COUNTRY FACTS
Name: Republic of the Philippines
Capital: Manila
Currency: Peso (Php)
Exchange Rate: €1 = Php. 51.68 (2015)
Climate: Tropical Marine
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DOWNLOAD PDFGeography: 7, 107 Islands- Three Major Islands of Luzon, Visayas, & Mindanao
Population: 101, 802, 706 (2015); 12th Most Populous Country in the World
Ave. Population Growth: 1.89%
Ave. Age of Population: 23.5 years
Size of Labor Force: 40.09 Million (as of January 2015)
Religions: Roman Catholic (83%); Protestants (9%); Muslim (5%); Others (3%)
Type of Government: Unitary Form, Democratic Presidential System, Bicameral
Administrative Divisions: 17 Regions; 81 Provinces; 145 Cities; 1, 489 Municipalities, and 42, 028 Barangays
Economy: GDP USD 284.6 Billion in 2014 with growth rate of 6.1%; GDP per capita (PPP) USD 7, 412 and (nominal) USD 3, 256.
| 2011 | 2012 | 2013 | 2014 | |
|---|---|---|---|---|
| GDP Growth | 3.7 | 6.8 | 7.2 | 6.1 |
| Private Consumption Growth | 5.7 | 6.6 | 5.6 | 5.4 |
| Exports Growth | -2.8 | 7.9 | 8.8 | 9.0 |
| Imports Growth | -1.0 | 2.7 | 0.5 | 2.4 |
| Average Inflation | 4.6 | 3.2 | 3.0 | 4.1 |
| Unemployment Rate | 7.0 | 7.0 | 7.3 | 6.9 |
Source: NSCB
| Credit Ratings | Outlook | |
|---|---|---|
| Fitch | BBB- | Stable |
| Moody’s | Baa3 | Positive |
| Standard & Poor | BBB | Stable |
| NICE (S. Korea) | BBB- | Positive |
| JCR (Japan) | BBB | Stable |
The Philippine government has several executive departments, agencies, and attached offices that regulate activities on specific sectors and industries within the country. Regulations are issued in compliance to statutory laws and/or executive orders, administrative orders, and memorandum circulars.
Department Level
Department of Trade and Industry (DTI)
www.dti.gov.ph
The lead government body that is responsible for trade and industry policies, promotion services, technical advisory services, consumer protection, and business regulation services.
Agency Level
Board of Investments (BOI)
www.boi.gov.ph
Attached agency of DTI that is responsible for investment promotion. It assists Filipino and foreign investors to venture and prosper in desirable areas of economic activities.
Bureau of Customs (BOC)
www.customs.gov.ph
Attached agency of the Department of Finance (DOF) responsible for revenue collection and assessment, enforcement of customs and trade laws for trade facilitation.
Bureau of Internal Revenue (BIR)
www.bir.gov.ph
Attached agency of DOF mandated by law to assess and collect all national internal revenue taxes, fees and charges, and to enforce all forfeitures, penalties, and fines.
Bureau of Immigration (BI)
www.immigration.gov.ph
Attached agency of the Department of Justice (DOJ) that monitors compliance of all foreigners with existing Philippine laws. Chief repository of all immigration records.
Food and Drug Administration (FDA)
www.fda.gov.ph
Attached agency of the Department of Health (DOH) mandated to ensure the safety, efficacy, and quality of health products, which include food, devices, and all consumer goods.
Philippine Economic Zone Authority (PEZA)
www.peza.gov.ph
Attached agency of DTI intended to provide globally competitive and ecological business environment to investors through effective management of special economic zones.
Securities and Exchange Commission (SEC)
www.sec.gov.ph
A national government agency charged with the supervision over the corporate sector, capital market participants, securities and investment instruments market, and the investing public.
Independent Coordinating Office
Office of the Investment Ombudsman (IO)
www.ombudsman.gov.ph
A special office created under the Office of the Ombudsman through Ombudsman Office Order 327 on June 1, 2014 to assist investors and act on grievances involving delays committed by investment agencies on licenses and permits, among others.
Government Investment Incentives
Republic Act 7042 as amended by Republic Act 8179 otherwise referred to as the “Foreign Investment Act of 1991” provides guidelines under which non-Philippine nationals including former Filipino citizens may invest and do business in the Philippines with a required paid-in capital of at least USD 200, 000. Investments classified as strategic industries may avail of incentives given by Investment Promotion Agencies (IPAs). Strategic industries are characterized by the following:
- Crucial to the accelerated industrialization of the country;
- Require massive capital investments to achieve economies of scale for efficient operations;
- Require highly specialized or advanced technologies;
- Strong backward and forward linkages with most industries existing in the country; and
- Generate substantial foreign exchange savings through import substitution and collateral foreign exchange earnings through export of part of the output that will result with the establishment, expansion, or development of the industry.
Aside from BOI and PEZA, the two major investment promotion agencies of the Philippines, there are 21 Agro-Industrial Economic Zones, 216 IT Parks and Centers, 68 Manufacturing Economic Zones, 2 Medical Tourism Zones, and 19 Tourism Economic Zones that offer various incentives.
As of May 31, 2015. For the complete list of special economic zones, please visit http://www.peza.gov.ph/index.php/economic-zones/list-of-economic-zones
Investment Priorities Plan (IPP) 2014-2016
Pursuant to the Omnibus Investment Code of 1987 and the thrust of the Philippine government to attract investments to spur economic growth, the Investment Priorities Plan 2014-2016 is adopted containing the list of preferred investment areas eligible for incentives when registered with the Board of Investments.
Pursuant to the Omnibus Investment Code of 1987 and the thrust of the Philippine government to attract investments to spur economic growth, the Investment Priorities Plan 2014-2016 is adopted containing the list of preferred investment areas eligible for incentives when registered with the Board of Investments.
Fiscal Incentives
- Income Tax Holiday
- Exemption from taxes & duties on imported spare parts.
- Exemption from wharfage dues & export tax, duty, impost, & fees.
- Reduction of the rates of duty on capital equipment, spare parts, & accessories.
- Tax exemption on breeding stocks & genetic materials.
- Tax credits.
- Additional deductions from taxable income.
I. List of Preferred Activities
Non-Fiscal Incentives
- Employment of foreign nationals.
- Simplification of customs procedures.
- Importation of consigned equipment.
- Privilege to operate a bonded manufacturing/trading warehouse.
a. Motor vehicles (excluding motorcycles, e-bikes and golfcarts) and motor vehicle parts and components:
- Body panel stamping
- Engines, transmissions, and transaxle
- Large injection moulded parts
- Bumpers; instrument panel; door trims; center console; grill; wheel house finisher; lamps; shock absorber; wiper motor/blade; engine mounts; electric power steering; combination meter; instrument cluster; chassis & sub-frame; interior finishing; switches; seat mechanism; retractable seat belts; window regulator; constant velocity joints/ transmission; aluminum radiators; plastic fuel tanks; fuel pumps; brake system and components; evaporators and condensers; relays; flame laminated automotive fabric; door & rear view mirrors; automotive glass; engine parts & assembly; and transmission parts & assembly
- Controller assembly, motor, and battery (other than lead acid) for electric vehicle
b. Shipbuilding including parts and components
c. Aerospace parts and components
d. Chemicals
- Oleo-chemicals
- Petrochemicals and derivatives
- Chlor-Alkali Plants
e. Virgin paper pulp f. Copper wires and copper wire rods g. Basic iron and steel products, steel grinding balls, long steel products (billets and reinforcing steel bars), and at hot/cold-rolled products
f. Tool and Die
- Simple, Compound and Progressive Dies for metal stamping or metal forging
- Molds for die casting, for plastic injection or blow molding, glass blow molding, forging, encapsulation molds
- Jigs and fixtures for metal cutting and metal forging
a. Commercial production
- Simple, Compound and Progressive Dies for metal stamping or metal forging
- Molds for die casting, for plastic injection or blow molding, glass blow molding, forging, encapsulation molds
- Jigs and fixtures for metal cutting and metal forging
b. Commercial processing
- Extraction of higher value substances from agricultural and forest-based raw materials through bioprocessing;
- Conversion of agricultural and fishery products, their by-products and wastes, to a form ready for further processing or final consumption.
c. Production of animal and aqua feeds excluding those for game animals, fowls and other species for pet/leisure purposes
d. Production of fertilizers and pesticides
e. Modernization of sugar mills
f. Mechanized agriculture support services, e.g. harvesting, plowing, and spraying/dusting
g. Agriculture support infrastructures, e.g. facilities for drying, cold chain storage, blast freezing, bulk handling and storage; packing houses, trading centers, ice plants in Less Developed Areas, AAA slaughterhouses, AAA dressing plants
a. Integrated Circuit Design
b. CreativeIndustries/Knowledge-Based Services:
- Animation
- Software development
- Game development
- Health Information Management Systems
c. Ship repair
d. Charging stations for e-vehicles
e. Maintenance, Repair and Overhaul (MRO) of aircraft f
f. Industrial waste treatment
a. Exploration and development of energy resources (including energy crops or upstream biofuels)
b. Power generation plants
c. Ancillary services
a. Airports and seaports (includes RO-RO ports) for cargo and passenger
b. Air, land and water transport (Limited to brand new ships, aircrafts, seaplanes, RO-RO, buses, boats, mass rail- limited to capital equipment incentive only)
c. LNG Storage and Regasification Facility
d. Bulk water treatment and supply
II. Export Activities
- Production and manufacture of export products
- Service Exports
- Activities in support of exporters
III. Special Laws
- Industrial Tree Plantation (P.D. 705)
- Mining (R.A. 7942) (limited to capital equipment incentive)
- Publication or Printing of Books/Textbooks (R.A. 8047)
- Refining, Storage, Marketing and Distribution of Petroleum Products (R.A. 8479)
- Rehabilitation, Self-Development and Self-Reliance of Persons with Disability (R.A. 7277)
- Renewable Energy (R.A. 9513)
- Tourism (R.A. 9593)
IV. ARMM List
The ARMM List covers priority activities that have been identified by the Regional Board of Investments of the ARMM (RBOI-ARMM)in accordance with E.O. No. 458. The RBOI- ARMM may also register and administer incentives to activities in this IPP for project locating in the ARMM.
1. Export Trader and Service Exporters
2. Support Activities for Exporters
This covers the production of processed foods (production of “Halal” meat and foods), vegetable oils, food crops, integrated coconut processing and plantation, activated carbon, production of beverage crops and plantation, seaweeds production and processing, fruit processing, aquaculture (fish production and processing), young/ sweet corn production, potato and sweet potato plantation/processing, cut flower production/processing, abaca plantation/ processing, oil palm plantation/processing/ refining and germinated oil palm seeds, feeds production, sugarcane plantation/ processing and refineries, quality seeds and seedlings of fruit trees and other planting materials propagated asexually or by tissue culture, pearl culture/processing, production of livestock and poultry that includes processing, crocodile farming and processing, sericulture, feeds production and production of plantation crops and other pharmaceuticals, medical herbs/ essential oil plants, biomass, rubber, carrageenan, mangosteen and moringa.
This covers the production of pharmaceuticals such as antibiotics and medical devices, textile and textile products, inorganic and organic fertilizers using solid waste materials, exploration and development of natural gas and mineral resources which includes small scale as defined under P. D. 1899 (but to exclude river beds in operations and processing of minerals such as beneficiation and other metallurgical methods) and cement production of at least 1.0 million MTPY capacity (clinker based).
This covers processing of rubber products to be integrated with plantation and leather products.
This covers public utilities with developmental route of the Five provinces and one city from ARMM and other adjacent cities and provinces such as common carriers, electric transmission/ distribution, electric motor vehicles and its parts and components, water supply facilities/waterways and sewerage systems, buses/cargo trucks, other specialized mass transport systems, power generation like hydro power, geothermal and natural gas, and telecommunications with international gateways.
This covers the following activities: common centers to include testing and quality control laboratories, training and demonstration centers, tool shops and similar facilities, metal casting, metal working, furniture, ceramics and food processing, petrochemical complex and industrial gases.
This covers engineering products, electronics and telecommunication products, fabrication of construction materials and hydro power plants.
This covers shipping of cargoes (air, sea and land) and forwarders.
This covers enterprises located or have their base of operation in the BIMP – EAGA, namely, Brunei; Sabah and Sarawak in Malaysia; Malusu, Sulawesi, Kalimantan and Iringaya in Indonesia; and Mindanao and Palawan in the Philippines, who shall invest and engage in economic activity in the ARMM including SMEs.
This covers the establishment of tourism estate subject to guidelines developed jointly by RBOI- ARMM and the Department of Tourism – ARMM, tourist accommodation facilities, tourist transport facilities and development of retirement villages which shall include health and medical facilities including amenities required by the Philippine Retirement Authority (PRA) and subject to the guidelines to be approved by RBOI-ARMM in consultation with the PRA, the Department of Health (DOH), the Regional Planning and Development Office (RPDO) and other concerned agencies.
The ARMM has the lowest indication in the country regarding health and education as reflected in the Human Development Index. For this purpose, there is a need for incentives to be given to investors in the health and educational sectors such as putting – up of private hospitals, medical clinics, wellness centers, primary education, secondary education, tertiary education (colleges, universities and vocational - technical schools) and ancillary services including any and all health and education - related investments.
The MTPDP 2004 – 2010 provided that ARMM shall be the production and processing center for the Halal industry. ARMM being the only Muslim region in the country, has a comparative advantage in the Halal industry. Any Halal related business enterprises shall be covered. Halal refers to the permissible products and services under Islamic Law.
Activities Eligible for PEZA Registration and Incentives
- manufacturing, assembly or processing activity resulting in the exportation of at least 70% of production. (“Manufacturing / Processing” shall mean the process by which raw materials or semi-finished materials are converted into a new product through a change in their physical, mechanical or electro-magnetic characteristics and/or chemical properties. “Assembly” shall mean the process by which semi-finished parts or materials are put together or combined to form a distinct product without substantially changing its physical or mechanical characteristics or electro-magnetic and/or chemical properties.) Eligible firms shall qualify for registration as “Economic Zone Export Manufacturing Enterprise.”
IT service activities, of which 70% of total revenues is derived from clients abroad. (“IT Service Activities” are activities which involve the use of any IT software and/or system for value addition). Among the IT Service activities eligible for incentives are: IT-enabled services such as business process outsourcing, call centers, data encoding, transcribing and processing, etc.; software development and application, including programming and adaptation of system softwares and middlewares; for business, media, e-commerce, education, entertainment, etc.; content development for multi-media or internet purposes; and others. Eligible firms shall qualify for registration as “IT Enterprise.”
– establishment and operation within PEZA Tourism Special Economic Zones of sports and recreation centers, accommodation, convention, and cultural facilities and their special interest attraction activities / establishments, with foreign tourists as primary clientele. Eligible firms shall qualify for registration as “Tourism Economic Zone Locator Enterprise.”
– medical health services, endorsed by the Department of Health, with foreign patients as primary clientele. Eligible firms shall qualify for registration as “Medical Tourism Enterprise” in a Medical Tourism Special Economic Zone Park or Center.
– processing and or manufacturing of agricultural products resulting in the exportation of its production. (“Processing” shall mean the conversion of any agricultural and marine products from its raw state into intermediate or final product, which undergo physical and/or chemical change through mechanical and/or chemical process.) Eligible firms shall qualify for registration as “Agro-Industrial Economic Zone Export Enterprise.”
– specialized manufacturing of agricultural crops and eventual commercial processing which shall result in the production of clean energy such as bio-fuels and the like. Eligible firms shall qualify for registration as “Agro-Industrial Economic Zone Enterprise.”
- (a) operation of a warehouse facility for the storage, deposit, safekeeping of goods for PEZA-registered Economic Zone Export Manufacturing Enterprises, and or (b) importation or local sourcing of raw materials, semi-finished goods for resale to - or for packing / covering (including marking / labeling) cutting or altering to customers’ specification, mounting and/ or packaging into kits or marketable lots for subsequent sale to - PEZA-registered Export Manufacturing Enterprises for use in their export manufacturing activities, or for direct export, or for consignment to PEZA-registered Export Manufacturing Enterprises and eventual export. Eligible firms shall qualify for registration as “Economic Zone Logistics Services Enterprise.”
8.a. Manufacturing Economic Zone Development / Operation
- development, operation and maintenance of an economic zone for export manufacturing enterprises, inclusive of the required infrastructure, facilities and utilities such as light and power system, water supply and distribution system, sewerage and drainage system, pollution control devices, communication facilities, paved road network, administration building. Eligible firms shall qualify for registration as “Manufacturing Economic Zone Developer / Operator.”
8.b. IT Park Development / Operation
– development, operation and maintenance of an area as a complex capable of providing infrastructures and other support facilities required by IT Enterprises, as well as amenities required by professionals and workers involved in IT Enterprise, or easy access to such amenities. Eligible firms shall qualify for registration as “IT Park Developer / Operator.”
8.c. Tourism Economic Zone Development / Operation
– development, operation and maintenance of an integrated resort complex, with prescribed carrying capacities of tourist facilities and activities, such as but not limited to, sports and recreation centers, accommodations, convention and cultural facilities, food and beverage outlets, commercial establishments and other special interest and attraction activities / establishments, and provided with roads, water supply facilities, power distribution facilities, drainage and sewage systems and other necessary infrastructure and public utilities. Eligible firms shall qualify for registration as “Tourism Economic Zone Developer / Operator.”
8.d. Medical Tourism Economic Zone Development / Operation
– development, operation and maintenance of a Medical Tourism Park or Medical Tourism Center which are planned and designed in accordance with the standards of the Department of Health and the Department of Tourism to have support facilities and services required for health and wellness, and provided with required infrastructure facilities and utilities. Eligible firms shall qualify for registration as “Medical Tourism Economic Zone Developer / Operator.”
8.e. Agro-Industrial Economic Zone Development / Operation
– development operation and maintenance of an agro-industrial economic zone planned and designed to have support facilities and services required for processing and agro-based manufacturing facilities, and provided with the required infrastructure facilities and utilities. Eligible firms shall qualify for registration as “Agro-Industrial Economic Zone Developer / Operator.”
8.f. Retirement Economic Zone Development /Operation
–development operation and maintenance of a Retirement Economic Zone Park or Center, planned and designed in accordance with the accreditation standards of the Philippine Retirement Authority, and provided with the required infrastructure facilities and utilities. Eligible firms shall qualify for registration as “Retirement Economic Zone Developer / Operator.”
9.a. Facilities for Manufacturing Enterprises
- construction as owner /operator of factory buildings inside a PEZA Special Economic Zone for lease to PEZA-registered Export Manufacturing Enterprises. Eligible firms shall qualify for registration as “Economic Zone Facilities Enterprise.”
9.b. Facilities for IT Enterprises
– construction as owner/operator of buildings and other facilities inside IT Parks which are leased to PEZA-registered IT Enterprises. Eligible firms shall qualify for registration as “IT Park Facilities Enterprise.”
9.c. Retirement Facilities
– establishment, operation and management of retirement facilities and other related activities, with foreign retirees as primary clientele, duly endorsed by the Philippine Retirement Authority, and located in a Retirement Economic Zone. Eligible firms shall qualify for registration as “Retirement Economic Zone Facilities Enterprise.”
– establishment, operation and maintenance of light and power systems, water supply and distribution systems inside Special Economic Zones. Eligible firms shall qualify for registration as “Economic Zone Utilities Enterprise.”
PEZA Incentives
Depending on the type of enterprise and business activity, an enterprise operating within an economic zone is entitled to incentives granted to PEZA-registered enterprises under relevant laws. These incentives generally include the following:
- Income tax holiday of four years for a non-pioneer project and six years for a pioneer project, or three years for an expansion project
- 5% special tax on gross income and exemption from all national and local taxes upon expiry of the income tax holiday
- Tax and duty free importation of raw materials, capital equipment, machinery and spare parts
- Tax credit on import substitution
- Exemption from wharfage dues and export tax, impost or fees
- Value-added tax (VAT) zero-rating of local purchases of goods and services
- Tax credits for exporters using local materials as inputs as provided by the Export Development Act of 1994
- Additional deduction for incremental labor and training expenses
- Simplified import-export procedures
- Employment of non-resident foreign nationals in supervisory, technical or advisory positions.
Tenth Foreign Investment Negative List (FINL)
In compliance to the Foreign Investment Act, Executive Order 184 otherwise referred to as 10th FINL was issued on May 29, 2015. In general, foreigners can invest up to 100% equity in corporations, partnerships and other entities in the Philippines, except in areas included in the Foreign Investments Negative List (FINL). The FINL lists investment areas and activities reserved to Filipino nationals where foreign investments are prohibited or limited to a certain percentage.
| List A: Foreign Ownership is Limited by Mandate of the Constitution and Specific Laws | List B: Foreign Ownership is Limited for Reasons of Security, Defense, Risk to Health & Morals & Protection of Small & Medium Scale Enterprises | |
|---|---|---|
| No Foreign Equity
1. Mass media except recording |
Up to 20% Foreign Equity 12. Private radio communications networkUp to 25% Foreign Equity 13. Private recruitment, whether for local or overseas employment 14. Contracts for the construction & repair of locally-funded public works except: a. Infrastructure / development projects covered in RA 7718; b. Projects which are foreign funded or assisted and required to undergo international competitive bidding 15. Contracts for the construction of defense- related structuresUp to 50% Foreign Equity 16. AdvertisingUp to 40% Foreign Equity 17. Exploration, development, & utilization of natural resources 18. Ownership of private lands 19. Operation of public utilities 20. Educational institutions other than those established by religious groups and mission boards 21. Culture, production, milling, processing, trading except retailing of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof. 22. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation 23. Facility operator of an infrastructure or a development facility requiring a public utility franchise 24. Operation of deep sea commercial fishing vessels 25. Adjustment companies 26. Ownership of condominium units |
Up to 40% Foreign Equity Up to 40% Foreign Equity |
OPTIONS FOR ENTRY
| DOMESTIC CORPORATION | SUBSIDIARY | BRANCH | REPRESENTATIVE OFFICE |
|---|---|---|---|
| • A stock or non-stock corporation organized under Philippine laws | • Deemed a domestic corporation even if majority of its capital stock is foreign-owned. | • Corporations organized and registered under the laws of any foreign country | • Corporation organized under the laws of any foreign country • Undertakes activities such as but not limited to information dissemination & promotion of the company’s products as well as quality control of products |
• Has its own identity | • Has a legal and juridical personality separate and distinct from its parent company • Liability or exposure of parent company is limited to its investment in, or subscription to, the capital stock of the subsidiary |
• Mere extension of the legal and juridical personality of the foreign head office and carries out the business and activities of the head office | • Deals directly with the clients of the parent company but does not derive income from the host country | • Has no subscription from the mother company | • Shares/stocks are held by the mother company abroad • Assets and properties of parent company are not directly exposed to potential liabilities of the subsidiary |
• Does not exist independently of the head office • Assets and properties of the foreign head office may be exposed to the liabilities of the branch |
• Fully subsidized by its head office | • Minimum of P 5,000 paid up capital | • At least US $200,000 (if not for export) • Can be reduced to US $100,000 if 1.) activity involves advanced technology 2.) employ at least 50 direct employees • P5,000 minimum paid up capital if for export |
• At least US $200,000 (if not for export) • Can be reduced to US $100,000 if 1.) activity involves advanced technology 2.) employ at least 50 direct employees • P5,000 minimum paid up capital if for export |
Requires to inwardly remit US $30,000.00 (one time remittance) for its operating expenses | • 100% Filipino-owned OR • With foreign equity participation of 40% more or less |
• At least 51% owned by parent company | • 100% wholly-owned by the parent company | • 100% wholly-owned by the parent company |
| Regional Headquarters (RHQ) | Regional Operating Headquarters (ROHQ) |
|---|---|
| • Any business entity formed, organized and existing under the laws of any foreign country that is engaged in international trade | • Any business entity formed, organized and existing under the laws of any foreign country that is engaged in international trade |
| • Principally serves as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the APAC and other foreign markets | • Performs qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the APAC and in other foreign markets |
| • Does not earn or derive • income in the Philippines |
• Derives income from undertaking the following qualifying services - General administration & planning; - Business planning & Coordination; - Sourcing/procurement of raw materials and components; - Corporate finance advisory services; - Marketing control & sales promotion; - Training & personnel management; - Logistics services; - Research &development services, product development; - Technical support & maintenance; - Data processing &communication; - Business development |
| • Minimum remittance of US $50,000 annually | • Minimum inward remittance of US $200,000 (one-time only) |
INCENTIVES
| For RHQ | For ROHQ |
|---|---|
| No income tax since it does not derive income | Subject to preferential income tax rate of 10% on taxable income |
| Exempt from 12% VAT (sale or lease of goods and property and the rendition of services to regional or area headquarters) | Subject to 12% VAT |
| INCENTIVES FOR BOTH RHQ AND ROHQ |
|---|
| Exemption from all kinds of local taxes, fees or charges imposed by the LGU except for real property tax on land improvements and equipment |
| Tax and duty-free importation of training materials and equipment |
| Tax and duty-free importation of training materials and equipment |
| Multiple Entry Visa for expatriates valid for three years including spouse and unmarried children below 21 years old |
| Exemption from securing ACR / ECC /AEP |
| Travel tax exemption for personnel of RHQ / ROHQ |
| Withholding tax of 15% on compensation income (Only foreign expatriates or Filipino personnel of equivalent position with an annual income not lower than P975,000 ) |
| Privilege to import brand new motor vehicles subject to tax and duty |
Source: Board of Investments
TRADE AND INVESTMENTS
In 2014, the Philippines Gross National Income (GNI) registered at 5.8% from the previous 7.5% and a Gross Domestic Product (GDP) of 6.1% from the previous 7.5%. On the supply side, the service sector accounted for 56.55% followed by the industry at 33.43%, and agriculture, hunting, forestry and fishing at 10.01%.
Gross Value Added In Services & Industry in USD Million (2014)
| Industry/ Industry Group | At Current Prices | Growth Rate | At Constant Prices | Growth Rate |
|---|---|---|---|---|
| Service Sector | 7, 245, 708 | 9.0% | 4, 051, 499 | 5.9% |
| a. Transportation, Storage, & Communication | 783, 492 | 7.6% | 536, 562 | 6.2% |
| b. Trade & Repair of Motor Vehicles, Motorcycles, Personal & Household Goods | 2, 243, 270 | 8.4% | 1, 184, 994 | 5.7% |
| c. Financial Intermediation | 988, 894 | 11.7% | 515, 484 | 7.2% |
| d. Real Estate, Renting, & Business Activity | 1, 553, 387 | 13.0% | 803, 241 | 8.7% |
| e. Public Administration & Defense; Compulsory Social Security | 503, 110 | 3.5% | 292, 441 | 3.6% |
| f. Other services | 1, 173, 555 | 6.1% | 718, 777 | 3.3% |
| Industry Sector | 3, 968, 897 | 10.4% | 2, 394, 694 | 7.9% |
| a. Mining & Quarrying | 125, 390 | 8.6% | 76, 474 | 4.9% |
| b. Manufacturing | 2, 603, 644 | 10.5% | 1, 666, 514 | 8.3% |
| c. Construction | 828, 161 | 13.9% | 422, 150 | 9.9% |
| d. Electricity, Gas, & Water Supply | 411, 702 | 3.6% | 229, 555 | 2.8% |
Source: Philippine Statistics Authority
On the demand side, economic activity was driven by household consumption that increased at a rate of 5.4% followed by a strong fixed capital formation and government spending. Total external trade reached USD 127.500 billion for which exports registered at USD 62.102 billion while imports at USD 65.398 billion resulting to a USD 3.296 deficit in the balance of trade.
| Top Philippine Import Groups (2014) | Top Philippine Export Groups (2014) |
|---|---|
| 1. Electronic Products (23.4%) | 1. Electronic Products (43.1%) |
| 2. Mineral Fuels, Lubricants, & Related Materials (20.2%) | 2. Other Manufactures (8.2%) |
| 3. Transport Equipment (9.5%) | 3. Machinery & Transport Equipment (6.4%) |
| 4. Industrial Machinery & Equipment (5.0%) | 4. Woodcrafts & Furniture (5.4%) |
| 5. Other Food & Live Animals (3.4%) | 5. Other Mineral Products (4.3%) |
European Union Trade with the Philippines
External trade relations of the Philippines with member countries of the European Union (EU) in 2014 amounted to USD 14.332 billion or 11.2% share of the total trade of the Philippines. Japan (USD 19.154 billion) is the top trading partner of the Philippines followed by the Peoples Republic of China (USD 18.337 billion), and the United States of America (USD 14. 399 billion). EU used to be the fourth largest partner of the Philippines in 2013 but the spot is currently occupied by Singapore with trade amounting to USD 9.043 billion.
Within the EU member countries, Germany ranked first with a total trade of USD 5.375 billion. Revenue from exports totaled USD 2.657 billion and imports at USD 2.718 billion respectively.
Major goods exported to the EU countries were electronic products at USD 4.083 billion; coconut oil (crude and refined) at USD 450.56 million; other manufactures at USD 439.86 million; machinery and transport equipment at USD 245.40 million; and articles of apparel at USD 211.09 million.
Top five imports on the other hand were transport equipment at USD 2.212 billion; electronic products at USD 2.113 billion; industrial machinery and equipment at USD 523.66 million; medical and pharmaceutical products at USD 440.52 million; and other food and live animals at USD 342.74 million.
Major Philippine Exports to EU In % (2014)
Major Philippine Exports to EU In % (2014)
Nordic Trade with the Philippines
Total external trade relations of the Philippines with the Nordic region composed of Denmark, Finland, Iceland, Norway, and Sweden reached € 502.692 million in 2014. The Nordic countries exports to the Philippines totaled € 314.395 million led by Finland with € 104.67 million and followed by Sweden with € 83.003 million. Imports on the other hand was € 188.297 million primarily driven by Sweden and Finland.
Most exports and imports materials are electrical and electronic equipment; machinery, nuclear reactors, and boilers; pharmaceutical products; optical, photo, technical, and medical apparatuses; lac gums, resins, vegetable saps and extracts; and articles of apparel, accessories, knit or crochet.
Countries
2014 Exports (In Euro)
2014 Imports (In Euro)
Denmark
Total: € 120.487Mn
Exports: € 91.691Mn
Imports: € 28.787Mn
- Pharmaceutical products (21.265Mn)
- Machinery, nuclear reactors, boilers, etc.(12.393Mn)
- Meat & edible meat offal (10.653Mn)
- Optical, photo, technical, medical, etc. apparatus (7.037Mn)
- Electrical, electronic equipment (6.224Mn)
- Lac, gums, resins, vegetable saps & extracts (7.940Mn)
- Electrical, electronic equipment (4.266Mn)
- Optical, photo, technical, medical, etc. apparatus (4.169Mn)
- Machinery, nuclear reactors, boilers, etc. (2.149Mn)
- Articles of apparel, accessories, knit or crochet (1.189Mn)
Finland
Total: € 141.232Mn
Exports: € 104.670Mn
Imports: € 36.562Mn
- Electrical, electronic equipment (40.947Mn)
- Paper & paperboard, articles of pulp (37.318Mn)
- Machinery, nuclear reactors, boilers, etc. (9.521Mn)
- Optical, photo, technical, medical, etc. apparatus (4.386Mn)
- Miscellaneous chemical products (2.928Mn)
- Machinery, nuclear reactors, boilers, etc. (24.138Mn)
- Electrical, electronic equipment (3.257Mn)
- Optical, photo, technical, medical, etc. apparatus (2.699Mn)
- Meat, fish, & seafood (1.930Mn)
- Articles of apparel, accessories, knit or crochet (0.515Mn)
Iceland
Total: € 0.996Mn
Exports: € 0.616 Mn
Imports: € 0.38 Mn
- Machinery, nuclear reactors, boilers etc. (0.346 Mn)
- Articles of iron or steel (0.090 Mn)
- Miscellaneous chemical products (0.047 Mn)
- Pharmaceutical products (0.044 Mn)
- Tools, implements, cutlery, etc. of base metal (0.036 Mn)
- Lac, gums, resins, vegetable saps, & extracts (0.018 Mn)
- Wood & articles of wood, wood charcoal (0.005 Mn)
- Toys, games, sports requisites (0.005 Mn)
- Clocks & watches & parts thereof (0.005 Mn)
- Plastics & articles thereof (0.002 Mn)
Norway
Total: € 43.583 Mn
Exports: € 34.415 Mn
Imports: € 9.168 Mn
- Fertilizers (11.788 Mn)
- Fish, crustaceans, mollusks, aquatic invertebrates (8.968 Mn)
- Plastics & articles thereof (6.588 Mn)
- Machinery, nuclear reactors, boilers, etc. (1.477 Mn)
- Organic chemicals (0.884 Mn)
- Electrical, electronic equipment (2.215 Mn)
- Fish, crustaceans, mollusks, aquatic invertebrates (0.925 Mn)
- Aluminum & articles thereof (0.740 Mn)
- Articles of leather, animal gut, harness, travel goods (0.601 Mn)
- Edible fruit, nuts, peel of citrus, melons (0.580 Mn)
Sweden
Total: € 196.403 Mn
Exports: € 83.003 Mn
Imports: € 113.400Mn
- Machinery, nuclear reactors, boilers, etc. (18.978 Mn)
- Electrical, electronic equipment (16.706 Mn)
- Printed books, newspapers, pictures, etc. (13, 574 Mn)
- Paper & paperboard, articles of pulp, paper & board (13.338 Mn)
- Pharmaceutical products (6.313 Mn)
- Electrical, electronic equipment (99.668 Mn)
- Edible fruit, nuts, peel of citrus fruit, melons (2.901 Mn)
- Tobacco and manufactured tobacco substitutes (1.734 Mn)
- Machinery, nuclear reactors, boilers, etc. (1.145 Mn)
- Soaps, lubricants, waxes, candles, modeling pastes (1.110 Mn)
Source: ITC Trade Map
Baltic Trade with the Philippines
The Baltic countries of Estonia, Latvia, and Lithuania total trade with the Philippines reached € 12.348 million in 2014. Total exports amounted to € 4.242 million with Lithuania’s sugar commodity contributing 85.27% or € 3.617 million. Total imports was € 8.106 million primarily driven by Lithuania.
Commodities traded were mostly sugar and sugar confectionery; machinery, nuclear reactors, boilers; organic chemicals; electrical and electronic equipment; and lac gums, resins, vegetable saps and extracts.
Countries
2014 Exports (In Euro)
2014 Imports (In Euro)
Estonia
Total: € 2.524 Mn
Exports: € 0.445 Mn
Imports: € 2.079 Mn
- Miscellaneous edible preparations (0.339 Mn)
- Organic chemicals (0.080 Mn)
- Electrical, electronic equipment (0.014 Mn)
- Tanning, dyeing extracts, tannings, pigments, etc. (0.006 Mn)
- Optical, photo, technical, medical etc. apparatus (0.002 Mn)
- Electrical, electronic equipment (0.658 Mn)
- Lac, gums, resins, vegetables saps, and extracts (0.510 Mn)
- Miscellaneous chemical products (0.433 Mn)
- Footwear, gaiters and the like, parts thereof (0.178 Mn)
- Toys, games, sports requisites (0.074 Mn)
Latvia
Total: € 1.138Mn
Exports: € 0.180 Mn
Imports: € 0.958 Mn
- Machinery, nuclear reactors, boilers, etc. (0.065 Mn)
- Beverages, spirits, and vinegar (0.042 Mn)
- Vegetable textile fibers, paper yam, woven fabric (0.034 Mn)
- Optical, photo, technical, medical, etc. apparatus (0.021 Mn)
- Articles of iron or steel (0.016 Mn)
- Lac, gums, resins, vegetable saps and extracts (0.339 Mn)
- Optical, photo, technical, medical, etc. apparatus (0.0175 Mn)
- Electrical, electronic equipment (0.087 Mn)
- Vegetable, fruit, nut, etc. food preparations (0.086 Mn)
- Clocks and watches and parts thereof (0.068 Mn)
Lithuania
Total: € 8.686 Mn
Exports: € 3.617 Mn
Imports: € 5.069 Mn
- Sugars and sugar confectionery (3.617 Mn)
- Fertilizers (0.211 Mn)
- Optical, photo, technical, medical, etc. apparatus (0.179 Mn)
- Dairy products, eggs, honey, edible animal products (0.071 Mn)
- Cereal, flour, starch, milk preparations, and products (0.056 Mn)
- Rubber and articles thereof (3.004 Mn)
- Machinery, nuclear reactors, boilers, etc. (0.773 Mn)
- Lac, gums, resins, vegetable saps, and extracts (0.301 Mn)
- Electrical, electronic equipment (0.217 Mn)
- Optical photo, technical, medical, etc. apparatus (0.147 Mn)
Source: ITC Trade Map
OPPORTUNITIES
Considered to be the rising tiger of Asia after posting robust economic growth for the past five years backed by strong macroeconomic fundamentals, the Philippines aims to attract foreign investors on various sectors and industries. Investment opportunities are further boosted with government incentives on priority areas as identified in the IPP 2014-2016.
IT-BPM Industry
One of the most vibrant industriesin the Philippines is the Information Technology and Business Process Management (IT-BPM). Started emerging in 2000, the industry has significantly diversified its growth in the past two decades and has created employment opportunities to the predominantly English speaking young Filipinos. IT-BPM generated as much as USD 18.4 billion in revenues in 2014, which is 18.7% higher than the USD 15.5 billion growth in 2013. This figure represents 6% of the country’s total economic output in 2014 and generating at least 1.03 million direct employments. Absolutely on track with its forecasted revenue of USD 25 billion and 1.3 million direct employments in 2016.
The IT-BPM industry is characterized into voice and non-voice operations. It is recognized as the number one voice provider in the IT-BPO services worldwide catering to various functional and vertical areas of healthcare, engineering, banking, investments, financial services, and shipping, among others. On the other hand, the Philippines is the second highest non-voice provider in the world next only to India. Non-voice with complex services is rapidly growing in the country due to client satisfaction of the quality of voice services, higher demands, increasing market operations, availability of workforce, and the overall competitiveness of the Philippines.
Although most economic developments spurred by IT-BPM are concentrated in Metro Manila, the government with the private sector is encouraging businessmen to invest in the “Next Wave Cities” such as Baguio, Davao, Dumaguete, Ilo-ilo, Metro Bulacan, Metro Cavite, Metro Laguna, Metro Naga, and Metro Rizal to further cascade its economic benefits into the various regions of the country.
Likewise, the Philippine government through the Technical Education and Skills Development (TESDA) has provided funding and training for Filipinos wanting to specialize on animation, customer relationship management, software and game developments. A number of educational institutions have been identified to jointly craft a curriculum that fits the demands of the IT-BPM industry.
Renewable Energy Industry
With increased business activities due to robust economic growth and expanding population, the Philippine energy demands continue to be one of the priorities of the government. As of 2014, sources of power generation were primarily coal (33, 054 Gwh), natural gas (18, 690), geothermal (10, 308), hydropower (9, 137), and oil-based (5, 708) while wind, solar, and biomass accounted to merely 364 Gwh. However, due to climate change issues, emphasis on the development of renewable energy sources have been given considerable attention especially with the enactment of Republic Act 9523 otherwise referred to as the Renewable Energy Act of 2008.
Fiscal and non-fiscal incentives are introduced in order to increase geothermal capacity by 75%, hydropower capacity by 160%, additional 277 MW biomass power capacity, and develop the first ocean energy facility as provided for in the National Renewable Energy Roadmap.
Construction and Infrastructure Industry
This industry is expected to sustain its strong growth in the Philippine market largely attributed to private construction –residential and non-residential undertakings- and the rolling out of the administration’s flagship infrastructure projects under the Private-Public Partnership scheme or PPP as monitored by the PPP Center and the National Economic Development Authority (NEDA) chaired by no less than the President himself. By year-end, public and private sector construction activities is seen to reach Php. 1.7 trillion or estimated at 10.9% growth. Last year, the industry contributed 5.8 % at constant price to the Philippine economy and was responsible for 6.6% total employment as of October 2014.
The government through the Housing and Land Use Regulatory Board (HLURB) is targeting construction of one million housing units by end of 2016 with over 300 condominium projects in Metro Manila targeted as mid-market segment. BangkoSentralngPilipinas (BSP) has maintained stable monetary policy with overnight borrowing rates at approximately 4% in 2015 and estimated to be around 4. 25% in 2016.
As for PPP projects, there are eleven (11) major big-ticket infrastructure projects that have been awarded as of November 2015, which include the Php. 64.9 billion LRT Line 1 Cavite Extension and Operations and Management; Php. 55.51 billion Cavite-Laguna (CALA) Expressway; and the Php. 17.52 billion Mactan-Cebu International Airport Passenger Terminal Building, among others. There are also at least forty (40) other PPP projects under different stages of procurement and bidding that are in the pipeline of public infrastructure projects.
Despite the expected moderation of public construction after 2015 due to the upcoming 2016 elections and the change of national leadership, the infrastructure industry will continue to grow especially in the energy and utilities segments, which are forecasted to expand at an annual average of 7.6% between 2015 until 2019.
Healthcare Industry
The government through joint cooperation between the Department of Health (DOH) and Department of Science and Technology (DOST) has adopted the “Philippines e-Health Strategic Framework and Plan 2014-2020,”which would pave the pivotal infusion of Information and Communication Technologies (ICT) with medical services.
Healthcare spending in the Philippines is estimated at Php. 500 billion in 2013 with gross value added amounting to Php. 172.04 billion that increased at least 10% in 2014. Most people in the labor sector have access to health insurance for themselves and dependents, while majority of the Filipinos if not all, are members of the Philippine Health Insurance Corporation (PhilHealth).
With the e-health strategic plan, the Philippine government is expected to develop infrastructure for ICTs in health to promote equitable and affordable universal access, establish national centers for service improvements, upgrade medical equipment for state sponsored hospitals and health centers at the barangay levels, as well as implement national electronic public health information system.
A consortium of private organizations have established the Philippine Healthcare Initiative to look upon three PPP healthcare related projects, which include the Quality Management Framework on Healthcare Facilities, Human Touch Program for Nursing Homes, and the Development of the Geriatric Curriculum. Likewise, a segment of this industry called “medical tourism” has been gaining attraction especially from foreign retirees, which have been offered special visa arrangement by the Philippine government.
Manufacturing Industry
A key industry in the Philippine economy that comprised more than half of the country’s industrial sector and accounted at most 25% of its GDP is the manufacturing industries. The sector grew by 10.5% in 2013 and 8.1% in 2014. It seeks to achieve global competitiveness with forward and backward linkages with a total value added of 30% and 15% of total employment in 2025 under the so called “Manufacturing Resurgence Program” to which the government has allocated USD 1.5 million for its implementation. At the sub-sectoral level, all segments- consumer goods, intermediate and capital goods- had posted positive value added growth rates since 1990s.
Through the Department of Trade and Industry (DTI), the government in consultation with the various industry associations formulated a roadmap that will revive the manufacturing sector in the Philippines. From 2018-2021, it will shift to high value added activities, focus its investments in the core sectors, link and integrate manufacturing with agriculture and service industries, as well as create a manufacturing innovation ecosystem. In the long-run (2022-2025), the Philippines will continue to maintain globally competitive and innovative manufacturing industry with emphasis on electronics, automotive, food, machinery, garments, and establishing regional and global production networks.
In recent years, more foreign companies are availing the incentives provided in PEZA zones in the hope that the Philippines be the manufacturing hub in Southeast Asia in view of the ASEAN Economic Community. While labor costs are increasing rapidly in China, the Philippines remains a competitive market with minimum salary requirements and a strong government support from DOLE, PEZA, and DTI, among others.
CHALLENGES
Over the past few years, the Philippines have been improving in various competitiveness rankings most notably in the annual World Economic Forum- Global Competitiveness Report. As shown below, the country has gaining significant improvements compared to the rest of ASEAN.
Source: National Competitiveness Council
Out of 144 indicators, the Philippines now has 67 indicators ranked at the upper half of world rankings as shown in the National Competitiveness Council’s report in 2014. It has also registered positive upward trends in the Ease of Doing Business as published by the World Bank.
Economic Restrictions
The 1987 Constitution of the Philippines limits foreign participation in several industries of which majority shares must be owned by Filipinos. Take for instance Art. II, sec. 19 that mandates a “self-reliant and independent national economy effectively controlled by Filipinos,” which paves the way for several government regulations, laws, and orders that restrict foreign investors. For example, it allows only 40% foreign equity share in mining, agriculture, forestry, and transportation related undertaking while 0% foreign equity share in media. In response to this reality, the leadership of the 16th Congress has introduced Resolution of Both Houses 01, which would amend the constitution and gives congress the power to liberalize sectors, when the national interest so requires, if this resolution is carried and approved by the people through a plebiscite.
Infrastructure
Over the last ten years, the Philippines had underinvested in physical infrastructure that resulted to limiting its growth potentials with an average allocation of 2%-3% of its GDP. In the latest WEF survey, the country ranked below Singapore, Malaysia, Thailand, and Indonesia within ASEAN-6 in terms of infrastructure quality. Thus, challenges in airports, power, roads, seaports, and telecommunications are evident that affected the overall performance of the Philippines. However, the present administration has targeted to allocate at least 5% of its GDP for infrastructure pending through PPP scheme.
Bureaucracy
Due to repetitive, complex, and often conflicting orders and procedures of government agencies on business permits, licensing, entry approval, and an array of regulations, investments are delayed and foreign investors are discouraged. However, through the National Competitive Council (NCC) that tracks government performance and the newly establish Investment Ombudsman (IO), most government agencies are now mindful of redundant procedures and should act within a certain number of days. PEZA is an exception to this because it has often been cited by various private sector organizations as a government agency that stays true to its commitment of “No red tape, only Red Carpet.”
Corruption
Although corruption allegations are still pervasive, the Office of the Ombudsman and the Department of Justice have been very active in investigating and prosecuting public sector officials for corruption charges. In fact, the government’s swift actions have been recognized by independent international agencies such as Transparency International (TI) when it jumped from 129th spot in 2011 to 94th spot in 2013 making it the least corrupt country in Southeast Asia ahead of Indonesia, Thailand, and Vietnam.
Low Foreign Direct Investments
For the past decades, the Philippines has been lagging behind with its ASEAN-6 peers in terms of attracting foreign direct investments. This is largely due to regulatory restrictions in certain industries, ease of doing business, and many other factors including the aforementioned challenges. However, both public and private sectors are actively introducing policy reforms aimed at liberalizing the economy; the latest would be the enactment of the Philippine Competition Act under Republic Act 10667 approved on July 2015.
