FEASIBILITY STUDY ABOUT FOREIGNERS INVESTING IN PHILIPPINE TOURISM

I.

EXECUTIVE SUMMARY

In this feasibility study, we will discuss requirements for investing in the Philippine Tourism. The government passionately supports tourism by heavy investments in infrastructure developments and marketing activities Numerous ongoing projects in airport, seaport, and railway development; flood control; road construction and rehabilitation; supporting the growth of the tourism sector. The Philippine tourism industry is stable and fast growing which means more and more investments are needed to sustain its growth.

II.

TOURISM INVESTMENT OPPORTUNITIES

What are the investment opportunities in the Philippine tourism industry?

As the Philippine tourism industry is expected to continue to grow, there will invariably be greater demand for tourism superstructures, facilities and services. Hotels, resorts and other types of accommodation facilities especially in the regions will have to be built to address the lodging requirements of both foreign and domestic travelers. The need for improved accessibility will likewise open investment opportunities in air, water and land transport operations. In response to worldwide demand for integrated tourism development, the Department of Tourism is also encouraging investments in tourism estates, historico-cultural heritage projects and ecotourism and agri-tourism projects.

III.

OVERVIEW OF PHILIPPINE TOURISM INDUSTRY

The Philippine tourism industry flourished in the 1970s and early 1980s but declined in the mid 1980s, with the average length of tourist stay falling from 12.6 days in earlier years to 8.9 days in 1988. In 1987, tourism growth was slower in the Philippines than in other Southeast Asian countries. About 1.2 million tourists visited the Philippines in 1992, which was a record high in the number of tourist visits since 1989. In 2000, the Philippines' tourist arrivals totaled 2.2 million. In 2003, it totaled 2,838,000, a growth of almost 29%, and was expected to grow as much as 3.4 million in 2007. In the first quarter of 2007, the tourist arrival in the Philippines grew as much as 20% in

same period last year. In 2011, the Department of Tourism recorded 3.9 million tourists visiting the country,1 11.2 percent higher than the 3.5 million registered in 2010. In 2012, the Philippines recorded 4.27 million tourist arrivals, after the Department of Tourism launched a widely publicized tourism marketing campaign titled "It's More Fun In the Philippines.2 The tourism industry employed 3.8 million Filipinos, or 10.2 per cent of national employment in 2011, according to data gathered by the National Statistical Coordination Board. In a greater thrust by the Aquino administration to pump billions of dollars into the sector, tourism is expected to employ 7.4 million people by 2016, or about 18.8 per cent of the total workforce, contributing 8 per cent to 9 per cent to the nation's GDP. 3

IV.

STATE OF TOURISM

I.

What is the general state of tourism in the Philippines?

After a series of declines from 2000-2003, tourism in the Philippines bounced back in 2004. From 2000- 2003, visitor arrivals in the Philippines decrease by an average of 2.9% but increased by 18.8% for the year 2003 to 2004. For the year 2004, visitor arrivals reached 2.291 million, which in turn resulted in visitor receipts totaling US$1.99 billion. Over the years tourism has been a top foreign exchange generator. Tourism investments endorsed by the Department to concerned agencies (i.e. Board of Investments and Land Transportation, Franchising and Regulatory Board ) reached over Php937.897 million in 2004 with new projects in land transport and in hotel development. This figure, however, can easily double if we include investment projects that did not go through the Department of Tourism for endorsement purposes. By and large, the tourism industry continues to be a major contributor to the growth of the Philippine economy.

1
2

tourism-dept-claims-2011-a-banner-year-for-the-philippines "It's More Fun in the Philippines official website". 3 Calderon, Justin (5 March 2013). "Philippine tourism to create 3.6m jobs". Inside Investor. Retrieved 23 May 2013.

II.

Statistics4

TOP 20 international visitors

^ a b Department of Tourism (Philippines), Tourism Statistics, retrieved June 8, 2012

V.

TOURISM IN THE PHILIPPINES

I.

PHILIPPINES HAS VARIETY OF SCENIC SITES

Philippine island is an archipelago that offers a variety of scenic sites with its natural and man-made formations. A cosmopolitan lifestyle stretches across the urban centers where shopping is customer-friendly in terms of export-quality products at reasonably low prices; where a blend of international cuisine of eastern and western culinary creations can be experienced in first class restaurants.

i. Rich in marine biodiversity

The Philippines is home to Verde Island, dubbed as the Center of the Center of Marine Shorefish Biodiversity, in a study made by Americas Smithsonian Institute. It has been found to have 1,736 overlapping marine species in a 10x10 km area, the largest concentration of marine life in the world. The Tubbataha Reef National Marine Park teems with 300 coral species, 46 coral genera, 7 seagrass species, 71 algae species; large marine life, dolphins, marine turtles; and seabirds. It was honored by UNESCO as the First Natural Site in the Philippines to be inscribed in the prestigious World Heritage List.

ii. A sanctuary to an amazing variety of flora

Almost 12,000 species of plants have been identified in the archipelago, including more than 8,000 species of flowering plants, about 3,800 kinds of trees, around 1,000 kinds of ferns, and almost 1000 orchids. Haven to a diverse fauna found nowhere else in the world The archipelago is home to the Philippine Eagle, the biggest eagle in the world, the Philippine Tarsier, the world's smallest mammal in existence, and the dugong or sea cow, the only herbivorous mammal today.

II.

TOURISM IN PHILIPPINES AS A MAJOR ECONOMIC CONTRIBUTOR TO PHILIPPINE ECONOMY

Tourism in the Philippines is a major economic contributor to the Philippine economy. The Philippines is an archipelagic country composed of 7,107 islands. It offers a rich biodiversity with its tropical rainforests, mountains, beaches, coral reefs, islands, and diverse range of flora and fauna, making it as one of the megadiverse countries in the world.5 In 2012, the country attracted 4,272,811 visitors.6 As an archipelago composed of 7,107 islands, the Philippines offers countless attractions to see, such as the famous white sand beaches of Boracay, big shopping centers of Metro Manila, rice terraces of Ifugao, diving sites of Palawan, lush forests of Bohol, heritage houses in Vigan, and the cultural attractions of Manila. Metro Manila, the national capital region of the country, is known for being one of the best shopping destinations in Asia; its wide collection of shopping centers offer a range of local and international shops. Numerous shopping malls can be found around the metropolis, especially in the business and financial districts of Ortigas Center and Bonifacio Global City, while high-end shopping centers are mostly located at the Ayala Center in Makati. Despite the rise of modern shopping centers, traditional Filipino shopping areas still remain around the metropolis. Located just approximately 315 km (196 mi) south of Manila is Boracay; it is known for its white sand beaches and has been a favorite island destination for local and foreign visitors. In 2012, Boracay received the best island award from the international travel magazine Travel + Leisure. Boracay was also named as the second best beach in the world. Aside from its white sand beaches, Boracay is also known for being a popular destination for relaxation, tranquility and for an exciting nightlife. Mindanao, the southernmost island of the Philippines is home to the country's tallest mountain, Mount Apo. The mountain features a wide range of flora and fauna and is home to over 272 bird species, 111 of which are endemic to the area. Mount Apo is also home to the country's national bird, the Philippine Eagle. Mount Apo is a popular destination for hiking and mountain activities. The Philippines is a country of vibrant 7,107 islands, all teeming with life and blessed with beautiful natural wonders.

VI.

WHO MAY INVEST IN THE PHILIPPINES

Anyone, regardless of nationality, is welcome to invest in the Philippines. With the liberalization of the foreign investment law, 100% foreign equity may be allowed in all areas of investment except those reserved for Filipinos by mandate of the Philippine Constitution and existing laws..

5 6

"Natural Resources and Environment in the Philippines". (n.d.). eTravel Pilipinas. Retrieved January 22, 2009. "Visitor Arrivals to the Philippines Reached Record-High 4.3 Million in 2012". Department of Tourism. Retrieved January 26, 2013.

VII.

REQUIREMENTS IN INVESTING IN PHILIPPINES

A foreign corporation must first secure the necessary licenses or registrations from the appropriate government bodies. In the case of corporations or partnerships, the necessary incorporation papers from the Securities and Exchange Commission must first be obtained. In the case of single proprietorship, registration from the Bureau of Trade Regulation & Consumer Protection of the Department of Trade and Industry must be secured.

VIII.

GENERAL POLICY OF THE GOVERNMENT FOR FOREIGN INVESTMENTS

The government recognizes the pivotal role of private sector investments and, thereby, commits to continuously enhance the business climate. Foreign investments are encouraged to fill in capital gaps, help provide employment, increase production, and provide a base for the overall development of the economy. Investment rules and regulations have thus been liberalized to facilitate entry of foreign investments.

IX.

ARE FOREIGNERS ALLOWED TO LEASE IN THE PHILIPPINES?

YES. Foreign investors investing in the Philippines can now lease private lands up to 75 years. Based on R.A. No. 7652, entitled Investor's Lease Act, lease agreements may be entered into with Filipino landowners. Lease period is 50 years, renewable once for another 25 years. For tourism projects, the lease shall be limited to projects with an investment of not less than US$5M, 70% of which shall be infused in said project within years from signing of the lease contract.

X.

LAW AND INCENTIVES COVERING TOURISM INVESTEMT IN PHILIPPINES

The government has passed the following laws aimed at encouraging more investments:

i. Tourism Act of 2009 (Republic Act No. 9593)

The State declares tourism as an indispensable element of the national economy and an industry of national interest and importance, which must be harnessed as an engine of socioeconomic growth and cultural affirmation to generate investment, foreign exchange and employment, and to continue to mold an enhanced sense of national pride for all Filipinos. To this end, the Tourism Act of 2009 was passed on 12 May 2009, granting fiscal and non-fiscal incentives to tourism business, including income tax holiday of up to six years, and employment of foreign nationals, among others One of the salient features of this law is also the establishment of "Tourism Enterprise Zones" or TEZs, which are geographical areas, sufficient in size and capable of being defined into one contiguous territory, and are identified as viable tourism destinations in view of their historical and cultural significance, environmental beauty, existing or potential integrated leisure facilities, reasonable distances, accessibility to transportation infrastructures and strategic location, such as to catalyze the socioeconomic development of their neighboring communities. Tourism enterprises within the TEZ shall register with the Tourism Infrastructure and Enterprise Zone Authority (TIEZA) for purposes of availment of the incentives provided under the law.

ii. Special Economic Zone Act of 1995 (Republic Act 7916)

This Republic Act provides for the legal framework and mechanism for the creation, operation, administration and coordination of Special Economic Zones in the Philippines, creating for this purpose, the Philippine Economic Zone Authority (PEZA) and for other purposes. On October 7, 2002, the DOT entered into a Memorandum of Agreement (MOA) with PEZA that will grant Special Economic Zone status to tourism development zones and tourism estates upon registration with PEZA subject to the issuance of the required Presidential Proclamation. The PEZA shall consider for registration tourist-oriented enterprises to be located in PEZA-registered tourism development zones/tourism estates which are enclosed by the DOT as enterprises that will be established and operated with foreign tourists as primary clientele.

iii. Build-Operate-Transfer (BOT) Law (Republic Act 6957 as Amended by Republic Act No. 7718)
The BOT Law authorizes the financing, construction, operation and maintenance of infrastructure projects by the private sector. It allows national implementing agencies and local government units to enter into BOT arrangement as a means of encouraging the participation of foreign and local companies in the countrys infrastructure development program. Tourism estates including related infrastructure facilities and utilities are among the priority projects eligible for BOT implementation.

iv. Omnibus Investments Code (Executive Order No. 226)

This Executive Order authorizes the Board of Investments to grant fiscal incentives and non-fiscal incentives for local and foreign investors engaged in tourism activities listed under the current Investments Priorities Plan (IPP). Incentives granted include income tax holiday (up to 4 years for non-pioneer projects and 6 years pioneer projects) and the employment of foreign nationals.

v. Executive Order No. 63

This Executive Order grants incentives to foreigners investing at least US$50,000 in a tourist-related project or in any tourist establishment as determined by the Committee created in the same law. E. O. 63 grants the foreign investor a Special Investor's Resident Visa (SIRV) for as long as the investment subsists. The E. O. also recognizes the right of the investor to remit earnings from his investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance. In case of liquidation, the investor is also allowed to repatriate the entire proceeds of the liquidation of the investment in which the investment originally made. Lastly, the right of succession is also recognized. An investor may apply for SIRV at the Philippine Embassy or Consulate in his home country or place of residence. If already in the Philippines, the investor may file the application at the Department of Tourism for endorsement to the Bureau of Immigration.

vi. Omnibus Investments Code (Executive Order No. 226)

This Executive Order authorizes the Board of Investments to grant fiscal incentives and

non-fiscal incentives for local and foreign investors engaged in tourism activities listed under the current Investments Priorities Plan (IPP). Incentives granted include income tax holiday (4-6 years for non-pioneer and pioneer projects, respectively) and the employment of foreign nationals.

vii. Foreign Investments Act of 1991

(Republic Act 7042 as Amended by Republic Act No. 8179 ) With the passage of the Foreign Investments Act, foreign nationals are now allowed to invest up to 100% equity participation in new or existing economic activities including restaurant operations that are incidental to the hotel business. Foreign equity participation of up to 40% is allowed in the operation and management of utilities (i.e. land, air, and water transport).

viii. Build-Operate-Transfer (BOT) Law (Republic Act 6957 as Amended by Republic Act No. 7718)

The BOT Law authorizes the financing, construction, operation and maintenance of infrastructure projects by the private sector. It allows national implementing agencies and local government units to enter into BOT arrangement as a means of encouraging the participation of foreign and local companies in the country's infrastructure development program. Tourism estates including related infrastructure facilities and utilities are among the priority projects eligible for BOT implementation. Backed up by a wide range of credit enhancements and investment incentives, the BOT Law opened to the private sector a new window of investment opportunity.

Salient points of the amended BOT Law include the following: 1. Provides flexibility to both the government and private sector by allowing the use of a variety of arrangements under the BOT scheme to suit specific conditions; 2. Broadens the type and variety of projects that can be implemented under the BOT process; 3. Recognizes the need for private investors to realize rates of return reflective of market conditions; 4. Institutionalizes government support for BOT projects; and 5. Allows government agencies and local government units (LGUs) to accept unsolicited proposals. The BOT Law mandates the BOT Center to coordinate and monitor all projects undertaken under RA 7718. The BOT Center is empowered to actively promote all modes of private sector participation in the implementation of development projects in the country. Under A. O. 67, the BOT Center expands the coverage of the program to

include the BOT scheme, joint venture agreement, concession agreement, lease and contractual management, among others. The DOT Center is specifically involved in: - Project development - Policy advocacy - Institution-building - Marketing and promotions - Monitoring

ix. Special Economic Zone Act of 1995 (Republic Act 7916)

This Republic Act provides for the legal framework and mechanism for the creation, operation, administration and coordination of Special Economic Zones in the Philippines, creating for this purpose, the Philippine Economic Zone Authority (PEZA) and for other purposes. On October 7, 2002, the DOT entered into a Memorandum of Agreement (MOA) with PEZA that will grant Special Economic Zone status to tourism development zones and tourism estates upon registration with PEZA subject to the issuance of the required Presidential Proclamation. The PEZA shall consider for registration tourist-oriented enterprises to be located in PEZA-registered tourism development zones/tourism estates which are enclosed by the DOT as enterprises that will be established and operated with foreign tourists as primary clientele. Incentives available are: a. Up to 100% foreign ownership of locator enterprises; b. Income tax holiday (ITH) for six years for ioneer firms and four years for non-pioneer firms. If a non-pioneer firm is located in a less developed area, it shall generally be entitled to 6 years ITH. c. After the ITH period, the option to pay a special 5% Tax on Gross Income, in lieu of all national and local taxes, except real property taxes; d. Tax and duty-free importation of capital equipment required for the technical viability of registered tourism activities; e. Special Investor's Resident Visa; f. Employment of foreign nationals; and g. Other incentives as may be determined by the PEZA Board.

x. Retail Trade Liberalization Act of 2000 (Republic Act

No. 8762)

This is an act liberalizing the retail trade business, repealing for the purpose Republic Act No. 1180, as amended, and for other purposes. With the enactment or implementation of the Trade Liberalization Act of 2000, up to 100% foreign equity participation in restaurants is now allowed for enterprises with a paid-up capital of US$2.5 million.