THE
OMNIBUS INVESTMENTS CODE OF 1987
(Executive Order
No. 226)
CHAPTER 1
TITLE AND
DECLARATION
OF POLICY
ARTICLE 1. Short
Title. - This Order shall be known as the "Omnibus Investments
Code
of 1987."
ART. 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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
The
foregoing
declaration of investment policies shall apply to all investment
incentive
schemes.chanrobles virtual law library
CHAPTER II
BOARD OF INVESTMENTS
ART. 3. The Board
of Investments. - The Board of Investments shall implement the
provisions
of Books One to Five of this Code.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART 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.chanrobles virtual law library
ART. 6. Appointment
of Board Personnel. - The Board shall appoint its technical staff
and
other personnel subject to Civil Service Law, rules and regulations.chanrobles virtual law library
ART 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.chanrobles virtual law library
ART. 8. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
INVESTMENTS
WITH INCENTIVES
TITLE I
PREFERRED AREAS
OF INVESTMENTS
CHAPTER I
DEFINITION OF TERMS
ART. 10. Board shall
mean the Board of Investments created under this Code.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 18. Non-pioneer
enterprise shall include all registered producer enterprises other than
pioneer enterprises.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
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.chanrobles virtual law library CHAPTER II
INVESTMENT
PRIORITIES
PLAN
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
CHAPTER III
REGISTRATION OF
ENTERPRISES
ART. 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.chanrobles virtual law library
(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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
Applications filed
shall be considered automatically approved if not acted upon by the
Board
within twenty (20) working days from official acceptance thereof.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
ART. 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.chanrobles virtual law library
TITLE
II
BASIC RIGHTS AND
GUARANTEES
ART. 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) Repartriation
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.chanrobles virtual law library
(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.chanrobles virtual law library
TITLE III
INCENTIVES TO
REGISTERED
ENTERPRISES
ART. 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.chanrobles virtual law library
The preceding paragraph
notwithstanding, no registered pioneer firm may avail of this incentive
for a period exceeding eight (8) years.chanrobles virtual law library
(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.chanrobles virtual law library
(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.chanrobles virtual law library
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.chanrobles virtual law library
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.chanrobles virtual law library
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:
(aa) to another
registered enterprise or registered domestic producer enjoying similar
incentives;
(bb) for
reasons
of proven technical obsolescence; or
(cc) for
purposes
of replacement to improve and/or expand the operations of the
registered
enterprise.chanrobles virtual law library
(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.chanrobles virtual law library
(e) Exemption
from Contractor's Tax. - The registered enterprise shall be exempt
from the payment of contractor's tax, whether national or local.chanrobles virtual law library
(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.chanrobles virtual law library
(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.chanrobles virtual law library
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.chanrobles virtual law library
(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.chanrobles virtual law library
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.chanrobles virtual law library
(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.chanrobles virtual law library
(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.chanrobles virtual law library
(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.chanrobles virtual law library
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.chanrobles virtual law library
(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.chanrobles virtual law library
(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.chanrobles virtual law library
(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.chanrobles virtual law library
TITLE IV
INCENTIVES TO
LESS-DEVELOPED-AREA
REGISTERED ENTERPRISE
ART. 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.chanrobles virtual law library
(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.chanrobles virtual law library
TITLE V
GENERAL PROVISIONS
ART. 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.chanrobles virtual law library
ART. 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 impose corresponding fines and penalties.chanrobles virtual law library
ART. 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.chanrobles virtual law library
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