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Quisumbing Torres Member Firm of Baker & McKenzie
12th Floor, Net One Center 26th Street corner 3rd Avenue Crescent Park West, Bonifacio Global City Taguig City, Philippines 1634 Tel: +63 2 819 4700 (trunkline) Fax: +63 2 816 0080; +63 2 728 7777 For more information and inquiries, please email QTLaw@bakernet.com or log on to www.bakernet.com.
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The material in this publication has been prepared by Quisumbing Torres to provide general information only. It is not offered as advice on any particular matter, whether it be legal, procedural, commercial or otherwise, and should not be taken as such. For this reason, the information contained in this publication should not form the basis of any decision as to a particular course of action; neither should it be relied upon as legal advice nor regarded as a substitute for detailed advice in individual cases. The authors expressly disclaim all liability to any person in respect of consequences of anything done or omitted to be done wholly or partly in reliance upon the whole or any part of the contents of this publication. This publication is copyrighted. No part of this publication may be reproduced or transmitted by any process or means without the prior permission of Quisumbing Torres. The law is stated as at January 2009.
Table of Contents
The Philippines...........................................................................................1 Quisumbing Torres .....................................................................................2
1. 2. 3. 4. 5.
FOREIGN INVESTMENTS IN THE PHILIPPINES........3
Extent of Foreign Equity.............................................................3 Anti-Dummy Law .........................................................................5 Forms of Investment Vehicle ......................................................5 Domestic Corporation v. Branch.................................................6 Other Types of Corporate Vehicle ...............................................6
5.1 5.2 5.3 5.4 5.5 Representative Office ...............................................................6 Regional or Area Headquarters .................................................6 Regional Operating Headquarters (“ROHQ”) ...................................7 Regional Warehouses....................................................................7 Offshore Banking Unit (“OBU”) ....................................................8
Post-Registration Requirements ..............................................8
Tax Treaties .................................................................................8 National Taxes ............................................................................8
2.1 2.2 2.3 2.4 2.5 2.6 Corporate Income Tax ..............................................................8 Individual Income Tax ..................................................................9 Withholding of Taxes....................................................................9 Fringe Benefits Tax..................................................................... 10 Business Taxes .......................................................................... 10 Other Imposts of the National Government ............................. 11
Local and Real Property Taxes .............................................. 11
1. 2. 3.
FOREIGN EXCHANGE REGULATIONS............... 12
Purchase and Sale of Foreign Exchange ................................ 12 Foreign Trade Transactions ..................................................... 12 Non-Trade Transactions .......................................................... 12
3.1 3.2 3.3 3.4 Foreign Inward Investments ...................................................... 13 Outward Investments................................................................ 13 Foreign Loans and Guarantees................................................. 13 Other Financing Schemes/Arrangements ................................ 13
INCENTIVES UNDER SPECIAL REGISTRATIONS .. 13
Enterprises Registered Under the Omnibus Investments Code (“OIC”) ............................................................................. 13
1.1 Tax Incentives ............................................................................ 14 1.2 Non-tax Incentives ..................................................................... 15 1.3 Additional Incentives ................................................................. 15
Enterprises Registered With the Philippine Economic Zone Authority (“PEZA”).................................................................... 15
2.1 Tax and Other Incentives ...................................................... 16
.............................. 21 LABOR LAW................................1 1 ............................ 28 XII................... 26 Special Non-Immigrant or 47(a)(2) Visa............ X.............. Enterprises Registered With the Subic Bay Metropolitan Authority (“SBMA”) .. 29 Securitization Act of 2004 ................................ 29 Banking............................... INSURANCE-RELATED REGULATIONS.......... 25 XI...................................................... LEASE OF PRIVATE LAND... 23 Rule on Non-Diminution of Employment Benefits .............. 30 XIII............... Special Resident Visas .............................................. 27 2.............................. 22 1................. 31 . 19 INTELLECTUAL PROPERTY PROTECTION...... 27 Treaty Trader’s or Investor’s Visa ............ VII.....................4 Work Hours .... 5......................................................... 24 Welfare Legislation ...... 17 3................... 23 Specific Areas of Regulation ..................... 30 Special Purpose Vehicle Act of 2002 ........2 1................ 20 2...............3 SIRV for Investors in Tourist-Related Projects and Tourist Establishments ........................................ Labor Relations.......... 19 ENVIRONMENTAL REGULATION ....... 23 Other Compulsory Benefits ..................................................... ARBITRATION IN THE PHILIPPINES....... 22 Labor Standards .1 Special Resident Retiree’s Visa (“SRRV”) ........ Special Visa for Employment Generation (“SVEG”) ........ VIII.................................................................3 1............................1 SBF Enterprises ...... 6.... 1.............................................. 22 Wages. 27 Subic Bay Freeport Work Visa................................................................... FINANCE-RELATED REGULATIONS ........................... IMMIGRATION.....3 1............................ 17 3.......................... 24 Termination of Employment.4 1.........................................................3..... 3....................2 SBF Residents ................................................5 Multiple Entry Special Visa............ 28 3............................. 27 2.................................................................. 26 1......................................................1 1..................... 26 Pre-Arranged Employment or 9(g) Visa ...................................... 17 4................ 20 BORDER CONTROL MEASURES ............................................................. 28 2...... 4. 24 Classification of Employment... Enterprises Located in the Clark Special Economic Zone ................... 27 2............................. IX....................................2 Special Investor’s Resident Visa (“SIRV”) ....4 Subic Bay Freeport Residency Visas for Retirees .............................. 26 Work / Employment Requirements ................................ 4.................................... VI..................................2 1....................... 30 Entry of Foreign Insurance Companies .................................. 2............................................... 25 Contract of Employment .............. 3............. 30 XIV............................ 1.... 27 2....................................................... 29 Financing Companies ................................................. 18 V.................... 21 TECHNOLOGY TRANSFER ARRANGEMENTS .......... 1.............
38 Overview and Introduction to the Jurisdiction / Applicable Legislation ...... 37 XV..... 40 3.................................... 32 Arbitrators as experts ......1 Voluntary Insolvency.............................................. 31 Choice of arbitrators... 5...................... 41 .............. Definition of arbitration .................................... 38 2..................................................... 876 on Domestic Arbitration ........... 31 Flexibility of the rules ..................................... 6... 32 Disputes that are not arbitrable ................. 4...... 32 2................................ Insolvency Proceedings (Individuals or Corporations)........... Advantages of arbitration compared with court litigation ......................... 34 The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) ................ 41 3................ INSOLVENCY IN THE PHILIPPINES...... 32 Confidentiality..................................................................................................................2 Involuntary Insolvency............................................2 Corporate Rehabilitation ....................................4 1.................................................................................1 1...................................2 1... 32 Arbitration as contract ....... 32 Definition of international arbitration and domestic arbitration 32 Republic Act No ...................................................3 1...1.............................5 1..... 33 International Arbitration ................................................ 38 Proceedings for Solvent Debtors (Individuals or Corporations) 38 2................. 1.......................... 7................................6 Speed .......................... 36 Construction Industry Arbitration Commission ...................................3 Provisions applicable to both voluntary or involuntary insolvency proceedings ........... 8.............................. 39 3. 2.......... 32 Disputes that may be referred to arbitration . 41 3...................1 Suspension of Payments ....................................... 3.... 31 1 . 9........... 10................................. 31 Finality of the award ..............................................................................
asp Philippine Board of Investments . and retirement villages. A young.ph/ Official Website of the Republic of the Philippines . and the production of healthcare and wellness products to promote medical tourism Mining. and seminars. quarrying and exploration and development of mineral resources Waste treatment and recycling facilities Nontraditional export-oriented business IT-enabled business process outsourcing industry Office and residential property development and public infrastructure construction Abundant country resources support these investments: A vibrant democracy advocates liberalization and deregulation of industries. support the unencumbered flow of goods within and between cities. ethics-bound. An open economy welcomes 100 percent foreign ownership in many sectors. coupled with a modern network of highways.boi. organic fertilizers.ph/ 1 . specifically mass rail transport and oil and gas pipeline projects Build-Operate-Transfer (BOT) projects and contractual joint ventures with the government Development of hotels. Remarkable lifestyle amenities replicate the expatriate’s home environment.ph/default. Sources: Information was retrieved on October 27-31. Hardworking. towns. airports. and islands. and ports.gov. Investment opportunities abound in these priority areas: Production and processing of biofuels. highly trainable English-speaking Filipino workforce is refreshed with over 400. First-rate convention facilities host major local and international exhibits.http://www. A competitive consumer market serves as an arena for showcasing the latest trends in the retail goods sector. Diverse transportation choices.http://www.Doing Business in the Philippines 2009 INTRODUCTION The Philippines The Philippines stands firm as a strong prospect for conducting business in the Southeast Asia region.census.gov.gov. and other agricultural or fishery products Alternative power generation using environment-friendly technologies Infrastructure.000 graduates annually. fun-loving Filipinos from multicultural backgrounds play host to a rewarding economic and sociocultural investment. 2008 from National Statistics Office .http://www. provinces. feeds. resorts. Affordable wages and utilities contribute to business cost savings. Special economic zones offer preferential tax incentives. fairs. Expanded telecommunication infrastructure facilitates smooth global business operations.
Quisumbing Torres in Manila provides a convenient coordination point for regional and global work. Brunei. Some have helped draft significant business laws and regulations. social. oil and gas. Virginia. Canada. the United Kingdom. when the firm merged with the law office of Norberto J. Korea. European. its name was changed to Guerrero & Torres. and the United States. intellectual property. It was established in 1963 by Juan G. Jr. Evangelista retired. The firm represents clients doing business abroad and clients from other countries doingbusiness in the Philippines. and Washington D. the Middle East. and Asia Pacific entities. and the United States. Switzerland. Collas. Our client base currently consists of Philippine. France. Quisumbing Torres is a full service law firm with the following areas of practice: Banking & Finance Corporate and Commercial Immigration Intellectual Property Labor & Employment Litigation Tax For more than 45 years. New York. Japan. Quisumbing Torres has helped foreign and domestic companies succeed in the Philippines. A number of our lawyers havepracticed or have had legal exposure in Australia. Taiwan.Thailand. In 1974. Indonesia. Indonesia. 2 . India. The firm adopted its present name when Rafael E. Germany.Quisumbing Torres Quisumbing Torres Your partner every step of the way. Many of our lawyers are also admitted to practice in other jurisdictions.C. Singapore. and the Americas. It became Quisumbing Torres & Evangelista on 1 July 1988. clean air. mining. Malaysia. Our lawyers are knowledgeable in the relevant business. media and communications. Together with the other member firms of Baker & McKenzie in Asia. legal. . the United Kingdom. China.Quisumbing. hazardous waste. Quisumbing Torres is the Philippine-based member firm of Baker & McKenzie International. Hong Kong. and tax. Japan. Europe. Hong Kong. and was later named Collas and Guerrero. Singapore. and political issues. Quisumbing Torres has over 50 lawyers who provide clients with a full range of legal services. American. such as the States ofCalifornia. including Australia. including those dealing with labor.
including the rights to repatriation of investments. A domestic market enterprise is an enterprise which produces goods for sale or renders service or otherwise engages in any business in the Philippines. The Negative List has two component lists: List A and List B. 1. Except with respect to activities where restrictions on foreign equity are imposed under the Philippine Constitution or statutes. 7042. Extent of Foreign Equity The FIA provides for the formulation of a Foreign Investment Negative List (“Negative List”) – a list of economic activities where foreign equity is either prohibited or limited to a certain percentage. partnerships. Foreigners may hold interests in corporations. it is the policy of the State to attract. and other entities in the Philippines. It must have a paid-in capital of at least the peso equivalent of US $200. provided that such corporations. An export enterprise is a manufacturer. Philippine laws expressly reco gnize various rights of foreign investors in the Philippines. defense. processor. A non-Philippine national may do business or invest in a domestic enterprise in the Philippines to the extent of 100 percent of its capital . The country or state of the applicant must also allow Filipino citizens and corporations to do business therein. The maximum amount of foreign equity that is allowed in a company depends on the type of activity that the company is engaged in. and governments. promote. However. and other entities are not engaged in an activity that is reserved by law only to Philippine citizens or to entities that are wholly owned by Philippine citizens.000 b. According to the FIA. remittance of earnings. c. It is investing in a domestic market enterprise in areas outside the Negative List or it is investing in an export enterprise whose products and services do not fall within Lists A and B of the Negative List. otherwise known as the Foreign Investments Ac t of 1991 (“FIA”). List A contains areas of investment where foreign ownership is limited by the mandate of the Philippine Constitution or by specific laws. and welcome productive investments from foreign individuals. List B contains areas of investment where foreign ownership is limited for reasons of security. A new Negative List is prospective in application and willnot affect foreign investment that already exists on the date of its publication. as amended. To encourage foreign investments.Doing Business in the Philippines 2009 I. in activities whic h significantly contribute to national industrialization and socioeconomic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws. FOREIGN INVESTMENTS IN THE PHILIPPINES The law that governs the participation of foreign entities in economic and commercial activities in the Philippines is Republic Act No. or a trader that purchases products domestically and exports 60 percent or more of such purchases. corporations. the President of the Philippines may amend the Negative List. partnerships. risk to health and moral s. 3 . or protection of local small and medium-sized enterprises. provided that the following conditions are complied with: a. or service (including tourism) enterprise that exports 60 percent or more of its output. amendments to List B may not be made more often than once every two years. partnerships. and freedom from expropriation (except for public use or in the interest of national welfare or defense and upon paym ent of just compensation). including their political subdivisions.
geology. production. architecture. and commodities to government-owned or controlled corporations. but not limited to. establishment. and utilization of natural resources Ownership of private lands Operation and management of public utilities Ownership. processing. companies. customs brokerage. including. whether for local or overseas employment Contracts for the construction and repair of locally funded public works except infrastructure/development projects covered by RA 7718 and projects that are foreign-funded or assisted and required to undergointernational competitive bidding Contracts for the construction of defense-related structures Advertising Exploration. and acquisition of rice and corn and the byproducts thereof Acting as project proponent and facility operator of a build -operatetransfer project requiring a public utilities franchise Ownership of condominium units where the common areas of the condominium project are co-owned by owners of the separate units or owned by a corporation All forms of gambling Up to 30 percent Foreign Equity Up to 40 percent Foreign Equity 4 . The capitalization requirements of a domestic market enterprise may be reduced to the peso equivalent of US $100. trading (except retailing).Quisumbing Torres if it will engage in business as a domestic mar ket enterprise (an export enterprise is not required to comply with this minimum capitalization requirement).5 million Private security agencies Small-scale mining Up to 25 percent Foreign Equity Private recruitment companies. milling. and agriculture Retail trade enterprises with a paid-up capital of less than US $2. accountancy. medicine. except recording Except in cases prescribed by law. development. agenciesor municipal corporations Culture. engineering. goods. Some of the activities that are included in the Seventh Negative List (which took effect on 6 January 2007) are as follows: No Foreign Equity Mass media.000 (i) if its activity involves advanced technology as determined and certified by the Department of Science and Technology. or (ii) if it employs at least 50 direct employees as certified by the appropriate regional office of the Department of Labor and Employment. the practice of all professions. and administration of educational institutions Contracts for the supply of materials.
and corporation. 5 . the exercise or enjoyment of which is expressly reserved by law to Philippine citizens or to corporatio ns or associations where at least 60 percent of the capital is owned by such citizens.000 Up to 60 percent Foreign Equity Financing of companies regulated by the Philippine Securities and Exchange Commission (“SEC”) Investment houses regulated by the SEC Persons that will engage in construction activities in the Philippines are also required to obtain a license from the Philippine Contractors Accreditation Board (“PCAB”). franchise. and a representative office. The foregoing is a non-exhaustive enumeration of the sectors/activities that are subject to foreign equity limitations. Under the Anti-Dummy Law. a branch. franchise. Anti-Dummy Law The Philippines has an Anti-Dummy Law that imposes criminal and civil penalties on persons violating foreign equity limitations. A domestic corporation may be a joint venture or a wholly owned subsidiary. 2. entities that do not export 60 percentor more of their output) with a paid-in equity capital of less than theequivalent of US $200. property or business.. 3. with or without remuneration (except technical personnel whose employment may be specifically authorized by the Secretary of Justice). Subject to nationality requirements pertaining to the intended activity. or laborer. corporation or as sociation not possessing the qualifications prescribed by law. foreign nationals may serve as members of the board or gover ning body of corporations engaged in partially nationalized activities in a number proportionate to their actual and allowable equity in the company. whether as an officer. The liability of the sole proprietor is unlimited .e. operation. administration or control of such right. Forms of Investment Vehicle There are three general forms of business organizations in the Philippines: so le proprietorship. Philippine law allows foreign investors to establish and register a domestic corporation. privilege. a person who. A sole proprietorship is a business owned and operated by a single natural person. A branch and a representative office are mere extensions of their head offices. or (b) in any manner permitting or allowing any person not so qualified to intervene in the management.Doing Business in the Philippines 2009 Domestic market enterprises (i. However. employee. partnership. the license is reserved for and issued only to Filipino sole proprietorships or partnerships/corporations with at least 60 percent Filipino equity participation and duly organized and existing under and by virtue of the laws of the Philippines. and there is no distinct and separate personality of the business enterprise from that of the owner. exploitation or enjoyment of such right. property or bus iness. property or business by a person. franchise. privilege. Under the rules of the PCAB. A foreign investor may also invest as a limited or generalpartner in a partnership. is prohibited from (a) permitting or allowing the use. privilege. having in his name or under his control a right.
6 . 5.000 for domestic market enterprises whose activities involve advanced technology or which employ at least 50 direct employees. the extent of liability of the parent company/head office. Generally.Quisumbing Torres For reasons relating to the exercise of management powers and the extent of liability. Foreign investorsthat wish to engage in a business that is not subject to nationality restrictions generally choose between establishing a Philippine subsidiary and establishing a Philippine branch office. 4. Domestic Corporation v.000 and thereafter US $50. its head office or parent company must initially remit into the Philippines at least US $50. and the administrative costs of maintaining the same.a foreign investor may be set up as a domestic corporation or a branch of a foreign corporation in the Philippines. in any manner. including. These two types of corporate vehicle have their relative advantages and disadvantages relating to.000. If the proposed activity is subject to foreign equity limitations. Branch Assuming that the proposed activity is not subj ect to any foreign equity limitation. corporations that are more than 40 percent foreign-owned as well as branches of foreign corporations that are considered domestic market enterprises must have a paid-in capital of at least US $200. the corporation is generally the most preferred vehicle for investments in the Philippines among the various forms of business organizations . or affiliates in the Asia Pacific region. branches. among others. It may not participate.000 annually. Entities that qualify as export enterprises (enterprises that export 60 percent or more of their output) are not subject to any minimum paid -in capital requirement. To fund its operations in the Philippines. neither may it solicit or market goods or services.2 Regional or Area Headquarters A multinational company may establish a regional or area headquarters in the Philippines to serve as supervision. subsidiaries. A representative office must have an initial inward remittance of US $30. taxation. 5. amo ng others. affiliates. whether on behalf of its parent company or its branches.000 to fund its operations. a foreign investor will have to set up a domestic corporation with a Philippine national as a joint venture partner. but not limited to. The regional or area headquarters may not earn or derive income in the Philippines. in managing any subsidiary or branch office it may have in the Philippines. communications. Its expenses must be financed by the head office or parent company from external sources in an acceptable foreign currency. 5. or any other company. The paid-in capital requirement is reduced to US $100.1 Other Types of Corporate Vehicle Representative Office A representative office may be established to deal directly with the clients of its parent company in the Philippines and to undertake activities . A representative office may not derive income in the Philippines and is fully subsidized by its head office. or coordination center for its subsidiaries. information dissemination and promotion of the company’s products as well as quality control.
covering. and all local licenses. i. The regional warehouse may not engage in trade or directly solicit business. and raw materials. may also establish a regional warehouse in the Philippines. h.3 Regional Operating Headquarters (“ROHQ”) A multinational company may establish a ROHQ in the Philippines to service its own affiliates. components. A ROHQ is allowed to derive income in the Philippines by performing any of the following qualifying services: a. It may not derive income from Philippine sources. or enter into any contract for the sale or disposition of goods in the Philippines.Doing Business in the Philippines 2009 The regional headquarters is not subject to income tax. except real property tax on land improvements and equipment. and other foreign markets. filling up transactions and sales made by its head office or parent company. c. and serving as a storage or warehouse of goods purchased locally by the head office of the multinational for export abroad. promote any sale. and safekeeping of spare parts. deposit. The activities of the regional warehouse are limited to: a. b. components. including packing. e. g. labeling and cutting or altering the goods to the customer’s specifications. k. semi-finished products. 5. It enjoys tax. value -added tax. putting up. subsidiaries. d.000.4 Regional Warehouses A multinational company which is engaged in international trade and supplies spare parts. serving as a supply depot for the storage. j. marking. in the Asia Pacific region. f. c. and raw materials to its distributors or markets in the Asia Pacific region and other foreign areas. General administration and planning Business planning and coordination Sourcing/procurement of raw materials and components Corporate finance advisory services Marketing control and sales promotion Training and personnel management Logistics services Research and development services and product development Technical support and maintenance Data processing and communication Business development A ROHQ must initially remit into the Philippines at least US $200.and duty-free importation of equipment and materialsnecessary for training and conferences. b. and charges. semi-finished products. and which has established or will simultaneously establish a regional or area headquarters and/or ROHQ in the Philippines. 7 . fees. and mounting and/or packing these into kits or marketable lots thereof. or branches in the Philippines. 5.
In addition to the basic post-registration requirements. is taxed only on its net income from Philippine sources at the same rate as a d omestic corporation.5 Offshore Banking Unit (“OBU”) A foreign bank may operate an OBU in the Philippines. subsidiary. Australia Austria Bahrain Tax Treaties Germany Hungary India Indonesia Israel Italy Japan Korea Malaysia Netherlands New Zealand Norway Pakistan Poland Romania Russia Singapore Spain Sweden Switzerland Thailand United Kingdom United States Vietnam The Philippines has tax treaties with the following countries: Bangladesh Belgium Brazil Canada China Czech Republic Denmark Finland France 2. The OBU may be a branch. and commencement-of-operations permits. Post-Registration Requirements Upon incorporation/registration with the SEC. A resident foreign corporation. 8 . the newly incorporated/r egistered entity must comply with certain basic registration and licensing requirements with different government agencies. 2. TAXATION Philippine taxes are imposed by both the national government and the local government units. 1. certain businesses in highly regulated industries may be subject to special licensing or registration requirements with the government agency having jurisdiction over such industry. licenses. These post-registration requirements include obtaining from certain government agencies and local government offices tax.Quisumbing Torres 5. such as a branch. employee welfare-related.1 National Taxes Corporate Income Tax A domestic corporation is taxed on its net income (gross income less allowable deductions) from all sources at the rate of 30 percent. II. or affiliate of a foreign banking corporation authorized by the Bangko Sentral ng Pilipinas (“BSP”) to conduct business with funds from external sources. 6. and registrations.
9 . withheld at source.3 Withholding of Taxes Taxes due on the income of a non-resident alien and a non-resident foreign corporation are withheld at source. A non-resident alien engaged in trade or business in t he Philippines is generally subject to tax on net income from Philippine sources at the same progressive tax rates imposed on resident aliens and citizens. 2. A non -resident alien is deemed engaged in trade or business if he stays in the Philippines for an ag gregate period of more than 180 days during any calendar year.Doing Business in the Philippines 2009 A non-resident foreign corporation is subject to final withholding tax on its gross income (without the benefit of deductions) from Philippine sources at the rate of 30 percent. are also subject to withholding tax. such as interest and rent income.2 Non-Resident Owner of Chartered Vessel Foreign Currency Transactions of OBUs Minimum Corporate Income Tax Tax on Improperly Accumulated Earnings Individual Income Tax A resident citizen is taxed on income from all sources at progressive rates ranging from 5 percent to 32 percent of net taxable income. Income Subject to Different Tax Treatment Interest and Royalties Interest Divide nds Branch Profits Gains from Sale of Real Property Capital Gains from Sale or Exchange of Stock Tax on Initial Public Offer of Shares of Stock Income Taxation for Specific Industries Foreign International Carrier Non-Resident Cinematographic Film Owner/Lessor/Distributor Non-Resident Lessor of Aircraft or Machinery and Other Equipment 2. A foreign corporation is considered a resident when it is engaged in trade or business in the Philippines and is licensed by the SEC to engage in trade or business in the Philippines. The 30 percent corporate income tax rate was 35 percent prior to 1 January 2009. A non-resident alien not engaged in trade or business in the Philippines is taxed on gross income from Philippine sources at the rate of 25 percent. The salary and certain other income receipts of residents.
or lease of goods or properties and services in the Philippines. Business Taxes Value-Added Tax (“VAT”) VAT is a tax on consumption levied on the sale. excise taxes apply to goods produced in the Philippines for domestic sale or consumption or for any other d isposition. Excise taxes. or profession of the employer. wines. are referred to as ad valorem taxes. are called specific taxes. and to things imported. or necessary to.5 mil lion.4 Fringe Benefits Tax A final tax of 32 percent is imposed on the grossed -up monetary value of fringe benefits furnished or granted to an employee (except rank-and-file) by the employer. exchange. or when the fringe benefit is for the convenience or advantage of the employer. 10 . whether in their original state or as ingredients or parts of any manufactured goods or products. A VAT taxpayer is allowed input VAT credits against his output VAT liability. ba rter. subject to certain limitations. Excise taxes. Excise Taxes In addition to VAT. c. 2. perfumes and cigarettes and toilet water) Manufactured oils and otherfuels Fireworks Cinematographic films Saccharine Yachts and other vesselsintended for pleasure or sports Mineral products and quarry resources Excise taxes paid on locally produced goods which are export ed without return to the Philippines. are credited or refunded upon submission of proof of actual exportation and receipt of the corresponding foreign exchange payment. cigars (such as jewelry. b. Percentage taxes are normally imposed on gross receipts. Percentage Taxes Certain persons are subject to percentage taxes at rates ranging from 1 percent to 30 percent. business. which are imposed and based on the selling price or other specified value of the goods.5 a. fermented liquor Non-essential goods Tobacco products. A person becomes subject to the 12 percent VAT when his gross sales or receipts for the past 12 months exceed Ph P1. and on the importation of goods into the Philippines. The following are subject to excise taxes: Automobiles Distilled spirits. which are based on the weight or volume capacity or any other physical unit of measurement of the goods . the trade.Quisumbing Torres 2. Fringe benefits tax is not imposed if the fringe benefit is required by the nature of.
marking duty. The Tariff and Customs Code provides for the imposition of anti-dumping duty. and other communication equipment services Banks and non-bank financial intermediaries Persons or entities subject to percentage taxes are exempt from VAT. messages. or conversations transmittedfrom the Philippines by telephone. importations are generally subject to customs duties. municipalities. Documentary Stamp Taxes Documentary stamp taxes must be affixed to certain documents. such as provinces. real property tax applied solely to the lands. 3. and discriminating duty under special circumstances. wireless. telegraph.Doing Business in the Philippines 2009 Among those subject to percentage taxes are the following: Keepers of garages and common carriers by land. air. 11 . and other improvements thereon is levied on the assessed value of the real property. telewriterexchange. Business establishments whose gross annual sales or receipts do not exceed Ph P1. Local and Real Property Taxes Local government units. may levy taxes and impose local license fees pursuant to the Local Government Code. buildings. such as: Bonds Debentures Certificates of indebtedness Certificates of stock Certificates of profits or of interests in property or accumulations Bank checks Drafts Certificates of deposit Promissory notes Bills of exchange Letters of credit Insurance policies Fidelity bonds 2.5 million are exempt from VAT but are subject to percentage tax of 3 percent.6 Other Imposts of the National Government Annuity policies Indemnity bonds Certificates issued by certain officers Warehousing receipts Jai-alai and horse racetickets Bills of lading P roxie s Powers of attorney Leases of real property Mortgages Pledges Deeds of sale of real property and charter parties In addition to the 12 percent VAT and any applicable excise tax. or water for the transport of passengers Entities engaged in the life insurance business Overseas dispatches. unless they elect to pay the 12 percent VAT. cities. and papers evidencing business transactions. d. and barangays . instruments. Furthermore. countervailing duty.
The requirements include letters of credit. or its equivalent in other foreign currency. if the sale of foreign exchange exceeds US $30. 2. The BSP.000 . However. By way of exception. with the approval of the President of the Philippines. 3. Authorized agent banks may sell foreign exchange to importers up to US $100. consignment and export advances. These requirements may include documents showing that the purchaser has obtained prior BSP approval or registration of the transaction. the Bangko Sentral ng Pilipinas regulates the purchase and sale of foreign exchange by authorized agent banks.000 or its equivalent. national security. These include foreign inward and outward investments and foreign currency denominated loans and guarantees. but subject to reporting requirements and other conditions.However. their subsidiary/affiliate foreign exchange corporations. FOREIGN EXCHANGE REGULATIONS Purchase and Sale of Foreign Exchange Generally. Non-Trade Transactions Non-trade transactions refer to all other foreign exchange transactions that are not import or export trade transactions. Payments for exports may be made without prior BSP approval under the arrangements prescribed by the BSP. open account arrangements. Applications for purchasing foreign exchange in excess of US $100. without prior BSP approval for partial or full advance payment of imports. documents against payment. non-bank BSP-supervised entities. the importation or exportation of certain commodities is regulated or prohibited for reasons of public health and safety. Generally. may exercise its general emergency powers and temporarily suspend or restrict the purchase and sale of foreign exchange. international commitments. the BSP Regulated Entity selling the for eign exchange mustrequire the purchaser to present the documentary requirements prescribed by the BSP. Foreign Trade Transactions Foreign trade includes import and export trade transactions. subject to the submission by importers to the selling bank of prescribed documents. and direct remittance. foreign exchange may be freely bought and sold in the Philippines. and independent foreign exchange dealers and moneychangers (collectively . or its equivalent. a wide variety of merchandise may be imported into and exported from the Philippines. documents against acceptance. As a rule.Quisumbing Torres III. “BSP Regulated Entities”). universal and commercial banks may sell foreign exchange to service payments for imports under the arrangements p rescribed by the BSP. 12 . intercompany open account offset arrangements with the parent company or affiliates abroad.000. Without prior BSP approval. open account arrangement. documents against payment/cash against documents. all BSP Regulated Entities may sell foreign exchange to Philippine residents to fund payments of non-trade transactions even without prior BSP approval. such as letters of credit. 1. to service advance payment of imports must be filed directly with the BSP for approval. and the development and rationalization of local industry. documents against acceptance.
encourages investm ents in preferred areas of economic activity specified by the BOI in the Investment Priorities Plan (“IPP”). Qualified Investors are currently limited to the following: insurance and pre-need companies. with a custodian bank. a BSP Regulated Entity is not allowed to sell foreign exchange to fund the repatriation of such investment and the remittance of profits and divide nds relating to such investment. IV.000. a BSP Regulated Entity may not sell foreign exchange to fund payments of such foreign loan or guarantee. public or private pension or retirement or provident funds.000 per investor per year will be sourced from BSP Regulated Entities. so that foreign exchange may be sourced from a BSP Regulated Entity to fund the repatriation of the inv estment and the remittance of profits and dividends. in certain instances. such as mutual funds. If a foreign loan or guarantee is not registered with the BSP. as in the case of a Build -Operate-Transfer arrangement. Enterprises Registered Under the Omnibus Investments Code (“OIC”) The OIC. Qualified Investors may apply to the BSP for a higher annual outward investment limit. If a foreign investment is not registered with the BSP. collective/pooled funds. must be registered with the BSP to be eligible for servicing using foreign exchange that will be purchased from BSP Regulated Entities. 13 . through tax exemption and other benefits. and such other entities and funds as the BSP may determine as Qualified Investors. 1. Although the incentives under the OIC are generally available only to citizens of the Philippines or to domestic corporations owned and controlled by Philippine nationals.2 Outward Investments Prior BSP approval and registration is required for outward investments if foreign exchange exceeding US $30.Doing Business in the Philippines 2009 3.3 Foreign Loans and Guarantees Foreign currency denominated loans and guarantees must be registered with the B SP so that foreign exchange may be purchased from a BSP Regulated Entity to service payments.1 Foreign Inward Investments Foreign investments must be registered with the BSP or. the nationality requirement is waived if the applicant will either export at least 70 percent of its total production or engage in a pioneer project. unit investment trust funds and variable insurance. INCENTIVES UNDER SPECIAL REGISTRATIONS Qualified enterprises may register with the Board of Investments (“BOI”) under the Omnibus Investments Code (“OIC”) or with the Philippine Economic Zone Authority (“PEZA”)to avail themselves of incentives. 3. Camp John Hay in Baguio City. and other former US military reservations and their extensions into special economic zones. Subic Naval Base. 3. 3. Investment opportunities in the Philippines have also been created by the Philippine Government’s conversion plan covering Clark Air Base.4 Other Financing Schemes/Arrangements Financing schemes or arrangements which involve an option to purchase or a transfer of ownership after a certain period of time.
or the manufacturing of equipment which utilizes non-conventional sources of energy are similarly classified as pioneer projects. and accessories imported by new and expanding registered enterprises . exemption from taxes and duties on the importation of supplies and spare parts for imported equipment and consigned equipment. For the first five years from registration. For registered enterprises with bonded manufacturing warehouses. The final product or process should involve substantial use of domestic raw materials.Quisumbing Torres A pioneer enterprise either manufactures goods that have not been produced in the Philippines on a commercial scale. spare parts. the production of non-conventional fuels. This incentive is granted only if the registered enterprise meets a prescribed capital to labor ratio . 14 . d. or employs a formula. e.manufactured products used for the manufacture of export products and forming part thereof. The income tax holiday may not be extended for more than eight years. An enterprise registered with the BOI enjoys the following tax and non -tax special incentives: 1. Agricultural activities or services (especially food processing) contributing to national self-sufficiency. b. and other proprietary rights. Exemption from taxes and duties on spare parts and consumable supplies imported by a registered enterprise with a cu stoms bonded manufacturingwarehouse and exporting at least 70 percent of their production. c. and semi. Expanding firms are entitled to an exemption from income taxes proportionate to their expansion for a period of three years from commercial operations. Exemptions from taxes and duties on the importation of breeding stocks and genetic materials within 10 years from the date of registration or commercial operation.1 Tax Incentives a. This incentive may be extended in certain instances and upon approval by the BOI. Income tax holiday consisting of income tax exemption for six years from the start of commercial operations for pioneer firms. When the BOI waives the nationality requirement. g. protection of patents. f. whenever possible. or production scheme which has not yet been tried in the Philippines. they are not entitled to additional deductions for incremental labor expenses during the period that they avail themselves of this incentive. process. remittance of profits. an additional deduction from taxable income of 50 percent of the wages of additional skilled and unskilled workers in the direct labor force. the applicant should attain the status of a Philippine national within 30 years from the date of its registration or such longer periods as may be determined by the BOI. a registered enterprise exporting 100 percent of its production need not comply with this divestment requirement. A foreign investor is guaranteed repatriation of investments. Exemption from taxes and duties on machinery. Tax credit for taxes and duties on raw materials. However. and four years for non-pioneer firms. Howev er. supplies. freedom from expropriation and requisition of investm ent. equipment.
d. Exemption from wharfage duties and any export tax. Enterprises Registered With the Philippine Economic Zone Authority (“PEZA”) To disperse industry and generate employment in non -urban areas. The BOI may completely or partially deny incentives to enterprises dealing in traditional export products. projects locating in governmental industrial estates. Deduction of the cost of necessary and major infrastructure works constructed. raw materials and supplies. The privilege to operate bonded manufacturing/trading warehouses. the government has established several special economic zones (Ecozones). or advisory positions for five years from registration. b. 1. subject to customs rules and regulations. except in the case of: a. extendible for limited periods. im post. Exemption from local taxes for six years from date of registration for pioneer enterprises.Doing Business in the Philippines 2009 h. 2. spare parts.3 Additional Incentives The following additional incentives are available to projects (excluding mining. Applications covering new and expansion projects that will locate in Metro Manila are no longer entitled to income tax holiday. general manager. Employment of foreign nationals in supervisory. resettlement areas. and treasurer (or their equivalent) of foreign-owned registered firms are not subject to the foregoing limitations . or National Housing Authority sites. and b. forestry.2 Non-tax Incentives a. c. service-type projects and trading projects with no manufacturing facilities. technical. b. i.and fees on exports by a registered enterprise of its nontraditional export products. Deduction from taxable income of 50 percent of the wa ges corresponding to the increment in the number of direct labor is doubled . No restriction on the use of consigned equipment but re-export bond is required. and processing of minerals and forest products) located in less developed areas : a. Simplified customs procedures for the importation o f equipment. duty. Enterprises may establish their businesses within an Ecozone and register with the PEZA as any of the following enterprises: Export enterprise Tourism enterprise Customs brokerage enterprise Utility enterprise Trucking enterprise 15 . and the export of processed products . The president. and four years from registration for non-pioneer enterprises. 1.
16 . and supplies of equipment and machineries. b. g. including importation of capital equipment. impost. Ecozone Export and Free Trade Enterprises are further entitled to the following incentives: a. provided that the total number of foreign nationals employed by an Ecozone Enterprise does not at any time exceed 5 percent of its work force c. breeding stocks. and advisory positions. construction materials. e. Expanding firms may be entitled to an income tax holiday of three years from the start of commercial operation of the expansion. An Ecozone IT Enterprise is a company operating or offering IT services. or fee Additional deduction for training expenses Tax credit on domestic capital equipment. f. Zero-rated VAT on sales Exemption from duties and taxes on importation of merchandise. and genetic materials Additional deduction for labor expense Unrestricted use of consigned equipment Employment of foreign nationals in executive. 2. raw materials. an Ecozone Enterprise is subject to a preferential rate of 5 percent of gross incom e. and household effects Tax credit for import substitution Exemption from wharfage dues. which may have a duration of four years for new registered non -pioneer firms or six years for new registered pioneer firms. specialized vehicles and other transportation equipment. technical. Upon the expiry of the income tax holiday. specialized office equipmentand furniture. supervisory. i.Quisumbing Torres Security agency Information technology enterprise Service enterprise Freight forwarder Warehousing Logistic service enterprise Facilities enterprise An Ecozone Export Enterprise is an entity engaged in a manufacturing. h. This is in lieu of all national and local taxes. An IT Enterprise is also consi dered an export enterprise.professional instruments. an Ecozone Enterprise is entitled to the income tax holiday. d.1 Tax and Other Incentives As a general rule. assembling. which are defined as activities involving the use of any information technology software or system for value addition. or processing activity and exporting 100 percent of its production. unless a lower percentage of its production for export is prescribed by the PEZA. export tax.
subject to certain guidelines. in lieu of which a fina l taxof 5 percent of gross income must be paid. b. financial. A business enterprise may register as a SBF Enterprise.Doing Business in the Philippines 2009 3. and exemption from all national and local taxes. and the immediate members of his family. or hasleased within the SBF. registration as a SBF Resident is available to: a. subject to ce rtain guidelines. subject to evidence of unavailability of comparably skilled Filipinos within the Philippines. with the SBMA. 3. The incentives offered to a SBF Enterprise include: a. commercial. and develop infrastructure necessary to enhance the SBF ’s efficient operation. financial. right to lease out real property it owns or has leased within the SBF. and right to make improvements in buildings and other facilities. The territory of the SBF includes the City of Olongapo and the Municipality of Subic. A SBF Enterprise which operates facilities or services within the SBF (SBF Facilities Operator) is entitled to additional incentives. SBF Residents c. any Filipino actually residing within the SBF who is an employee or ownerof a SBF Enterprise. subject to certain laws and regulations. 3. or service activity. 17 . and a natural person as a SBF Resident.1 SBF Enterprises A SBF Enterprise is any business entity or concern within the SBF that is duly registered with and/or licensed by the SBMA to operate any lawful economic activity withinthe SBF. the former US Naval Base at Subic Bay and its extensions located in the municipalities of Hermosa and Morong in Bataan Province. and to import and export freely all types of goods into and out of the SBF. and to acquire and lease land and sell or lease out facilities to SBF Enterprises. c. right to manage facilities on real property it owns. Enterprises Registered With the Subic Bay Metropolitan Authority (“SBMA”) The Subic Special Economic and Free Port Zone (“Subic Bay Freeport” or “SBF”) was established by the Philippine Government with t he aim of developing the area into a self-sustaining industrial. and investment center in the Philippines. right to employ foreign nationals. or anyFilipino who has leased or has secured living premises in the SBF. right to freely engage in any business. b. or grant contracts or concessions to other private or public parties for the construction or provision of any of the said facilities.2 Generally. has acqui red. trade. manufacturing. Registration as a SBF Enterprise is open to any business enterprise in any area of economic activity. subject only to limitations under the Philippine Constitution. including: a.
free of customs duties and control.Quisumbing Torres b. subject to certain regulations. and a foreign national without prior permanent residency status in the Philippines. with the following incentives available to registered business enterprises located therein: (i) tax rate of 5% on gross income earned. In 2007. Enterprises Located in the Clark Special Economic Zone The Clark Special Economic Zone covers certain areas in Angeles City. operation. utilize. management and mainten ance of the infrastructure. c. PEZA-registered enterprises located in PEZA Ecozones within the Clark Special Economic Zone are entitled to the same tax and duty incentives available to PEZA registered enterprises located in other PEZA Ecozones. facilities and utilities in those PEZA Ecozones is the Bases Conversion and Development Authority. in lieu of national and local taxes. The agency in charge of the development. 18 . and the Municipalities of Capas and Bamban.and duty-free importation of raw materials and capital equipment. 9400 (“RA 9400”) converted a portion of the CSEZ into a freeport zone called the Clark Freeport Zone. 4. The government agency that registers enterprises and grants and administers incentives to those enterprises located in PEZA Ecozones within the Clark Special Economic Zone is the PEZA. with the Clark Development Corporation as its implementing arm. or otherwise acquire articles from other SBF Residents or Enterprises. The Clark Freeport Zone is operated and managed as a separate customs territory. or otherwise consume such goods within the SBF free of national internal revenue taxes and customs duties. subject to certain immigration regulations. a foreign national who is a permanent resident of the Philippines and who is employed or has invested in the SBF. with the Clark Development Corporation as its implementing arm. Under the Rules and Regulations to Implement Republic Act 9400 (“RA 9400 Rules”). The incentives offered to SBF Residents include: a. b. The government agency that registers enterprises and grants and administers incentives to those enterprises is the Bases Conversion and Development Authority . and (ii) tax . Province of Tarlac. and right to purchase. PEZA Ecozones may be created within the Clark Special Economic Zone. Republic Act No. lease. and maintain. right to import directly. Province of Pampanga. foreign articles in non-commercial quantities. the Municipalities of Mabalacat and Porac.
Presidential Decree No. ENVIRONMENTAL REGULATION The Philippines adheres to a policy of protecting and advancing the right of its people to a balanced and healthful ecology. The ECC is a document certifying that based on the representations of the proponent. subject however to the Comprehensive Agrarian Reform Law and the Local Government Code. executive decrees. Therefore.Doing Business in the Philippines 2009 V. PD 1586 requires proponents of environmentally critical projects (“ECP”) and projects within environmentally critical areas (“ECA”) to obtain an environmen tal compliance certificate (“ECC”) prior to the commencement of the project. With respect to land that the foreign investor will not use exclusively for the purpose of the investment. Environmental impact assessment (“EIA”) is part of project planning and is conducted to identify and evaluate important environmental consequences including social factors that may occur if a project will be undertaken. The lease must be registered with the Philippine Board of Investments under the I nvestors’ Lease Act. (b) the leased premises shall comprise such area as may reasonably be required for the purpose of the investment. the environmental law applicable to a particular business concern depends largely on the activities of that business concern. 1586 (“PD 1586”) established the Philippine Environment al Impact Statement (“EIS”) System. and (c) the lease agreement must incorporate certain mandatory conditions. local government units. Measures to eliminate or minimize these impacts are incorporated into project design and operations. the lease contract may be for a maximum period of 25 years. LEASE OF PRIVATE LAND Foreign investors may lease private lands which will be used exclusively for investments for a period of up to 50 years. 19 . The ECC also certifies that the proponent has complied with all the requirements of the EIS System and has committed to implement its approved Environmental Management Plan. The ECC contains specific measures and conditions that the project proponent has t o undertake. each addressing a specific area of concern relating to the environment. VI. or land for tourism projects with investme nts of less than US $5 million. Philippine environmental law consists of a series of legislative enactments. The Department of Environment and Natural Resources (“DENR”) is the lead agency in environmental protection and administration. renewable for another 25 years. The long-term lease will be subject to the following conditions. renewable once for a period of 25 years. The DENR is assisted in the formulation and implementation of environmental policies by the Environmental Management Bureau (“EMB”). Foreigners investing at least US $5 million in tourism projects may lease private lands for the project for the same period. the proposed project or undertaking will not cause significant negative environmental impact. among others: (a) the leased area shall be used solely for the purpose of the investment upon the mutual agreement of the parties. and other governmental agencies and departments. and administrative regulations.
Trademark registration is valid for 10 years. 20 . The Intellectual Property Office (“IPO”) processes applications for patents. 9003. otherwise known as the National Pollution Control Decree of 1976. calls for the institutionalization of a national program that will manage the control. transfer. transport. trade names. it primarily applies to the abatement and control of pollution from land based sources. Republic Act (RA) No. The Philippine Clean Water Act of 2004 requires the DENR to implement a comprehensive water quality management program to guarantee effective water utilization and conservation. processing. provided the registrant files with the IPO a declaration of use/justifiable non-use within one year following the fifth anniversary of the date of the registration or renewal. service marks. Trademarks. is the general legislation on pollution prevention and control that is being enforced by the government. The Clean Water Act applies to water quality management in all water bodies. VII. transport. and reverse air pollution from city to countryside. and trade names. manage. the Berne Convention for the Protection of Literary and Artistic Works. Rights to a mark are acquired by registration. by such membership. RA 6969 or the Toxic Substances and Hazardous and Nuclear Wastes Control Act provides the legal framework for the country’s program to control and manage the importation. RA 8749 or the Philippine Clean Air Act of 1999 provides the framework to prevent. together with the EIA Review Committee. There is a single procedure for both foreign and local applicants for the registration of marks. treatment. An ECP is a project or program that has high potential for significant negative environmental impact. processing. However. distribution.Quisumbing Torres An ECA is an area delineated as environmentally sensitive such that significant environmental impacts are expected if certain types of proposed projects or programs are located. or the Ecological Solid Waste Management Act of 2000. and service marks owned by persons. and issues the corresponding certific ates of registration. and disposal of solid waste in the country. or implemented in it. Specific Areas of Regulation Presidential Decree No. corporations. An applicant should file a declaration of use within three years from the date of application. or associations domiciled in the Philippines or in any foreign country may be registered with the IPO. INTELLECTUAL PROPERTY PROTECTION The Philippines is a member of the Paris Convention for the Protection of Industrial Property. Priority is given to whoever first applies for registration. and the World Trade Organization and. control. 984. use. manufacture. is the government agency that implements the EIS System. The registration is renewable at the end of each 10th year from registration so long as the mark is still in commercial use. The EMB of the DENR. developed. partnerships. and disposal of toxic substances and hazardous and nuclear wastes. trademarks. has adhered to the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”).
and industrial designs may be patented. multimedia works. A patent for a utility model is valid for sev en years from the date of filing the application and automatically expires at the end of the period. There are no restrictions regarding the amount or rate of royalty that may be charged. except computer software developed for the mass market. whether published or unpublished. or the rendering of a service including management contracts. IX. However. Copyright protection extends to computer programs. the application of a process. including the fixing of the appropriate a mount or rate of royalty. BORDER CONTROL MEASURES The rules of the Bureau of Customs (“BOC”) on border control measures prevent the entry into the Philippines of infringi ng merchandise and ensure expedited procedures for the handling and disposition of goods suspected to be imported in violation of the Intellectual Property Code of the Philippines (the “IP Code”). including the licensing of computer software. A patent registration for an invention is valid for 20 years from the date of filing the application. The parties are free to negotiate the amount or the rate of royalties to be paid under the TTA. TTAs should not contain certain prohibited clauses and should contain certain mandatory provisions. A TTA also refers to an agreement to transfer. or license all of forms of intellectual property rights. Intellectual Property (“IP”) owners may record their produc ts covered by patents. A patent is granted to the inventor who filed his patent application earlier than others. Literary. and data bases that are original by reason of the selection. assign. the IPO has a quasi-judicial jurisdiction to settle disputes regarding technology transfer payments. The term of registration of an industrial design is five years from the date of filing and may be renewed for two consecutive periods of five years each. Nonconformity with the prohibited and mandatory clauses will automatically render the TTA unenforceable.Doing Business in the Philippines 2009 Inventions. However. coordination. utility models. may be copyrighted. and other similarly protected IP rights with the BOC. A BOC recordal is valid for two years from the date of recordal. and artistic works. The application for recordal serves as the consent of the IP owner for the BOC to conduct physical inspection of imports suspected to be infringing. copyrights. VIII. there are except ional cases where exemptions from the prohibitory and/or mandatory clauses may be allowed. TECHNOLOGY TRANSFER ARRANGEMENTS A technology transfer arrangement (“TTA”) refers to a contract or agreement involving the transfer of systematic knowledge for the manufacture of a product. The recordal will be the basis of the BOC to monitor suspected imports to determine whether they are liable to seizure and forfeiture. or arrangement of their contents. Copyrights endure for the lifetime of the creator and for 50 years after his death. thus simplifying the determination of who is entitled to own the patent. 21 . trademarks. scientific. scholarly.
fails to use the mark in the Philippines or cause it to be used in the Philippines under license during an uninterrupted period of three years or longer.1 Work Hours Normal Hours of Work. Under the IP Code. Thus. However. These are: The registration will serve as evidence that the agreements are compliant with the IP Code and are enforceable in this respect. a DITTB registration or certificate of compliance must be submitted to the Philippine Bureau of Internal Revenue in support of an application for tax treaty relief. The Labor Code enumerates the specific instances when an employee may be required to render overtime work and the corresponding overtime pay rate. In the event of litigation over the Agreement. 22 . a trademark license agreement that is not recorded will have no effect against third parties. Registration will allow the Licensee to source currency for royalty payments from the Philippine banking system. Philippine Central Bank regulations provide that banks and foreign exchange companies must require purchasers of foreign currencies that will be used for royalty payme nts to submit the relevant certificate of registration issued by the DITTB. Philippine courts generally lend great weight to findings of administrative agencies like the Documentation Information and Technology Transfer Bureau (“DITTB”).Quisumbing Torres A TTA that conforms to the prohibited and mandatory clauses need not be registered with the IPO. there are practical benefits to registe ring a compliant TTA. without legitimate reason. The IP Code specifically provides that a trademark registration may be cancelled any time if the registered owner of the mark. If the Licensor intends to avail of tax treaty relief with respect to royalty income derived under the agreements. Labor Standards The Labor Code of the Philippines (the “Labor Code”) lays down the minimum terms. holiday. or rest day. These overtime pay rates may vary depending on whether the overtime work is rendered on a regular work day. the registration will facilitate the recordal of the agreement against the Philippine trademark applications or registrations for the licensed marks. X. Thus. and benefits of employment that employers must provide or comply with and to which the employees are entitled as a matter of right. labor law recognizes the workers’ right to a just share in the fruits of production and management’s right to a reasonable return on investments. conditions. The normal hours of work should not exceed eight hours in a work day. and If the agreement involves the licensing of a trademark. Employees are entitled to at least 60 mi nutes time off from work for their regular meals. particularly for license agreements. the DITTB ruling may be used as evidence of the enforceability of the Agreement. 1. Any work done in excess of eight hours in a work day must be paid an overtime rate based on the applicable basic rate. LABOR LAW Philippine labor law recognizes the rights of both workers and management. Overtime Pay. the non -recordation of a trademark license may render the registration of the mark(s) covered by the license vulnerable to cancellation actions by third parties due to non -use. 1.
23 .3 1. the benefit becomes part of the terms and conditions of employment and cannot be unilaterally withdrawn or discontinued by the employer. Premium Pay for Rest Day or Holiday Work. the Labor Code requires the employer to pay a certain amount as additional compensation based on the regular wage of the employee.m. The minimum wage rate in each region of the countr y varies and is prescribed by the Regional Tripartite Wages and Productivity Boards.Doing Business in the Philippines 2009 Night Shift Differential.4 Other Compulsory Benefits Holiday Pay Service Incentive Leave Thirteenth Month Pay Retirement Benefits Military Training Leave Maternity Leave Paternity Leave Parental Leave Leave Due to Violence Rule on Non-Diminution of Employment Benefits If an employee benefit has been granted by reason of employer practice o r policy. and 6 a. b. An employee must be paid a night shift differential equivalent to a certain rate of his regular wage for work done between 10 p. Wages are generally paid in cash at least twice a month (usually on the 15th and the last day of every month). knowingly. All employees are generally entitled to a rest period of not less than 24 consecutive hours for every six consecutive normal working days. The act of the employer was done for a long period of time or was consistently repeated. among others. c. despite the absence of a legal or contractual requirement to grant the said benefit. For work done on rest days and special holidays. 1. minimum wages vary according to the location of the business. The act was done deliberately. and cons istently. and The act was not a product of erroneous interpretation or construction of a doubtful or difficult question of law. The following criteria may be used to ascertain the existence of a binding and enforceable employer practice or policy under Philippine law: a. 1. The rules on work hours are not applicable to managerial employees. 2 Wages Under the minimum wage law in the Philippines.m.
There are other special laws in the Philippines that govern specific sectors of Philippine labor such as the Migrant Workers’ and Overseas Filipinos Act of 1995. and Pag-IBIG Fund. A labor union has to be registered with the Department of labor and Employment for it to enjoy all the rights granted by law to labor unions.Quisumbing Torres 2. also has the right to lock-out employees. may not form or become members of labor unions. This provides for the benefits in case of work -related illness or injury. such as managerial and confidential employees. PhilHealth. Corollarily. seasonal. together with the employer’s contribution. casual. 3. Labor Relations As a general rule. Employees. d. have the right to strike in accordance with law. This provides for the benefits for non-work related illness. retirement and funeral benefits. 4. the Philippine Health Insurance Corporation (“PhilHealth”. and fixed-term. under specified circumstances. may negotiate and enter into collective bargaining agreements (“CBA”) with their employers. PhilHealth administers the NHIA). other than collective bargaining. It may register as an independent labor union or as a charter of a federation or national union. This provides housing loans to employees in the private sector. Classification of Employment The Labor Code and jurisprudence classify employment status into regular. and Pag -IBIG Fund. The employees negotiate the terms and conditions of their employment in CBAs. through their union representatives. Contributions for the ECSIF are shouldered by the employer alone. The contributions are based on the salary of the employee. The employer and the employee both contribute to the common fund from which the benefits are sourced. project. the SSS also administers the ECSIF). National Health Insurance Act (“NHIA”). Under the foregoing welfare legislations. Employees. b. Certain classes of employees. Social Security Law. c. This provides employees in the private sector a more comprehensive benefits program which includes sickness. 24 . probationary. and the Pag-IBIG Fund. disability. employees may also form and join workers’ associations and other mutual aid and benefit associations for legitimate purposes. under specified circumstances. however. Aside from labor unions. the employer. The employer is required to deduct the employee’s contribution and remit the same to the SSS. Employee’s Compensation and State Insurance Fund (“ECSIF”). employees have the right to form and join unions and to engage in concerted activities for their collective protection. the employer is required to register itself and its employees with the Social Security System (“SSS”. Welfare Legislation a. The employment status of an employee is not determined by the specific designation given to it in the employment contract but by the nature of the work being performed by the employee.
it is best to put the employment contract b etween the employer and the employee in writing. This will protect the employer in the event of a future disagreement as to the terms and conditions of employment. the employer must establish the validity of the dismissal by proving that the termination was due to a just and/or authorized cause and that the termination was done after complying with due process. particularly the gravity of the employer’s failure to follow due process requ irements. the amount of which is subject to the discretion of the court. An employee who is unjustly dismissed from work without a legally defined cause is entitled to the following: a. 5. a probationary employee must be provided with written standards for regular employment at the time he is first engaged. computed from the time his compensation was withheld from him up to the time of his actual reinstatement. 25 . Otherwise. the court will take into consideration the relevant circumstances of each case. The classification of an employee is important because under Philippine law. and discipline employees is the employees’ right to security of tenure. unless the legal requirements for the other types of employment are strictly observed. The employees’ right to security of tenure demands that they be removed only for any of the just or authorized causes defined under the Labor Code (called “substantive due process”) and only after the employer observes procedural due process. reinstatement without loss of seniority rights and other privileges. a dismissed employee has the right to question the validity of his dismissal. Once questioned before the proper labor authorities. the causes for terminating an employer-employee relationship would depend upon the classification of the employee. For instance.Doing Business in the Philippines 2009 An employment is presumed to be regular or permanent in nature. 6. an employee who is dismissed without procedural due process is entitled to nominal damages. Even if there may have been a just or authorized cause for termination. payment of full back wages. For this purpose. including allowances and other benefits or their monetary equivalent. It is also advisable for the employer to have an employment handbook which contains the rules and regulations that will govern the employment relation. In the Philippines. Termination of Employment Corollary to the employer’s right to hire. The nominal damages serve as a penalty on the employer for its failure to comply with the requirements of procedural due process for terminating employment. Contract of Employment Although not required. he shall be deemed a regular employee from the start of his employment. terminate. b.
his spouse. The following are the more common types of work visas: 1.2 Special Non-Immigrant or 47(a)(2) Visa This visa is granted under Section 47(a)(2) of the Philippine Immigration Act that allows the President to issue such visas when public interest so warrants. IMMIGRATION Work / Employment Requirements A foreigner who comes to the Philippines to work must obtain a work visa from the relevant government agency. if accompanying or joining him/her after his/her admission into the country as a non-immigrant. has exercised this authority by allowing the entry of foreign personnel employed in supervisory. 26 . may be issued multiple entry special visas valid for one year. subject to such conditions as he may prescribe. depending on his nationality.g. consultancy). This visa is generally valid for an initial period of one year and is renewable from year to year. Upon entry. MRT.e. In cases of short-term employment (i. and foreign personnel of regional or area headquarters of multinational companies which are officially recognized by the Philippine Government.1 Multiple Entry Special Visa This visa is available to: foreign personnel of offshore banking units of foreign banks duly licensed by the Central Bank of the Philippines to operate as such. Skyway). the Bureau o f Immigration (“BI”). a foreigner will only be requi red to apply for a special work permit with the BI. The visa and AEP applications must be filed by a local petitioning company on behalf of the foreigner. 1. The foreigner may commence work in the local petitioning company upon the filing of his/her application for an AEP with the DOLE. which may be extended from year to year upon legal and meritorious grounds. he will be provided either a 21 -day or 7-day visa. An application will be filed for the conversion of the tourist or 9(a) visa into the appropriate work visa.. as well as an alien employment permit (“AEP”) from the Department of Labor and Employment (“DOLE”). provided that he has an outbound ticket with him. a foreigner may enter the country without a pre-approved tourist or 9(a) visa. 1. The President. the work visa and AEP applications are filed after the foreigner has arrived in the country and has been admitted on a tourist or 9(a) visa. less than six months) for positions that are temporary in nature (i. and Special Government Projects (e.Quisumbing Torres XI. and unmarried minor children un der 21 years of age. Board of Investments registered enterprises. primarily. Generally. Except for certain restricted nationals. acting through the appropriate government agencies..e. technical or advisory positions in Export Processing Zone Enterprises. The expatriate.
1. technical. The nationality of the foreigner and the majority of the shareholders of the employer company must be the same. whether for wage or salary or for other forms of compensation. The local petitioning company must be majority -owned by US.Doing Business in the Philippines 2009 1. The holder may also invest in or establish a business in the Philippines. The visa is generally valid for a one -year period subject to extension upon application. countries with which the Philippines has concluded a reciprocal agreement for the admission of treaty traders or investors.000 in the Philippines. However. German or Japanese interests. When granted. The following are the different types of special resident visas: 2. may apply for this visa. or highly confidential position in a local company and who is proceeding to the Philippines to engage in any lawful occupation. 1. managerial. Special Resident Visas In addition to work visas. is granted for a period discretionary to the DOLE. who deposit the minimum amount required by law with a bank accredited by the Philippine Leisure and Retirement Authority.2 Special Investor’s Resident Visa (“SIRV”) Any foreigner. which no Filipino citizen within the Subic Bay Freeport possesses. The pre-arranged employment visa is granted for a period co -terminus with the AEP.1 Special Resident Retiree’s Visa (“SRRV”) The SRRV program is available to foreigners and former Filipinos at least 35 years of age. the officers of the BI have the discretion to shorten the validity period of the approved 9(g) visa to one year. The holder of an SRRV may stay in the Philippines ind efinitely or visit the country at any time. 2. Germany or Japan. These visas allow a foreigner to work in the Philippines. which in turn. a foreigner may also apply for spec ial resident visas.5 Subic Bay Freeport Work Visa A foreign national who possesses executive or highly technic al skills. at least 21 years of age. subject to other requirements or limitations imposed by law. usually based on the duration of the election or appointment of the foreigner. the visa may be extended to the foreigner’s spouse and unmarried children below 21 years of age. willing and able to invest at least US $75. may apply for this visa with the Subic Bay Metropolitan Authority. 2. where a bona fide employer -employee relationship exists. 27 . The foreigner must be employed in a supervisory or executive capacity.4 Treaty Trader’s or Investor’s Visa A foreigner is entitled to enter the Philippines as a treaty trader or investor only if he is a national of the US. as certified by the DOLE.3 Pre-Arranged Employment or 9(g) Visa This visa is available to a foreigner who will be occupying an executive.
otherwise known as the SVEG. The SVEG program will be operational as soon as the implementing rules and regulations are issued. directly. 28 . exercise/perform management acts. no longer employed or not self-employed. Foreign nationals who wish to avail of the SVEG must comply with the following conditions: He/she must actually. or industry. accompanying the applicant. or exclusively engage in a viable and sustainable commercial investment/enterprise in the Philippines. Special Visa for Employment Generation (“SVEG”) On 20 October 2008. of good moral character. President Gloria Macapagal-Arroyo enacted executive Order No. with no previous conviction of a crime involving moral turpitude. there is no limit to the number of unmarried children that can be included in the application. He/she evinces a genuine intention to indefinitely remain in the Philippines. Upon conviction of the foreign national for a crime or offense in the Philippines. or have the authority to hire. The SVEG may be revoked by the Bureau of Immigration: If the SVEG holder fails to maintain compliance with any of the above conditions. 2. The privileges of the SVEG may extend to the foreign national’s spouse and dependent unmarried children below 18 years of age. The SVEG is a special visa issued to a qualified no n-immigrant foreigner who shall actually employ at least 10 Filipinos in a lawful and sustainable enterprise. as determined by a governmental committee. Unlike the SRRV. may be included in the visa application.4 Subic Bay Freeport Residency Visas for Retirees This visa requires the applicant to be over 60 years old. or Upon a final determination by competent authority that the foreign national poses a risk to national security.000 in a qualified tourist . He/she is not a risk to national security. Qualified foreigners who are granted the SVEG shall be considered special non-immigrants with multiple entry privileges and co nditional extended stay. 3. and dismiss employees. If the SVEG was obtained through fraud or willful misrepresentation of material facts. promote. shall be entitled to an SIRV. and His/her commercial investment/enterprise must provide actual employment to at least 10 Filipinos in accordance with Philippine labor laws and other applicable special laws.000 per year.Quisumbing Torres The applicant’s spouse and unmarried children who are less than 21 years of age.related project or tourism establishment. 2. 758 which prescribes guidelines for the issuance of a special visa to non -immigrants for employment generation. trade. and receiving a pension or passive income which is payable in the Subic Bay Freeport in an amount exceeding US $50.3 SIRV for Investors in Tourist-Related Projects and Tourist Establishments A foreigner who invests the amount of at least US $50.
cooperatives. the BSP has imposed an indefinite moratorium on the establishment of new banks except in cities and municipalities where there are no existing banking offices. 1. importers. discounting or factoring commercial papers or accounts receivables. and other financial institutions organized or operating under other special laws. A financing company must have a paid-up capital ranging from at least Ph P2. or agricultural enterprises by: direct lending. investment houses. benefits. 29 . subject to the prior approval of the Monetary Board of the BSP. Financing companies providing financial leases in connection with any purchase. FINANCE-RELATED REGULATIONS Banking A foreign bank may operate in the Philippines. or privileges that are available to lenders. Thus. purchasers. or otherevidence of indebtedness. by owning up to 60 percent of the voting stock of an existing domestic bank. a foreign bank cannot invest in the voting stock of a ne w banking subsidiary. or other transaction are entitled to the same incentives. leases. subject to the prior approval of the Monetary Board of the BSP. acquisition. At present. 2. chattel mortgages.Doing Business in the Philippines 2009 XII. In addition. financing companies that provide medium and long-term credit to small and medium enterprises are entitled to the same rights. If the moratorium is lifted. and privileges that are granted to other non-bank financial institutions providing similar credit. Financing Companies Financing companies are corporations that are pri marily organized for the purpose of extending credit facilities to consumers and to industrial. A foreign national may own stock in any financing company if the country of which he is a national accords the same reciprocal rights to Filipinos. the only mode for foreign banks to enter the Philippine banking industry is to invest in existing domestic banks. importation. A financing company must be organized as a stock corporation. powers. savings and loan associations. benefits. or other eligible person in such transactions. insurance companies. The term “financing companies” excludes banks. exemptions. buying and selling contracts. commercial.5 million to Ph P 10 million depending on where the fi nancing company will set up its office in the Philippines. by investing in up to 60 percent of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines. a foreign bank may also operate in the Philippines. or financial leasing of movable as well as immovable property. at least 40 percent of the voting stock of which is owned by citizens of the Philippines. Until such moratorium is lifted.
INSURANCE-RELATED REGULATIONS Entry of Foreign Insurance Companies Subject to the approval of the Insurance Commission. particularly for residential mortgage-backed securities and other housing-related financial instruments. if the original obligee of the Assets is a bank. Special Purpose Vehicle Act of 2002 The Special Purpose Vehicle Act of 2002 (“SPV Act”) provides the framework for the creation and regulation of Special Purpose Vehicles (“SPVs”) that acquire or invest in the non-performing assets (“NPA”) of financial institutions (“FI”). In securitization. ownership of the voting stock of an existing domestic insurance company. subject to certain conditions. The SPV Act granted tax and fiscal incentives and exemption privileges to transactions involving the transfer of NPAs from an FI to an SPV and. Prior endorsement of the BSP must be obtained in the following cases: a. or is controlled by such bank or entity. a foreign insurance company may be allowed to do business in the Philippines under any one of the following modes of entry: a. the Securitization Act grants various tax and fiscal incentives. The Act establishes the legal and regulatory framework for asset securitization and grants tax exemptions and other incentives in favor of securitization transactions. The issuance of the ABS must be in accordance with the securitization plan approved by the SEC. There appears to be a growing clamor from the banking sectors to allow additional time within which interested parties may register an SPV. receivables.Quisumbing Torres 3. The bill is currently pending in the Philippine Senate. on a “without recourse” basis. The SPE then issues to investors asset-backed securities (“ABS”) that depend for their payment on the cash flow from the Assets. The SPV Act prescribed a period within which the application to organize and register an SPV must be filed with the SEC. XIII. 4. 30 . by a seller to a special purpose entity. loans. which seeks to allow registration of SPVs for another five years. b. thus paving the way for the filing of Senate Bill 1830. the Act seeks to create a favorable environment for the establishment of Special Purpose Entities (“SPE”) and the issuance by such entities of a wide range of asset-backed securities. from an SPV to a third party. In order to promote the development of the Philippine capital market. Securitization Act of 2004 The Securitization Act took effect on 10 April 2004. or if the SPE is constituted in the form of a special purpose trust. This period expired on 18 September 2004. or any other entity subject to the supervision of the BSP. The Act also prescribes the rules for the creation and operation of Secondary Mortgage Institutions to develop a secondary market for the asset-backed securities. Subject to certain conditions. or similar financial assets with an expected cash payment stream (“Assets”) are sold.
the dockets of Philippine courts remain clogged. a subsidiary). the applicant must be: a. the outcome becomes more “acceptable. it usually takes several years for the trial courts to hear and resolve the cases filed with them. arbitrators do not have to contend with heavy caseloads. Consequent ly.e. Also.Doing Business in the Philippines 2009 b. b. 1. or the top 10 in their country of origin. 1.. ARBITRATION IN THE PHILIPPINES Parties have the option of resorting to arbitration to resolve their disputes in the Philippines. In contrast. the foreign insurance company must be among: a. To qualify as a branch or a new company incorporated in the Philippines. and has been doing business for the last 10 years as of the date of the application. investment in a new insurance company incorporated in the Philippines (i. Arbitration. disputes submitted to arbitration are more speedily resolved. may be more attractive than court litigation for several reasons. or establishment of a branch. 1. 1. Arbitration allows the parties to choose or craft the rules that will govern the arbitration proceedings. an applicant foreign insurance corporation must comply with certain capitalization requirements pertaining to minimum paid -up capital and contributed surplus fund. or majority-owned by the government of the country of origin. c. Unlike judges. To be allowed entry. the parties need notbe bound by the strict rules of evidence.the parties have more faith in the integrity of the process.2 Flexibility of the rules Foreign investors who are not familiar with local court procedures may prefer a more neutral process. Since the parties are given a free handin choosing their arbitrator(s). The ability to choose the arbitrator is especially attractive to a foreign party who ma y harbor reservations about the neutrality of a “home court” judge.” 31 . The pa rties can choose arbitrators whose schedules can accommodate the long hours necessary to hear and decide a case. Depending on the extent of foreign equity. the top 200 foreign insurance corporations globally. XIV. b. Since the procedure is mutually agreed upon.3 Choice of arbitrators The parties are free to choose the arbitrators. The parties are expected to appoint arbitrators whom they regard as honest and competent. c. 1 Advantages of arbitration compared with court litigation Speed Despite the efforts of the Supreme Court to streamline the judiciary. which is steadily growing in popularity as an alternative mode of dispute settlement. widely owned and/or publicly listed in its country of origin.
Quisumbing Torres On the part of the arbitrators. The parties may agree to submit a dispute to arbitration either before or after a dispute arises. “Final” means that an arbitral award cannot be modified or reversed except on limited grounds.5 Arbitrators as experts Parties usually appoint arbitrators who are knowledgeable in the subject matter of the dispute.” 3. An aggrieved party cannot compel the other party to arbitrate. If there is no agreement to submit a dispute to arbitration.4 Finality of the award Philippine law recognizes as valid a stipulation that an arbitral award shall be “final. 1. and (h) thosedisputes which by law cannot be compromised. 1. resolve a dispute by rendering an award. Disputes that are not arbitrable The following disputes cannot be submitted to arbitration: (a) labor disputes covered by Presidential Decree No. The word “commercial” is broadly defined as “matters arising from all relationships of a commercial nature. 4. The greater their reputation for competence and integrity. their places of business in different States (countries). or Arbitration is considered international if: 32 . Definition of international arbitration and domestic arbitration (a) the parties to an arbitration agreement have. 442. arbitration proceedings are confidential. (f) future legitime. “final” does not mean that an arbitral award is beyond judicial review. whether contractual or not. at the time of the conclusion of such agreement. (e) the jurisdiction of courts.” 5. Disputes that may be referred to arbitration All types of commercial disputes may be referred to arbitration. There can be no arbitration unless the parties agree to submit their dispute to arbitration. they have an added incentive to build and nurture a reputation for competence and integrity. and its Implementing Rules and Regulations. (c) the validity of a marriage. (b) the civil status of persons.” However. as amended. or rules promulgated pursuant to law. the higher will be the demand for their services. 2. 6. Definition of arbitration “Arbitration” is formally defined as “a voluntary dispute resolution process in which one or more arbitrators. (d) any ground for legal separation (of married persons). (g) criminal liability. 1. appointed in accordance with the agreement of the parties. otherwise known as the Labor Code of the Philippines. Arbitration as contract Arbitration is a creature of contract.6 Confidentiality Whereas court proceedings are open to the public. the remedy of the aggrieved party is to file a case in court.
Despite the distinction between international and domestic arbitration. and must know how to read and write. 33 . 7. b. Republic Act No . Qualifications of arbitrator An arbitrator must possess the following qualifications: He must be of legal age.A. No. 876. or by his lawful agent. or pursuant to. c. or other interest in the controversy. if the dispute is between parties who have their place of business in the Philippines. a. (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which th e subject matter of the dispute is most closely connected. or (c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country. On the other hand. domestic arbitration is simply defined as arbitration that is not international. which might prejudice the right of any party to a fair and impartial award. T h i r d pa r t i e s Where a civil action is commenced in court by or against multiple parties. and there is no stipulation in their arbitration agreement that the su bject matter of the arbitration agreement relates to another country. one or more of whom are parties to an arbitration agreement. Thus. there are few vital distinctions between the two regimes. The reason for this is that the Alternative Dispute Resolution Act of 2004 (“ADR Act of 2004”) has grafted several of the UNCITRAL Model Law provisions onto R. in full enjoyment of his civil rights. the arbitration will be considered domestic. fiduciary. Domestic arbitration is governed by Republic Act No. otherwise known as the Arbitration Law. International arbitration is governed by the United Nations Commission on International Trade Law (UNCITRAL) Model Law. the arbitrator should not possess any of the following disqualifications: He should not be related by blood or marriage within the sixth degree to either party to the controversy. The law prohibits an arbitrator from “championing” or “advocating” the cause of either party. 876 on Domestic Arbitration Form of arbitration agreement The arbitration agreement must be in writing and subscribed by the party sought to be charged. An agreement that incorporates by reference a document that contains an arbitration clause gives rise to a valid arbitration agreement. the court shall refer to arbitration those parties who are bound by the arbitration agreement. Neither should he have a financial. the arbitration agreement.Doing Business in the Philippines 2009 (b) one of the following places is situated outside the State in which the parties have their places of business: (i) the place of arbitration if determined in. 876. a Philippine law that was enacted in 1953. or any personal bias. although the civil action may continue as to those who are not bound by such arbitration agreement. and their obligations are to be performed in the Philippines. Furthermore.
A. Interim measures A party may apply for provisional relief or interim measures with the courts prior to the constitution of the arbitral tribunal or even during the arbitration proceedings to the extent that the arbitral tribunal has no power to act or is unable to act ef fectively. or were guilty of any other misbehavior by which the rights of any party were materially prejudiced. The one area where the two arbitration regimes may part ways is in the interpretation of the applicable laws. and any provision limiting the time in which the arbitrators may make a decision shall be deemed applicable to the new arbitration and to commence from the date of the court's order. the winning party has to file with the appropriate Regional Trial Court a petition for confirmation of the arbitral award. final. A. the court. or in refusing to hear evidence pertinent and material to the controversy. The court should. or other undue means. or A domestic arbitral award may be vacated on the following grounds: (ii) There was evident partiality or corruption in t he arbitrators or any of them. Confirmation of domestic arbitral award A domestic arbitral award is not self-executory. grant the petition. 34 . 876. No. In order to convert the domestic arbitral award into an enforceable judgment. or (iv) The arbitrators exceeded their powers. as a matter of course. R. Where an award is vacated. or so imperfectly executed them. or one or more of the arbitrators were disqualified to act as such under Section 10 of R. The petition to vacate a domestic arbitral award must be filed with the appropriate Regional Trial Court within 30 days from receipt of the award. in its discretion.Quisumbing Torres d. a. unless there are grounds to vacate the award. f. 8. International Arbitration Interpretation of the UNCITRAL Model Law (“Model Law”) The provisions on domestic arbitration are more or less similar to the provisions on international arbitration. A domestic arbitral award may also be appealed directly to the Court of Appeals on questions of fact and law. and definite award upon the subject matter submitted to them was not made. 876 (for domestic arbitration) and the Model Law (for international arbitration). or (iii) The arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown. and willfully refrained from disclosing such disqualifications. No. Grounds for vacating/setting aside a domestic arbitral award (i) The award was procured by corruption. may direct a new hearing either before the same arbitrators or before a new arbitrator or arbitrators to be chosen in the manner provided in the submission or contract for the selection of the original arbitrator or arbitrators. that a mutual. fraud. e.
Philippine courts. No. or contain s decisions on matters beyond the scope of the submission to arbitration. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract. d. regard shall be had for its international origin and to the need for uniformity in its interpretation. Grounds for setting aside/vacating an international arbitral award An international arbitral award may be set aside by the courts only if the party making the application furnishes proof that: (i) a party to the arbitration agreement referred to in Article 7 of the Model Law was under some incapacity. in interpreting the Model Law. b. since other jurisdictions tend to interfere less with international arbitral awards. or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another. entitled “International Commercial Arbitration: Analytical Commentary on Draft Text identified by reference number a/CN. Interim measures As with domestic arbitration. The Model Law considers an agreement to be in writing “if it is contained in a document signed by the parties or in an exchange of letters. telex. or 35 . 876. under the law of this State. if the decisions on matters submitted to arbitration can be separated from those not so submitted. domestic arbitration and int ernational arbitration will most likely diverge with respect to the scope of judicial review. telegrams or other means of telecommunication which provide a record of the agreement. only that part of the award which contains decisions on matters not submitted to arbitration may be set aside.Doing Business in the Philippines 2009 The ADR Act of 2004 provides that. Form The arbitration agreement shall be in writing. A. and resort may be made to the travaux preparatories and the report of the Secretary General of the United Nations Commission on International Trade Law dated 25 March 1985. or the said agreement is not valid under the law to which the parties have subjected it or. 9/264. or (ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case. should limit the scope of its review to the grounds to set aside an arbitral award under the Model Law. a party in an international arbitration may apply for provisional relief or interim measures with the courts prior to the constitution of the arbitral tribunal or even during the arbitration proceedings to the extent that the arbitral tribunal has no power to act or is unable to act effectively. having regard for the international origin of the Model Law and to the need for uniformity in its interpretation. While domestic arbitration awards may be reviewed on appeal on both questions of fact and law. or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration. The definition of “writing” under the Model Law is broader than the definition of “writing” under R.” c. provided that.” For example. failing any indication thereon.
if the decisions on matters submitted to arbitration can be separated from those not so submitted. irrespective of the country in which it was made. shall be recognized as binding and. under the law of the country where the award was made. upon application in writing to the competent court. or (ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case. was not in accordance with the Model Law. or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration. or the said agreement is not valid under the law to which the parties have subjected it or.Quisumbing Torres (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties. irrespective of the country in which it was made. 9. failing any indication thereon. An application for setting aside an international arbitral award may not be made after three months have elapsed from the date on which the party making that application received the award. if that party furnishes to the competent court where recognition or enforcement is sought proof that: (i) a party to the arbitration agreement referred to in article 7 was under some incapacity. or (ii) the award is in conflict with the public policy of this State. irrespective of the country in which it was made. may be refused only : (a) at the request of the party against whom it is invoked. may be refused only on the following grounds: “(1) Recognition or enforcement of an arbitral award. or it contains decisions on matters beyond the scope of the submission to arbitration. The parties to this convention recognize the validity and binding effect of foreign arbitral awards. in 1967. a landmark international instrument. provided that. or 36 . or. shall be enforced unless there exists any of the grounds to set aside/vacate the award. failing such agreement. or An international arbitral award may also be set aside if the court finds that: (i) the subject matter of the dispute is not capable of s ettlement by arbitration under the law of this State (the Philippines). Section V of the NewYork Convention provides that the recognition or enforcement of an arbitral award. unless such agreement was in conflict with a provision of the Model Law from which the parties cannot derogate. that part of the award which contains decisions on matters submitted to arbitr ation may be recognized and enforced. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) The Philippines acceded to the NewYork Convention. Recognition and enforcement of international arbitral award An international arbitral award. e.
project manager. contractor. fabricator. On the other hand. and the CIAC shall assume jurisdiction over the dispute. was not in accordance with the law of the country where the arbitration took place. or under the law of which. a testament to the near-universal recognition of the validity and binding nature of foreign arbitral awards. To date. 1008 established the Construction Industry Arbitration Commission (“CIAC”). the Philippine Supreme Court recognized the enforcement of a provisional/interim foreign award.” In a recent case. there are more than 140 signatories to the NewYork Convention.” The CIAC is a hybrid of voluntary arbitration and compulsory arbitration. for example. The CIAC has original and exclusive jurisdiction over construction disputes. their agreement will fall within the jurisdiction of the CIAC. either party may still elect to file a request for arbitration with the CIAC notwithstanding the agreement of the parties to submit their dispute to arbitration in Singapore. the Philippine Supreme Court has held that “as long as the parties agree to submit their dispute to voluntary arbitration. failing such agreement. The NewYork Convention also seeks to put international arbitration on equal footing with domestic arbitration by providing that the parties t o the convention should not impose more onerous conditions on the enforcement of foreign arbitral awards than on the enforcement of domestic awards. which shall “include those between or among parties to. t he parties will not be precluded from electing to submit their dispute before the CIAC because this right has been vested by law. directly or by reference whether such parties are project owner. or who are otherwise bound by. bondsman or issuer of an insurance policy in a construction project. or (ii) the recognition or enforcement of the award would be contrary to the public policy of this State. or (b) if the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State. 37 . subcontractor. If the parties do not enter into an arbitration agreement.”Thus.Doing Business in the Philippines 2009 (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or. then the construction dispute between them shall be resolved by the courts. if the parties to a construction contract designate Singapore arbitration as the venue of any dispute that may arise between them. an arbitration ag reement. consultant. or (v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which. 10. there is no similar convention with respect to the recognition and enforcement of foreign court judgments. regardless of what forum they may choose. It takes the CIAC an average of around six months from the time of filing of the request for arbitration to hear the case and render an award. as opposed to a final foreign award. quantity surveyor. even if they specifically choose another forum. Construction Industry Arbitration Commission Executive Order No. such that. The CIAC is known for its efficiency. design professional. Notably. that award was made.
except in the ordinary course of the business in which the debtor is engaged. and Prohibits the debtor from disposing of his property or making payments. the rehabilitation of a company entails more radical measures such as changes in organization. it may apply for insolvency and have its assets distributed accordingly among its various creditors.D. and the debtor’s proposed agreement for the suspension of payments. except executions against properties specially mortgaged. Court Proceedings b. INSOLVENCY IN THE PHILIPPINES Overview and Introduction to the Jurisdiction / Applicable Legislation There are three types of remedies available to a financially distressed individual or juridical person. on the other hand. and/or strategy. Each of these remedies is discussed in more detail below. then the remedy is a suspension of payments. If what is sought is merely a little financial breathing space. a.Quisumbing Torres XV. the proceeding is terminated and the creditors may enforce their respective credits. 902-A (“P. iii. the Court will issue an order that the proposed agreement be carried out. 2. the Insolvency Law. if the debtor company is no longer capable of or interested in maintaining its business. to wit. The proposed agreement must be approved by two thirds (2/3) of the creditors representing at least three fifths (3/5) of the debtor’s total liabilities.” a statement of the debtor’s assets and liabilities. Effects of a Petition for Suspension of Payments The filing by a debtor of a petition for suspension of payments: i. corporate rehabilitation. which provides for the deferment of payments and temporary protection against actions/executions by unsecured creditors. ii. and such 38 . and insolvency. If. 1. The petition must be filed with the Court of the place where the debtor has his/its residence within six months prior to the filing of the petition. Bars ordinary creditors from instituting proceedings in any Philippine court against the debtor. If the required vote is achieved without any objection from the creditors. The applicable laws are the Civil Code of the Philippines (“Civil Code”). Finally. Presidential Decree No. The petition for suspension of payments must include a “Schedule of Creditors.1 Proceedings for Solvent Debtors (Individuals or Corporations) Suspension of Payments An individual debtor who possesses sufficient property to cover all of his/its debts but foresees the impossibility of meeting them when they respectively fall due. then the remedy is to seek corporate rehabilitation. 902-A”). may file a petition with a Philippine Regional Trial Court (the “Court”) to be declared in a state of suspension of payments. management. and the Rules of Procedure on Corporate Rehabilitation. If the required vote is not achieved. suspension of payments. 2. Suspends all pending executions against the debtor’s properties. The type of proceeding that applies to a debtor depends on the particular relief sought. and requires temporary protection against both secured and unsecured creditors.
Doing Business in the Philippines 2009 agreement shall be binding on all creditors that have been properly summoned and included in the Schedule of Creditors. that foresees the impossibility of meeting its debts whe n they respectively fall due. 39 . partnership. If the required vote isachieved but there is an objection from any of the creditors. If the debtor fails wholly or in part to perform the Court-approved agreement. and (g) sets an initial hearing on the petition. and in the deliberations thereat.2 Corporate Rehabilitation A debtor. which prejudice the rights of the creditors. If the objection is found to be meritorious. However. a rehabilitation plan. iii. not later than five days from the filing of the petition. defects in the call for the meeting of the creditors. against the debtor. a. Objections to the debtor’s proposed agreement The possible grounds for objecting to the proposed agreement are as follows: i. it will. The Stay Order applies to both secured and unsecured creditors. which is a corporation. The petition for rehabilitation must be filed with the Court of the place where the debtor’s principal office is located. (b) stays the enforcement of all claims. among others: (a) appoints a Rehabilitation Receiver. may petition the proper Court to have the debtor placed under rehabilitation. the payment for such debts is delayed. the Court will conduct a hearing on the objection. The petition for rehabilitation must be accompanied by. If the objection is found to be unmeritorious. (e) prohibits the debtor’s suppliers of goods or services from withholding supply of goods and servic es in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order. Effects of a Petition for Rehabilitation If the Court finds the petition to be sufficient in form and substance. or disposing in any manner any of its properties except in the ordinary course of business. and directs all creditors and interested parties to file their verified comments on or oppositions to the petition before the said initial hearing. fraudulent connivance between one or more creditors and the debtor to vote in favor of the proposed agreement. or association. The amount of the debts of the debtor is not affected by a suspension of payments. (f) directs the payment in full of all administrative expenses incurred after the issuance of the Stay Order. its guarantors and sureties not solidarily liable with the debtor. among others. (c) prohibits the debtor from selling. or any creditor or creditors holding at least 25 percent of such debtor’s total liabilities. whether for money or otherwise and whether such enforcement is by court action or otherwise. issue a “Stay Order” which. fraudulent conveyance of claims for the purpose of obtaining the required majority. c. in the holding thereof. (d) prohibits the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition. the Court will proceed as though no objection had been made. The Stay Order is effective from the date of its issuance until the dismissal of the petition or the termination of the rehabilitation proceeding. 2. encumbering. transferring. the proceeding will terminate. ii.the rights which the creditors had against the debtor before the agreement shall re-vest in them.
Effects of an approved rehabilitation plan on prior agreements betweenthe debtor and creditor(s) Contracts and other arrangements between the debtor and its creditors will continue to be effective to the extent that these contracts and other arrangements do not conflict with the approved rehabilitation plan. 40 . or for the protection and preservation of the interests of the creditors should the plan fail. in its judgment. within 90 days from the approval of the rehabilitation plan. The Rehabilitation Receiver will evaluate the rehabilitation plan and submit his recommendations t o the Court not later than 120 days from the date of the initial hearing. d. the Court may revoke the approval thereof on the ground that the same was secured through fraud. On motion by a party or on its own. The petition will be dismissed if no rehabilitation plan is approved by the Court upon the lapse of 180 days from the date of the initial hearing. c. Clawback provisions Upon motion by a party or on its own. the Supreme Court of the Philippines ruled that a Stay Order and an approved rehabilitation plan merely suspend the enforcement of the security. the basic premise is that the debtor does not have enough assets/properties to cover his obligations. conditions. the Court may decla re void any transfer of property or any other conveyance. the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. 3. and do not prejudice the status of the secured creditor vis-à-vis the unsecured creditors. it will give due course to the petition and refer the same to the Rehabilitation Receiver. sale. The Court may impose such terms. after the initial hearing on the petition for rehabilit ation. Court proceedings If. The Court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor if. or agreement made in violation of the Court’s Stay Order or in violation of the Rules on Corporate Rehabilitation. Insolven cy proceedings may be voluntary or involuntary. In a recent decision involving a creditor’s security agreement with a debtor under rehabilitation. However. the period for approving or disapproving a rehabilitation plan may not exceed 18 months from the date of filing of thepetition.Quisumbing Torres b. the Court is satisfied that there is merit in the petition. or restrictions as the effective implementation and monitoring of the rehabilitation plan may reasonably require. Insolvency Proceedings (Individuals or Corporations) In insolvency proceedings. The Court may extend this period only if it appears by compelling evidence that the debtor may successfully be rehabilitated. payment.
The petition must also allege one or more acts of insolvency. among others. If the debtor is a corporation. The Court will require the debtor to show cause why he/it should not be declared insolvent. Effect of Order of Insolvency An Order of Insolvency generally suspends all civil proceedings pending against the debtor. The Court may. a. 3. and an inventory of all his/its assets. The petition m ust allege.3 Provisions applicable to both voluntary or involuntary insolvency proceedings a. 41 . the Court will issue an order declaring the debtor insolvent. in such sum as the Court will direct.000 (approx. If the Court finds the petition meritorious. a. and effects not exempt from execution for the benefit of the creditors.Doing Business in the Philippines 2009 3. The creditors must be Philippine residents whose credits accrued in the Philippines. the court will issue an order declaring the debtor insolvent.2 Involuntary Insolvency Three or more creditors whose total credits exceed Ph P1. direct the filing of an additional bond when deemed necessary. The debtor must also include in the petition a schedule of debts and of creditors. partnership or association) for six months preceding the filing of the petition. or withdrawn by the petitioners. estate. Court Proceedings The petition for voluntary insolvency must be filed in the Court of the place where the debtor has resided (in case of an individual) or has had its principal office (in case of a corporation. The filing of the petition is deemed an act of insolvency. Court Proceedings The petition for involuntary insolvency must be filed in the Court of the place where the debtor resides or has his/its principal place of business. or if the debtor is not declared insolvent. 3. and must be verified by at least three of the petitioners. the debtor’s inability to pay all his/its debts in full. Upon the filing of the petition. upon motion.000 (approx. the petition may be filed by any officer of the corporation. The petition must be accompanied by a bond. US $25) may seek a declaration of insolvency against a debtor. and an application to be adjudged inso lvent.1 Voluntary Insolvency A debtor owing debts exceeding Ph P1. US $25) may seek a declaration of insolvency. his/its willingness to surrender all his/its property. duly authorized by the board of directors. conditioned upon the payment to the debtor of all costs and damages occasioned by the proceedings in insolvency if the petition is dismissed by the Court. and did not become creditors by assignment within 30 days prior to the filing of the petition.
All the remaining classes of Special Preferred Credits with respect to specific movable or immovable property (e. without special privilege. by releasing or surrendering to the assignee -in-insolvency the properties subject of the pledge or mortgage. No discharge is granted to a corporation that is declared insolvent.e. such creditor canno t participate in the election of the assignee-in-insolvency. respectively.g. but will have to relinquish his security and surrender the properties subject of the security to the assignee-in-insolvency. the instrument is notarized) or (ii) a final judgment. By way of exception.e. but must be paid concurrently and pro rata. If the creditor pursues his claim in the insolvency proceeding.Quisumbing Torres All property of the insolvent not exempt by law from execution will be conveyed to an assignee-in-insolvency elected by the creditors. appear in (i) a public instrument ( i. after deducting the value of the property foreclosed. 42 . certain types of credits enjoy preference with respect to specific movable or immovable properties (“Special Prefer red Credits”). in proportion to the amount of the respective credits. c. But the creditor may be admitted in the insolvency proceeding to recover the balance of the debt. These credits have preference among themselves in the order of priority of the dates of the instruments and of the judgments. i. or (ii) to pursue his/its claim in the insolvency proceeding together with other creditors... Preference of Credits In an insolvency proceeding. he may recover his credit by participating in the pro-rata distribution of the debtor’s estate. either (i) to foreclose the property subject of such security arrangement (notwithstanding the stay effected by the Order of Insolvency). credits secured by a pledge or mortgage) do not enjoy priority among themselves. Rights of secured creditors A creditor whose credit is secured by a mortgage or pledge is allowed. b. Credits that do not enjoy any preference with respect to sp ecific property are satisfied in the order established in Article 2244 of the Civil Code. Among the Special Preferred Credits. Article 2244 provides for the preference of certain claims and credits which.. at its option. If the secured creditor opts for foreclosure. taxes and assessments due upon the property to which the claims relate enjoy absolute preference. the debtor’s property that is subject of a pledge or mortgage is not included in the debtor’s assets that are assigned to the assignee -in-insolvency for the satisfaction of the debtor’s general creditors. The creditor recovers the balance by participating in the pro-rata distribution of the debtor’s estate.
or makes any pledge. Furthermore. transfer. or the value thereof. impeding. mortgage. if the pledge. or in contemplation of insolvency. or conveyance thereof to anyone with a view to: (i) giving a preference to any creditor or person having a claim against him. is considered void. or (ii) preventing the property from being distributed ratably among his creditors. Clawback provisions The assignee-in-insolvency may recover property given as security. 43 . or in any way hindering. mortgage. assignment. transfer. if the debtor. or transfer of the property is not made in the usual and ordinary course of business of the debtor. any pledge. procures any of his property to be attached. or if such seizure is made under a judgment which the debtor has confessed or offered to allow. or delaying the operation of the provisions of the Insolvency Law. or (iii) defeating the object of. conveyance. or conveyance is considered void. that fact is deemed as prima facie evidence of fraud. or seized on execution. sequestered. or transfer of property made by the insolvent within one month before the filing of a petition in insolvency by or against him. mortgage. except for a valuable pecuniary consideration made in good faith. mortgage. the attachment. sale. seizure . Under the Insolvency Law. within 30 days before the filing of a petition to be declared insolvent by or against him. being insolvent. sale. In such a case.Doing Business in the Philippines 2009 d. conveyance. sale. sale. assignment. assignment. sequestration. assignment. pledge.
or equivalent. a Swiss Verein with member law firms around the world. 728 7777 QTLaw@bakernet. Metro Manila Philippines 1634 Phone: +63 2 819 4700 Fax: +63 2 816 0080. Similarly. . in such a law firm. In accordance with the common terminology used in professional service organizations.com Quisumbing Torres is a member firm of Baker & McKenzie International.Quisumbing Torres 12th Floor. ©2009 Quisumbing Torres All rights reserved. Net One Center 26th Street corner 3rd Avenue Crescent Park West. Bonifacio Global City Taguig. reference to an “office means an office of any such law firm. reference to a “partner” means a person who is a partner.
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