To encourage direct foreign investments, the Philippine government offers tax benefits to qualified foreign companies. These benefits include tax holidays, tax exemptions, tax credits, tax reliefs, and duty-free importation of capital equipment.
The special agencies that administer these incentives require a set of requirements, such as locating the company in one of the economic zones that the agency manages, as is the case with the Philippine Economic Zone Authority (PEZA). Others, such as the Board of Investments (BOI), require foreign companies to engage in areas of investment that are prioritized by the PH government.
Tax Incentive Options in the Philippines
Philippine Economic Zone Authority (PEZA)
Foreign enterprises engaged in export manufacturing, tourism, and similar business activities can register their company with PEZA, provided they set up their office in one of PEZA’s special economic zones (SEZs).
PEZA-registered enterprises can enjoy numerous tax incentives, which include but are not limited to the following:
- Income tax holiday (ITH) of three to six years
- Preferential final tax of 5% of gross income in lieu of all national and local taxes (after the ITH period)
- Tax and Duty-free importation of capital equipment, spare parts, and accessories
- Tax credits and Tax relief for Philippines exporters using local materials (as provided under RA 7844)
- Exemption from expanded withholding tax
- Additional deduction for labor expenses
- Employment of foreign nationals in supervisory, technical or advisory positions
The requirements for registering with PEZA are as follows (additional requirements may be required for some industries):
- SEC Certificate of Registration
- Articles of Incorporation and By-Laws
- Board Resolution of a duly authorized company representative/signatory
- Project Brief
- Anti-Graft Certificate
- Project Feasibility Study
Board of Investments (BOI)
Fully foreign-owned companies engaging in export-oriented activities (70-100% export), including outsourcing and offshoring, can register with BOI. Those engaging in other industries can also register with BOI if their business activities are among the priority areas for development of the government or included in BOI’s investment priorities plan (IPP). Additionally, foreign companies can be eligible for BOI incentives if they set up their office in one of the areas listed by BOI as Less Developed Areas (LDAs).
Some of BOI’s tax incentives are similar to those offered by PEZA, which include the following:
- ITH of three to six years
- Duty exemption on imported capital equipment, spare parts, and accessories
- Exemption from wharfage dues and export tax, duty, impost, and fees
- Tax credits on imported raw materials
- Tax and duty-free importation of consigned equipment
- Additional deduction for labor expenses
- Employment of foreign nationals in supervisory, technical or advisory positions
If eligible, foreign companies must submit the following to BOI to apply for incentives:
- SEC Certificate of Registration
- Articles of Incorporation and By-Laws
- Audited Financial Statement (feasibility report that contains projected financial reports for the next 5 years)
- Income Tax Return for the past 3 years (if applicable)
- Board Resolution of a duly authorized company representative/signatory
- Project Report (a report that contains activities listed or are related to those listed in the IPP)
Cagayan Economic Zone Authority (CEZA)
Foreign companies engaged in tourism-related business activities (such as gaming [online and offline], amusement, gambling, and sports facilities) can register their business with CEZA.
CEZA-registered enterprises are entitled to avail all tax incentives provided by PEZA, including zero-rating for articles admitted by CEZA under legal permit. Under Philippine laws, CEZA has the power to issue online gaming licenses to qualified enterprises.
To apply for Tax relief or incentives with CEZA, the following requirements must be submitted:
- SEC Certificate of Registration
- Articles of Incorporation and By-Laws
- Project Feasibility Study
- Evidence of the intended enterprise’s physical location within the Cagayan Special Economic Zone and Freeport
- List of assets and other properties
Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
Foreign enterprises engaged in tourism-related activities (such as travel and tour agencies, restaurants, spas, theme parks, and galleries) within the Tourism Enterprise Zone (TEZ) can register their business with TIEZA. To be eligible, the main purpose of their business must be to attract local and foreign tourists to travel to and in the Philippines. Other tourism enterprises can also avail of TIEZA incentives provided that their tourism activities are included in the IPP.
TIEZA-registered enterprises will be entitled to the same incentives granted by PEZA, including:
- Tax deduction equivalent to a reasonable percentage (not exceeding 50% of the cost of environmental protection or cultural heritage preservation activities, sustainable livelihood programs for local communities, and other similar services)
- Protection from requisition of property in cases of war or national emergency
- Repatriation of investment (in the currency in which the investment was originally made)
- Entitlement to avail a work visa or a Special Investor’s Resident Visa
To be eligible, foreign-owned tourism enterprises must submit the following:
- SEC Certificate of Registration
- Articles of Incorporation and By-Laws
- Company Profile (containing basic data/information on its technical, financial, marketing, and management capability to undertake the proposed project)
- Board Resolution of a duly authorized company representative/signatory
- Vicinity Map
- Proof of Land Ownership and/or Long-Term Lease Agreement/s for a period of not less than 25 years in the area of the proposed TEZ
- Endorsement Letter from the National Historical Institute (NHI) in the case of Cultural and Heritage Tourism Zone, from the Department of Health (DOH) in the case of Health and Wellness Tourism Zone; or from the Philippine Retirement Authority (PRA) in the case of retirement villages/communities.
- Referral letter from which investment promotion agencies (if any)
