The Omnibus Investments Code of 1987 (Executive Order No. 226, as amended), which is implemented by the Philippine Board of Investments (the "BOI"), provides a comprehensive set of incentives for local and foreign enterprises engaged in activities considered by the Philippine government as high priority for national development.

Investment In Areas Under The Investments Priorities Plan

The Omnibus Investments Code (the "Code") mandates the BOI to submit annually, for the President's approval, an Investments Priorities Plan ("IPP) which lists the preferred area for investment. These preferred areas are classified as either pioneer or non-pioneer1. Persons or entities that engage in the priority areas of investment under the IPP may avail of the incentives provided under the Code upon registration with the BOI2.

If the applicant for incentives is a natural person or individual, he must be a citizen of the Philippines. If the applicant is a partnership or any other association, it must be organized under Philippine laws and at least sixty percent (60%) of its capital must be owned and held by Philippine nationals; or in case of a corporation or a cooperative, it is organized under Philippine laws and that at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by Philippine nationals and at least sixty per cent (60%) of the members of the Board of Directors are citizens of the Philippines.

However, enterprises which do not meet the required degree of Philippine ownership may still register with the BOI for investment incentives under the following conditions:

1. They are engaged in a pioneer project in which the measured capacity of the project cannot be adequately filled by Filipino nationals; or if they export at least seventy percent (70%) of their total production, but this export requirement may be reduced in meritorious cases and under such conditions and/or limited incentives as the BOI may determine; and

2. They obligate themselves to attain the citizenship requirement within thirty (30) years from the date of registration. However, for enterprises which export seventy percent (70%) of their total production, they need not comply with this requirement; and

3. They will not engage in a pioneer area which is within the activities reserved by the Constitution or other laws of the Philippines to Philippine citizens or corporations owned and controlled by Philippine citizens.

The following incentives are available to a BOI-registered enterprise:

1. Tax Exemptions

a. Income Tax Holiday (ITH)

    • New projects with a pioneer status for six(6) years;
    • New projects with a non-pioneer status for (4) years;
    • Expansion projects for three (3) years, limited to incremental sales revenue/volume as a general rule;
    • New or expansion projects in less developed areas ("LDAs")3 for six (6) years, regardless of status; and,
    • Modernization projects for three (3) years, limited to incremental sales revenue/volume, as a general rule.
    • The ITH is restricted with respect to certain Export Traders and Mining Activities
    • New registered pioneer and non-pioneer enterprises and those located in LDAs may avail themselves of a bonus year subject to certain conditions

b. A registered enterprise with a bonded manufacturing warehouse shall be exempt from customs duties and national internal revenue taxes on its importation of required supplies/spare parts for consigned equipment or those imported with incentives. The privilege to operate a bonded manufacturing/trading warehouse subject to Customs rules and regulations.

c. 10-years exemption from wharfage dues and export tax, duty, impost and fees for exports of non-traditional export products.

d. For agricultural producers, 10-years exemption from the payment of all taxes and duties on their importation of breeding stocks and genetic materials.

2. Tax Credits

a. For agricultural producers, 10-years tax credit equivalent to one hundred percent (100%) of the value of national internal revenue taxes and customs duties on domestic breeding stocks and genetic materials.

b. Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials, supplies and semi-manufacture of export products and forming part thereof.

3. Additional Deductions form Taxable Income

a. 5-years additional deduction for labor expense, equivalent of fifty percent (50%) of the wages of additional skilled and unskilled workers in the direct labor force. This incentive shall be granted only if the enterprise meets a prescribed capital to labor ratio and shall not be availed simultaneously with ITH.

b. Registered enterprises locating in LDAs or in areas deficient in infrastructure, public utilities and other facilities may deduct from taxable income an amount equivalent to the expenses incurred in the development of necessary and major infrastructure works. This privilege is not granted to mining and forestry-related projects.

4. Non-fiscal Incentives

a. Employment of foreign nationals in supervisory, technical or advisory positions for five (5) years form date of registration. The position of president, general manager and treasurer of foreign-owned registered enterprises or their equivalent shall however not be subject to the foregoing limitations.

b. Simplification of customs producers for the importation of equipment, spare parts, raw materials and supplies and export of processed products.

c. Importation of consigned equipment for a period of 10 years from date of registration, subject to posting of a re-export bond.

Incentives To Multinational Companies Establishing Regional Headquarters In The Philippines

Regional or Area headquarters ("RHQ") established by multinational corporations in the Philippines, which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets and do not earn or derive income from the Philippines shall not be subject to income tax. A Regional Operating Headquarter ("ROHQ") established by a multinational in the Philippines to service its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region or other foreign markets, may be allowed to derive income from the Philippines in the performance of the following qualifying services:

  • General administration and planning
  • Business planning and coordination
  • Sourcing/procurement of raw materials and components
  • Corporate finance advisory services
  • Marketing control and sales promotion
  • Training and personnel management
  • Logistics services
  • Research and development services, and product development
  • Technical support and maintenance
  • Data processing and communication
  • Business development

An ROHQ shall be subject to a 10% income tax on its taxable income (instead of the regular Philippine corporate income tax rate of 32%) plus a branch profit remittance tax of 15% on its income to be remitted to the parent company.

RHQs and ROHQs are also entitled to the following incentives:

  • An RHQ shall be exempt from and value-added taxes ("VAT") and the sale or lease of goods and property and the rendition of services to the RHQ shall be subject to 0% VAT; An ROHQ shall, however, be subject to the 10% VAT;
  • Exemption from the all kinds of local licenses, fees and dues imposed by local government except real property tax on land and improvements;
  • Tax-and duty-free importation of materials and equipment for training and conferences which are not locally available; and,
  • Importation of new motor vehicles subject to payment of taxes and duties.
  • Alien employees of RHQs and ROHQs are granted the following incentives:
  • Multiple-entry visas for the expatriates and their spouses and unmarried children under twenty-one years of age, if accompanying them or following to join them after their admission into the Philippines as non- immigrants, which is valid for a period of one year (extendible yearly).
  • Tax of fifteen percent (15%) of the gross income received as salaries, wages, annuities, compensation, remuneration, and emoluments for each taxable year (instead of the regular income tax rate of between 5-32%).
  • Tax and duty-free importation of personal and household effects
  • Exemption from Travel Tax

A multinational company which is engaged in international trade and supplies spare parts or manufactured components and raw materials to its distributors or markets in the Asia-Pacific Area and other foreign areas and which has established or will simultaneously establish a regional or area headquarters in the Philippines may also establish a regional warehouse ("RW") in designated Economic Zones in the Philippines. Imported spare parts or manufactured components, raw materials and other items including any packages, coverings, brands and labels and warehouse equipment, as may be allowed by the BOI, for the exclusive use on the goods stored, except those prohibited by law, brought into the RW from abroad to be kept, stored and/or deposited or used therein and re-exported directly therefrom for distribution to its Asia-Pacific and other foreign markets, including to a bonded manufacturing warehouse in the Philippines and eventually re-exported, shall not be subject to customs duty, internal revenue tax, export tax nor to local taxes. Furthermore, articles duly entered for warehousing may remain in the RW for a period of two (2) years from the time of their transfer to the RW, which period may be extended with the approval of the BOI for an additional period of one (1) year upon payment of the corresponding storage fee on the unexported articles.

Special Investor's Resident Visa

The Code further grants to foreign investors, who are natural persons, investing at least Seventy Five Thousand US dollars (US$75,000.00), a special investor's resident visa which entitles him, while his investment subsists, to reside in the Philippines. The foregoing invested amount shall be lowered to US$50,000.00 for aliens availing of the benefits of Executive Order No. 63 (Granting Incentives to Foreign Investment in Tourist-related Projects and Tourist Establishments) and Executive Order No. 1037 (Creating the Philippine Retirement Park System).


1 These preferred areas are classified as either pioneer or non-pioneer. The Code defines a "pioneer enterprise" as an enterprise engaged in any of the following activities:

    1. The manufacture, processing or production (not merely in assembly and packaging) of commodities that have not been or are not being produced in the Philippines on a commercial scale;
    2. The use of a design, formula, scheme, method, process or system of production that is new and still untried in the Philippines;
    3. The pursuit of agricultural, forestry or mining activities and/or services determined by the BOI 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. The production of non-conventional fuels, or the manufacture of equipment which utilizes such fuels or uses or converts to coal or other non-conventional fuels or sources of energy in its production, manufacturing or processing operations.

In all cases, the final product must substantially use domestic raw materials whenever the same are available, taking into consideration the risks and magnitude of investment.

Non-pioneer enterprises are enterprises other than pioneer enterprises.

2Article 32(2) of Executive Order No.226, as amended, provides that an enterprise may still be entitled to incentives even if the activity is not listed in the IPP if:

    1. the enterprise exports or plans to export at least 50% of production, or it is an existing producer which will export part of production under such conditions and/or limited incentives as the BOI may determine; or
    2. 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
    3. 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.

3 Article 40 of the Code provides the criteria in determining whether an area is less-developed, to wit: 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 develop urban centers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.