Reviewer in Investments and Law

Atty. Mark Anthony Tamayo New Era University | 2nd sem A.Y.
2017-2018
JDINVEST | Investments and Incentives Law (Elec.) M 6:00PM-8:00PM | Room P307
CONSTITUTIONAL PROVISIONS
As to Corporation, as a rule, shareholder’s liability, as a
Section 7, Article II. The State shall pursue an independent general rule, is limited as to extent of shares subscribed by
foreign policy. In its relations with other states, the paramount them. Exception in case when (i) the shareholder personally
consideration shall be national sovereignty, territorial integrity, bind themselves with the obligation of the corporation, or (ii) in
national interest, and the right to self-determination. case of other criminal, civil or admin liabilities in case of
doctrine of piercing the veil of the corporation.
Section 20, Article II. The State recognizes the indispensable
role of the private sector, encourages private enterprise, and As to personality (i.e. separate juridical personality)
provides incentives to needed investments.
A sole proprietorship has no separate juridical personality.
Section 19, Article XII. The State shall regulate or prohibit
monopolies when the public interest so requires. No A partnership has a juridical personality separate and distinct
combinations in restraint of trade or unfair competition shall be from that of each of the partners even in case of failure to
allowed. comply with the requirements of Article 1772 (1) (Art. 1768,
CC)
FORMS OF BUSINESS
Under the doctrine of separate personality, a Corporation is a
As to definition: legal or juridical person with a personality separate and apart
from its individual stockholders or members and from any other
Sole proprietorship. A sole proprietorship is the simplest form legal entity to which it may be connected.
of business, owned by an individual who has full
control/authority of its own and owns all the assets, as well as As to life/term of existence
personally answers all liabilities or losses.
Life of a sole proprietorship is at will.
Partnership. By the contract of partnership two or more
persons bind themselves to contribute money, property, or As to Partnership, it may be fixed (with a stipulated definite
industry to a common fund, with the intention of dividing the period) or at will (may be terminated anytime by mutual
profits among themselves. Two or more persons may also form agreement).
a partnership for the exercise of a profession. (Art. 1767, Civil
Code) While a Corporation may not be formed for a term in excess of
50 years extendible to not more than 50 years in any one
Corporation. A Corporation is an artificial being created by instance.
operation of law having the right of succession, and the
powers, attributes and properties expressly authorized by law IMPORTANT CONCEPTS
and incident to its existence (Sec. 2, Corporation Code).
Destination Principle or Cross-Border Doctrine.
As to regulatory body:
Under the cross-border doctrine, goods and services are taxed
As to sole proprietorship, Bureau of Trade Regulation and only in the country where they are consumed.
Consumer Protection (BTRCP) of the Department of Trade and
Industry (DTI). As to Partnership and Corporation, the Corollarily, it mandates that no VAT, as the case may be, shall
Securities and Exchange Commission. be imposed to form part of the cost of the goods destined for
consumption outside the territorial border of the taxing
As to tax treatment of income: authority.
Sole proprietorship are taxed as individual. Repatriation of Investment
A General partnership is taxed a corporate tax on its income Refers to the right to repatriate the entire proceeds of the
derived, while a General professional partnership is taxed liquidation in the country which the investment was originally
under the individual income tax category. (i.e. It is a made at the exchange rate prevailing at the time of
partnership formed by persons for the sole purpose of repatriation. (Omnibus Investment Code)
exercising their common profession, no part of the income of
which is derived from engaging in any trade or business.) There are no existing restrictive regulations on the repatriation
of funds related to BSP-registered foreign investments. As
Corporations are taxed under corporate income tax. earlier pointed out, BSP registration of foreign investments is
necessary only in cases where the foreign exchange required
As to extent of liability: to service the repatriation of capital will be sourced from the
banking system.
Liability of Sole Proprietorship is unlimited (i.e. personally liable
for all obligations incurred by the business). Further, it bears to emphasize that investments in government
A General partner is personally liable for partnership or listed securities or money market instruments or bank
obligations, while the liability of a Limited partner extends only deposits need not be registered with the BSP or with the
to his capital contributions. designated custodian bank of the investor concerned.
Investments and Incentives Law | 1

Atty. Mark Anthony Tamayo New Era University | 2nd sem A.Y. 2017-2018
Section 118. Prohibited Importation and Exportation.— The

Tax of Foreign Individuals importation and exportation of the following goods are
prohibited:
Under TRAIN, foreign individuals are no longer subject to
withholding tax, but will be subject to same tax applied to (a) Written or printed goods in any form containing any matter
Filipinos (i.e. 32%) advocating or inciting treason, rebellion, insurrection,
sedition against the government of the Philippines, or
Government Agencies Concerned with Foreign forcible resistance to any law of the Philippines, or written
Investments or printed goods containing any threat to take the life of, or
inflict bodily harm upon any person in the Philippines;
The following agencies of the Philippine government are (b) Goods, instruments, drugs and substances designed,
involved in processing and approval of foreign investments: intended or adapted for producing unlawful abortion, or
any printed matter which advertises, describes or gives
Government Agency Laws enforced and direct or indirect information where, how or by whom
Implemented unlawful abortion is committed;
a Board of Investments (c) Written or printed goods, negatives or cinematographic
[BOI] Omnibus Investments Code films, photographs, engravings, lithographs, objects,
b One Stop Action [Executive Order No. 226] paintings, drawings or other representation of an obscene
Center [OSAC] - or immoral character;
Board of Investments (d) Any goods manufactured in whole or in part of gold, silver
c Securities and Foreign Investments Act or other precious metals or alloys and the stamp, brand or
Exchange [Republic Act No. 7042], as mark does not Indicate the actual fineness of quality of the
Commission [SEC] amended metals or alloys;
(e) Any adulterated or misbranded food or goods for human
Corporation Code of the consumption or any adulterated or misbranded drug in
Philippines [BP 68] violation of relevant laws and regulations;
(f) Infringing goods as defined under the Intellectual Property
d Philippine Economic Philippine Economic Zone Code and related laws; and
Zone Authority Authority Law [Republic Act (g) All other goods or parts thereof which importation and
[PEZA] No. 7916] exportation are explicitly prohibited by law or rules and
regulations issued by the competent authority.
e Subic Bay
Metropolitan Authority Bases Conversion and Section 119. Restricted Importation, and Exportation.—
[SBMA] Development Act of 1992 Except when authorized by law or regulation, the importation
f Bases Conversion [Republic Act No. 7227] and exportation of the following restricted goods are prohibited:
Development
Authority [BCDA] (a) Dynamite, gunpowder, ammunitions and other explosives,
g Bureau of Internal National Internal Revenue firearms and weapons of war, or parts thereof;
Revenue [BIR] Code of 1997. (b) Roulette wheels, gambling outfits, loaded dice, marked
cards, machines, apparatus or mechanical devices used in
h Bangko Sentral ng Revised Central Bank Act, as gambling or the distribution of money, cigars, cigarettes or
Pilipinas [BSP] amended other goods when such distribution is dependent on
chance, including jackpot and pinball machines or similar
contrivances, or parts thereof;
(c) Lottery and sweepstakes tickets, except advertisements
Types of Importation (source: Chapter 3, CMTA)
thereof and lists of drawings therein;
(d) Marijuana, opium, poppies, coca leaves, heroin or other
Section 116. Free Importation and Exportation.— Unless
narcotics or synthetic drugs which are or may hereafter be
otherwise provided by law or regulation, all goods may be
declared habit forming by the President of the Philippines,
freely imported into and exported from the Philippines without
or any compound, manufactured salt, derivative, or
need for import and export permits, clearances or licenses.
preparation thereof, except when imported by the
government of the Philippines or any person duly
Section 117. Regulated Importation and Exportation.— Goods
authorized by the Dangerous Drugs Board, for medicinal
which are subject to regulation shall be imported or exported
purposes;
only after securing the necessary goods declaration or export
(e) Opium pipes or parts thereof, of whatever material; and
declaration, clearances, licenses, and any other requirements,
(f) Any other goods whose importation and exportation are
prior to importation or exportation. In case of importation,
restricted.
submission of requirements after arrival of the goods but prior
to release from customs custody shall be allowed but only in
The restriction to import or export the above stated goods
cases provided for by governing laws or regulations.
shall include the restriction on their transit.

BRANCH vs. SUBSIDIARY

BRANCH SUBSIDIARY
As to Taxability
1. Subject to income tax only on Philippine source income 1. Subject to income tax on worldwide income
2. Profits remitted by the branch to its head office are subject 2. Dividends paid by a Philippine subsidiary to non-resident
to branch profit remittance tax of 15% or 10% depending shareholders is subject to 30% in general or 15% subject to certain
on certain tax treaties; however, if located in a special conditions or preferential tax treaty rates.
economic zone then they are tax exempt.
3. A branch office is not subject to documentary stamp tax 3. A subsidiary is liable to pay DST on the original issuance of shares
(DST) simply because it does not issue shares of stock of stock at the rate of P2.00 for every P200.00 or fractional part of
the par value of the shares of the outstanding shares of stock
4. Subject to certain conditions, overhead expenses of the 4. The Philippine subsidiary is not entitled to the allocation of
Head Office may be allocated to the Philippine branch overhead expenses of its parent company.
office
5. A branch is not liable to pay the 10% improperly 5. A subsidiary is liable to pay the 10% improperly accumulated
accumulated earnings tax earnings tax.
As to Capitalization
As a 100% foreign-owned entity, a branch must have a capital A subsidiary with more than 40% foreign equity must also have a
of at least US$200,000 unless the branch will be exporting minimum paid up capital of at least US$200,000 unless the company
goods or services or generating revenue from abroad will be exporting goods or services or generating revenue from abroad
amounting to more than 60% of its gross sales it can be fully amounting to more than 60% of its gross sales it can be fully foreign
foreign owned, as it is considered an Export Enterprise under owned, as it is considered an Export Enterprise under the Foreign
the Foreign Investments Act. Hence, the branch can be Investments Act. Hence, the company can be registered with as
registered with as little as P5,000 paid up capital. However, little as P5,000 paid up capital. However, most banks require
most banks require P25,000 – P50,000 to open a corporate P25,000 – P50,000 to open a corporate bank account.
bank account.
As to the Number of Incorporators

A branch may be set up with only one (1) person who will act The establishment of a subsidiary requires at least five (5) but not
as the resident agent more than fifteen (15) incorporators/directors (all of whom must be
natural persons) majority of whom must be residents of the
Philippines.
As to the deposit requirement of securities with SEC

A branch is required initially to deposit with the SEC for the Subsidiaries are not required to deposit securities with the SEC.
benefit of present and future creditors, acceptable securities
with market value equivalent to at least P100,000 plus an
annual additional deposit of 2% of the amount by which the
branch office’s gross income exceeds five (5) million pesos
As to Registration Requirements
A branch is required to obtain a license to do business here in For the establishment of a subsidiary in the Philippines, it must be
the Philippines with the Securities and Exchange Commission registered with the SEC. The SEC will require the following from the
(SEC). This license shall be issued by the SEC upon applicant:
compliance with the following requirements:  As to the capital stock requirement and since the foreign equity
 Remit the initial assigned capital of US$200,000 which will exceed 40%, it must have a minimum paid up capital of
should be remitted separately from the registration fees. US$200,000 as provided under the Foreign Investments Act
The US$200,000 shall be remitted directly to the Treasurer- unless export oriented. For this purpose, the applicant must
in-Trust account opened for and on behalf of the branch submit a Certificate of Inward remittance issued by a Philippine
office; bank on the remittance of at least US$200,000 net of bank charges
 Within sixty (60) days after obtaining the license to operate, to your Philippine account;
the branch office is required to deposit marketable
securities worth at least P100,000 with the SEC which may
be withdrawn upon cessation of the Philippine branch’s
operations
As to governing law (i.e. may apply for incentives under the Omnibus Investment Code?)

FOREIGN INVESTMENTS ACT (FIA) of the privilege herein granted: Provided, That if both
R.A. 7042, AS AMENDED BY R.A. 8179 shall avail of the same, the total area acquired shall
not exceed the maximum herein fixed.
Republic Act 7042, also known as the Foreign Investments
Act of 1991, was enacted to spell out the procedures and In the case the transferee already owns urban or
conditions under which non-Philippine nationals, including rural and for business or other purposes, he shall still
former Filipino citizens, who have not re-acquired nor be entitled to be a transferee of additional urban or rural
retained their Philippine citizenship, may invest and do land for business or other purposes which when added
business in the Philippines with a required paid-in capital to those already owned by him shall not exceed the
of at least US$200,000. The law was amended by maximum areas herein authorized.
Republic Act 8179 to further liberalize the entry of foreign
investments into the country. A transferee under this Act may acquire not more than
two (2) lots which should be situated in different
Specific Areas of Equal Investment Rights for Former municipalities or cities anywhere in the Philippines:
Filipino Nationals Provided, That the total land area thereof shall not
exceed five thousand (5,000) square meters in the
1. Cooperatives case of urban land or three (3) hectares in the case of
2. Rural banks rural land for use by him for business or other
3. Thrift banks and private development banks purposes. A transferee who has already acquired urban
4. Financing companies land shall be disqualified from acquiring rural land and
vice versa”. (As amended by R.A. 8179)
NOTE: Former natural-born Filipinos can also engage in
activities under List B of the Foreign Investments Negative NOTE: Former natural-born Filipinos who have elected
List. This means that their investments shall be treated as dual citizenship shall not be covered by the
Filipino or will be considered as forming part of Filipino prohibitions set forth above, by virtue of Republic Act
investments in activities closed or limited to foreign 9225. Dual citizens are not prohibited from enjoying the
participation. same investments rights as Philippine citizens.
The equal investment rights of former Filipino nationals do

not extend to activities reserved by the Constitution for Rule on restriction on foreign ownership.
Filipino citizens, including the following:
As a general rule, there are no restrictions on extent of
1. Exercise of profession foreign ownership of export enterprises. In domestic
2. Defense-related activities market enterprises, foreigners can invest as much as
3. Security agency one hundred percent [100%] equity except in areas
4. Small-scale mining included in the negative list. (Sec. 1)
5. Rice and corn industry
6. Cockpit operation and management A non-Philippine national may do business or invest in a
domestic enterprise up to one hundred percent (100%) of
its capital, unless participation of non-Philippine nationals
Rights of Natural Born Citizen Pursuant to the in the enterprise is prohibited or limited to a smaller
Provisions of the Constitution vs. FIA percentage by existing law and/or under the provisions of
this Act. (Sec. 3)
Article XII, Section 7. Save in cases of hereditary
succession, no private lands shall be transferred or DEFINITION OF TERMS:
conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the PHILIPPINE NATIONAL shall mean:
public domain.  a citizen of the Philippines or
 a domestic partnership or association wholly owned
Article XII, Section 8 of the Constitution. Notwithstanding by citizens of the Philippines;
the provisions of Section 7 of this Article, a natural-born  a corporation organized under the laws of the
citizen of the Philippines who has lost his Philippine Philippines of which at least sixty percent (60%) of the
citizenship may be a transferee of private lands, capital stock outstanding and entitled to vote is owned
subject to limitations provided by law. and held by citizens of the Philippines or
 a corporation organized abroad and registered as
FIA. Any natural born citizen who has lost his Philippine doing business in the Philippine under the
citizenship and who has the legal capacity to enter into Corporation Code of which one hundred percent
a contract under Philippine laws may be a transferee of (100%) of the capital stock outstanding and entitled to
a private land up to a maximum area of five thousand vote is wholly owned by Filipinos or
(5,000) square meters in the case of urban land or  a trustee of funds for pension or other employee
three (3) hectares in the case of rural land to be used retirement or separation benefits, where the trustee is
by him for business or other purposes. a Philippine national and at least sixty percent (60%)
of the fund will accrue to the benefit of Philippine
In the case of married couples, one of them may avail nationals:

 Provided, however, That the phrase “doing business”

That where a corporation and its non-Filipino shall not be deemed to include:
stockholders own stocks in a Securities and i. mere investment as a shareholder by a foreign
Exchange Commission (SEC) registered enterprise, entity in domestic corporations duly registered
at least sixty percent (60%) of the capital stock to do business, and/or the exercise of rights as
outstanding and entitled to vote of each of both such investor;
corporations must be owned and held by citizens of ii. nor having a nominee director or officer to
the Philippines and at least sixty percent (60%) of the represent its interests in such corporation;
members of the Board of Directors of each of both iii. nor appointing a representative or distributor
corporations must be citizens of the Philippines, in domiciled in the Philippines which transacts
order that the corporation shall be considered a business in its own name and for its own
Philippine national; (DOUBLE 60% RULE) account;
iv. Publication of a general advertisement through
(Nery’s note: similar to GRANDFATHER TEST. To any print or broadcast media;
illustrate: v. Maintaining a stock of goods in the Philippines
solely for the purpose of having the same
Corp. Name Ownership processed by another entity in the Philippines;
Corp. A Filipino Citizen and Non-Filipino vi. Consignment by the foreign corporation of
Citizen equipment with a local company to be used in
Corp. B. Corp. A, Filipino Citizen and non- the processing of products for export;
Filipino Citizen; SEC registered vii. Collecting information in the Philippines;
Rule: for Corporation B (who is SEC Registered viii. Performing services auxiliary to an existing
and owned by another corporation, Filipino and isolated contract of sale which are not on a
non-Filipino Citizens), to be considered as Filipino continuing basis
National, it must be shown that:
(i) at least 60% of the capital stock outstanding EXPORT ENTERPRISE” shall mean an enterprise wherein a
and entitled to vote of each of both manufacturer, processor or service (including tourism)
corporations must be owned and held by enterprise exports sixty percent (60%) or more of its
citizens of the Philippines; and output, or wherein a trader purchases products
(ii) at least 60% of the members of the Board of domestically and exports sixty percent (60%) or more of
Directors of each of both corporations must be such purchases;
citizens of the Philippines.)
DOMESTIC MARKET ENTERPRISE shall mean an enterprise
NON-PHILIPPINE NATIONAL. Those who do not belong to which produces goods for sale, or renders services to the
the definition of a Philippine national. domestic market entirely or if exporting a portion of its
output fails to consistently export at least sixty percent
INVESTMENT shall mean equity participation in any enterprise (60%) thereof;
organized or existing under the laws of the Philippines;
FOREIGN INVESTMENTS NEGATIVE LIST or NEGATIVE
FOREIGN INVESTMENT. It is an equity investment made by LIST shall mean a list of areas of economic activity whose
non-Philippine national in the form of foreign exchange foreign ownership is limited to a maximum of forty percent
and/or other assets actually transferred to the Philippines (40%) of the equity capital of the enterprises engaged
and duly registered with the Central Bank which shall therein.
assess and appraise the value of such assets other than
foreign exchange. TWIN CHARACTERIZATION TEST. A foreign corporation is
considered “doing business” when:
DOING BUSINESS shall include:
 soliciting orders, service contracts, opening offices, 1. The foreign corporation is continuing the body or
whether called “liaison” offices or branches; substance of the business or enterprise for which it
 appointing representatives or distributors domiciled in was organized for or whether it has substantially
the Philippines or who in any calendar year stay in the retied from it and turned it over for another;
country for a period or periods totaling one hundred
eighty (180) days or more; 2. The foreign corporation is engaged in activities which
 participating in the management, supervision or implies a continuity of commercial dealings and
control of any domestic business, firm, entity or arrangements, and contemplates, to that extent, the
corporation in the Philippines; and performance of acts or works or the exercise if some
 any other act or acts that imply a continuity of of the functions normally incident to, and in
commercial dealings or arrangements, and progressive prosecution of, the purpose and object of
contemplate to that extent the performance of acts or its organization. (cited in SEC Opinion 17-03, April 4,
works, or the exercise of some of the functions 2017)
normally incident to, and in progressive prosecution
of, commercial gain or of the purpose and object of ADDITIONAL LIMITATIONS
the business organization:

GR: The SEC or BTRCP, as the case may be, shall not properties. Having learned of the scheduled auction sale,
impose any limitations on the extent of foreign ownership Placcer Dome, asserting its ownership over Marcoppers
in an enterprise additional to those provided in R.A. 7042. mining properties, filed a third-party claim.
XPNs: The trial court decided that the petitioner has no legal capacity
1. That any enterprise seeking to avail of incentives to sue, it being a foreign corporation doing business in the
under the Omnibus Investment Code of 1987 must Philippines without license.
apply for registration with the Board of Investments
(BOI), which shall process such application for Petitioner contends that it has the legal capacity to sue and
registration in accordance with the criteria for seek redress from Philippine courts as it is a non-resident
evaluation prescribed in said Code; foreign corporation not doing business in the Philippines and
suing on isolated transactions. But the appellate court ruled
2. That a non-Philippine national intending to engage in otherwise, it stressed that while petitioner may just be an
the same line of business as an existing joint venture, assignee to the Deeds of Assignment, it may still fall within the
in which he or his majority shareholder is a substantial meaning of doing business. Where a single act or transaction
partner, must disclose the fact and the names and however is not merely incidental or casual but indicates the
addresses of the partners in the existing joint venture foreign corporations intention to do other business in the
in his application for registration with the SEC. Philippines, said single act or transaction constitutes doing or
engaging in or transacting business in the Philippines.
FOREIGN INVESTMENT IN EXPORT ENTERPRISES
ISSUE:
1. Foreign investment in export enterprises whose
products and services do not fall within Lists A and B Whether or not Petitioner has legal capacity to sue and seek
of the Foreign Investment Negative List is allowed up redress from Philippine Courts?
to 100% ownership.
RULING:
2. Export enterprises which are non-Philippine nationals
shall register with BOI and submit the reports that YES. The Petitioner has legal capacity to sue and seek
may be required to ensure continuing compliance of redress from Philippine Courts.
the export enterprise with its export requirement.
SC enumerated the principles governing a foreign
3. BOI shall advise SEC or BTRCP, as the case may be, corporation’s right to sue in local courts as settled in our
of any export enterprise that fails to meet the export Corporation Law, to wit:
ratio requirement.
a. if a foreign corporation does business in the
4. The SEC or BTRCP shall thereupon order the non- Philippines without a license, it cannot sue before the
complying export enterprise to reduce its sales to the Philippine courts;
domestic market to not more than 40% of its total
production; failure to comply with such SEC or b. if a foreign corporation is not doing business in the
BTRCP order, without justifiable reason, shall subject Philippines, it needs no license to sue before Philippine
the enterprise to cancellation of SEC or BTRCP courts on an isolated transaction or on a cause of action
registration, and/or the penalties provided in this law entirely independent of any business transaction; and,
FOREIGN INVESTMENT DOMESTIC MARKET c. if a foreign corporation does business in the Philippines
ENTERPRISES with the required license, it can sue before Philippine
courts on any transaction.
A domestic market enterprise may change its status to export
enterprise if the Domestic market enterprise consistently Apparently, it is not the absence of the prescribed license but
exports in each year thereof sixty per cent (60%) or more of its the doing (of) business in the Philippines without such license
output over a three (3) year period which debars the foreign corporation from access to our
courts.
MR HOLDINGS, vs. SHERIFF CARLOS P. BAJAR The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the
FACTS: business or enterprise for which it was organized or
whether it has substantially retired from it and turned it
In 1992, ADB extends a loan to Marcopper. When Marcopper over to another.
defaulted, Placer Dome Corp. (a foreign corporation which
owns 40% of Marcopper) assumed Marcopper’s obligation to Republic Act No. 7042, otherwise known as the Foreign
ADB under a deed of Assignment. Investment Act of 1991, defines doing business as follows:
On a separate case, however, Solidbank Corporation The phrase doing business shall include xxx any other act
(Solidbank) obtained a Partial Judgment against Marcopper, or acts that imply a continuity of commercial dealings or
issued two notices setting the public auction sale of the levied arrangements, and contemplate to that extent the

performance of acts or works; or the exercise of some of

the functions normally incident to, and in progressive HELD:
prosecution of, commercial gain or of the purpose and
object of the business organization; Provided, YES.
however, That the phrase doing business shall not be deemed
to include mere investment as a shareholder by a foreign The series of transactions between petitioner and respondent
entity in domestic corporations duly registered to do business, cannot be classified as "doing business" in the Philippines
and/or the exercise of rights as such investor, nor having a under Section 3(d) of RA 7042. An essential condition to be
nominee director or officer to represent its interests in such considered as "doing business" in the Philippines is the
corporation, nor appointing a representative or distributor actual performance of specific commercial acts within the
domiciled in the Philippines which transacts business in its territory of the Philippines for the plain reason that the
own name and for its own account. Philippines has no jurisdiction over commercial acts performed
in foreign territories.
In the case at bar, the Court of Appeals categorized as doing
business petitioners participation under the Assignment In this case, there is no showing that petitioner performed
Agreement and the Deed of Assignment. This is simply within the Philippine territory the specific acts of doing
untenable. business mentioned in Section 3(d) of RA 7042. Petitioner did
not also open an office here in the Philippines, appoint a
Likewise, the Court said that a single act may still constitute representative or distributor, or manage, supervise or control a
doing business if it is not merely incidental or casual, but is of local business. While petitioner and respondent entered into a
such character as distinctly to indicate a purpose on the part of series of transactions implying a continuity of commercial
the foreign corporation to do other business in the state cannot dealings, the perfection and consummation of these
be applied in this case. transactions were done outside the Philippines. Considering
the given facts, it is worthy to note that the sale of lace
products was consummated in Hong Kong.
VAN ZUIDEN vs. GTVL MANUFACTURING INDUSTRIES
The Court also finds no single activity which petitioner
FACTS: performed here in the Philippines pursuant to its purpose and
object as a business organization. Moreover, petitioner’s
Petitioner, B.Van Zuiden (Zuiden, for brevity) is a corporation, desire to do business within the Philippines is not discernible
incorporated under the laws of Hong Kong, and engaged in from the allegations of the complaint or from its attachments.
the importation and exportation of several products, including Therefore, there is no basis for ruling that petitioner is doing
lace products. business in the Philippines.
On 13 July 1999, petitioner filed a complaint for sum of money Considering that petitioner is not doing business in the
against respondent GTVL Mfg. (GTVL for brevity). Philippines, it does not need a license in order to initiate and
maintain a collection suit against respondent for the unpaid
It appears that on several occasions, GTVL purchased lace balance of respondent’s purchases.
products from Petitioner. In their transaction, the agreement
was that ZUIDEN delivers the products purchased by GTVL, 10TH FOREIGN INVESTMENT NEGATIVE LIST (FINL)
to a certain Hong Kong corporation, known as Kenzar Ltd. INCLUDING SEC CASE RE: RAPPLER
(KENZAR), and the products are then considered as sold,
upon receipt by KENZAR of the goods purchased by GTVL. LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE
Thereafter, KENZAR had the obligation to deliver the products OF THE CONSTITUTION AND SPECIFIC LAWS
to the Philippines and/or to follow whatever instructions GTVL
had on the matter. No Foreign Equity
1. Mass Media except recording (Art. XVI, Sec.11 of
However, commencing October 31, 1994 until the filing of the the Constitution; Presidential Memorandum dated
complaint, GTVL has failed and refused to pay the agreed 04 May 1994)
purchase price for several deliveries ordered by it and 2. Practice of all professions (Art. XII, Sec.14 of the
delivered by ZUIDEN, the obligation amounts to Constitution, Sec. 1 of R.A. 5181, Sec. 7. J of
U.S.$32,088.02 [inclusive of interest]. R.A. 8981)
a. Pharmacy (R.A. 5921)
Instead of filing an answer, respondent filed a Motion to b. Radiologic and x-ray technology (R.A. 7431)
Dismiss on the ground that petitioner has no legal capacity to c. Criminology (R.A. 6560)
sue. Respondent alleged that petitioner is doing business in d. Forestry (R.A. 6239)
the Philippines without securing the required license. e. Law (Art. VIII, Section 5 of the Constitution;
Accordingly, petitioner cannot sue before Philippine courts. Rule 138, Sec. 2 of the Rules of the Court of
the Philippines
ISSUE: 3. Retail trade enterprises with paid-up capital of
less than US$2,500,000 (Sec. 5 of R.A. 8762)
Whether petitioner, an unlicensed foreign corporation, should 4. Cooperative (Ch. III, Art. 26 of R.A. 6938)
not be considered “doing business” in the Philippines and 5. Private security agencies (SEC. 4 of R.A. 5487)
thus, has a legal capacity to sue before Philippine courts? 6. Small-scale mining (Sec. 3 of R.A. 5487)

7. Utilization of marine resources in archipelagic franchise (Art. XII, sec. 11 for the Constitution;
waters, territorial sea, and exclusive economic Sec. 2 (a) of R.A. 7718)
zone as well as small-scale utilization of natural 24. Operation of deep sea commercial fishing
resources in rivers, lakes, bays, and lagoons (Art. vessels (Sec. 27 of R.A. 8550)
XII, Sec. 2 of the Constitution) 25. Adjustment Companies (Sec. 332 of R.A. 10607
8. Ownership, operation and management of amending P.A. 612)
cockpits (Sec. 5 of P.D. 449) 26. Ownership of condominium units (Sec. 5 of R.A.
9. Manufacture, repair, stockpiling and/or 4726)
distribution of nuclear weapons (Art. II, Sec. 8 of
the Constitution) LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS
10. Manufacture, repair, stockpiling and/or OF SECURITY, DEFENSE, RISK TO HEALTH, AND
distribution of biological, chemical and MORALS AND PROTECTION OF SMALL AND MEDIUM-
radiological weapons and anti-personal mines SCALE ENTERPRISES
(various treaties to which the Philippines is a
signatory and conventions supported by the Up to Forty Percent (40%) Foreign Equity
Philippines)
11. Manufacture of firecrackers and other  Manufacture, repair, storage, and/or distribution of
pyrotechnic devices (Sec. 5 of R.A. 7183) products and/or ingredients requiring Philippine
National Police (PNP) clearance:
Up to Twenty Percent (20%) Foreign Equity • Firearms (handguns to shotguns), parts of
12. Private radio communications network (R.A. firearms and ammunition therefore, instruments
3846) or implements used or intended to be used in the
manufacture of firearms
Up to Twenty –Five Percent (25%) Foreign Equity • Gunpowder
13. Private recruitment, whether for local or overseas • Dynamite
employment (Art. 27 of P.D. 442) • Blasting supplies
14. Contracts for the construction and repair of • Ingredients used in making explosives
locally –funded public works (Sec. 1 of • Telescopic sights, sniper scope and other similar
Commonwealth Act No. 541, Letter of Instruction devices
No. 630) except:
a. Infrastructure/development projects covered However, the manufacture or repair of these
in R.A. 7718; and items may be authorized by the Chief of the PNP
b. Projects which are foreign funded or assisted to non-Philippine nationals; Provided that a
and required to undergo international substantial percentage of output, as determined
competitive bidding (Sec. 2(a) of R.A. 7718) by the said agency, is exported. Provided further
15. Contracts for the construction of defense related that the extent of foreign equity ownership
structures (Sec. 1 of CA 541) allowed shall be specified in the said
authority/clearance (RA 7042 as amended by RA
Up to Thirty Percent (30%) Foreign Equity 8179)
16. Advertising (Art. XVI, Sec. 11 of the Constitution)
 Manufacture, repair, storage, and/or distribution of
Up to Forty Percent (40%) Foreign Equity products requiring Department of National Defense
17. Exploration, development and utilization of (DND) clearance;
natural resources (Art. XII, Sec. 2 of the • Guns and ammunition for warfare
Constitution) • Military ordnance and parts thereof (e.g.,
18. Ownership of private lands (Art. XII, Sec. 7 of the torpedoes, depth charges, bombs, grenades,
Constitution; Ch. 5, Sec. 22 of CA 141; Sec. 4 of missiles)
R.A. 9182) • Gunnery, bombing, and fire control systems and
19. Operation of public utilities (Art. XII, Sec. 11 of components
the Constitution; Sec. 16 of CA 146) • Guided missiles/missile systems and
20. Educational institutions other than those components
established by religious groups and mission • Tactical aircraft (fixed and rotary-winged), parts
boards (Art. XIV, Sec. 4 of the Constitution) and components thereof
21. Culture, production, milling, processing, trading • Space vehicles and component systems
excepting retailing, of rice and corn and • Combat vessels (air, land, and naval) and
acquiring, by barter, purchase or otherwise, rice auxiliaries
and corn and the by-products thereof (Sec. 5 of • Weapons repair and maintenance equipment
P.D. 194) • Military communications equipment
22. Contracts for the supply of materials, goods and • Night vision equipment
commodities to government-owned or controlled • Stimulated coherent radiation devices,
corporation, company, agency or municipal components, and accessories
corporation (Sec. 1 of R.A. 5183) • Armament training devices
23. Facility operator of an infrastructure or a • Others as may be determined by the Secretary of
development facility requiring a public utility the DND

However, the manufacture or repair of these Rappler and the NBM/Omidyar PDRs (called the ON PDRs)
items may be authorized by the Secretary of that said that RH/RI will “not without prior good faith discussion
National Defense to non-Philippine nationals; with ON PDR holders and without the approval of at least 2/3
provided that a substantial percentage of output, of ON PDR Holders alter, modify or otherwise change the
as determined by the said agency, is exported. Company (RH/RI) Articles of Incorporation or By-Laws or take
Provided further that the extent of foreign equity any other action where such alteration, modification or action
ownership allowed shall be specified in the said will prejudice the rights in relation to the ON PDRs.
authority/clearance. (RA 7042 as amended by
RA 8179) DECISION:
 Manufacture and distribution of dangerous drugs (RA On Monday, January 15, 2018, the SEC released an En Banc
7042 as amended by RA 8179) decision which voided the Omidyar Philippine Depositary
Receipts (PDRs) and revoked Rappler's Certificate of
 Sauna and steam bathhouses, massage clinics and Incorporation, in effect cancelling its license to operate. It also
other like activities regulated by law because of risks immediately forwarded its decision to the Department of
posed to public health and morals (RA 7042 as Justice for appropriate investigation.
amended by RA 8179)
The SEC cited “substantial evidence” that Rappler and
 All forms of gambling (RA 7042 as amended by RA Rappler Holdings had intentionally created an elaborate
8179) except those covered by investment scheme upon which its receipt of more than $1 million from a
agreements with PAGCOR (PD 1869 as amended by foreign investor would be theoretically defensible.
RA 9487)
Under the scheme, “the investor would never own stock and
 Domestic market enterprises with paid-in equity would never receive dividends and he would never become an
capital of less than the equivalent of US$200,000 (RA officer or director, but respondents would still be able to give
7042 as amended by RA 8179) him his money’s worth in the form of negative control and
cash contributions, all through a private contractual
 Domestic market enterprises which involve advanced arrangement,”
technology or employ at least fifty (50) direct
employees with paid-in equity capital of less than the Here, the stockholders must have prior discussion with and
equivalent of US$100,000 (RA 7042 as amended by approval of at least two-thirds of the PDR Holdings, meaning
RA 8179) Rappler is at the very least under obligation to consult with
Omidyar Network.
RAPPLER CASE DIGEST “The stockholder has become, in effect, subservient to the
holder. It is neither 100-percent control by the Filipino
FACTS: stockholders nor is it zero-percent control by the
foreigner PDS holders,”
In 2015, Rappler, Inc. (RI) and Rappler Holdings (RH, owns
RI) filed SEC 10-1 Notice of Application for Confirmation “The foreign equity restriction is very clear. Anything less than
Exempt Transactions reporting some 20 million Philippine 100-percent Filipino control is a violation. Conversely, anything
Depositary Receipts (PDRs) issued to NBM Rappler and more than exactly zero-percent foreign control is a violation,”
Omidyar Network Fund LLC variously.
NOTES:
RHC issued PDRs to North Base Media and Omidyar
Network. These were duly disclosed by Rappler in the • PDRs are financial instruments that foreign funds can buy
following stories: into, allowing media and other Filipino firms to raise funds
globally. These are not evidences or statements nor
• Top journalists' independent media fund invests in certificates of ownership of a corporation. However, each
Rappler PDR represents a share, and when bought by a foreign
• Omidyar Network invests in Rappler entity, gives the buyer the right to all the dividends due
the shares of stock acquired.
Omidyar has 5.5% of RHC's PDRs while North Base Media
has 9.2%. • There are at least three high-profile media corporations
namely ABS-CBN, GMA, and Rappler that have used
In December 2016, the SEC received a letter from the Solicitor Philippine Depository Receipts (PDRs) to obtain foreign
General asking for an investigation into the Rappler PDRs “for investment, even at the expense of recognizing the
any possible contravention of the 1987 Constitution, which constitutional prohibition of foreign ownership in the
provides that “ownership and management of mass media industry of mass media.
shall be limited to citizens of the Philippines, or to
corporations, cooperatives or associations, wholly owned and NOTES:
managed by such citizens.”
 Existing foreign corporations shall be allowed to increase
The SEC investigation focused on the covenant between capital even if their existing investment area is in the FINL.

After due notice, cancel the registration or suspend the

 Transfer of ownership from one foreign company to enjoyment of incentives benefits of any registered
another shall be allowed even if the enterprise is engaged enterprise and/or require refund of incentives enjoyed by
in an area in the FINL as long as there is the percentage such enterprise including interests and monetary
share of foreign equity. penalties, for:
 Amendments to List B after promulgation and publication (a) failure to maintain the qualifications required by this
of the first Regular Foreign Investment Negative List at the Code for registration with the Board or
end of the transitory period shall not be made more often (b) for violations of this Code, of the rules and
than once every two (2) years”. regulations issued under this Code, of the terms and
conditions of registration, or of laws for the protection
 Strategic industries. Industries that are characterized by of labor or of the consuming public:
all of the following: (c) Provided, That the registration of an enterprise whose
a. Crucial to the accelerated industrialization of the project timetable, as set by the Board is delayed by
country. one year, shall be considered automatically cancelled
b. Require massive capital investments to achieve unless otherwise reinstalled as a registered enterprise
economies of scale for efficient operations. by the Board;
c. Require highly specialized or advanced technology
which necessitates technology transfer and proven  Art. 7(13). a MULTILATERAL FINANCIAL INSTITUTION
production techniques in operations; shall refer to a financial agency or entity, and its affiliates
d. Characterized by strong backward and forward which satisfy the following qualifications:
linkages with most industries existing in the country,
and (1) The institution is either owned or controlled by
e. Generate substantial foreign exchange savings member countries but does not possess any national
through import substitution and collateral foreign identity;
exchange earnings through export of part of the (2) The institution sources its funds from capital stock
output that will result with the establishment, subscriptions and contributions by member countries;
expansion or development of the industry. and
(3) The primary responsibility of the institution is to
OMNIBUS INVESTMENT CODE provide funds for development purposes and
E.O. 226 AS AMENDED BY R.A. 7918 international economic stability.”
NOTES:  Art. 17. PIONEER ENTERPRISE shall mean a registered

enterprise:
 Art. 2(8). Fiscal incentives shall be extended to stimulate
the establishment and assist initial operations of the (1) engaged in the manufacture, processing or
enterprise, and shall terminate after a period of NOT production, and not merely in the assembly or
MORE THAN 10 YEARS from registration or start-up of packaging of goods, products, commodities or raw
operation unless a specific period is otherwise stated. materials that have not been or are not being
produced in the Philippines on a commercial scale or
 Art. 7(14). EXTENSIONS (2) which uses a design, formula, scheme, method,
process or system of production or transformation of
Extend the period of availment of incentives by any any element, substance or raw materials into another
registered enterprise; Provided, That the total period of raw material or finished goods which is new and
availment shall not exceed ten (10) years, subject to any untried in the Philippines or
of the following criteria: (3) engaged in the pursuit of agricultural, forestry and
mining activities and/or services including the
(a) The registered enterprise has suffered operational industrial aspects of food processing whenever
force majeure that has impaired its viability. appropriate, pre-determined by the Board, in
(b) The registered enterprise has not fully enjoyed the consultation with the appropriate Department, to be
incentives granted to it for reasons beyond its control; feasible and highly essential to the attainment of the
(c) The project of the registered enterprise has a national goal in relation to a declared specific national
gestation period which goes beyond the period of food and agricultural program for self-sufficiency and
availment of needed incentives; and other social benefits of the project or
(d) The operation of the registered enterprise has been (4) which produces non-conventional fuels or
subjected to unforeseen changes in government manufactures equipment which utilize non-
policies, particularly, protectionalism policies of conventional sources of energy or uses or converts to
importing countries, and such other supervening coal or other non-conventional fuels or sources of
factors which would affect the competitiveness of the energy in its production, manufacturing or processing
registered firm; operations. Provided, That the final product in any of
the foregoing instances, involves or will involve
 Art. 7(8). GROUNDS FOR CANCELLATION/ substantial use and processing of domestic raw
SUSPENSION materials, whenever available; taking into account the
risks and magnitude of investment: Provided, further,

That the foregoing definitions shall not in any way limit - mechanical, as
the rights and incentives granted to less-developed- - chemical, slaughtering,
area enterprises provided under Title V, Book I, - electrical, milling,
hereof. - biochemical, pasteurizing,
- biological or drying or
 Art. 18. NON-PIONEER ENTERPRISE shall include all - other means desiccating,
registered producer enterprises other than pioneer - special treatment, or quick freezing,
enterprises.
 Art. 23. EXPORT SALES NOTE: Merely packing or packaging shall not
constitute processing.
(1) Refers to the Philippine port F.O.B. value, determined
from invoices, bills of lading, inward letters of credit,  Art. 26. INVESTMENT PRIORITIES PLAN. Refers to the
landing certificates, other commercial documents, of over-all plan prepared by the Board which includes and
exports products exported directly by a registered contains:
export producer or (a) The specific activities and generic categories of
(2) the net selling price of export product sold by a economic activity wherein investments are to be
registered export producer to encouraged and the corresponding products and
 another export producer, or to commodities to be grown, processed or
 an export trader that subsequently exports the manufactured pursuant thereto for the domestic or
same: export market;
(b) Specific public utilities which can qualify for incentives
ACTUAL EXPORTATION under this Code and which shall be supported by
 Sales of export products to another producer or to an studies of existing and prospective regional demands
export trader shall only be deemed export sales when for the services of such public utilities in the light of
actually exported by the latter, as evidenced by the level and structure of income, production, trade,
landing certificates or similar commercial documents prices and relevant economic and technical factors of
the regions as well as the existing facilities to produce
CONSTRUCTIVE EXPORTATION such services;
 The following shall be considered constructively (c) Specific activities where the potential for utilization of
exported for purposes of this provision: indigenous no-petroleum based fuels or sources of
(1) sales to bonded manufacturing warehouses of energy can be best promoted; and
export-oriented manufacturers; (d) Such other information, analyzes, data, guidelines or
(2) sales to export processing zones; criteria as the Board may deem appropriate.
(3) sales to registered export-traders operating
bonded trading warehouses supplying raw  Art. 27. Not later than the end of March of every year,
materials used in the manufacture of export the Board of Investments, after consultation with the
products under guidelines to be set by the Board appropriate government agencies and the private sector,
in consultation with the Bureau of Internal shall submit to the President an Investment Priorities Plan,
Revenue and the Bureau of Customs; Provided, however That the deadline for submission may
(4) sales to foreign military bases, diplomatic be extended by the President.
missions and other agencies and/or
instrumentalities granted tax immunities, of  Art. 28, last paragraph. In any of the declared preferred
locally manufactured, assembled or repacked areas of investment, the Board may designate as pioneer
products whether paid for in foreign currency or areas the specific products and commodities that meet the
not: requirements of Article 17 of this Code and review yearly
whether such activity, as determined by the Board, shall
NOTE: exportation of goods on consignment continue as pioneer, otherwise, it shall be considered as
shall not be deemed export sales until the export non-pioneer and accordingly listed as such in the
products consigned are in fact sold by the Investment Priorities Plan or removed from the Investment
consignee. Priorities Plan.
TRANSSHIPMENT  Art. 32. Qualifications of a Registered Enterprise.

 Refers to the shipment of goods or containers to an
intermediate destination, then to yet another To be entitled to registration under the Investment
destination. Priorities Plan, an applicant must satisfy the Board that:
 Art. 25. PROCESSING (TRANSFORMATION) shall mean (1) He is a citizen of the Philippines, in case the
applicant is a natural person, or in case of a
 Converting of raw materials into marketable form that partnership or any other association, it is organized
results in a change in the nature or state of the under Philippine laws and that at least sixty percent
products, through: (60%) of its capital is owned and controlled by citizens
of the Philippines; or in case of a corporation or a
- physical, series of actions such cooperative, it is organized under Philippine laws and

that at least sixty per cent (60%) of the capital stock (4) If the applicant is engaged or proposes to engage in
outstanding and entitled to vote is owned and held by undertaking or activities other than preferred projects,
Philippine nationals as defined under Article 15 of this it has installed or undertakes to install an accounting
Code, and at least sixty per cent (60%) of the system adequate to identify the investments,
members of the Board of Directors are citizens of the revenues, costs, and profits or losses of each
Philippines. If it does not possess the required degree preferred project undertaken by the enterprise
of ownership as mentioned above by Philippine separately from the aggregate investment, revenues,
nationals, the following circumstances must be costs and profits or losses of the whole enterprise or
satisfactorily established: to establish a separate corporation for each preferred
project if the Board should so require to facilitate
(a) That it proposes to engage in a pioneer projects proper implementation of this Code.
as defined in Article 17 of this Code, which,
considering the nature and extent of capital  Art. 36. APPEAL.
requirements, processes, technical skills and
relative business risks involved, is in the opinion Any order or decision of the Board shall be final and
of the Board of such a nature that the available executory after thirty (30) days from its promulgation.
measured capacity thereof cannot be readily and Within the said period of thirty (30) days, said order or
adequately filled by Philippine nationals; or, if the decision may be appealed to the Office of the President.
applicant is exporting at least seventy per cent Where an appeal has been filed, said order or decision
(70%) of the total production, the export shall be final and executory ninety (90) days after the
requirement herein provided may be reduced in perfection of the appeal, unless reversed.
meritorious cases under such conditions and/or
limited incentives as the Board may determine;  Art. 38. PROTECTION OF INVESTMENTS.
(b) That it obligates itself to attain the status of a All investors and registered enterprises are entitled to the
Philippine national, as defined in Article 15, basic rights and guarantees provided in the Constitution.
within thirty (30) years from the date of Among other rights recognized by the Government of the
registration or with such longer period as the Philippines are the following:
Board may require taking into account the export
potential of the project: (a) Repatriation of Investments. In the case of foreign
investments, the right to repatriate the entire proceeds
Provided, That a registered enterprise which of the liquidation of the investment in the currency in
exports one hundred percent (100%) of its total which the investment was originally made and at the
production need not comply with this exchange rate prevailing at the time of repatriation.
requirement;
(b) Remittance of Earnings. In the case of foreign
(c) That the pioneer area it will engage in is one that investments, the right to remit earnings from the
is not within the activities reserved by the investment in the currency in which the investment
Constitution or other laws of the Philippines to the was originally made and at the exchange rate
Philippine citizens or corporations owned and prevailing at the time of remittance,
controlled by Philippine citizens;
(c) Foreign Loans and Contracts. The right to remit at the
(2) The applicant is proposing to engage in a preferred exchange rate prevailing at the time of remittance
project listed or authorized in the current Investment such sums as may be necessary to meet the
Priorities Plan within a reasonable time to be fixed by payments of interest and principal on foreign loans
the Board or, if not so listed, at least fifty percent and foreign obligations arising from technological
(50%) of its total production is for export or it is an assistance contracts.
existing producer which will export part of production
under such conditions and/or limited incentives as the (d) Freedom from Expropriation. There shall be no
Board may determine; or that the enterprise is expropriation by the government of the property
engaged or proposing to engage in the sale abroad of represented by investments or of the property of the
export products bought by it from one or more export enterprise except for public use or in the interest of
producers; or the enterprise in engaged or proposing national welfare or defense and upon payment of just
to engage in rendering technical, professional or other compensation. In such cases, foreign investors or
services or in exporting television and motion pictures enterprises shall have the right to remit sums received
and musical recordings made or produced in the as compensation for the expropriated property in the
Philippines, either directly or through a registered currency in which the investment was originally made
trader. and at the exchange rate at the time of remittance,
(3) The applicant is capable of operating on a sound and (e) Requisition of Investment. There shall be no
efficient basis of contributing to the national requisition of the property represented by the
development of the preferred area in particular and of investment or of the property of enterprises, except in
the national economy in general; and 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 For the first five (5) years from date of registration,
immediately after cessation of the state of war or a registered enterprise shall be allowed an additional
national emergency. Payments received as deduction from taxable income equivalent workers in
compensation for the requisitioned property may be the direct labor force. This incentive shall be granted
remitted in the currency in which the investment was only if the enterprise meets a prescribed capital-to-
originally made and at the exchange rate prevailing at labor ratio.
the time of remittance.
ADLE cannot be simultaneously availed of with
 Art. 39. Incentives to Registered Enterprises. ITH.
FISCAL INCENTIVES This additional deduction shall be doubled or become

one hundred percent (100%) if the activity is located
(a) Income Tax Holiday. New registered firms shall be in an LDA.
fully exempt from income taxes levied by the National
Government. The privilege, however, is not granted to mining and
forestry-related projects as they would naturally be
Period Entity Remarks located in certain areas to be near their source of raw
6 yrs. Pioneer status (new May not be availed materials.
projects) for a period
4 yrs. Non-pioneer status exceeding eight (8) EXEMPTIONS ON DUTIES AND TAXES or
(new projects) years* TAX CREDIT, as the case may be:
3 yrs. Registered May not availed with
expanding firms ADILE. (c) (i) Duty free importation of capital equipment,
6 yrs. LDAs, regardless of Not entitled to any spare parts and accessories, subject to
status or type of extension. conditions. (ii) Tax credit on machinery,
projects equipment and spare parts (Amended by TRAIN
law)
LDA = Less Developed Area
ADILE = Additional deduction for Incremental NOTE: the registered enterprise and the vendee,
labor expense transferee, or assignee shall be solidarily liable to
Status = Pioneer; or pay twice the amount of the tax exemption given it if:
non-pioneer
Type = New projects; or i. registered enterprise sells, transfers or disposes
Expansion; of these machinery, equipment and spare parts
ii. without prior approval of the Board
*Income tax exemptions may be extended in the iii. within five (5) years from date of acquisition.
following cases (for pioneer/non-pioneer new projects
only; ITH may not be availed for a period exceeding 8 The Board shall allow and approve the sale, transfer
years): or disposition of the said items within the said period
of five (5) years if made:
i. the project meets the prescribed ratio of capital
equipment to number of workers set by the Board i. to another registered enterprise or registered
(The ratio of derived dollar cost of capital domestic producer enjoying similar incentives;
equipment to the average number of direct labor ii. for reasons of proven technical obsolescence; or
does not exceed US$10,000) iii. for purposes of replacement to improve and/or
ii. utilization of indigenous raw materials at rates expand the operations of the registered
set by the Board (indigenous raw materials used enterprise.
in the manufacture or processing of the
registered product is at least fifty percent (50%) NOTE: A tax credit equivalent to one hundred
of the total cost of raw materials for each of the percent (100%) of the value of the national revenue
taxable year) taxes and customs duties that would have been
iii. the net foreign exchange savings or earnings waived on the machinery, equipment and spare parts,
amount to at least US$500,000.00 annually had these items been imported shall be given to the
during the first three (3) years of operation. new and expanding registered enterprise which
purchases machinery, equipment and spare parts
NOTE: BOI registered enterprises shall be exempt from a domestic manufacturer:
from the payment of income tax reckoned from the
approved target or actual date of commercial Requisites on tax credit
operations, whichever comes first, but in no case (1) the said equipment, machinery and spare parts
earlier than the date of registration are reasonably needed and will be used
exclusively by the registered enterprise in the
(b) Additional Deduction for Labor Expense. 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 (g) Additional deduction for necessary and major
and duty-free importation infrastructure work in LDAs
(3) that the approval of the Board was obtained by
the registered enterprise; and A registered enterprise locating in LDAs or in areas
(4) that the purchase is made on or before deficient in infrastructure, public utilities, and other
December 31, 1997 or December 31, 1999 as facilities may deduct from taxable income an amount
the case may be. equivalent to the expenses incurred in the
development of necessary and major infrastructure
NOTE: In case of spare parts, shall be used only in works.
the bonded manufacturing warehouse of the
registered enterprise under such requirements as the Zero-rated Value-Added Tax (VAT)
Bureau of Customs may impose.
The BOI endorses to the BIR two types of zero
(d) (i) Exemption on Breeding Stocks and Genetic percent (0%) VAT applications:
Materials. (ii) Tax credit on the purchase of
domestic breeding stocks and genetic materials a. For purchases of raw materials and supplies
used in the manufacture and which form part of
Requisites on exemption on exempt from all taxes the registered export product; and
and duties: b. For purchases of goods, services, or properties
i. The importation of breeding stocks and genetic of firms exporting one hundred percent (100%) of
materials within ten (10) years from the date of their product. (Motor vehicles are not covered,
registration or commercial operation except specialized vehicles such as backhoe,
ii. such breeding stocks and genetic materials are forklift, etc.) [Already amended by TRAIN
not locally available and/or obtainable locally in Package 1.]
comparable quality and at reasonable prices;
iii. reasonably needed in the registered activity; and RHQ vs. ROHQ
iv. approved by the Board.
 Multinational Company shall mean a foreign
A tax credit equivalent to one hundred percent (100%) company or a group of foreign companies with
of the value of national internal revenue taxes and business establishments in two or more countries;
customs duties that would have been waived (had
these been imported) on the purchase of local  Regional or Area Headquarters (RHQ) is an office
breeding stocks and genetic materials, requisites: whose purpose is to act as an administrative branch
of a multinational company engaged in international
i. That said breeding stocks and genetic materials trade which principally serves as a supervision,
would have qualified for tax and duty free communications, and coordination center for its
importation under the preceding paragraph; subsidiaries, branches, or affiliates in the Asia-Pacific
ii. that the breeding stocks and genetic materials Region and other foreign markets, and which does
are reasonably needed in the registered activity; not earn or derive income in the Philippines.
iii. that approval of the board has been obtained by
the registered enterprise; and  Regional Operating Headquarters (ROHQ) refers to
iv. that the purchase is made within ten (10) years a foreign business entity which is allowed to derive
from date of registration or commercial operation income in the Philippines by performing qualifying
of the registered enterprise. services to its affiliates, subsidiaries, or branches in
the Philippines, in the Asia-Pacific Region and in
(e) Tax Credit for Taxes and Duties on Raw Materials. other foreign markets. Such services are general
administration and planning, business planning and
May be availed for supplies, raw materials and semi- coordination, sourcing and procurement of raw
manufactured products used in the manufacture, materials and components, corporate finance
processing or production of its export products and advisory services, marketing control and sales
forming parts thereof; Provided, however, that the promotion, training and personnel management,
taxes on the supplies, raw materials and semi- logistic services, research and development services
manufactured products domestically purchased are and product development, technical support and
indicated as a separate item in the sales invoice. maintenance, data processing and communication,
and business development.
(f) Exemption from wharfage dues and export tax,
duty, impost, and fees Qualifications of RHQ, among others
All enterprises registered under the IPP will be given A duly authenticated certification from the principal
a ten (10) year period from the date of registration to officer of the foreign entity to the effect that the said
avail of the exemption from wharfage dues and any foreign entity has been authorized by its Board of
export tax, impost, and fees on its non-traditional Directors or governing body to establish its regional or
export products. area headquarters in the Philippines, specifying that:

(1) The activities of the regional or area headquarters

shall be limited to acting as a NON-FISCAL INCENTIVES
- supervisory,
- communications and a. Employment of foreign nationals
- coordinating center for its subsidiaries,
affiliates and branches in the region; A registered enterprise may be allowed to employ foreign
(2) The regional or area headquarters: nationals in supervisory, technical, or advisory positions
- will not derive any income from sources for five (5) years from the date of registration, extendible
within the Philippines and for limited periods at the discretion of the Board.
- will not participate in any manner in the
management of any subsidiary or branch When the majority of the capital stock of a registered
office it might have in the Philippines enterprise is owned by foreign investors, the position of
- nor shall it solicit or market goods and president, treasurer and general manager or their
services whether on behalf of its mother equivalents may be retained by foreign nationals beyond
company or its branches, affiliates, the period set forth herein.
subsidiaries or any other company; and
(3) The regional or area headquarters shall notify the The following shall be permitted to enter and reside in the
Board of Investments and the Securities and Philippines during the period of employment of such
Exchange Commission of any decision to close down foreign nationals:
or suspend operations of its headquarters at least
fifteen (15) days before the same is effected. - The Foreign national himself, under employment
contract
Qualifications of ROHQ: - their spouses and
- unmarried children under twenty-one (21) years
A duly authenticated certification from the principal officer
of the foreign entity to the effect that the said foreign entity A registered enterprise shall train Filipinos as
has been authorized by its Board of Directors or governing understudies of foreign nationals in administrative,
body to establish its regional operating headquarters in the supervisory and technical skills and shall submit annual
Philippines, specifying that: reports on such training to the Board.
(1) The regional operating headquarters may engage in b. Simplification of customs procedures for the importation
any of the following qualifying services: of equipment, spare parts, raw materials, and supplies and
- General administration and planning; exports of processed products.
- Business planning and coordination;
- Sourcing/procurement of raw materials and c. Unrestricted use of consigned equipment.
components;
- Corporate finance advisory services; Machinery, equipment and spare parts consigned to any
- Marketing control and sales promotion; - registered enterprise shall not be subject to restrictions as
Training and personnel management; to period of use of such machinery, equipment and spare
- Logistics services; parts; provided that the importation or re-export of
- Research and development services, and consigned equipment for a period of ten (10) years from
product development; the date of registration will be subject to posting of a re-
- Technical support and maintenance; export bond.
- Data processing and communication; and
- Business development. d. The privilege to access/operate a bonded
manufacturing/trading warehouse subject to Customs
ROHQs are prohibited from rules and regulations.
- - offering qualifying services to entities other
than their affiliates, branches or subsidiaries, What is the policy on industry dispersal?
as declared in their registration with the
Securities and Exchange Commission  The BOI uses the incentive package under EO 226 to
- nor shall they be allowed to directly and influence industry and encourage enterprises to locate
indirectly solicit or market goods and outside the National Capital Region (NCR). In this
services whether on behalf of their mother connection, the BOI limits incentives to firms that locate in
company, branches, affiliates, subsidiaries or congested urban centers. Further, the law provides
any other company. maximum incentives to registered enterprises that will
locate in LDAs or in the thirty (30) poorest Philippine
(2) The regional operating headquarters shall notify the provinces. Projects that otherwise may not be covered by
Board of Investments, the Securities and Exchange ITH may become entitled if the projects will be located in
Commission and the Bangko Sentral ng Pilipinas, as LDAs.
the case may be, of any decision to close down or
suspend operations of its headquarters at least fifteen What is the most recent government initiative to promote
(15) days before the same is effected. priority industries?
(Nery’s remarks: to be included in the finals)

 The government has applied its model project of “industry Law. This is available for employment in any
clustering” to the listed activities in the IPP. Clustering is executive or managerial position.
the geographic concentrations of interconnected business
entities and support institutions, and encompasses an 3. International Treaty Investors Visa - This is granted
array of linked industries and other entities important to under Sec. 9(d) of the Philippine Immigration Law.
competition. These may include suppliers of inputs, The required investment is at least P300,000.00. Only
support facilities and service providers, and providers of Germans, Japanese and Americans are parties to this
specialized infrastructures. Clustering is seen as an treaty.
effective strategy in contributing to the attainment of
regional goals such as poverty alleviation and enhancing RESTRICTIONS ON EMPLOYMENT OF FOREIGN
economic productivity, within the context of the regional TECHNICAL OR MANAGERIAL PERSONNEL AND
development strategies. ACCOMPANYING FAMILY MEMBERS
ENTRY OF NON-RESIDENT PERSONNEL Restrictions on positions:
Enterprises registered under the Omnibus Investments 1. Registered foreign enterprises with the Board of
Code [Executive Order No. 226] are permitted to employ Investments [BOI] may employ foreign nationals in
foreign nationals in supervisory, technical, or advisory supervisory, technical or advisory positions for a
positions during its first five years from registration. Those period not exceeding five [5] years from its
majority foreign-owned registered enterprises are allowed registration, extendible for limited periods at the
to employ foreign nationals as president, treasurer and discretion of the BOI.
general managers for an indefinite period of time. In the
case of Offshore Banking Units [OBUs], they are allowed 2. BOI-registered majority foreign-owned enterprises
to employ foreign nationals as executives in their may employ foreign nationals in the positions of
respective units. The same may be said for executives in president, treasurer or general manager beyond the
area headquarters of multinational corporations. period of five [5] years.
For non-resident personnel of foreign firms, the entry visa 3. Foreign nationals under the Corporation Code may be
requirements and description of the nature of the entry employed as members of the Board of Directors by
restriction are as follows: way of election.
1. Special Investors Resident Visa [SIRV] - This is 4. Foreign enterprises located at the Subic Bay Freeport
issued to any alien, except nationals coming from may employ foreign nationals in any position upon
North Korea and Cambodia and such other countries prior approval of the Subic Bay Metropolitan Authority
that may be classified restricted in the future, who [SBMA] for a period of five [5] years which may be
meets the following qualifications: extended from year to year.
a. he/she had not been convicted of a crime 5. Foreign enterprises entering into government
involving moral turpitude; contracts and service for coal operations and
exploration and development of oil and geothermal
b. he/she had not been afflicted with any loathsome, resources are allowed to employ foreign nationals in
dangerous or contiguous disease; any position.
c. he/she had not been institutionalized for any Restrictions on skills requirement:
mental disorder or disability; and
Employment of foreign technicians in foreign enterprises in
d. he/she is willing and able to invest the amount of the Philippines is subject to the requirement that the skills
at least US$75,000 in the Philippines. they possess are not available in the Philippines. If there is
none available in the Philippines, a pre-arranged
The special feature of this visa is the grant to the employment visa may be extended to the foreign
investor of the privilege to reside in the Philippines technician. Further, under the law, their employment
for as long as his investment exists. should be accompanied by an understudy program
wherein at least two [2] Filipino understudies should be
He shall be entitled to import his used household trained on the skills for which they [foreign technicians]
goods and personal effects, tax and duty-free, as were engaged.
an alien coming to settle in the Philippines for the first
time under Sec. 105(h) of the Tariff and Customs 2017 INVESTMENT PRIORITY PLAN
Code of the Philippines. (EFFECTIVE 2017-2019)
Moreover, the investor's spouse and unmarried  Three tests for an industry to be included in the IPP:
children under 21 years of age who join him in the 1. Economically
Philippines may be issued the same visa. 2. Technically sound
3. Financially
2. Pre-arranged Employment Visa - This is granted
pursuant to Sec. 9(g) of the Philippine Immigration
 The IPP is an annual plan of priority industries and service 4. Refining, Storage, Marketing, and Distribution of
areas that are encouraged through the grant of fiscal and Petroleum Products (R.A. No. 8479)
non-fiscal incentives. The list of priority areas are drawn 5. Rehabilitation, Self-Development and Self-
up based on extensive consultations with government Reliance of Persons with Disability (R.A. No.
agencies, foreign chambers, NGOs, and the private 7277)
sector. It also takes into consideration the country’s 6. Renewable Energy (R.A. No. 9513)
economic thrusts and development plans, the current 7. Tourism (R.A. No. 9593)
global realities, trends and markets, and the Philippine
international engagements. IV. Lastly, the ‘ARMM List’ of activities shows
investment areas which encourage businesses to
 The 2017 IPP expounds on four major priority investment service the ARMM market. These include Export
areas. These include (1) preferred investment activities, Activities; Agriculture, Agribusiness, and Aquaculture
(2) export activities, (3) activities based on Special Laws and Fishery; Basic Industries; Infrastructure and
granting incentives, and (4) activities in the ARMM region. Services; Industrial Service Facilities; Engineering
Industries; Logistics; BIMP-EAGA Related Investment
I. Under the ‘preferred investment activities’, the IPP Enterprises; Tourism; Health and Education Services
expanded on the following areas: and Facilities; Halal Industry; Banking, Non-Bank
Financial Institutions and Facilities; and Energy.
1. Manufacturing including Agro-Processing;
2. Agriculture, Fishery, and Forestry; SPECIAL ECONOMIC ZONE ACT OF 1995
3. Strategic Services such as R.A. 7916 AS AMENDED BY P.D. 66
a. Integrated Ciruits (IC) Design,
b. Creative Industries or Knowledge-based NOTES:
Services,
c. Maintenance, Repair, and Overhaul of  The party responsible for the compliance of the obligations
Aircraft, imposed on customs transit shall ensure that the goods
d. Charging/refuelling stations for Alternative are presented intact, and customs duties and taxes are
Energy Vehicles, paid. Failure to comply with the aforementioned
e. Industrial Waste Treatment, obligations may subject the PEZA entity, or the
f. Telecommunications, buyer/shipper to pay the corresponding duties, taxes and
g. State-of-the-Art Engineering, Procurement, other applicable fines, penalties, and surcharges.
and Construction;
4. Healthcare Services including Drug Rehabilitation  Enterprises within the zone are granted preferential tax
Centers; treatment and immigration laws are more lenient.
5. Mass Housing;
6. Infrastructure and Logistics including LGU-PPs;  “START OF COMMERCIAL OPERATIONS” – for
7. Innovation Drivers; purposes of Income Tax Holiday, shall be the date
8. Inclusive Business Models; specified in the Registration Agreement, or the date when
9. Environment and Climate Change-Related the particular ECOZONE export enterprise actually begins
Projects; and production of the registered product for commercial
10. Energy purposes, whichever comes first, irrespective of phases or
modules or schedule of development.
The clause on Innovation Drivers opens the window
for smaller investors, expanding market participation  The ECOZONE shall be managed and operated by the
in growing local economies. Interestingly, the clause PEZA as separate customs territory.
also covers commercialization of new technologies
and products of DOST and the outputs of  TRAIN PACKAGE. PRRD vetoed provision on zero-rated
government-funded research. VAT for local firms supplying to PEZA enterprises. Under
TRAIN, local sales shall be zero-rated until enhanced VAT
II. Another set of activities highlighted in the 2017 IPP refund system in place
are the ‘export activities’ from the Philippines. These
activities would include (i) production and IMPORTANT TERMS
manufacturing of export products, (ii) service exports,
and (iii) other activities in support of exporters. (a) Special Economic Zones (SEZ); ECOZONES. Refers to
the selected areas with highly developed or which have
III. The activities under ‘special laws’ also provide the potential to be developed into agro-industrial, industrial
highly-specialized businesses the opportunities to tourist/recreational, commercial, banking, investment and
qualify for incentives under the 2017 IPP. financial centers.
1. Industrial Tree Plantation (P.D. No. 705)
2. Exploration, Mining. Quarying and Processing of An ECOZONE may contain ANY or ALL of the following:
Minerals (R.A. NO. 7942) (limited to capital (i) Industrial Estates (IEs),
equipment incentives ) (ii) Export Processing Zones (EPZs),
3. Publication or Printing of Books/Textbooks (R.A. (iii) Free Trade Zones, and
No. 8047) (iv) Tourist/Recreational Centers.

SUMMARY OF INCENTIVES
(b) ECOZONE ENTERPRISE. Refers to any individual,
association, corporation, partnership or other form of I. FISCAL INCENTIVES
business organization which has been registered with the • Income Tax Holiday (ITH) – 100% exemption from
PEZA. corporate income tax.
• Exemption from payment of any and all local
(c) ECOZONE Export Enterprise refers to an ecozone government imposts, fees, licenses or taxes.
enterprise engage in manufacturing, assembling or • Upon expiry of the Income Tax Holiday – 5%
processing activity falling within the purview of the act and Special Tax on Gross Income and exemption from
resulting in the exportation of 100% of its production, all national and local taxes
unless a lower percentage of its production for exportation • Tax and duty-free importation of raw materials,
is prescribed by the Board subject to such terms and capital equipment, machineries and spare parts.
conditions as the latter may determine. • Exemption from wharfage dues and export tax,
impost or fees.
(d) Export Processing Zone (EPZ). a specialized industrial • VAT zero-rating of local purchases subject to
estate located physically and/or administratively outside compliance with BIR and PEZA requirements.
customs territory, predominantly oriented to export • Additional deduction equivalent to 50% of training
production. Enterprises located in export processing zones expenses, chargeable against the 3% share of the
are allowed to import capital equipment and raw materials national government in the special 5% tax on gross
free from duties, taxes and other import restrictions. income;
(e) ECOZONE Free Trade Enterprise refers to an ecozone II. NON-FISCAL INCENTIVES
enterprises engaged in the importation of goods or • Non-resident Foreign Nationals may be employed
merchandise within the restricted or free trade area in the by PEZA-registered Economic Zone Enterprises in
ecozone tax and duty-free for immediate transshipment or supervisory, technical or advisory positions.
for storage, repacking, sorting, mixing or manipulation and • Permanent resident status for foreign investors
subsequent exportation unless the Board allows the sale with initial investments of US$ 150,000.00 or more;
thereof in the customs territory subject to the payment of
customs duties and internal revenue taxes to such other FISCAL INCENTIVES
terms and conditions as it may determine.
1. INCOME TAX HOLIDAY
(f) Free Trade Zone. An isolated policed area adjacent to a
port of entry (as a seaport) and/or airport where imported PERIOD OF AVAILMENT. Export or Free trade enterprise
goods may be unloaded for immediate transshipment or shall be fully exempt from income taxes levied by the
stored, repacked, sorted, mixed, or otherwise manipulated National Government for the period as follows:
without being subject to import duties. However,
movement of these imported goods from the free-trade 1. New Registered PIONEER Firms – 6 years from
area to a non-free-trade area in the country shall be commercial operations
subject to import duties. 2. New Registered NON-PIONEER Firms – 4 years from
commercial operations
REGISTRATION UNDER PEZA 3. Expanding Firms – 3 years from commercial
operations
Who may register under PEZA?
 Any individual, association, corporation, partnership ECOZONE PIONEER ENTERPRISE shall mean an
or other form of business organization. Ecozone enterprises
May Foreign Citizens be registered under PEZA? Up to (1) engaged in the MANUFACTURE, PROCESSING OR
what equity allowed? PRODUCTION and not merely in the assembly of
 Foreign citizens and companies owned by non- packaging of goods, products, commodities or raw
Filipinos in whatever proportion may set up materials that have not been or not being produced in
enterprises in the ECOZONE, either by themselves or the Philippines on a commercial scale, or
in joint venture with Filipinos in any sector of industry, (2) those given such status under the Investment
international trade and commerce within the Priorities Plan: provided, that the final product
ECOZONE. Their assets, profits and other legitimate involves or will involve substantial use and processing
interests shall be protected, provided that the of domestic raw materials, whenever available, taking
ECOZONE through the PEZA may require a minimum into account the risk and magnitude of investment.
investment for any ECOZONE enterprises in freely (Sec. 2 (k), Part IV of the Rules and Regulations to
convertible currencies. Implement Republic Act No. 7916, hereafter known as
“IRR”)
May Businesses Organized under Foreign laws register?
 Yes. Branch Offices, Representative Offices, Determination of Pioneer / Non-Pioneer Status
Regional Headquarters (RHQs) or Regional a. Investment Priorities Plan – As a general policy, the
Operating Headquarters (ROHQs) are allowed to basis for determining whether an Investment Priorities
register under PEZA. Plan prepared yearly by the prepared by the Board of

Investments. In the absence thereof, the applicable “Restricted Area” – shall mean a specific area within the
criteria shall be formulated by PEZA ECOZONE which has been classified and / or fenced-in as
b. Non-Pioneer Status – if it be deemed categorically Export Processing zone, Free-Trade Zone or such other
as falling in such classification using the Investment areas as may be declared by the board.
Priorities Plan.
c. Pioneer Status - pioneer status may be extended to “Merchandise or Goods” – shall collectively refer to raw
an ECOZONE Export or Free Trade Enterprise only materials, supplies, equipment, machineries, spare parts,
after the evaluation of their application for such status. packaging materials, or wares of every description to be
used in connection with the registered activity of an
2. EXEMPTION FROM NATIONAL AND LOCAL TAXES ECOZONE enterprise.
Except for real property taxes on land owned by EXEMPT FROM TAX LAWS
developers, no taxes, local and national, shall be imposed
on business establishments operating within the MERCHANDISE brought to the restricted area in the
ECOZONE. In lieu thereof, five percent (5%) of the gross ecozones by registered Export or Free Trade Enterprises,
income earned by all business enterprises within the except prohibited merchandise, shall not be subject to all
ECOZONE shall be paid and remitted as follows: customs and internal revenue laws and regulations of the
Philippines nor to local tax ordinances: Provided, that they
a. Three percent (3%) to the National Government; are to be sold, stored, broken-up, replaced, assembled,
b. Two percent (2%) which shall be directly remitted by manipulated, manufactured and/or mixed with foreign or
the business establishments to the treasurer’s office domestic merchandise WITHIN the restricted areas in the
of the municipality or city where the enterprise is ECOZONES. (Sec. 1, Rule VIII, Part V, IRR)
located. (Sec. 24)
NB: “Prohibited Merchandise” – shall refer to goods,
NB: “Gross Income” refers to gross sales or gross wares, merchandise, equipment or machineries the
revenues derived from the registered activity, net of sales importation of which are prohibited by law as enumerated
discounts, sales returns and allowances and minus cost of in Section 102, Book 1 of Tariff Customs Code of the
sales or direct costs but before any deduction is made for Philippines, as amended, and such other goods or
administrative expenses or incidental losses during a merchandise which may be prohibited by special laws or
given taxable period by PEZA.
EXCEPTION: TAX TREATMENTS ON MERCHANDISE
All persons and service establishments in the ECOZONE DOMESTIC MERCHANDISE SUBJECT TO TAX
shall be subject to national and local taxes under the  Domestic merchandise sent from the restricted areas,
National Internal Revenue Code and the Local xxx, TO the custom territory shall, xxx, while in the
Government Code. (Sec. 25) ECOZONE subject to the internal revenue laws of the
Philippines as domestic goods sold, transferred or
“ECOZONE SERVICE ENTERPRISE” – refers to a disposed of for local consumption. (Sec. 2, Rule VIII,
business entity or concern within the ECOZONE, such as Part V, IRR)
but not limited to:
a. Customs brokerage; FOREIGN MERCHANDISE TREATMENT
b. Trucking/ forwarding services;  Merchandise of foreign origin brought to the restricted
c. Parcel services; areas in the ECOZONES xxx which has NOT
d. Janitorial services; undergone any processing, manufacturing or
e. Security services; manipulation while in said areas of the ECOZONE,
f. Insurance, and or banking services; shall, when sent to customs territory, be subject to
g. Consultancy services; laws and regulations governing imported
h. Restaurant; merchandise:
i. Or such other services as determined by PEZA  provided, that where said foreign merchandise is
Whose income derived within the ECOZONE shall be combined with or made part of any domestic article,
subject to taxes under the NIRC pursuant to Section 25 of the duties and taxes to be assessed on the final
the ACT. product shall be based on the value of such imported
merchandise and internal revenue taxes on the value
3. TAX AND DUTY-FREE IMPORTATION IMPORTANT added.
DEFINITIONS  Provided further, that foreign merchandise included in
the negative list shall not be brought to custom
“Customs Territory” shall mean the national territory of territory.
the Philippines outside of the proclaimed boundaries of the
ECOZONE except those specifically declared by other 4. EXEMPTION FROM WHARFAGE DUES, EXPORT TAX,
laws and/or presidential proclamations to have the status IMPOST OR FEE
of special economic zones and / or free ports.
An ECOZONE Export or Free Trade Enterprise shall be
NB: in other words, areas outside the ECOZONE. exempt from payment of wharfage dues and any export
tax, impost or fee on the exportation of its registered
export products or, in the case of an ECOZONE Free

Trade Enterprise, on foreign merchandise transshipped NON-FISCAL INCENTIVES
through its ECOZONE facilities.
Permanent Resident Status – Subject to conditions as
5. VAT ZERO-RATING OF LOCAL PURCHASES formulated by the rules and PEZA board, any investor
within the ECOZONE whose initial investment shall not be
Freeport and Economic Zones less than $150,000, his/her spouse and dependent
children under 21 years of age shall be granted permanent
PEZA-registered enterprises are VAT-exempt and no VAT resident status within the ECOZONE. They shall have
can be passed on to them. PEZA-registered enterprise, freedom of ingress and egress to and from the ECOZONE
which would necessarily be located within ECOZONES, without need of special authorization from the Bureau of
are VAT-exempt entities, not because of Section 24 of Immigration.
Rep. Act No. 7916, as amended, but, rather, because of
Section 8 of the same statute which establishes the fiction “Percentage of Foreign Nationals” - Employment of
that ECOZONES are foreign territory. foreign nationals hired by ECOZONE enterprises in a
supervisory, technical or advisory capacity shall NOT
The Philippine VAT system adheres to the Cross Border exceed five percent (5%) of Its workforce without the
Doctrine, according to which, no VAT shall be imposed to express authorization of the Secretary of Labor and
form part of the cost of goods destined for consumption Employment.
outside of the territorial border of the taxing authority.
Hence, actual export of goods and services from the EXPORT PROCESSING ZONE AUTHORITY
Philippines to a foreign country must be free of VAT; while, PRESIDENTIAL DECREE No. 66
those destined for use or consumption within the
Philippines shall be imposed with 12% VAT. (Toshiba INCENTIVES
Information Equipment (Phils.) Inc., v. CIR, G.R. No.
157594, March 9, 2010) 1. Foreign enterprises (Sec. 16)
These are considered as EXPORT SALES. a. Definition:

i. Any form of business organization formed under
“Export Sales” – shall mean the Philippine F.O.B. value, any law other than Philippines
determined from invoices, bills or lading, inward letters of ii. ii. Not a Philippine national
credit, landing certificates and other commercial iii. Working capital is fully owned or controlled by
documents of export products aliens
1. exported directly by an ECOZONE Export or Free b. Employment of foreign nationals

Trade Enterprise; OR i. Supervisory, technical or advisory position
2. the net selling price of the export products sold by an ii. ii. Not exceeding 5% of total personnel in each
ECOZONE Export or Free Trade Enterprise to category
another export producer or to an export trader that iii. If majority of capital stock foreign-owned,
subsequently exports the same; president, treasurer and general manager may
be foreigner
Provided, That sales of export products to another iv. In exceptional cases, to other categories with
producer or to an export trader shall only be deemed Board approval
export sales when actually exported by the latter, as v. Their spouses, unmarried children under 21
evidenced by the landing certificate or similar commercial permitted to enter Philippines
documents;
2. Tax Treatment of Merchandise in Zone (Secs. 17-18)
Provided, further, that without actual exportation, the
following shall be considered constructively exported: a. Merchandise, raw materials, supplies, articles,
 sales to registered ECOZONE Export or Free equipent, machineries, spare parts and wares brought
Trade Enterprises; into the zone
 sales to registered export traders operating i not subject to Customs and internal revenue laws
bonded trading warehouses supplying raw and regulations
materials used in the manufacture of export ii not subject to local tax ordinances
products;
b. Merchandise purchased by registered zone enterprise
6. TRAINING EXPENSES DEDUCTION from customs territory, paid in any convertible foreign
currency and brought into the zone
“Incentive Scheme” - An additional deduction equivalent i. Considered exported
to one- half (1/2) of the value of training expenses incurred ii. Exporter entitled to benefits allowed by law
In developing skilled or unskilled labor or for managerial or
other management development programs incurred by c. Domestic merchandise sent from zone to customs
enterprises In the ECOZONE can be deducted from the territory
national government's share of three percent (3%) as
provided In Section 24. (Sec. 42)
i. Subject to internal revenue laws as if domestic a. Foreign merchandise transshipped through the zone
goods sold for local consumption or any article processed, manufactured or
manipulated in said zone and exported therefrom
d. Merchandise sent from zone to customs territory i. Exempt from any export tax, imposts or fee
i. Subject to laws governing imported merchandise
ii. Duties and taxes assessed on the value of 6. Foreign exchange assistance
imported materials and internal revenue taxes on
the value added a. The Central Bank shall extend priority in allocation of
forex and its assistance and resources to encourage
e. Domestic merchandise on which internal revenue investment in the zone
taxes have been paid, and foreign merchandise
previously imported on which duty or tax has been 7. Financial assistance
paid, or admitted free of duty and tax
i. May be taken into zone from the customs territory a. Zone registered enterprises
of the Philippines and be brought back thereto i. Entitled to at least the same privileges as
free of quotas, duty or tax enterprises registered under any Philippine law in
obtaining financial assistance from GFIs, whether
f. When identity of article entered into zone has been directly or indirectly
lost and when removed from the zone and taken to
customs territory i Proceeds derived to be used in projects approved by
i. Treated as foreign merchandise entering the Authority
country for the first time under the Tariff and
Customs Code ii To facilitate payment of such loans, credits,
indebtedness
g. Articles produced in the zone and exported therefrom, i. Central Bank may promulgate rules allowing
on subsequent importation into customs territory deduction of portion of forex earnings of such
i. Subject to import laws to like articles enterprises to meet forex requirements for
manufactured in a foreign country servicing foreign indebtedness incurred by them
h. Merchandise taken out of zone 8. Exemption from local taxes and licenses
i. Considered for tax purposes to have been sent to
customs territory a. Any enterprise producing, processing, packaging or
manipulation of export products, to the extent of their
3. Net-operating Loss Carry Over construction, operation, or production
i. be exempt from payment of local government
a. If incurred in first five years of operation inside zone imposts, fees, licenses or taxes, except real
i. May be carried over as deduction from taxable estate taxes such real estate taxes to be paid in
income derived in zone during the five years the municipality where the zone is located
immediately following the year of such loss
OTHER NOTABLE PROVISIONS UNDER THE LAW
b. Entire amount of loss that exceeding the taxable
income of first year “Domestic Sales” - Goods manufactured by an ECOZONE
i. Deducted in like manner of the next remaining enterprise SHALL be made available for immediate retail sales
four years in the domestic market, subject to payment of corresponding
taxes on the raw materials and other regulations that may be
c. Income not taxable under this Decree or other laws adopted by the Board of the PEZA.
i. Included in gross income
However, in order to protect the domestic industry, there shall
4. Accelerated depreciation be a negative list of Industries that will be drawn up by the
PEZA. Enterprises engaged in the industries included in the
a. Fixed assets may be depreciated negative list shall not be allowed to sell their products locally.
i. If expected life is 10 years or less 1. Not more Said negative list shall be regularly updated by the PEZA.
than twice the normal rate of depreciation or at (Sec. 26).
the normal rate
ii. If expected life is more than 10 years 1. Over any “Leases of Lands and Buildings” - Lands and buildings in
number of years between 5 years and expected each ECOZONE may be leased to foreign investors for a
life period NOT exceeding fifty (50) years renewable once for a
iii. Depreciation thus allowed as deduction from period of not more than twenty-five (25) years, as provided for
taxable income under Republic Act No. 7652, otherwise known as the
iv. Must notify BIR at beginning of depreciation Investors’ Lease Act. The leasehold right acquired under long-
period of the which rate as allowed will be used term contracts may be sold, transferred or assigned, subject to
the conditions set forth under Republic Act No. 7652. (Sec. 30)
5. Exemption from Export Tax
Qualification:

1. Can only be leased only to ECOZONE enterprises (PEZA You replied that the definition of “Philippine National” under FIA
registered); ’91 covers ____.
2. IF wholly owned or controlled by aliens: b. Domestic partnership wholly composed of Filipino citizens;
a. Lease period shall not exceed 50 years extendible for c. Domestic corporations 60% of whose capital stock,
a period not more than 25 years; outstanding and entitled to vote, are owned and held by
b. Lease area shall be used exclusively for the purpose Filipino citizens;
of investments; d. Foreign corporations considered as doing business in the
c. Lease shall comprise such area reasonably required Philippines under the Corporation Code, 100% of whose
for the project contemplated in the investment; capital stock, outstanding and entitled to vote, are wholly-
d. If the enterprise would like to extend from the 50-year owned by Filipino citizens;
initial lease, it shall present proof that it has made e. All of the above, because the law considers the juridical
social and economic contributions; personality, whether domestic or foreign, as a mere
e. Re: tourism projects – lease of private lands wholly medium; the test of nationality is on the individuals who
foreign-owned or more than 40% of outstanding control the medium;
capital stock is owned by aliens, shall be limited to f. None of the above, because the term Philippine national
projects with a projected investment of not less than can only cover individuals and not juridical entities.
$5 Million, 70% of which should be infused in said
project not later than 3 years within the extension of Answer:
the lease. d. All of the above, because the law considers the juridical
personality, whether domestic or foreign, as a mere
“Sale of Lands and Buildings” medium; the test of nationality is on the individuals who
control the medium. (BAR 2013)
Land Acquisition - An ECOZONE enterprise duly registered
with the PEZA may acquire lands within the ECOZONE subject The delegation heard that foreigners can invest up to 100% of
to compliance with the nationality requirements under the the equity in “export oriented enterprises” and you were asked
Philippine Constitution and existing laws and to the terms and exactly what the term covers.
conditions as may be prescribed by the Board.
You replied that an “export oriented enterprises” under FIA ’91
If the ECOZONE enterprise is a corporation desiring to acquire is an enterprise that ________.
lands within the ECOZONE, it must be:
1. duly organized under the laws of the Philippines; and b. Only engages in the export of goods and services, and
2. at least sixty percent (60%) of its outstanding capital stock does not sell goods or services to the domestic market;
and entitled to vote is owned and held by citizens of the c. Exports consistently at least 40% of its goods or services,
Philippines. (Sec. 1, Rule VI, IRR) and sells at least 60% of the rest to the domestic market;
d. Exports consistently at least 60% of the goods or services
APPLICABILITY OF NATIONAL LAWS produced, and sells at least 40% of the rest to the
domestic market;
GR: National Law e. Exports consistently at least 60% of its goods or services
EX: when there is a clear intent in this Act or other Acts of produced, and can sell goods or services to the domestic
Congress to vest the ECOZONE specific power and market;
privileges not otherwise allowed under existing laws. f. None of the above.
BAR EXAM QUESTIONS Answer:

FAI and FINL e. None of the above. (BAR 2013)
A foreign company has a distributor in the Philippines. The As a last question and by way of a concrete example, a
latter acts in his own name and account. Will this delegation member finally inquired— which of the following
distributorship be considered as doing business by the foreign corporations or businesses in the Philippines may it invest and
company in the Philippines? (2015) up to what extent?
Answer: a. A lifestyle magazine publication corporation up to 40%

The appointment of a distributor in the Philippines is not equity;
sufficient to constitute doing business unless it is under the b. An advertising corporation, up to 100% equity;
full control of the foreign corporation. If the distributor is an c. A commercial bank, up to 60% equity;
independent entity doing business for its own name and d. A jeepney manufacturing corporation, up to 100% equity;
account, the latter cannot be considered as doing business e. A real estate development corporation, up to 60% equity.
(Steel Case v. Design International Selection, GR No
171995, April 18, 2012). Answer:
d. A jeepney manufacturing corporation, up to 100% equity.
The delegation asked: aside from Filipino citizens, what entities (BAR 2013)
would fall under the definition of “Philippine National” under FIA
’91? The main feature of the Foreign Investment Act of 1991 is to
introduce the concept of “Negative Lists”. Under the said law,
what is a “Negative List”?

b. It is a list of business activities or enterprises in the

Philippines that foreigners are disqualified to engage in;
c. It is a list of business activities or enterprises in the
Philippines that foreigners are qualified to engage in;
d. It is a list of business activities or enterprises that are open
to foreign investments provided it is with the approval of
the Board of Investment.
e. It is a list of business activities or enterprises that are open
to foreign investments provided it is with the approval of
the SEC.
Answer:
a. It is a list of business activities or enterprises in the
Philippines that foreigners are disqualified to engage in.
(BAR 2012)
A foreign delegation of business man and investment bankers

called on your law firm to discuss the possibilities of investing
in various projects in the Philippines, and wanted your thoughts
on certain issues regarding foreign investments in the
Philippines.
The delegation has been told about the Foreign Investments

Act of 1991, as amended (FIA ’91), and they asked what
exactly is the law’s essential thrust regarding foreign
investments in Philippine business and industries. You replied
that FIA ’91 essentially reflects __________.
c. The “Filipino First Policy”;

d. The “Foreign Investments Positive Lists” concept;
e. The “Foreign Investments Negative Lists” concept;
f. The “Control Test” concept;
g. All of the above.
Answer:
c. The “Foreign Investments Negative Lists” concept. (BAR
2013)

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Atty. Mark Anthony Tamayo New Era University | 2nd sem A.Y.

Sole proprietorship are taxed as individual. Repatriation of Investment

Investments and Incentives Law | 1

Section 118. Prohibited Importation and Exportation.— The

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BRANCH vs. SUBSIDIARY

As to the Number of Incorporators

As to the deposit requirement of securities with SEC

Investments and Incentives Law | 3

The equal investment rights of former Filipino nationals do

Investments and Incentives Law | 4

 Provided, however, That the phrase “doing business”

Investments and Incentives Law | 5

Investments and Incentives Law | 6

performance of acts or works; or the exercise of some of

Investments and Incentives Law | 7

Investments and Incentives Law | 8

Investments and Incentives Law | 9

After due notice, cancel the registration or suspend the

NOTES:  Art. 17. PIONEER ENTERPRISE shall mean a registered

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TRANSSHIPMENT  Art. 32. Qualifications of a Registered Enterprise.

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Investments and Incentives Law | 12

FISCAL INCENTIVES This additional deduction shall be doubled or become

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(1) The activities of the regional or area headquarters

(Nery’s remarks: to be included in the finals)

ENTRY OF NON-RESIDENT PERSONNEL Restrictions on positions:

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EXCEPTION: TAX TREATMENTS ON MERCHANDISE

export products or, in the case of an ECOZONE Free

These are considered as EXPORT SALES. a. Definition:

1. exported directly by an ECOZONE Export or Free b. Employment of foreign nationals

Investments and Incentives Law | 21

BAR EXAM QUESTIONS Answer:

Answer: a. A lifestyle magazine publication corporation up to 40%

Investments and Incentives Law | 22

b. It is a list of business activities or enterprises in the

A foreign delegation of business man and investment bankers

The delegation has been told about the Foreign Investments

c. The “Filipino First Policy”;

Investments and Incentives Law | 23

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