following is a rundown of international agreements [in force and in effect] to which the Philippines is a party-signatory, which are of commercial or economic nature and significance:
[2] Provision on Most-Favoured-Nation (MFN) Treatment arrangement where respective investors are accorded treatment no less favorable than that accorded to investors of any third State. [3] Provision on expropriation which ordains that if any investors of either economy suffer losses in the other economy by reason of national emergency, revolution, revolt or similar events, the host economy shall accord treatment to that economy no less favorable than that it accords to investments of any third State. [4] Provision on transfer of investments which guarantees the free transfer of investments and returns held in the territory of one contracting economy to the other economy. [5] Provision on subrogation of
rights.
Government vs. Government: As a member of the WTO, the Philippines adheres to the procedures for dispute settlement prescribed by WTO. Consequently, it considers these procedures as being applicable to any case or controversy falling within WTO's jurisdiction. Private Party/ies vs. Government: The Philippines adheres to the dispute settlement procedures prescribed under the International Convention on the Settlement of Investment Disputes Between States and Nationals of Other States [ICSID] as well as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards [New York Convention], being a signatory thereof. Private Party/ies vs. Private Party/ies: The basic legal framework applicable in the resolution of conflicts and disputes between private parties are as follows:
The following agencies of the Philippine government are involved in processing and approval of foreign investments:
Industry and Investment Building 385 Sen. Gil J. Puyat Avenue Makati City, Metro Manila Telephone: (632) 895-5602;895-8370 Fax: (632) 895-3521
Board of Investments [See above physical address] Telephone: (632) 896-7884; 895-7342 or 896-7342
SEC Building E. de los Santos Ave. Mandaluyong City, Metro Manila Telephone: (632) 780-931 Fax: (632) 793-072
4th Floor, Legaspi Towers 300 corner Vito Cruz St. and Roxas Blvd., Manila Telephone: (632) 521-0546 Fax: (632) 521-0419
Subic Freeport, Subic, Olongapo City
2nd Floor, Rufino Building Ayala Avenue, Makati City, Metro Manila Telephone: (632) 813-5380 Fax: (632) 813-5425
Atrium Building Makati City, Metro Manila Telephone: (632) 811-4448 Fax: (632) 811-4390
A. Mabini Street, Ermita Manila Telephone: (632) 815-1729
SSS Bldg., East Avenue, Diliman Quezon City Telephone: (632) 920-6401
In the
Philippines, there are several One-Stop
Action Centers which houses in one place representatives from all the
government
agencies with which a foreign investor will deal and submit his
application
and pertinent documents. Under this concept, processing of
applications
is made within twenty (20) days. Its special feature is when no
action
is made on the application within said period, it is deemed
automatically
approved after the lapse of said period.
The following One-Stop Action Centers are now in full operation:
Board of Investments Industry and Investment Bldg. 385 Sen. Gil J. Puyat Avenue, Makati City, Metro Manila Telephone: (632) 895-5602; 895-8370 or 895-3521 [2] One-Stop
Export Documentation Center
[3] One-Stop
Import Processing Center
[4] One-Stop
Action Garments Export Assistance Center
[5] One-Stop
Shop
Tax Credit Center
The
Philippines has a total number of eighty
[80] economic zones (ECOZONES). Out of this number, a total of 29
has been proclaimed and 51 has been an expansion. Below is the
list
of the ECOZONES and their respective locations and total areas.
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