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OMNIBUS INVESTMENT CODE 0F 1987 AND FOREIGN INVESTMENT ACT OF 1991

OMNIBUS INVESTMENT CODE 0F 1987 AND FOREIGN INVESTMENT ACT OF 1991.

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OMNIBUS INVESTMENT CODE 0F 1987 AND FOREIGN INVESTMENT ACT OF 1991

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  1. OMNIBUS INVESTMENT CODE 0F 1987 AND FOREIGN INVESTMENT ACT OF 1991

  2. Republic Act 7042, also known as the Foreign Investments Act of 1991, was enacted to spell out the procedures and conditions under which non-Philippine nationals, including former Filipino citizens, who have not re-acquired nor retained their Philippine citizenship, may invest and do business in the Philippines with a required paid-in capital of at least US$200,000. The law was amended by Republic Act 8179 to further liberalize the entry of foreign investments into the country. • Foreign investments refer to equity investments made by a non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange. These non-cash assets may be in the form of capital goods and patents, formulae, or other technological rights or processes.

  3. SPECIFIC AREAS OF EQUAL INVESTMENT RIGHTS FOR FORMER FILIPINO NATIONALS • While most areas of business have limits for foreign investors, Section 9 of the amended Foreign Investments Act of 1991 lists the following types of businesses where former natural-born Filipinos, who have not elected dual citizenship, can enjoy the same investment rights as Philippine citizens: 1. Cooperatives 2. Rural banks 3. Thrift banks and private development banks 4. Financing companies

  4. Former natural-born Filipinos can also engage in activities under List B of the Foreign Investments Negative List. This means that their investments shall be treated as Filipino or will be considered as forming part of Filipino investments in activities closed or limited to foreign participation.

  5. The equal investment rights of former Filipino nationals do not extend to activities reserved by the Constitution for Filipino citizens, including the following: 1. Exercise of profession 2. Defense-related activities 3. Security agency 4. Small-scale mining 5. Rice and corn industry 6. Cockpit operation and management

  6. Former natural-born Filipinos have been given the right to be transferees of private land up to a maximum of 5,000 square meters in the case of urban land or three (3) hectares in the case of rural land to be used by him for business or other purposes. Please refer to the section on land ownership for details. • Former natural-born Filipinos who have elected dual citizenship shall not be covered by the prohibitions set forth above, by virtue of Republic Act 9225. Dual citizens are not prohibited from enjoying the same investments rights as Philippine citizens.

  7. General List of Businesses Exclusive to Filipino Nationals • Section 8 of the Amended Foreign Investments Act (FIA) enumerates the investment areas reserved for Filipino nationals. The Foreign Investments Negative Lists (FINL) are classified as follows: 1. List A - consists of areas of activities reserved for Philippine nationals where foreign equity participation in any domestic or export enterprise engaged in any activity listed therein shall be limited to a maximum of forty percent (40%) as prescribed by the Constitution and other specific laws. 2. List B - consists of areas of activities where foreign ownership is limited pursuant to law such as defense or law enforcement-related activities, or which have negative implications on public health and morals, and small and medium-sized domestic market enterprises with paid-in equity capital of less than US$200,000.

  8. The revised Foreign Investments Act also deleted List C of the Foreign Investments Negative List. List C contains investment areas already adequately served by existing enterprises and in which foreign investments need not be encouraged further. Deletion of this list is expected to open further the market to foreign investments and keep existing firms efficient and responsive to the needs of consumers. Consumers will also benefit through wider choices of products in terms of quality and prices.

  9. BENEFITS AND INCENTIVES ON TAXES AND TARIFFS Investment Priorities Plan (IPP) • The IPP is a list of various areas of economic activities for investment eligible for government incentives as provided for in the Omnibus Investments Code of 1987, as amended. This is drawn up and revised every year in consultation with concerned government agencies and the private sector. Generally, the IPP seeks to attain the following goals: 1. To uplift the material well-being of the poor and the marginalized 2. To enhance global competitiveness of Philippine industries 3. To ensure sustainable development 4. To take advantage of global and international developments

  10. An enterprise may still be entitled to incentives even if the activity is not listed in the IPP so long as: 1. at least 50% of production is for exports, if Filipino-owned enterprise; and 2. at least 70% of production is for exports, if majority foreign-owned enterprise (more than 40% foreign equity).

  11. Incentives to Registered Firms The Board of Investments, created under the 1987 Omnibus Investment Code of the Philippines (EO 226), is an attached agency of the Department of Trade and Industry and the lead investments promotion agency of the country. The BOI is mandated to promote investments into the country and to assist local and foreign investors in their start-up and continuing operations in the country. Investment Priorities Plan (IPP) • The IPP is an annual plan of priority industries and service areas that are encouraged through the grant of fiscal and non-fiscal incentives. The list of priority areas are drawn up based on extensive consultations with government agencies, foreign chambers, NGOs, and the private sector. It also takes into consideration the country’s economic thrusts and development plans, the current global realities, trends and markets, and the Philippine international engagements

  12. The IPP contains the following: • The Preferred Activities covers investment areas/activities that were identified to support the current priority programs of the government. • The Mandatory Inclusions covers all areas/activities where the inclusion in the IPP and/or the grant of incentives under EO 226 is mandated by law. • The Export Activities covers investments in non-traditional export products and services in support of exporters; and • The ARMM List covers priority areas that have been independently determined bythe Regional Board of Investments (RBOI) of the Autonomous Region of Muslim Mindanao (ARMM) in accordance with E.O. 458.

  13. Incentives to the BOI-Registered Enterprises • An enterprise registered with the BOI pursuant to the 1987 Omnibus Investments Code (EO 226) is entitled to the following incentives, among others, subject to BOI rules and regulations: Fiscal incentives 1. Income Tax Holiday (ITH) BOI registered enterprises shall be exempt from the payment of income taxes reckoned from the scheduled start of commercial operations as follows: • New projects with a pioneer status for six (6) years • New projects with a non-pioneer status for four (4) years • Expansion projects for three (3) years • New or expansion projects in less developed areas (LDAs) for six (6) years regardless of status • Modernization projects for three (3) years. As general rule, exemption is limited to incremental sales revenue/volume

  14. 2. Duty free importation of Capital Equipment For BOI-registered enterprises are imposed zero (0%) duty with corresponding 12% VAT until the effectivity of EO 528 on 2011. 3. Duty free importation of spare parts For BOI-registered enterprises are imposed zero (0%) duty with corresponding 12% VAT until the effectivity of EO 528 on 2011. 4. Exemption from taxes and duties on imported spare parts For export producers with customs bonded warehouse exporting at least 70% of production. 5. Exemption from wharfage dues and export tax, duty, impost and fees Exports of non-traditional export products are exempt from wharfage dues and any export tax, impost and fees.

  15. 6. Tax and duty free importation on breeding stocks and genetic materials 7. Tax Credits: a. Tax credit on duty portion of domestic breeding stocks and genetic materials b. Tax credit for taxes on raw materials 8. Additional deductions from taxable income a. Additional deduction for labor expense (ADLE) Available for the first five (5) years from registration, additional deduction from the taxable income equivalent to 50% of the wages of additional skilled and unskilled workers in the direct labor force. This additional deduction shall be doubled if the activity is located in an LDA. b. Additional deduction for necessary and major infrastructure works

  16. Non-Fiscal Incentives 1. Employment of foreign nationals. Foreign nationals may be employed in supervisory, technical or advisory positions within five (5) years from a project’s registration. 2. Simplification of customs procedures for the importation of equipment, spare parts, raw materials, and supplies and exports of processed products of registered enterprises in the operations of their bonded warehouses. 3. Unrestricted use of consigned equipment. No restrictions on the use of consigned equipment provided a re-export bond is posted. 4. Access to Bonded Manufacturing/Trading Warehouse System. Registered export-oriented enterprise shall have access to the utilization of the bonded warehousing system in all areas.

  17. Registration with the BOI To qualify for registration with the BOI, the enterprise’s proposed activity should be listed in the current IPP and should satisfy the following qualifications: a. Must be a Filipino citizen or Filipino-owned corporation • At least 60% of the capital stock (voting) is owned by Filipino • At least 60% of the members of the Board of Directors are Filipino If foreign-owned corporation • Must be engaged in a Pioneer Project (as defined in Art.17 of EO 226). The pioneer area it will engage in is one that is not within the activities reserved by the Constitution or other laws of the Philippines to Philippine citizens or corporations owned and controlled by the Philippine citizens. • Export at least 70% of its total production. • Must divest within 30 years from the date of registration to attain Filipino ownership, except if exporting 100% of total production. b. The applicant is proposing to engage in preferred areas of investment found in the current IPP, or if not listed, at least fifty percent (50%) of its production is for export.

  18. Approved Foreign Investments in the Philippines First Quarter 2015

  19. Total approved foreign investments (FI), Q1 2015 • Total foreign investments (FI)1 approved in the first quarter of 2015 by the seven investment promotion agencies (IPAs), namely: Board of Investments (BOI), Clark Development Corporation (CDC), Philippine Economic Zone Authority (PEZA), and Subic Bay Metropolitan Authority (SBMA) as well as Authority of the Freeport Area of Bataan (AFAB), BOI-Autonomous Region of Muslim Mindanao (BOI-ARMM), and Cagayan Economic Zone Authority (CEZA), amounted to PhP 21.8 billion, 41.7 percent lower compared to PhP 37.4 billion approved in the same period last year.

  20. Japan was the top investing country during the quarter at PhP 7.2 billion as it shared 32.8 percent of the total FI commitments. Korea and the United States of America (USA) occupied the second and third posts, pledging PhP 5.4 billion or 24.6 percent and PhP 1.7 billion or 7.7 percent, respectively, of the total FI approved in Q1 2015. • Manufacturing bested all other industries as it stands to receive 41.8 percent of total FI pledges or PhP 9.1 billion. Accommodation and food service activities came in second, with investment commitments valued at PhP 4.3 billion, contributing 19.9 percent, followed by administrative and support service activities at PhP 2.9 billion, with 13.1 percent share. • In terms of location, bulk of the approved foreign investments would be intended to finance projects in Region IVA – CALABARZON, amounting to PhP 9.1 billion or 41.9 percent. This is followed by Region III – Central Luzon at PhP 6.0 billion or 27.6 percent and National Capital Region at PhP 5.5 billion or 25.1 percent.

  21. Foreign direct investments in the Balance of Payments (BOP)2, January to February 2015 • Foreign direct investments (FDI) in the Balance of Payments (BOP) as compiled by the BangkoSentralngPilipinas (BSP) recorded net inflows of US$ 621.0 million in the first two months of 2015, down by 48.7 percent from US$ 1.2 billion recorded in same period last year. • In peso terms, FDI in the BOP for the first two months of 2015 posted a net inflow of PhP 27.6 billion, 49.3 percent lower than PhP 54.4 billion in the same period last year.

  22. Approved investments of foreign and Filipino nationals, Q1 2015 • Approved investments of foreign and Filipino nationals in the first quarter of 2015 went down by 10.1 percent, amounting to PhP 96.5 billion from PhP 107.4 billion registered in Q1 2014. Pledges from Filipino nationals stood at PhP 74.7 billion which accounted for 77.4 percent of the total approved investments during the quarter.

  23. Projected employment from approved investments of foreign and Filipino nationals, Q1 2015 • Foreign and Filipino ventures approved by the seven IPAs in the first quarter of 2015 are expected to generate 45,197 jobs, a decline of 6.8 percent from previous year’s projected employment. Out of these anticipated jobs, 53.0 percent or 23,932 jobs would come from projects with foreign interest.

  24. Approved investments of foreign and Filipino nationals in Information and Communications Technology (ICT), Q1 2015 • Total investment pledges in information and communications technology (ICT) of foreign and Filipino nationals in the first quarter of 2015 totaledPhP 8.8 billion, 57.2 percent higher than PhP 5.6 billion recorded in Q1 2014. Projects in ICT accounted for 9.1 percent of total approved investments of foreign and Filipino nationals during the quarter. • Filipino nationals was the major source of investment pledges in ICT for Q1 2015, committing 65.1 percent or PhP 5.7 billion worth of investments. It increased by almost more than four times the PhP 1.2 billion approved in Q1 2014. Foreign investments in ICT accounted for 14.1 percent of the total FI approved during the period.

  25. A. Approved foreign investments (FI) A.1 Total approved FI, Q1 2015 Total FI applications received and approved in the first quarter of 2015 by AFAB, BOI, BOI-ARMM, CDC, CEZA, PEZA, and SBMA decreased by 41.7 percent to PhP 21.8 billion from PhP 37.4 billion in Q1 2015 (Figure 1 and Part II – Tables 1a and 1b). • Figure 1 • Total Approved Foreign Investments • First Quarter, 2014 and 2015

  26. Among the investment promotion agencies (IPAs), CDC registered the highest increase in FI commitments, amounting to PhP 4.6 billion in Q1 2015 which is more than 12 times the PhP 358.6 million worth of pledges in Q1 2014. The only other IPA which marked an increase in investment pledges was CEZA, valued at PhP 88.6 million which is more than double the PhP 36.7 million in the same period last year. On the other hand, FI commitments from BOI, PEZA, and SBMA suffered double-digit declines by 49.2 percent, 31.2 percent, and 98.3 percent, respectively (Table A). Table A Total Approved FI by Investment Promotion Agency (in million pesos) First Quarter, 2014 and 2015

  27. The bulk of FI applications came from PEZA, cutting in 66.1 percent or PhP 14.4 billion of the total FI approvals in Q1 2015. CDC accounted for the second largest share of FI approvals, sharing 21.3 percent. BOI contributed 10.9 percent or PhP 2.4 billion while AFAB, CEZA, and SBMA jointly contributed 1.7 percent or PhP 378.3 million. Figure 2 Total Approved Foreign Investments (in billion pesos) First Quarter 1996 to First Quarter 2015

  28. A.2 Top prospective investing countries, Q1 2015 • For the first quarter of 2015, the top prospective investing countries include Japan, Korea, and the United States of America (USA). Japan topped the list, committing PhP 7.2 billion or 32.8 percent of the total FI applications for the quarter (Figure 3 and Part II - Table 2). Japan’s prospective ventures are mostly in manufacturing; electricity, gas, steam, and air conditioning supply; and real estate activities. • Korea and USA accounted for 24.6 percent or PhP 5.4 billion, and 7.7 percent or PhP 1.7 billion, respectively. Majority of investment pledges from Korea were intended to finance projects in accommodation and food service activities, manufacturing, and real estate activities, while bulk of the FI from the USA were meant to fund projects in manufacturing, wholesale and retail trade; repair of motor vehicles and motorcycles, and administrative and support service activities.

  29. Figure 3 Total Approved FI by Country of Investor First Quarter 2015

  30. A.3 Top industries for approved foreign investments, Q1 2015 • The largest share of the investment pledges in the first quarter of 2015 were intended to finance projects in the manufacturing industry. The PhP 9.1 billion worth of investments committed or 41.8 percent of the total FI was committed to projects in manufacturing. The amount, however, was 67.1 percent lower compared to the previous year. Joining manufacturing sector among the top recipients of approved FI are accommodation and food service activities with 19.9 percent or PhP 4.3 billion, followed by administrative and support service activities at PhP 2.9 billion or 13.1 percent (Figure 4, Table B and Part II – Table 3). Figure 4 Total Approved FI by Industry First Quarter 2015

  31. Pros and cons of foreign direct investment • What is foreign direct investment? Foreign direct investment (FDI) occurs when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intent to manage the asset. FDI is undertaken predominantly by transnational or multinational corporations (TNCs or MNCs).

  32. Pre‑1970s FDI perception in developing countries Prior to the 1970s, FDI and, hence, TNCs were seen by developing economies as part of a problem to development, to be solved by minimising the role of TNCs. They were perceived by developing country politicians and development economist as an unnecessary evil that: • made huge profits, • imported obsolete technology, • introduced unfavourable balance of payments, • was a neo‑colonial vehicle, • milked the developing economies through transfer pricing, and • introduced a dependencia syndrome which eroded their self‑reliance. The policy strategy in developing countries revolved around home industry protection through import‑substitution, which was later replaced by export‑promotion when the domestic markets got saturated.

  33. FDI intensity drivers FDI activity started to intensify in 1973 particularly in the developed countries. This intensity was partly in response to the formation of the European Community (EC) whose membership increased to 9 in 1973. FDI was defensive in nature, aimed at accessing the market and, hence jumping the anticipated tariffs concomitant with the formation of the EC. In the 1970s substantial FDI was also directed to the major oil producing countries because of the booming oil industry (resulting from the 1973 and 1979 oil crises). Not surprisingly, countries including the Netherlands, United Kingdom (UK) and the US, which are home to major petroleum TNCs led outflows

  34. FDI and economic growth The Southeast Asian economies witnessed unprecedented and sustained high rates of economic growth (for more than two decades) most notably with substantial involvement of FDI in the post‑ 1985 period. This provided as empirical evidence of the link between FDI and economic growth.

  35. Many of the growth promoting factors were identified to form the foundation of the key positive spillover effects of FDI including: • new technology transfers, • capital formation, • human resources development, • employment creation, • tax payments, • expanded international trade, • clean technologies, and • modern environmental management systems. The Southeast Asian experience acted as a turning point, which made other developing countries to recognise that FDI can provide a package of external resources that can contribute to economic development. They changed their attitude and considered FDI as part of the solution to their economic development.

  36. What is the truth about FDI/TNCs? FDI (like GMOs – although certain scientists don’t want to accept the fact) offers a mixture of positive and negative effects. The onus is then upon the host country to disentangle these effects, and take measures that maximise the positives but minimise (or eliminate) the negatives. In addition the TNCs’ benefits come as spillovers rather than deliberate strategies.

  37. Benefits to the nation As stated above FDI can stimulate economic growth through the creation of dynamic comparative advantages that lead to: • new technology transfers - the companies bring along machinery, equipment and production and marketing processes which although obsolete in the home country could contain what constitutes new technology in the host country. The local employees learn this new technology. • capital formation - the companies have to invest in machinery, property etc – they have no choice - additional employment can occur in the supply chain if local suppliers are used • human resources development - the companies train local employees to improve their productivity-productivity increases output per employee and increases profitability

  38. employment creation - the companies employ some local people because their wages are under‑priced relative to their productivity – reduced overall costs and increases profitability - additional employment can occur in the supply chain if local suppliers are used • tax payments - the companies have to pay taxes – they have no choice - additional taxes can occur in the supply chain if local suppliers are used • expanded international trade, - the companies have to export due to limited domestic market – they have no choice • clean technologies - same as new technology transfer but questionable • modern environmental management systems - same as new technology transfer but questionable The extent to which this spillover process can be enhanced depends to some extent upon the degree of the linkages the TNCs have within the host country.

  39. Negative impact on local people • Environmental issues (eg Shell in Niger Delta, Nigeria) - Developing countries may be desperate to achieve projected economic growth rates and securing FDI, and in the process accept to undertake environmentally risky activities. - TNCs may not be willing to pursue environmental‑friendly policies in host developing countries unless they are put under considerable pressure. - TNCs may pursue a deliberate strategy of shifting the location of their pollution‑intensive production in response to lax environmental standards. - TNCs’ imported technology may be vintage and therefore, environmental‑unfriendly. - Developing countries may simply lack the resources and technical expertise to inspect, monitor and enforce appropriate environmental legislation.

  40. Worker exploitation - TNCs may suppress unions to hold down wages, benefits, and labour standard – case of South Africa - Working conditions in some sub‑contracted factories are harsh, atrocious and detrimental to their health – recent case in Bangladesh • Economy - TNCs can use their transfer pricing to their own benefit, affecting the amount of profit reported in the host country, which in turn affects the tax revenue of the host country. - Profits are returned to the shareholders, very little of the money remains in the host countries.

  41. Local firms - The presence of TNCs in a host country may conflict with building strong national firms. - TNCs may force local competitors out of business through predatory practices. - In a sub‑contracting relationship, it is more often the case that supplying firms stay at the bottom of the technology ladder. This deters technological enhancement in the domestic firms. - TNCs may not use the local supply chain after driving out local competitors. • Employment - Negative multiplier effect if TNCs close their production or force local companies out of business or do not use the local supply chain

  42. WHY INVEST IN THE PHILIPPINES The Philippine Advantage Magical 10 Indicators of a Growing Philippine Economy Your Window to Infinite Opportunities Investment Promotion Group (IPG) International Marketing Department (IMD) Domestic Marketing Department (DMD) Investment Servicing Group (ISG) Business One-Stop Shop Action Center (BOSSAC) Investments Assistance and Services Department (IASD) BOI Extension Office (BEO)

  43. The Philippine Advantage

  44. Rich Talent Pool Our Professionals are: • Highly Educated • English Proficient • Strongly Customer Service Oriented • Highly Trainable • With Fast Learning Curve • Adaptable to Universal Cultures • High Level of Commitment and Loyalty • We produce over 470,000 college graduates per year across a wide range of disciplines. • IT/Computer Sciences/Engineering-more than 100,000 college graduates per year • In the business field- more than 110,000 graduates per year, • In the medical field – more than 73,000.

  45. Robust Infrastructure • 9 international airport and 20 domestic airports, • 3 connecting railways which span across the Metro, and 12 roll on/roll off ports • Newly constructed roads such as the 94-kilometer four lane Subic –Clark –Tarlac Expressway (SCTEX), the 84-kilometer North Luzon Expressway (NLEX), the 42-kilometer STAR Tollway and Cavite Expressway (CAVITEX)

  46. Strategic Business Location • The country’s location is a critical entry point to over 500 million people in the ASEAN Market and a natural gateway to the East-Asian economies. The country is likewise placed at the crossroads of international shipping and airlines. •Within Asia, the Philippines is reachable within 3 to 4 hours by plane.

  47. First-Class Lifestyle • Second home to expatriates who enjoy the company of the warmest people in the region, the country’s openness to varied cultures and a decidedly global outlook. Accessible and affordable luxuries –value for money housing, modern recreational facilities, first rate educational institutions adopting international standards, business centers, hospitals, etc. •A growing favorite tourist destination, as evidenced by the steadily increasing tourist arrivals.

  48. Attractive Investment Incentives:

  49. Magical 10 Indicators of a Growing PH Economy • Vibrant Capital Market • All Time High Economic Growth • Record Inflow of OFW Remittance • Resilient, Strong and Effectively Diversified Exports • Growing Investments • Robust Domestic Financial Sector • Revenue Collections at Double Digit Growth • Improving Global Competitiveness Ranking • Dynamic People • Strengthened Governance and Anti-Corruption Measures

  50. 1. Vibrant Market Highlights

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