Understanding Trade and Investment Policies in the Philippines

The Philippines offers a dynamic environment for trade and investment, with a range of policies designed to attract foreign investors, promote exports, and foster economic growth. Understanding these policies is essential for businesses looking to enter or expand in the Philippine market. This guide provides an overview of key trade and investment policies in the Philippines.

1. Foreign Investment Act (Republic Act No. 7042, as amended by Republic Act No. 8179)

Overview:

• The Foreign Investment Act (FIA) governs the entry of foreign investments in the Philippines.
• It liberalizes the investment environment by allowing foreign investors to own up to 100% of businesses in sectors not listed in the Foreign Investment Negative List.

Key Provisions:

• Foreign Investment Negative List (FINL): Specifies sectors where foreign ownership is restricted or limited. The FINL is divided into:
  • List A: Activities reserved for Filipino nationals or where foreign ownership is limited by law.
  • List B: Activities where foreign ownership is limited for reasons of security, defense, health, morals, and protection of local small- and medium-sized enterprises (SMEs).

Actions for Compliance:

• Review the FINL: Before investing, review the latest FINL to understand any restrictions in your intended business sector.
• Register with the SEC: Foreign investors must register their investments with the Securities and Exchange Commission (SEC).

2. Board of Investments (BOI) Incentives

Overview:

• The BOI offers a range of incentives to encourage investments in priority sectors identified in the Investment Priorities Plan (IPP).

Key Incentives:

• Income Tax Holiday (ITH): Exemption from corporate income tax for a specified period.
• Additional Deductions: Enhanced deductions for labor expenses, infrastructure development, and training.
• Duty-Free Importation: Exemption from customs duties for the importation of capital equipment and raw materials.

Actions for Compliance:

• Register with BOI: Apply for BOI registration to avail of incentives.
• Comply with IPP: Ensure that your business aligns with the activities listed in the IPP.

3. Philippine Economic Zone Authority (PEZA) Incentives

Overview:

• PEZA administers incentives for businesses located in designated economic zones, including manufacturing, IT parks, tourism, and agro-industrial zones.

Key Incentives:

• Income Tax Holiday (ITH): Initial exemption from corporate income tax, followed by a special 5% tax on gross income.
• Duty-Free Importation: Exemption from duties on imported machinery, equipment, and raw materials.
• Zero VAT Rating: Zero-rating of local purchases of goods and services, subject to certain conditions.

Actions for Compliance:

• Locate in a PEZA Zone: Ensure your business is located within a designated PEZA economic zone.
• Register with PEZA: Apply for PEZA registration to access incentives.

4. Special Economic Zones and Freeport Zones

Overview:

• The Philippines has several special economic zones and freeport zones that offer unique incentives to businesses.

Key Zones:

• Clark Freeport Zone: Located in Pampanga, offers tax and duty exemptions.
• Subic Bay Freeport Zone: Located in Zambales, offers similar incentives to Clark Freeport Zone.
• Other Zones: Include the Cagayan Special Economic Zone and Freeport, Zamboanga City Special Economic Zone, and others.

Actions for Compliance:

• Register with Zone Authorities: Each zone has its own registration process and governing authority.
• Comply with Zone Regulations: Adhere to specific regulations and requirements of the chosen economic or freeport zone.

5. Export Development Act (Republic Act No. 7844)

Overview:

• The Export Development Act aims to promote the development and growth of Philippine exports.

Key Provisions:

• Export Development Council (EDC): Established to oversee and implement export development policies.
• Incentives for Exporters: Include tax credits, exemptions from certain taxes, and access to export financing.

Actions for Compliance:

• Register as an Exporter: Register with the appropriate government agencies, such as the Department of Trade and Industry (DTI) and the Bureau of Customs (BOC).
• Utilize Export Incentives: Take advantage of available tax credits and exemptions for exporters.

6. Comprehensive Automotive Resurgence Strategy (CARS) Program

Overview:

• The CARS Program incentivizes investments in the automotive manufacturing sector to boost local production and job creation.

Key Incentives:

• Fiscal Support: Includes incentives for manufacturing, assembly, and production of key automotive parts.
• Non-Fiscal Support: Includes assistance in infrastructure development, skills training, and market promotion.

Actions for Compliance:

• Qualify for the Program: Ensure your business meets the qualifications for participation in the CARS Program.
• Apply for Incentives: Submit the necessary applications to avail of the program’s benefits.

7. Trade Agreements and Market Access

Overview:

• The Philippines is a member of various international trade agreements that provide preferential market access.

Key Agreements:

• ASEAN Free Trade Area (AFTA): Provides reduced tariffs and enhanced trade facilitation among ASEAN member states.
• Philippines-Japan Economic Partnership Agreement (PJEPA): Offers preferential access to the Japanese market.
• Generalized System of Preferences (GSP): Allows duty-free entry of certain products into the EU and US markets.

Actions for Compliance:

• Understand Trade Agreements: Familiarize yourself with the provisions of relevant trade agreements.
• Leverage Preferential Tariffs: Utilize preferential tariffs and market access opportunities provided by these agreements.

Best Practices for Compliance and Maximizing Benefits

1. Engage Legal and Tax Advisors:

   • Work with professionals to navigate the complexities of trade and investment laws and to optimize benefits.

2. Stay Updated on Policy Changes:

   • Regularly review updates from government agencies such as the DTI, BOI, PEZA, and SEC.

3. Maintain Compliance:

   • Ensure ongoing compliance with all regulatory requirements to avoid penalties and to continue enjoying incentives.

4. Participate in Trade and Industry Programs:

   • Engage in government and industry programs to stay informed and connected with potential opportunities.

5. Document and Report:

   • Maintain accurate records and submit required reports to regulatory bodies to ensure transparency and accountability.

Conclusion

Understanding and navigating the trade and investment policies in the Philippines is crucial for businesses seeking to capitalize on the opportunities available in this growing market. By complying with legal requirements, leveraging incentives, and staying informed about policy changes, businesses can successfully establish and expand their operations in the Philippines.