Business opportunities in the

an introduction to Doing Business with the Philippines

Land Area: 300,000 The Philippines is an archipelago made up of 7, 107 islands and islets and three major geographical regions, namely, Luzon, Visayas and Mindanao. It is situated in the southeastern coast of mainland Asia and because of its strategic location it is a gateway to the Southeast Asian market of about 500 million people. Population: 97,976,603 (July 2009 est.) Religions: 80.95% Roman Catholic, 15% Christian, 5% Muslim Literacy Rate: 95% Strategically located in Asia It is approximately 4.5 flying hours to the capital cities of the Southeast Asia countries.

It has a mixed cultural society ----a colony of Spain for 300 years and America for 40 years until it finally achieved independence in 1946. Its population of about 94 million people is made of 95% Christians of which 85% are Catholics and 5% Muslim. It is the third largest English- speaking country in the world and although Filipino is the national language, English is widely spoken and is the language use for business and instruction in schools, colleges and universities. The climate is hot and dry from March to May; rainy from June to October; and cool and dry from November to February. The country is a democratic republic and has a presidential form of government with a president elected for a fixed term of 6 years without reelection.

The three major branches of government are: Executive, headed by the President; the legislative, the Philippine Congress composed of the Senate, the upper house, and House of Representatives, the lower house; and The judiciary with the Supreme Court as the highest court of the land. The three branches are co-equal and independent and serves as a check and balance of each other.

The Philippine Government maintains a policy of promoting and developing all industries in all sectors of the economy and in all regions of the country to foster and accelerate the country’s economic growth and has divided the country into 17 regions, each of which has its own development plan. Its favourable investment climate, highly skilled and English-speaking labour force, western lifestyle, fiscal and non-fiscal incentives for eligible investors have attracted and encouraged foreign direct investments. The US$5 billion Malampaya Deep Water Gas-to-Power Project in the coast of Palawan, southern Philippines, is one of the biggest foreign investments. The project is joint undertaking of the Philippine Department of Energy and the private sector represented by Shell Philippines Exploration B.V. (SPEX) on behalf of Chevron Malampaya LLC and PNOC (Philippine National Oil Corporation). It draws natural gas from deep beneath Philippine waters and was inaugurated in October 2001 at the onshore gas plant in Batangas, central Philippines.

Foreigners may engage in all kinds of business subject to the limitations under the Philippine Constitution and special laws 1. Constitutional Restrictions

a. 60% ownership by Filipino citizens or nationals is required for the exploration, development and utilization of natural resources; ownership and management of public utilities; and ownership, establishment and administration of educational institutions. b. No foreign equity is allowed in mass media except recording and practice of all professions such engineering; medicine and allied professions; law; accountancy, architecture and others save in cases prescribed by law. 2. Statutory Limitations a. Foreign Negative Lists (FNL) under Foreign Investment Act of 1991―prescribes the maximum level of foreign equity allowed for specific businesses enumerated therein which could be 20%; 25%; 30%; 40%; and 60%. b. Mining Act of 1995―100% foreign-owned companies maybe involved in the exploration, development and utilization of minerals, petroleum and other mineral products through a Financial andTechnical Assistance Agreement (FTAA). c. Banking Law of 2000―limits foreign ownership in Philippine banks to 60% although a framework for 100% ownership maybe allowed in the future.

Special Economic Zones Act of 1995 To date about 140 ecozones have been approved by PEZA Bases Conversion and Development Act of 1992 Subic Bay Freeport―administered by Subic Bay Metropolitan Authority (SBMA) Clark Special Economic Zone―administered by Clark Development Authority (CDA Other smaller zones under said Act: John Hay & Poro Point Other Ecozones created under Special Laws Cagagan Economic Zone Authority and Zamboanga Economic Zone Authority

Priority sectors
2009 Investment Priorities Plan (IPP) The priority investment areas are classified into:

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Preferred Activities which include a Contingency List and Regular List. Mandatory List Export Activities ARMM List

4. Priority Sectors for the UK and Scotland

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Renewable Energy; Business Support & IT(BPO); Infrastructure (BOT Scheme―PPP); Investment Tourism; Mining Export of Electronics

BOI Registered Enterprises General Rule: Only Filipino citizens and companies organized under Philippines laws and registered with the BOI are eligible for BOI incentives under the Omnibus Investments Code of 1987. Exception: Companies which are 100% foreign-owned shall be eligible for BOI incentives if they are (a) engaged in pioneer projects (introduce new products or processes in the Philippines or conduct certain approved businesses); (b) export 70% of production or lower as determined by the BOI; (c) undertake projects in less-developed areas as determined by the BOI.

However, the foreign companies are obliged to attain 60% Filipino ownership with 30 years from registration or longer period as determined by the BOI. Exception when 100% of production is for export or the foreign ownership is limited under the Constitution or the Foreign Investment Negative List (FINL) of the Foreign Investments Law of 1991.

BOI Registered Enterprises Tax Incentives 1. Pioneer Projects • • 6 years tax holiday for first 6 years of operations extendable to 2 years subject to certain conditions. 6 years exemption from local business tax (Local Government Code).

2. Non-pioneer Projects • 4 years tax holiday from date of operations extendable to 3 years subject to certain conditions.

Non-tax Incentives for all BOI-registered companies • • • • Access to manufacturing/trading warehouse system for export-oriented companies resulting to deferral or elimination of taxes and customs duties. Simplified customs procedures for imports and exports. Unrestricted use of consigned equipment. Employment of foreign nationals in supervisory, technical or advisory positions for 5 years from registration.

PEZA Registered Enterprises Tax Incentives • 3 to 8 years tax holiday from income tax and local taxes. Thereafter, 5% tax on gross income (sales less direct costs) in lieu of all local and income taxes. Duty-free and tax-free importation of imported capital equipment and production supplies, Exemption from branch profits remittance tax by PEZA-registered branch of foreign corporation.

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PEZA- registered companies are entitled to all fiscal incentives avaible to BOI-registered companies. Non-tax Incentives • Permanent residency status for foreign investor with initial investment of US$100,000 or more. The permanent residency status is extended to the investor’s spouse and dependent children under 21 years of age for investments of US$150,OOO or more. Employment of foreign nationals to top managerial positions indefinitely of the foreign investor owns majority of the capital of the registered enterprise.

Fiscal incentives for companies located at Subic Bay Freeport Zone and Clark Special Economic Zone are provided by the laws creating them and generally takes the form of income tax holiday and duty-free importation of raw materials and capital equipment.

General Rule: Philippine Constitution provides that only Filipino citizens and corporations and partnerships which are at least 60%-owned Filipino-owned may acquire lands in the Philippines.

Exceptions: • • Acquisition before the 1935 Constitution Acquisition thru hereditary succession if the foreigner is a legal spouse of a Filipino citizen or natural children (legitimate or illegitimate) of a Filipino mother/father. Philippine Condominium Act, R.A. 4726, allows foreigners to acquire condominium units and shares in condominium corporations up to not more than 40% of the total and outstanding capital stock of a Filipino owned or controlled condominium corporation.

There have been proposals in the Philippine Congress to amend this provision of the Philippine Constitution. Foreigners can lease lands for industrial and agricultural projects for a maximum period of 50 years renewable for another 25 years, or a total lease period of 75 years.

1. Bilateral Mutual Promotion and Protection of Foreign Investment Agreements 2. UN Multilateral Investment Guaranty Agreement (MIGA) (6 February 1965) Philippines is a signatory. 3. UN Multilateral Agreement for Settlement of Investment Disputes Philippines is a signatory.

1. Regional Headquarters (RHQ)—branch office that functions only as a supervisory, communication and coordination centre for the subsidiaries, branches or affiliates of a multinational company operating in the Asia Pacific region and other foreign markets. Operates only as a cost centre and cannot manage the subsidiary or branch office of the multinational company. Cannot market or solicit goods or services. 2. Regional Operating Headquarters (ROHQ)---branch office can derive income in the Philippines by doing services to its affiliates, subsidiaries or branches in the Asia Pacific region including the Philippines and other foreign markets such as administration, business planning procurement of raw materials, marketing and sales promotion but it cannot directly or indirectly engage in the sale and distribution of goods and services.



INTERNATIONAL United Nations (UN) United Nations on Conference & Trade (UNCTAD) World Trade Organisation (WTO) REGIONAL Association of Southeast Asian Nations (ASEAN) Asia Pacific Economic Cooperation (APEC) Asia Europe Meeting (ASEM)

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