Philippine foreign investment brief

PHILIPPINE FOREIGN INVESTMENT BRIEF ON RENEWABLE ENERGY

WhatisthepotentialforrenewableenergyinthePhilippines?
The Philippine government is prioritizing renewable energy for the next ten (10) years. In ordertofacilitatesuchadramaticexpansionthePhilippinegovernmenthas: 1.Givenrenewableenergytechnologiesfavoredinvestmentstatus; 3.ApprovaloftheRenewableEnergyActwitharangeofspecificmarketbasedincentives; 4.BeenworkingwithalocalgovernmentandNongovernmentOrganizationstodevelopaGreen IndependentPowerProducer(GRIPP)modelforpowerprojects. 5.Lastly,alternativesourceofenergyprojectshashighlevelpoliticalsupport. TheRenewableEnergyLawof2008(RepublicActNo.9513).Thislawwasapprovedintolawon December 16, 2008. This law intends to establish the framework for the accelerated development and advancement of renewable energy resources, and the development of a strategicprogramtoincreaseitsutilization.Thepertinentprovisionsprovides,asfollows: Section 8. Renewable Energy Market (REM). To facilitate compliance with Section6ofthisAct,theDOEshallestablishtheREMandshalldirectPEMCto implementchangestotheWESMRulesinordertoincorporatetherulesspecific totheoperationoftheREMundertheWESM. The PEMC shall, under the supervision of the DOE, establish a Renewable Energy Registrar within one (1) year from the effectivity of this Act and shall issue, keep and verify RE Certificates corresponding to energy generated from eligibleREfacilities. SuchcertificateswillbeusedforcompliancewiththeRPS. Forthispurpose,atransactionfee,equaltohalfofwhatPEMCcurrentlycharges regularWESMplayers,maybeimposedbyPEMC. Section 9. Green Energy Option. The DOE shall establish a Green Energy OptionprogramwhichprovidesenduserstheoptiontochooseREresourcesas theirsourcesofenergy.InconsultationwiththeNREB,theDOEshallpromulgate the appropriate implementing rules and regulations which are necessary, incidentalorconvenienttoachievetheobjectivessetforthherein.

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Section 15. Incentives for Renewable Energy Projects and Activities. RE developersofrenewableenergyfacilities,includinghybridsystems,inproportion to and to the extent of the RE component, for both power and nonpower applications,asdulycertifiedbytheDOE,inconsultationwiththeBOI,shallbe entitledtothefollowingincentives: (a) Income Tax Holiday (ITH) For the first seven (7) years of its commercial operations, the duly registered RE developer shall be exempt from incometaxesleviedbythenationalgovernment. Additional investmentsintheproject shall beentitled toadditionalincometax exemption on the income attributable to the investment: Provided, That the discovery and development of new RE resource shall be treated as a new investment and shall therefore be entitled to a fresh package of incentives: Provided, further, That the entitlement period for additional investments shall notbemorethanthree(3)timestheperiodoftheinitialavailmentoftheITH. (b) Dutyfree Importation of RE Machinery, Equipment and Materials Within the first ten (10) years upon the issuance of a certification of an RE developer, the importation of machinery and equipment, and materials and parts thereof, including control and communication equipment, shall not be subjecttotariffduties:Provided,however,Thatthesaidmachinery,equipment, materialsandpartsaredirectlyandactuallyneededandusedexclusivelyinthe REfacilitiesfortransformationintoenergyanddeliveryofenergytothepointof use and covered by shipping documents in the name of the duly registered operatortowhomtheshipmentwillbedirectlydeliveredbycustomsauthorities: Provided, further, That endorsement of the DOE is obtained before the importationofsuchmachinery,equipment,materialsandpartsaremade. (c)SpecialRealtyTaxRatesonEquipmentandMachinery.Anylawto thecontrarynotwithstanding,realtyandothertaxesoncivilworks,equipment, machinery,andotherimprovementsofaRegisteredREDeveloperactuallyand exclusivelyusedforREfacilitiesshallnotexceedoneandahalfpercent(1.5%)of their original cost less accumulated normal depreciation or net book value: Provided, That in case of an integrated resource development and generation facilityasprovidedunderRepublicActNo.9136,therealpropertytaxshallonly beimposedonthepowerplant; (d) Net Operating Loss CarryOver (NOLCO). The NOLCO of the RE Developerduringthefirstthree(3)yearsfromthestartofcommercialoperation which had not been previously offset as deduction from gross income shall be carriedoverasadeductionfromgrossincomeforthenextseven(7)consecutive taxable years immediately following the year of such loss: Provided, however, Thatoperatinglossresultingfromtheavailmentofincentivesprovidedforinthis ActshallnotbeentitledtoNOLCO; (e)CorporateTaxRate.Afterseven(7)yearsofincometaxholiday,all REDevelopersshallpayacorporatetaxoftenpercent(10%)onitsnettaxable

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incomeasdefinedintheNationalInternalRevenueActof1997,asamendedby RepublicActNo.9337.Provided,ThattheREDevelopershallpassonthesavings totheendusersintheformoflowerpowerrates. (f) Accelerated Depreciation. If, and only if, an RE project fails to receiveanITHbeforefulloperation,itmayapplyforAcceleratedDepreciationin its tax books and be taxed based on such: Provided, That if it applies for AcceleratedDepreciation,theprojectoritsexpansionsshallnolongerbeeligible for an ITH. Accelerated depreciation of plant, machinery, and equipment that arereasonablyneededandactuallyusedfortheexploration,developmentand utilizationofREresourcesmaybedepreciatedusingaratenotexceedingtwice theratewhichwouldhavebeenusedhadtheannualallowancebeencomputed inaccordancewiththerulesandregulationsprescribedbytheSecretaryofthe DepartmentofFinanceandtheprovisionsoftheNationalInternalRevenueCode (NIRC) of 1997, as amended. Any of the following methods of accelerated depreciationmaybeadopted: i)Decliningbalancemethod;and ii)Sumoftheyearsdigitmethod (g) Zero Percent ValueAdded Tax Rate. The sale of fuel or power generated from renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy and other emerging energy sourcesusingtechnologiessuchasfuelcellsandhydrogenfuels,shallbesubject to zero percent (0%) valueadded tax (VAT), pursuant to the National Internal RevenueCode(NIRC)of1997,asamendedbyRepublicActNo.9337. AllREDevelopersshallbeentitledtozeroratedvalueaddedtaxonitspurchases of local supply of goods, properties and services needed for the development, constructionandinstallationofitsplantfacilities. Thisprovisionshallalsoapplytothewholeprocessofexploringanddeveloping renewable energy sources up to its conversion into power, including but not limitedtotheservicesperformedbysubcontractorsand/orcontractors. (h)CashIncentiveofRenewableEnergyDevelopersforMissionaryElectrification. Arenewableenergydeveloper,establishedaftertheeffectivityofthisAct,shall be entitled to a cash generationbased incentive per kilowatt hour rate generated, equivalent to fifty percent (50%) of the universal charge for power neededtoservicemissionaryareaswhereitoperatesthesame,tobechargeable againsttheuniversalchargeformissionaryelectrification; (i) Tax Exemption of Carbon Credits. All proceeds from the sale of carbon emissioncreditsshallbeexemptfromanyandalltaxes;

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(j) Tax Credit on Domestic Capital Equipment and Services. A tax credit equivalent to one hundred percent (100%) of the value of the valueadded tax andcustomdutiesthatwouldhavebeenpaidontheREmachinery,equipment, materials and parts had these items been imported shall be given to an RE operatingcontractholderwhopurchasesmachinery,equipment,materials,and partsfromadomesticmanufacturerforpurposessetforthinthisAct:Provided, That prior approval by the DOE was obtained by the local manufacturer: Provided,further,Thattheacquisitionofsuchmachinery,equipment,materials, andpartsshallbemadewithinthevalidityoftheREoperatingcontract. Section19. Hybrid and Cogeneration Systems. The tax exemptions and/or incentivesprovidedforinSection15ofthisActshallbeavailedofbyregistered REDeveloperofhybridandcogenerationsystemsutilizingbothREsourcesand conventionalenergy:Provided,however,Thatthetaxexemptionsandincentives shall apply only to the equipment, machinery and/or devices utilizing RE resources. Section 21. Incentives for RE Commercialization. All manufacturers, fabricatorsandsuppliersoflocallyproducedREequipmentandcomponentsduly recognizedandaccreditedbytheDOE,inconsultationwithDOST,DOFandDTI, shall,uponregistrationwiththeBOI,beentitledtotheprivilegessetforthunder thissection. ConsistentwithArticle7,Item(20)ofEONo.226,theregistrationwiththeBOI, as provided for in Section 15 and Section 21 of this Act, shall be carried out throughanagreementandanadministrativearrangementbetweentheBOIand the DOE, with the endview of facilitating the registration of qualified RE facilitiesbasedontheimplementingrulesandregulationsthatwillbedeveloped by DOE. It is further mandated that the applications for registration will be positivelyacteduponbyBOIonthebasisoftheaccreditationissuedbyDOE. The Renewable Energy Sector is hereby declared a priority investment sector that will regularly form part of the country's Investment Priority Plan, unless declaredotherwisebylaw.Assuch,allentitiesdulyaccreditedbytheDOEunder thisActshallbeentitledtoalltheincentivesprovidedherein. (a) Tax and Dutyfree Importation of Components, Parts and Materials. All shipments necessary for the manufacture and/or fabrication of RE equipment andcomponentsshallbeexemptedfromimportationtariffanddutiesandvalue added tax: Provided, however, That the said components, parts and materials are: (i) not manufactured domestically in reasonable quantity and quality at competitiveprices;(ii)directlyandactuallyneededandshallbeusedexclusively in the manufacture/fabrication of RE equipment; and (iii) covered by shipping documentsinthenameofthedulyregisteredmanufacturer/fabricatortowhom theshipmentwillbedirectlydeliveredbycustomsauthorities:Provided,further, That prior approval of the DOE was obtained before the importation of such components,partsandmaterials;

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(b) Tax Credit on Domestic Capital Components, Parts and Materials. A tax credit equivalent to one hundred percent (100%) of the amount of the value added tax and customs duties that would have been paid on the components, parts and materials had these items been imported shall be given to an RE equipment manufacturer, fabricator, and supplier duly recognized and accreditedbytheDOEwhopurchasesREcomponents,partsandmaterialsfrom a domestic manufacturer: Provided, That such components, and parts are directlyneededandshallbeusedexclusivelybytheREmanufacturer,fabricator and supplier for the manufacture, fabrication and sale of the RE equipment: Provided, further, That prior approval by the DOE was obtained by the local manufacturer; (c) Income Tax Holiday and Exemption. For seven (7) years starting from the date of recognition/accreditation, an RE manufacturer, fabricator and supplier ofREequipmentshallbefullyexemptfromincometaxesleviedbytheNational Government on net income derived only from the sale of RE equipment, machinery,partsandservices;and (d)ZeroratedvalueaddedtaxtransactionsAllmanufacturers,fabricatorsand suppliers of locally produced renewable energy equipment shall be subject to zerorated value added tax on its transactions with local suppliers of goods, propertiesandservices. Section 23. Tax Rebate for Purchase of RE Components. To encourage the adoptionofREtechnologies,theDOF,inconsultationwithDOST,DOE,andDTI, shall provide rebates for all or part of the tax paid for the purchase of RE equipment for residential, industrial, or community use. The DOF shall also prescribetheappropriateperiodforgrantingthetaxrebates. SEC. 5.Mandatory Use Biofuel. Pursuant to the above policy, it is hereby mandatedthatallliquidfuelsformotorsandenginesoldinthePhilippinesshall containlocallysourcedbiofuelscomponentsasfollows: 5.1WithintwoyearsfromtheeffectivityofthisAct,atleastfivepercent (5%)bioethanolshallcomprisetheannualtotalvolumeofgasolinefuel actually sold and distributed by each and every oil company in the country,subjecttotherequirementthatallbioethanolblendedgasoline shallcontainaminimumoffivepercent(5%)bioethanolfuelbyvolume: ProvidedThattheethanolblendconformstoPNS. 5.2WithinfouryearsfromtheeffectivityofthisAct,theNBBcreated underthisActisempoweredtodeterminethefeasibilityandthereafter recommendtoDOEtomandateaminimumoftenpercent(10%)blend of bioethanol by volume into all gasoline fuel distributed and sold by eachandeveryoilcompanyinthecountry.

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Intheeventofsupplyshortageoflocallyproducedbioethanolduringthe four year period, oil companies shall be allowed to import bioethanol butonlytotheextentoftheshortageasmaybedeterminedbytheNBB. 5.3Within threemonthsfrom theeffectivityof this Act,a minimum of one percent (1%) biodiesel by volume shall be blended into all diesel engine fuels sold in the country: Provided, That the biodiesel blend conformstoPNSforbiodiesel. Within two years from the effectivity of this Act, the NBB created under this Act is empoweredtodeterminethefeasibilityandthereafterrecommendtoDOEtomandatea minimum of two percent (2%) blend of biodiesel by volume which may be increased taking into account considerations including but not limited to domestic supply and availabilityoflocallysourcedbiodieselcomponent. SEC. 6. Incentive Scheme. To encourage investments in the production, distribution anduseoflocallyproducedbiofuelsatandabovetheminimummandatedblends,and without prejudice to enjoying applicable incentives and benefits under existing laws, rulesandregulations,thefollowingadditionalincentivesareherebyprovidedunderthis Act. i. Specifictax.Thespecifictaxonlocalorimportedbiofuelscomponent,perliterof volume shall be zero (0). The gasoline and diesel fuel component shall remain subjecttotheprevailingspecifictaxrates. ii. Value Added Tax The sale of raw material used in the production of, biofuels such as, but not limited to, coconut, jatropha, sugarcane, cassava, corn, and sweetsorghumshallbeexemptfromthevalueaddedtax. iii. WaterEffluents.Allwatereffluents,suchasbutnotlimitedtodistilleryslops& fromtheproductionofbiofuelsusedasliquidfertilizerandforotheragricultural purposes are considered reuse, and are therefore, exempt from wastewater chargesunderthesystem,providedunderSection13ofRANo.9275,alsoknown asthePhilippineCleanWaterAct:Provided,however,Thatsuchapplicationshall beinaccordancewiththeguidelinesissuedpursuanttoR.A.No.9275,subjectto themonitoringandevaluationbyDENRandapprovedbyDA; iv. FinancialAssistance.Governmentfinancialinstitutions,suchastheDevelopment Bank of the Philippines, Land Bank of the, Philippines, Quedancor and other government institutions providing financial services shall, in accordance with andtotheextentallowedbytheenablingprovisionsoftheirrespectivecharters orapplicablelaws,accordhighprioritytoextendfinancingtoFilipinocitizensor entities, at least sixty percent (60%) of the capital stock of which belongs to citizens of the Philippines that shall engage in activities involving production, storage, handling and transport of biofuel and biofuel feedstock, including the blendingofbiofuelswithpetroleum,ascertifiedbytheDOE.

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21.DisadvantagesForeignInvestmentsinthePhilippines.
Inconsistent government policy, complex laws and regulations, including environmental regulationswhichcouldadverselyaffectthecost,mannerorfeasibilityofdoingtheRenewable Energy/BiofuelGenerationbusiness. Realityoflooksdifferentneglectbusinessduetorestrictiveownershipofbusiness.Shortterm lease contracts are little inviting to invest in the future and improve as necessary to remain competitiveinbusiness; As a result of existing economical problems many Philippine business ventures have lost contacttointernationalcompetition.Lowsalariesaloneisnoattractionforinvestors.Political stabilityandlegalsoundbusinessbasisareneededtoofferthesecuritynecessarytoinvestalife times savings and earnings into a new business venture. While some of may have venture capitaltoriskorloseothersjustinvesttheirlifetimesavingsintoabetterfuture.Suchfuture needstobestableandsolidinalegalenvironmentthatgivesthenecessarytrustintopoliticians andlaws.Successfulbusinessneedstobemadewithlongtimeperspectivesinmindlifetime planningorevenbeyond.Someamongmaywanttoconstructafuturetobeforwardedthe future.AsoundgiftsolidandhealthonlycanbegiventothenextgenerationofFilipinos. SomuchpoliticsinthePhilippinebusinessactivities; So much corruption and red tape that may hamper or hinder the smooth implementation of anyRenewableEnergyprojects.

It was also noted that the country needs to upgrade and modernize its infrastructure while improving its governance and cutting "nontariff barriers"suchasredtape. BASICLEGALFRAMEWORK
1. BASICLEGALFRAMEWORK:ForeigninvestmentsinthePhilippinesarebasicallygovernedbythe followinglaws,rules,regulationsandothergovernmentissuances: [1]ExecutiveOrderNo.226TheOmnibusInvestmentsCodeof1987setsforththerulesand parameterswithinwhichforeigninvestmentsinthePhilippinesmaybemade,withemphasison thegrantofincentivestocertainsectors. [2]RepublicActNo.7042,asamendedbyRepublicActNo.8179TheForeignInvestmentsAct of 1991 dwells on foreign investments without incentives; it reduced the minimum paidin equity from US Dollars Five Hundred Thousand [US$500,000] to US Dollars Two Hundred Thousand[US$200,000].

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[3]RepublicActNo.7227TheBasesConversionandDevelopmentActof1992setsforththe grantofincentivestoindustriesandenterpriseswhichestablishtheirplantsandofficeswithin theSubicBayFreeportZone. [4]RepublicActNo.7916TheSpecialEconomicZoneActof1995treatsofincentivesgranted toindustriesandenterpriseswhichsituatetheiroperationwithinSpecialEconomicZones. [5] Republic Act No. 7844 The Export Development Act of 1994 provides for incentives to businessenterprisesintheexportindustry. [6]RepublicAct No. 7721 liberalizedthe entry and operationsof foreign banks and financial institutionsinthePhilippines. [7]RepublicActNo.7652TheInvestor'sLeaseActgrantstoforeigninvestorstheprivilegeof leasingprivatelandsforaperiodoffifty(50)years[initial]whichmayberenewedforanother twentyfive(25)years. [8] Republic Act No. 7718 The BuildOperateTransfer Act [BOT] liberalized the implementationoftheBuildOperateTransferSchemeincertainprojects,easedtherestrictions on government financing and setting and imposition of tolls and charges and wholly foreign ownedcorporationsareallowedtoundertakecertainprojectsunderthisscheme. [9]RepublicActNo.7888grantsauthoritytothePresidentofthePhilippinestosuspendthe nationalityrequirementundertheOmnibusinvestmentsCode[ExecutiveOrderNo.226]inthe caseofequityinvestmentsbymultilateralfinancialinstitutionsliketheAsianDevelopmentBank [ADB]ortheInternationalFinanceCorporation[IFC]. 2. POLICYONCOMPETITION: Monopolies are not allowed in the Philippines. It is a fundamental policy that the State shall regulateorprohibitmonopolieswhenpublicinterestsorequires.Nocombinationinrestraintof tradeorunfaircompetitionshallbeallowed. 3. POLICYONEXPROPRIATIONOFPRIVATEPROPERTY Expropriationofprivatepropertybythegovernmentisapolicywhichisexceptionally exercised.Inextremeandurgentcaseswhereexpropriationbecomesnecessaryforpublicuse orintheinterestofnationalwelfare,justcompensationisrequiredbylawtobepaidtothe privateowneroftheproperty.Underthissituation,theaffectedforeignenterpriseorinvestor hastherighttoremitanyandallamountsreceivedasjustcompensationfortheexpropriated propertyinthecurrencyinwhichtheinvestmentwasoriginallymadeandattheprevailing foreignexchangerateatthetimeitisremitted.

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4.PHILIPPINECURRENCY The currency of the Philippines is called the Philippine Peso [PhP]. A floating exchange rate systemisbeingmaintainedbythePhilippinegovernment.Underthissystem,theexchangerate isallowedtobedeterminedprincipallybyprevailingmarketforces.Thecentralbankauthority the Bangko Sentral ng Pilipinas [BSP] intervenes only for the purpose of limiting sharp fluctuationsintheexchangeratetomaintainorderinthemarketconditions. 4. FOREIGNEXCHANGE ReformatorymeasurestoderegulatethePhilippineforeignexchangesystemwereimplemented sometime in 1992. Consequently, foreign exchange surrender requirements were removed, access to foreign currency deposit facilities was liberalized, restrictions on the repatriation of foreign investments and/or profit remittances were lifted and limitations on the quantitative restrictionsoncurrentaccounttransactionsdeleted. Registration with the central monetary authority Bangko Sentral ng Pilipinas [BSP] of loans and investments accounts was lifted except in cases where funding will be made through the banking system of transactions like repatriation of capital and remittances of dividends and profitsaswellasforeignexchangerequirementforfuturedebt. Further,BSPapprovalandregistrationarerequiredincaseofoutwardinvestmentsofresidents inanamountinexcessofUS$6,000,000.00,perinvestorperyearshouldthefundsthereforbe sourced from the banking system. Foreign borrowings by the public sector should also be approvedbytheBSP. Thelawallowsthedepositinforeigncurrencyaccountsofanyforeignexchangereceivedinthe Philippinesorabroad.Italsoallowsthesellingandacquisitionofforeignexchangeoutsideof thePhilippinebankingsystem.Theonlyrestrictiononforeignexchangetransactionpertainsto the payment of foreign loans and/or foreign investments, in which case, such may only be serviced with foreign exchange purchased through authorized agent banks, if the loan is approved/registered with the BSP or the investment is registeredtherewith. Thus, in case of sales of foreign exchange for payment of foreign obligations [foreign loan or foreign investment],thepurchasershallberequiredbytheauthorizedagentbanktopresentproofof BSPapprovaland/orregistrationforeachloanorinvestment. In case of purchase of foreign exchange for any nontrade purposes, authorized agent banks maysellforeignexchangetoresidentswithoutneedofpriorBSPapprovalsubject,however,to thefollowing: [a] Written notarized application and supporting documents from the foreign exchange purchaseriftheamountexceedsUS$25,000.00. [b]SimplewrittenapplicationiftheamountdoesnotexceedUS$25,000.00.

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Thislimitationonnontradepurchasecannotbecircumventedbysplittingtheforeignexchange purchaseintoseparatesmalleramounts.Splittingofpurchaseofforeignexchangeispresumed ifthebanksellstoanyonepurchaser,acombinedtotalamountexceedingUS$25,000.00within aperiodoffifteen[15]bankingdays. Incasesofoutwardpayments,thelawdoesnotprescribeanyparticularcurrencyrequirements. However,allforeignexchangeproceedsfromexportsandinvisiblesshouldbeprocuredthrough specifiedcurrenciesnumberingmorethantwenty[20]. Philippinepeso denominated bank accounts may be opened by nonresidents whether an individual or corporate without need to secure BSP approval. Nonresident depositors may freelywithdrawtheir accounts butnonresidentbankaccountsmayonly becreditedwiththe proceedsfrominward foreignexchangeremittanceorwithincomeearnedin thePhilippines. The maintenance of foreign currencydeposit accounts with local banks by residents and non residentsalikeisnotsubjecttoanyfurtherrestrictions. 6.REPATRIATIONOFFUNDS[SALESPROCEEDS,PROFITS,DIVIDENDS,ROYALTIES,LOANPAYMENTS& LIQUIDATION] There are no existing restrictive regulations on the repatriation of funds related to BSP registered foreign investments such as sales or divestment proceeds, profits, dividends, royalties, loan payments and liquidation. As earlier pointed out, BSP registration of foreign investments is necessary only in cases where the foreign exchange required to service the repatriation of capital and remittance of profits, dividends, royalties, loan payments or liquidationproceedswillbesourcedfromthebankingsystem. Further, it bears to emphasize that investments in government or listed securities or money market instruments or bank deposits need not be registered with the BSP or with the designatedcustodianbankoftheinvestorconcerned. 7.SOURCESOFFINANCING SOURCE1ForeignBorrowings [1]PublicSectorLoansUnderthelaw,allpublicsectorloanstakenfromoffshoresourcesand from Foreign Currency Deposit Units (FCDUs) must be approved by the Bangko Sentral ng Pilipinas [BSP]. The BSP approval, however, is not required in case of shortterm interbank borrowingsofpublicsectorbanksandshorttermFCDUloansfortradefinancing. [2]PrivateSectorLoansTheapprovalofandregistrationwithBSPoftheprivatesectorloans arerequiredunderthefollowingcircumstances: [a] if the loan is guaranteed by a public sector entity such as the national government, government financial institutions, governmentowned or controlled corporations and local governmentunitsorbyalocalcommercialbank;or

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[b] if the loan is granted by an FCDU and will specifically or directly be funded from, or collaterizedby,offshoreloansordeposits;or [c]iftheloanisobtainedbybanksandfinancialinstitutionswithatermexceedingone[1]year andintendedforrelendingtopublicandprivateenterprises. Exceptfortheforegoingtypesofloans,othercategoriesofprivatesectorloansarenotsubject to prior approval by the BSP. Registration with BSP, however, is still required in order to purchaseforeignexchangefromthebankingsystemtoservicetheloan.Thefollowingmaybe cited:[a]privatesectorloansfromFCDUsoroffshoresourcesregardlessoftheirmaturitytobe paid using foreign exchange purchased from outside of the banking system; [b] shortterm loansofpublicandprivatefinancialinstitutionsincurredinnormalinterbanktransactionsand withmaturitynotexceedingone[1]year;[c]shorttermloansoftheprivatesectorintheform ofexportadvancesfrombuyersabroad;[d]shorttermloansofprivatesectorborrowersfrom FCDUssuchasthoseincurred:[i]bycommunityandserviceexporters[providedtheseloansare used to finance exportrelated import costs of goods and services as well as peso cost requirements];and[ii]byproducersormanufacturers,includingoilcompaniesandpublicutility concerns[providedtheloansareusedtofinanceimportcostsofgoodsandservicesnecessaryin theproductionofgoodsbytheborrowerconcerned]. It mustbe emphasized that proceeds from FCDU loans are notallowed to be deposited in an FCDUaccountifthesameshallbeservicedusingforeignexchangepurchasedfromthebanking system. [3] Shortterm loans of private sector exporters or importers These loans from participating creditorbanksundertheRevolvingTradeFacility(RTF)Agreementaresubjecttothefollowing conditions: [a] the loans are not covered by a guarantee from a government financial institution or corporation; [b] the loans shall be exclusively used to finance specific trade transactions in an amount equivalent to the import bills to be liquidated and/or in the case of export financing transactions,totheborrower'spreexportfinancingrequirements; [c]proceedsofloansintendedtopayforforeignexchangerequirementsshallbepaiddirectly to the supplier or creditor while amounts intended to fund preexport peso costs shall be inwardlyremittedandsoldtothebankingsystem; [d]theloansshallbegrantedagainstBSPapprovedshorttermrelendingprogramsofforeign creditors. Creditors shall submit to the BSP their shortterm relending program for Philippine borrowers indicating their proposed credit limit together with a list of prospective borrowers/beneficiaries. These relending programs shall be valid for one year but shall be subjecttosemiannualreviewifcommitmentsand/orutilizationforthesemestershallbebelow fiftypercent[50%]oftotalrelendinglimit; [e]drawdownandregistrationrequirementsshallbecompliedwith; [f]anyassignmentoftheloanbythecreditorshallrequirepriorBSPapproval;and

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[g]theborrowershallsubmittoBSPtherequireddocumentsatleastfivedaysafteritscredit lineisapprovedbythecreditor. [4] Priority projects Projects considered priority for foreign financing under the socio economicdevelopmentplanincludethefollowing: [a]exportorientedprojects; [b]BOIregisteredprojects; [c]thoselistedintheAnnualPrioritiesPlan(APP);and [d] other projects which may be declared priority by the National Economic Development Authority[NEDA]orbytheCongressofthePhilippines. Thelawrequiresthattheproceedsofallloans,irrespectiveofmaturity,shallexclusivelyfinance foreign exchange requirements of eligible projects. However, loans of direct and indirect exportersandpublicsectorborrowersmaybeusedtofinancebothforeignexchangecostsand localcostsoftheirprojects. SOURCE2DomesticBorrowings Foreign firms may avail of domestic loans. Except for the requirement that the banks should report the level of domestic borrowings of foreign firms to the BSP for monitoring purposes, therearenorestrictionsondomesticborrowings. 8.INVESTMENTPROPOSALANDAPPROVAL Anyinvestmentproposalshallcomplywithcertainrequirementsofthelaw.Morespecifically, thefollowingconditionsapply: [1] Merger must comply with the legal requirements under the Corporation Code of the Philippines; [2] Acquisition must comply with Section 40 of the Corporation Code and subject to the restrictionsregardingforeignequityownershipunderthe1987Constitution. [3]RealEstate/Landtheforeignequityisuptofortypercent[40%]only. [4]ManagementContractmustcomplywithSection44oftheCorporationCode. [5] Joint Venture may be entered into without legal restriction on registration unless the partiestheretoformanotherbusinessorganizationrequiringregistrationsuchasacorporation orpartnership. [6]GreenfieldInvestmentsmustcomplywiththerequirementsundertheCorporationCode. [7]Medianoforeignequityisallowed.

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[8]Telecommunicationsforeignequityisalloweduptofortypercent[40%]. [9]Transportationforeignequityisalloweduptofortypercent[40%]. [10]Agriculturethereisnolimitationifprivatelandisusedforthispurpose.However,foreign equityisrequireduptofortypercent[40%]incaseofpublicland. [11]Infrastructure allowed but subject to the provisions of the BuildOperateTransfer [BOT] LawandPresidentialDecreeNo.1594. [12]Mining allowed but subject to the conditions under the Revised Mining Act of 1995. 9.APPLICATIONANDAPPROVALFORMS Thefollowingapplicationandapprovalformsarerequired: [1]For formation of a new corporation with more than forty percent [40%] foreign equity S.E.C.FormNo.F100. [2]ForestablishmentofabranchofficeofaforeigncorporationS.E.C.FormNo.F103. [3]BoardofInvestments[BOI]registrationform. [4]PhilippineEconomicZoneAuthority[PEZA]registrationform. 10.PERIODSWHENPROCESSINGANDAPPROVALOFAPPLICATIONCOMPLETED TheinvestmentlawsinthePhilippinesexplicitlyprescribethefollowingperiodswithinwhichthe processing and approval of foreign investment proposal and/or applications should be completedfromthetimeofsubmissionofallrequireddocuments: [1] The BOI shall approve or disapprove an application within twenty [20] working days after official acceptance thereof. If application involves less than PhP5,000,000.00 production cost andapplicantisanexporter,theperiodisseven[7]days.[1987OmnibusInvestmentCode] [2] The SEC [in the case of corporation or partnership] or the BTRCP [in the case of sole proprietorship] shall act on the application within fifteen [15] days from official acceptance thereof.[ForeignInvestmentsAct] [3]ThePEZAprocessesandevaluatesanapplicationwithintwo[2]weeks.Approvalthereofis made during the regular monthly meeting of its Board. 11.ENTRYOFNONRESIDENTPERSONNEL Enterprises registered under the Omnibus Investments Code [Executive Order No. 226] are permittedtoemployforeignnationalsinsupervisory,technical,oradvisorypositionsduringits first five years fromregistration. Those majority foreignowned registered enterprises are allowed to employ foreign nationals as president, treasurer and general managers for an indefinite period of time. In the case of Offshore Banking Units [OBUs], they are allowed to Page 13

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employ foreign nationals as executives in their respective units. The same may be said for executivesinareaheadquartersofmultinationalcorporations. Fornonresidentpersonnelofforeignfirms,theentryvisarequirementsanddescriptionofthenatureof theentryrestrictionareasfollows: a. SpecialInvestorsResidentVisa[SIRV]Thisisissuedtoanyalien,exceptnationalscoming fromNorthKoreaandCambodiaandsuchothercountriesthatmaybeclassifiedrestricted inthefuture,whomeetsthefollowingqualifications: 1. he/she had not been convicted of a crime involving moral turpitude; 2.he/shehadnotbeenafflictedwithanyloathsome,dangerousorcontiguous disease; 3. he/she had not been institutionalized for any mental disorder or disability; and 4.he/sheiswillingandabletoinvesttheamountofatleastUS$75,000inthe Philippines. Thespecialfeatureofthisvisaisthegranttotheinvestoroftheprivilegetoresidein the Philippines for as long as his investment exists. He shall be entitled to import his used household goods and personal effects, tax and dutyfree, as an alien coming to settle in the Philippines for the first time under Sec. 105(h) of the Tariff and Customs CodeofthePhilippines.Moreover,theinvestor'sspouseandunmarriedchildrenunder 21yearsofagewhojoinhiminthePhilippinesmaybeissuedthesamevisa. b. Prearranged Employment Visa This is granted pursuant to Sec. 9(g) of the Philippine ImmigrationLaw.Thisisavailableforemploymentinanyexecutiveormanagerialposition. c.International Treaty Investors Visa This is granted under Sec. 9(d) of the Philippine Immigration Law. The required investment is at least P300,000.00. Only Germans, Japanese andAmericansarepartiestothistreaty. 12.RESTRICTIONSONEMPLOYMENTOFFOREIGNTECHNICALORMANAGERIALPERSONNELAND ACCOMPANYINGFAMILYMEMBERS Restrictionsonpositions: [1] Registered foreign enterprises with the Board of Investments [BOI] may employ foreign nationalsinsupervisory,technicaloradvisorypositionsforaperiodnotexceedingfive[5]years fromitsregistration,extendibleforlimitedperiodsatthediscretionoftheBOI. [2]BOIregistered majority foreignowned enterprises may employ foreign nationals in the positionsofpresident,treasurerorgeneralmanagerbeyondtheperiodoffive[5]years. [3]ForeignnationalsundertheCorporationCodemaybeemployedasmembersoftheBoardof Directorsbywayofelection.

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[4]ForeignenterpriseslocatedattheSubicBayFreeportmayemployforeignnationalsinany positionuponpriorapprovaloftheSubicBayMetropolitanAuthority[SBMA]foraperiodoffive [5]yearswhichmaybeextendedfromyeartoyear. [5]Foreignenterprisesenteringintogovernmentcontractsandserviceforcoaloperationsand exploration and development of oil and geothermal resources are allowed to employ foreign nationalsinanyposition. Restrictionsonskillsrequirement: Employment of foreign technicians in foreign enterprises in the Philippines is subject to the requirement that the skills they possess are not available in the Philippines. If there is none available in the Philippines, a prearranged employment visa may be extended to the foreign technician.Further,underthelaw,theiremploymentshouldbeaccompaniedbyanunderstudy programwhereinatleasttwo[2]Filipinounderstudiesshouldbetrainedontheskillsforwhich they[foreigntechnicians]wereengaged. 13.MINIMUMWAGESANDOTHERLABORSTANDARDSANDLABORRELATIONSLAW LaborlawsinthePhilippinesrespectingwages,hoursofwork,overtime,nightdifferentialpay, service incentive leave, and other labor standards; strikes, picketing, termination of employment,andotherlaborrelationsrules,haveallbeencodified.Allthesemaybefoundin theLaborCodeofthePhilippines,asamended. As regards minimum wages, the Labor Code of the Philippines, as amended, provides for the basicstandardsforminimumwagefixingwhichisdonethroughthevariousRegionalTripartite WagesandProductivityBoards.Eachregionhasitsownsetofminimumwageratesandrules. Asregardslaborunions,strikesandpicketing,collectivebargaining,voluntarymodesofsettling labor disputes and other laborrelated rules, the Labor Code of the Philippines has provided amplesafeguardstoprotecttheinterestofbothlaborandmanagement. 14.TAXATIONLAWONFOREIGNINVESTMENTS I. Corporateandsimilarentities: a. [1]ForeigncorporationsengagedinbusinessortradeinthePhilippinesTheirincome derivedfromsourcesinthePhilippinesaretaxedaflatrateofthirtyfivepercent[35%] basedonnetincome. b. [2]Foreign corporations not engaged in business or trade in the Philippines Their incomederivedfromsourcesinthePhilippinesaretaxedaflatrateofthirtyfivepercent [35%]ongrossincome.Further,interestincomeonforeignloansearnedissubjecttoa twentypercent[20%]tax. c. [3]ForeigninternationalcarriersTheyaretaxedattherateoftwoandahalfpercent [2.5%]ontheirgrossPhilippinebillings. d. [4]Nonresidentforeigncinematographicfilmowners,lessorsordistributorsTheyare taxedattherateoftwentyfivepercent[25%]ongrossincome.

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e. [5]ForeignmutuallifeinsurancecompaniesTheyaretaxedattherateoftenpercent [10%]oftheirgrossinvestmentincomederivedfromsourceswithinthePhilippines. f. Foreignindividuals: [1]IndividualresidentforeignersTheirincome:[a]derivedfromallsourcesinthePhilippines and in foreign countries taxed from 135% on gross compensation income [arising from an employeremployeerelationship];andnetonnoncompensation[businessandother]income. a. [b]twentypercent[20%]onroyalties,prizes,winnings[finaltax]. b. [c]twentypercent[20%]oninterestonbankdeposit,andonsubstitutearrangements [finaltax]. c. [d]fivepercent[5%]capitalgainstaxonsaleofrealty[finaltax]. [2]ForeignersengagedintradeorbusinessinthePhilippinesTheirincome:

II.

III.

a. [a] derived from Philippine sources are taxed from 135% on gross compensation incomeandnetonnoncompensationincome. b. [b]thirtypercent[30%]onroyalties,interestsanddividends,andothers. IV. [3]ForeignersnotengagedintradeorbusinessinthePhilippinesTheirincomederivedfrom Philippinesourcesaretaxedaflatrateofthirtypercent[30%]ongrossPhilippineincome. 15.FISCALINCENTIVESTOFOREIGNINVESTMENTS a.FISCALINCENTIVESOmnibusInvestmentsCodeof1987: Incometaxholiday. [1]Fullexemptionfromincometaxforsix(6)yearsfornewlyregisteredpioneerprojectsfrom thestartofcommercialoperations;and [2]Fullexemptionfromincometaxforfour(4)yearsfromthestartofcommercialoperations fornewlyregisterednonpioneerprojects. Theseexemptionperiodsmaybeextendedforanotheryeareachunderthefollowingcases: [a]theprojectusedindigenousrawmaterials; [b]theprojectmeetstheBOIprescribedratioofcapitalequipmenttothenumberofworkers; [c]thenetforeignexchangesavingsorearningsamounttoatleastUS$500,000annuallyduring thefirstthree(3)yearsofthecommercialoperationsoftheproject. Anyprojectwhichisestablishedinlessdevelopedareas[LDAs]shallbeentitledtotheincentive forsix(6)years. Expansionprojectsofdomesticorientedindustriesarenotentitledtotheincometaxholiday incentive.

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Taxcreditondomesticcapitalequipment. [a]Firms registered on or before December 31, 1994 shall be entitled to tax credit equivalent to one hundred percent [100%] of any taxes and duties which could have beenwaivedhadthecapitalequipmentandaccompanyingsparepartsbeenimported untilDecember31,1997,providedthatthosefirmslocatedoutsidetheNationalCapital Region[NCR]shallenjoysaidtaxcredituntilDecember31,1999. [b]FirmsregisteredafterDecember31,1994shallbeentitledtotaxcreditontheduty portionequivalenttothedifferencebetweenthethreepercent[3%]minimumdutyand the actual duty rate provided under the Philippine Tariffs and Customs Code, as amended. Taxanddutyfreeimportationofcapitalequipment. [a]FirmsregisteredonorbeforeDecember31,1994shallbeentitledtotaxandduty free importation of capital equipment and accompanying spare parts until December 31, 1997. However, firms located outside the National Capital Region [NCR] shall be entitledtotheincentiveuntilDecember31,1999. [b]Firms registered after December 31, 1994 shall be subject to ten percent [10%] ValueAdded Tax [VAT] upon the implementation of Republic Act No. 7716, the expandedVATLawandthreepercent[3%]duty. I. Additionaldeductionforlaborexpense.Forthefirstfive[5]yearsfromregistration,a registeredenterpriseshall beallowedanadditionaldeduction fromtaxableincome of fiftypercent[50%]ofthewagescorrespondingtotheincrementinthenumberofthe directlaborforskilledandunskilledworkersiftheprojectmeetstheprescribedratioof capital equipment to the number of workers set by the Board of Investments. This additional deduction shall be doubled if the activity is located in less developed areas [LDAs]. Tax and duty free importation of breeding stocks and genetic materials for ten [10] yearsfromregistrationorcommercialoperationforagriculturalproducers. Taxcreditondomesticbreedingstocksandgeneticmaterials. Simplificationofcustomsproceduresfortheimportationofequipment,spareparts,raw materialsandsuppliesandexportsofprocessedproducts. Unrestricteduseofconsignedequipmentprovidedareexportbondisposted. EmploymentOfForeignNationals. Taxcreditfortaxesanddutiespaidonrawmaterials,suppliesandsemimanufactured productsusedinthemanufactureofexportproductsandformingpartthereof. Access to bonded manufacturing/trading warehouse system.Registered export orientedenterprisesmayhaveaccesstobondedwarehousingsystems.

II.

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Exemptionfromwharfageduesandanyexporttax,duty,impostandfees. New enterprises registered under the 1995 Investments Priorities Plan [IPP] shall be grantedafiveyearperiodtoavailoftheexemptionfromwharfageduesandanyexport tax,impostandfees.Expansionandexistingprojects,however,arenotentitledtothis incentive.

Tax and duty exemption of imported spare parts and supplies for export producers with customs bondedwarehouseexportingatleastseventypercent[70%]oftheproduction. b. FISCALINCENTIVESSpecialEconomicZoneActof1995: Fiscalincentives,ingeneral. EnterprisesoperatingwithintheEconomicZones[ECOZONES]areentitledtothefiscal incentivesgrantedunderPresidentialDecreeNo.66,[ExportProcessingZoneAuthority Law], or those provided under Book VI of Executive Order No. 226, [Omnibus InvestmentsCodeof1987]. Tax credit for exporters using local materials as inputs in accordancewith the Export Development Actof1994. Exemption from taxes under the National Internal Revenue Code [NIRC] but in lieu of paying taxes, fivepercent[5%]ofthegrossincomeearnedbyallbusinessesandenterpriseswithintheECOZONE shallberemittedtothenationalgovernment. c. FISCALINCENTIVESExportDevelopmentActof1994: ExemptionfromPresidentialDecreeNo.1853ontheadvancedpaymentofcustomsduties. Dutyfree importation of machinery and equipment and accompanying spare parts until December31,1997. Taxcreditforimportedinputsandrawmaterialsprimarilyusedfortheproductionandpackages ofexportgoodsthatarenotreadilyavailablelocallyuntilDecember31,1999. Taxcreditforincreaseincurrentyear'sexportrevenues. Firstfivepercent[5%]increaseinannualexportrevenueoverthepreviousyearacreditof2.5% shallbegrantedtobeappliedonincrementalexportrevenueconvertedtopesos. Nextfivepercent[5%[increaseshallbeentitledtoacreditof5%. Nextfivepercent[5%]increaseshallbeentitledtoacreditof7.5%. Inexcessoffifteenpercent[15%]shallbeentitledtoacreditof10%. Taxcreditfortheuseorimportsubstitutionofnontraditionalproducts.

Taxcreditequivalenttotwentyfivepercent[25%]ofdutiesuntilDecember31,1997.

ClaimsForTaxCredits. 1. Importedinputs,rawmaterialsandcapitalequipment.

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1. Increaseincurrentyear'sexportrevenues. 1. Importsubstitution. d. FISCALINCENTIVESBasesConversionandDevelopmentActof1992:

ExemptedfromanyandallPhilippinenationalandlocaltaxes.Inlieu,however,ofpayingtaxes, afinaltaxoffivepercent[5%]ofgrossincomeearnedisimposed.

16.INTELLECTUALPROPERTYRIGHTS PROTECTION IntellectualPropertyCodeofthePhilippines: In order to strengthen protection to intellectual property rights, Republic Act No. 8293 [otherwise known as the Intellectual Property Code of the Philippines] was approved on June 6, 1997 and took effect on January 1, 1998. This is the codification of all laws on intellectual property rights in the Philippines. It repealed and superseded the Philippine Law on Patents [R. A. No. 165], the Law on Trademarks[R.A.No.166],Articles188and189oftheRevisedPenalCodeandtheLawonCopyright [PresidentialDecreeNo.49]includingPresidentialDecreeNo.285,asamended. RelatedLawsandIssuances: Thefollowingaresomerelatedlawsandexecutiveissuances:

PresidentialDecreeNo.1987[DecreeCreatingtheVideogramRegulatoryBoard] Executive Order No. 60 issued on February 26, 1993, creating the Presidential Inter Agency Committee on Intellectual Property Rights. Several memberagencies of this Committee have created special task forces on IPR such as: the Department of Trade andIndustry[DTI],DepartmentofJustice[DOJ],NationalBureauofInvestigation[NBI], BureauofCustoms[BOC]andthePhilippineNationalPolice[PNP]. Executive Order No. 913 [Strengthening the RuleMaking and Adjudicatory Powers of theMinisterofTradeandIndustryinordertofurtherprotectconsumers].

TreatiesonIntellectualPropertyRights[Philippinesisasignatory]: The Republic of the Philippines is a signatory to several international treaties on intellectual property rights,towit:

ConventionEstablishingtheWorldIntellectualPropertyOrganization[since1980] ParisConventionfortheProtectionofIndustrialProperty[since1965] BudapestTreatyontheInternationalRecognitionoftheDepositofMicroorganismsfor PurposesofPatentProcedure[since1981] BerneConventionfortheProtectionofLiteraryandArtisticWorks[since1984]

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International Convention for the Protection of Performers, Producers of Phonographs andBroadcastingOrganizations[since1984] AgreementonTradeRelatedAspectsofIntellectualPropertyRights[TRIPSAgreement]

17.INTERNATIONALINVESTMENTAGREEMENTS [PHILIPPINES,APARTYSIGNATORY] Thefollowingisarundownofinternationalagreements[inforceandineffect]towhichthePhilippines isapartysignatory,whichareofcommercialoreconomicnatureandsignificance:

FriendshipCommerceandNavigationTreaty: 1. "The Treaty of Amity, Commerce and Navigation between the Republic of the Philippines and Japan" where they express their intent to maintain and strengthen amicablerelationsexistingbetweenthemonamutuallyadvantageousbasis.

BilateralInvestmentTreaties: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. PhilippinesandKingdomofGreatBritainandNorthernIreland PhilippinesandKingdomofNetherlands PhilippinesandRepublicofItaly PhilippinesandSocialistRepublicofVietnam PhilippinesandChineseTaipei PhilippinesandPeople'sRepublicofChina PhilippinesandKingdomofSpain PhilippinesandRomania PhilippinesandRepublicofKorea PhilippinesandFrance PhilippinesandAustralia PhilippinesandCzech PhilippinesandThailand PhilippinesandIran PhilippinesandCanada PhilippinesandChile PhilippinesandSwitzerland PhilippinesandGermany TheASEANAgreementforthePromotionandProtectionofInvestments

Alltheforegoingtreatiescommonlyembodythefollowingbasictenets: [1]Promotionofinvestmentsineithereconomybyinvestorsoftheothereconomythroughthe creation of favorable conditions of investments to foster their respective economic developments. [2]Provision on MostFavouredNation (MFN) Treatment arrangement where respective investorsareaccordedtreatmentnolessfavorablethanthataccordedtoinvestorsofanythird State.

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[3] Provision on expropriation which ordains that if any investors of either economy suffer losses in the other economy by reason of national emergency, revolution, revolt or similar events,thehosteconomyshallaccordtreatmenttothateconomynolessfavorablethanthatit accordstoinvestmentsofanythirdState. [4]Provisionontransferofinvestmentswhichguaranteesthefreetransferofinvestmentsand returnsheldintheterritoryofonecontractingeconomytotheothereconomy. [5]Provisiononsubrogationofrights. 18.DISPUTESSETTLEMENT Governmentvs.Government: As a member of the WTO, the Philippines adheres to the procedures for dispute settlement prescribedbyWTO.Consequently,itconsiderstheseproceduresasbeingapplicabletoanycaseor controversyfallingwithinWTO'sjurisdiction. PrivateParty/iesvs.Government: The Philippines adheres to the dispute settlement procedures prescribed under the International Convention on the Settlement of Investment Disputes Between States and NationalsofOtherStates[ICSID]aswellastheConventionontheRecognitionandEnforcement ofForeignArbitralAwards[NewYorkConvention],beingasignatorythereof. PrivateParty/iesvs.PrivateParty/ies: The basic legal framework applicable in the resolution of conflicts and disputes between private partiesareasfollows:

Executive Order No. 1008 provides for the creation of an Arbitration Machinery in the ConstructionIndustryofthePhilippines. Republic Act No. 876 provides for arbitration and submission agreements, appointment of arbitratorsandtheprocedureforarbitrationincivilcontroversies. PresidentialDecreeNo.442,asamendedprovidesforcompulsoryandvoluntaryarbitrationin laborrelatedconflicts. 20. Advantages ThePhilippinegovernmenthasplacehighpriorityonattractingforeigninvestmentswhich createnewjobs,higherincomes,higherpublicsectorrevenue.Thegovernmenthasforthe past ten (10) years had many ways of achieving such goals for example, by providing modern,efficientinfrastructure,educatingtheworkforcewithskillsindemandbyindustry, settingupfreeports,andspecialexportszonesandthelike.Whiletheyareonlyoneofthe

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tools available to encourage foreign investment in the Philippines in encouraging higher levels of investment, fiscal incentives are extremely available under existing laws. These fiscal incentives accelerate the pace and level of total investments in the economy, these incentivesencouragerenewableenergyinvestmentstodevelopmorerapidlyandshouldbe used to support this particular sector where the Philippine has strong comparative advantage.TheRenewableEnergyLawandtheBiofuelsAct,withtheprovisionsfromthe Foreign Investments Act have listed the fiscal and nonfiscal incentives for the Renewable Energyforeigninvestments. The following inventory of Philippine regulations would show the enormous incentives, privilegesavailableforforeigninvestmentsinthePhilippines: GovernmentRenewableEnergy&WTEInvestmentConcession A. Openness to Foreign Investments The Philippine government is committed a positive attitudetowardsforeigninvestmentanditsroleintheBoardofInvestmenttoassistforeign and domestic investors with regulatory requirements, incentives and market guidance transparency. Philippines being receptive to suggestions and criticisms from the private sector.Manyforeignanddomesticbusinessescontributereformsintheeconomicsystem. The American Chamber of Commerce in the Philippines continued to promote its socio economic Roadmap II More Foreign Investments which identifies the opportunities for moreforeigninvestmentsinthePhilippines. TheharnessingandutilizationofRenewableEnergycomprisesacriticalconcernforenergy supply in the country. This is evident in the energy sector where in the resources has lessened the countrys dependency on imported and polluting fuel. It is the Philippine government policy to facilitate the energy sectors transition to a prominent, viable and competitivefueloption.Ensuringthesuccessofthistransition.Moreover,currentinitiatives inthepursuitofmarketbasedenvironmentthatisconducivetoprivatesectorinvestment andresearchanddevelopment. Currentfiscalincentivesareavailableforalternativesourceofenergyforeigninvestments. Alternativescenariohasbeendrawnupwhichsetshighertargetsforalternativesourceof energy capacity based on the realization of market based industry and the availability of newinternationalfinancingschemestosupportalternativeenergysourcebasedcapacity. I.The2009INVESTMENTPRIORITIESPLAN(IPP) 1. Book I. Investment with Incentives, of the Omnibus Investment Code (1987) prescribesincentivestoqualifiedfirmsincludedintheannualinvestmentPrioritiesPlan (IPP),administeredbytheBoardofInvestments. 2. Under Preferred Activities of the 2008 Investment Priority Plan, income tax holiday coversthedevelopmentofphysicalinfrastructure,powergenerationusingrenewables,

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and other energy sources adopting environmentally friendly technologies. 3. Under Section 2 of the Infrastructure, Power Generation projects as specified in the Power Development Plan that may qualify for registration include those utilizing indigenous and renewable energy sources such as biofuel, biomass, waste to energy conversion, solarwind,geothermal,hydroandtidal. 3.ThebasicincentivesofferedtoallBoardofInvestmentsregisteredcompaniesinclude: Income Tax Holiday: new projects with pioneer status receivefromseven(7)yearsuptomaximumofeightyears incometaxholiday; Additionaldeductionforwages:forthefirstfiveyearsafter registration,Additionaldeductionfromtaxableincome; Income tax holiday all throughout the full operation when theforeigninvestmentisundertheEPIRA; Additional deduction from taxable income for necessary and major infrastructure works for companies located in ruralareas; a company may deduct from taxable income an amount equivalent to expenses incurred in the development WTE projects; Employment of foreign nationals: enterprise may employ foreign nationals in Supervisory, technical, or advisory positionundersimplifiedvisarequirements. Biofuel and Biomass foreign investments are entitled to pioneer incentives

II. INTELLECTUAL PROPERTY RIGHTS The Philippines has made progress in recent years in protecting intellectual property rights. Foreign inventors and importers are encouragedtoregisterpatents,trademarksattheBureauofPatents. TheIntellectualPropertyCode(RepublicActNo.8293)providesthelegalframeworkfor IPR protection in the Philippines. The holder of the Biosphere Process Systems Patent and Trademark is guaranteed an additional right of exclusive importation of his invention. III.CONVERSIONANDTRANSFERPOLICIESTherearegenerallynorestrictionsonthe full and immediate transfer of funds associated with foreign investments like repatriation, the payment of royalties, lease payments and similar fees. To obtain foreign exchange from the banking system for debt servicing of foreign loans and foreigninvestmentsmustberegisteredwiththeBangkoSentralngPilipinas.Thereisno difficultyinobtainingforeignexchangeunderthePhilippinebankingsystem.Thereare nomandatoryforeignexchangesurrenderrequirementsimposedonexportearners.In amovetocurbforeignexchangespeculationandvolatility,theBSPhasrequireda90

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day minimum peso time deposits since January 2000, during which an investor is not allowed to purchase foreign exchange from banks for peso proceeds from the pre terminatedtimedepositsmaybeinvestedinotherinstruments,registeredanew. IV.LEGALSYSTEMThePhilippinegovernmentispursuingjudicialreformsregarding foreigninvestmentswhentheAlternativeDisputeResolution(ADR)Actwassignedinto law,TheADRwasbasedonthesuccessfulcourtbacklogsintheCourt.ThePhilippinesis also a member of the International Center for the Settlement of Investment Disputes (CSID)andtheConventionofArbitrageAwards. V.ACCOUNTING STANDARDS The Philippines had adopted all the international financialreportingstandards(IFRS)andrevisedinternalaccountingrules. These standards are now embodied in the Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards and the adoption of IASBprescribed standardsin2005.TheBangkoSentralngPilipinashasalloweddebts,smallandmedium enterprises (SMEs) and firms that are not publicly listed, that are not debt/securities issuers,thatarepublicutilitiesoressentialpublicserviceprovidersareexemptfromthe newaccountingandfinancialreportingstandards. TheSecuritiesandExchangeCommissionrequiresthatmanagementcertifyacompanys financialstatements.ThereisanoutlineofAccreditationandReportorialCompanies. The regulations instituted a system ofaccreditation for external auditors of firms that issue securities to the investors. That the auditors cannot disclose to the SEC any materialfindings(i.e.fraud,orerror,losses,orpotentiallossesaggregating10percent or more) within five days from receipt of the externalaudit findings. The SEC also issued circulars on new and /or revised Philippine Standards on auditing, review engagements, assurance engagements statements. These circulars outlined additional measuresandpoliciesforcompliancebyexternalauditorstoimproveindependence. A number of the larger local accountancy firms are affiliated with international accounting firms, including Pricewaterhouse Company, and Deloite & Touche, BDO SeidmanandGrantThornton. VI. BILATERAL INVESTMENT AGREEMENTS The Philippine had signed bilateral investment agreements with Argentina, Australia, Austria, Bahrain, Cambodia, Chile, China, the Czech Republic, Denmark, Equatorial Guinea, Finland, France, Germany, India, Indonesia, Iran, Myanmar, Netherlands, Pakistan, Portugal, Romania, Russian Federation, Saudi Arabia, Spain, Sweden, Switzerland, Taiwan, United Kingdom, Venezuela. The general provision of the Bilateral investment agreement include: the promotion and nondiscrimination; the free transfer of capital, payments of earnings, freedomexpropriationandnationalization.

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VII.TAXATION.ThePhilippineshasaTaxTreatywiththeUnitedStatesforthepurpose of avoiding procedures enforcing taxes of both countries. The Treaty also seeks to encourage Bilateral trade and investments by allowing the exchange of defined tax rulesandinsomecasespreferentialtaxrates. Most Favored Nation Clause (royalties): Pursuant to the most favored nation (MFN) clausebythePhilippineUStaxtreaty,thistreatyallowsalowerrateintheuseorright touseanypatent,trademark,design,model,plan,secretformulaorprocess;ortheuse orrighttouseinformationconcerningindustrial,commercial,orscientificexperience. Permanent Establishments. A foreign company that renders services to Philippine Clients without settingup a branch office is exempted to pay Philippine taxes if the services rendered to a Philippine client requires its personnel stay in the country for morethan183days. Taxes on OBUs and FCDUs: The Comprehensive Tax Reform Program (CTRP) exempts OBUsandFCDUs,bothPhilippineandforeignfrompaymentofdocumentarystamptax andbranchprofitremittancetaxes. VIII. PHILIPPINE ENERGY SECTOR GOALS FOR 2007, under the Philippine Energy Plan (PEP) 1.Reductionofcoalimportsby20%inten(10)years; 2.Increaserenewableenergybasedcapacityby100%inten(10)years; TheEnergySectorAgendafor20052013 1.EnergyIndependence by aggressively development of renewable energy potential such as biomass,solar,windandoceanresources. 2.PowerSectorReforms: 3.Implementprivatizationprocess 4.Createaninvestmentclimateattractivetoinvestors.

The Philippines iscommittedto formstrategicalliance withothercountrieswithregardtorenewable energydevelopmentintheworld.

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CompiledBy:
RUTHP.BRIONES Chairman/ChiefExecutiveOfficer GreenergySolutionsInc. gsiwte@gmail.com +6324301725 www.greenergyph.com

Clean energy is climate change adaptation, which must be a global effort. It is an acknowledgment that mankinds greenhouse gas emissions are the ones causing dramatic climate changes. The response must be in two forms: for unclean energy, higher efficiency; for clean energy, higher economics. The inventing must be now; the investing must be now.
RuthP.Briones,PMI July29,2010

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