Eissel J.

Malabanan
JD3- Special Tax laws
TAX INCENTIVES UNDER THE OMNIBUS
INVESTMENT CODE OF THE PHILIPPINES
Incentives available to a Board of Investment
(BOI) registered employee/corporation:

1. Tax Exemptions
a. Income Tax Holiday (ITH)

New projects with a pioneer status for

six(6) years;
New projects with a non-pioneer status
for (4) years;
Expansion projects for three (3) years,
limited
to
incremental
sales
revenue/volume as a general rule;
New or expansion projects in less
developed areas ("LDAs")3 for six (6)
years, regardless of status; and,
Modernization projects for three (3)
years, limited to incremental sales
revenue/volume, as a general rule.
The ITH is restricted with respect to
certain Export Traders and Mining
Activities
New registered pioneer and non-pioneer
enterprises and those located in LDAs
may avail themselves of a bonus year
subject to certain conditions

b. A registered enterprise with a bonded

manufacturing warehouse shall be exempt from
customs duties and national internal revenue
taxes
on
its
importation
of
required
supplies/spare parts for consigned equipment or
those imported with incentives. The privilege to
operate
a
bonded
manufacturing/trading
warehouse subject to Customs rules and
regulations.
c. 10-years exemption from wharfage dues and
export tax, duty, impost and fees for exports of
non-traditional export products.
d. For agricultural producers, 10-years
exemption from the payment of all taxes and
duties on their importation of breeding stocks
and genetic materials.
2. Tax Credits

a. For agricultural producers, 10-years tax credit

equivalent to one hundred percent (100%) of the
value of national internal revenue taxes and
customs duties on domestic breeding stocks and
genetic materials.
b. Tax credit equivalent to the national internal
revenue taxes and duties paid on raw materials,
supplies and semi-manufacture of export
products and forming part thereof.
3. Additional Deductions form Taxable Income
a. 5-years additional deduction for labor
expense, equivalent of fifty percent (50%) of the
wages of additional skilled and unskilled workers
in the direct labor force. This incentive shall be
granted only if the enterprise meets a prescribed
capital to labor ratio and shall not be availed
simultaneously with ITH.
b. Registered enterprises locating in LDAs or in
areas deficient in infrastructure, public utilities
and other facilities may deduct from taxable
income an amount equivalent to the expenses
incurred in the development of necessary and
major infrastructure works. This privilege is not
granted to mining and forestry-related projects.

4. Non-fiscal Incentives
a. Employment of foreign nationals in
supervisory, technical or advisory positions for
five (5) years from date of registration. The
position of president, general manager and
treasurer
of
foreign-owned
registered
enterprises or their equivalent shall however not
be subject to the foregoing limitations.
b. Simplification of customs producers for the
importation of equipment, spare parts, raw
materials and supplies and export of processed
products.
c. Importation of consigned equipment for a
period of 10 years from date of registration,
subject to posting of a re-export bond.

TAX
INCENTIVES
UNDER
REGISTERED ENTERPRISES

PEZA-

PEZA-registered enterprises located within the

economic zones administered by PEZA may
avail of the following incentives and benefits:

All incentives under E.O. 226 or the

Omnibus Investment Code of the
Philippines which includes ITH
Preferential final tax of five percent (5%)
of gross income in lieu of all national
and local taxes, after the ITH period;
(Alternatively, this incentive may be
waived by the registered enterprise
subject to the certain conditions.)
Tax and duty-free importation of capital
equipment, spare parts, raw materials
and supplies which are needed in the
registered activity; and
Tax credits for exporters using local
materials as inputs under R.A. 7844 or
the Export Development Act of 1994.
An amount equivalent to one half (1/2)
of the value of the training expenses
incurred in developing skilled or
unskilled labor or for managerial or other
management development programs
incurred by a PEZA firm can be
deducted
from
the
national
governments share of 3% of the tax.

Fiscal Incentives:

Income Tax Holiday (ITH) 100%

exemption from corporate income tax
4 years ITH for Non-pioneer Project
6 years ITH for Pioneer Project

ITH Extension years may be granted if Project

complies with the following criteria, (one criterion
is equivalent to one ITH extension year),
provided that the total ITH entitlement period
shall not exceed eight (8) years:

The average net foreign exchange

earnings of the project for the first three
(3) years of operations is at least
US$500,000.00 and,
The capital equipment to labor ratio of
the
project
does
not
exceed
US$10,000.00 to 1 for the year
immediately
preceding
the
ITH
extension year being applied for.

The average cost of indigenous raw

materials used in the manufacture of the
registered product is at least fifty per
cent (50%) of the total cost of raw
materials for the preceding years prior to
the ITH extension year.
3 years ITH for Expansion project (ITH
applies to incremental sales)
Upon expiry of the Income Tax Holiday
5% Special Tax on Gross Income and
exemption from all national and local
taxes (Gross Income refers to gross
sales or gross revenues derived from
the registered activity , net of sales
discounts, sales returns and allowances
and minus cost of sales or direct costs
but before any deduction is made for
administrative expenses or incidental
losses during a given taxable period)
Tax and duty free importation of raw
materials,
capital
equipment,
machineries and spare parts.
Exemption from wharfage dues and
export tax, impost or fees
VAT zero-rating of local purchases
subject to compliance with BIR and
PEZA requirements
Exemption from payment of any and all
local government imposts, fees, licenses
or taxes. However, while under Income
Tax Holiday, no exemption from real
estate tax, but machineries installed and
operated in the economic zone for
manufacturing,
processing
or
for
industrial purposes shall be exempt from
real estate taxes for the first three (3)
years of operation of such machineries.
Production equipment not attached to
real estate shall be exempt from real
property taxes
Exemption from expanded withholding
tax

Non-Fiscal Incentives:

Simplified Import Export Procedures

(Electronic Import Permit System and
Automated
Export
Documentation
System).
Non-resident Foreign Nationals may be
employed
by
PEZA-registered
Economic
Zone
Enterprises
in
supervisory, technical or advisory
positions.
Special Non-Immigrant Visa with
Multiple Entry Privileges for the following

non-resident Foreign Nationals in a

PEZA-registered
Economic
Zone:
Investor/s, officers, and employees in
supervisory, technical or advisory
position, and their spouses and
unmarried children under twenty-one
years of age. PEZA extends Visa
facilitation
assistance
to
foreign
nationals their spouses and dependents.

CORPORATIONS UNDER THE PEZA & BOI

Minimum corporate income tax (MCIT)

beginning on the 4 taxable year
immediately following the year in which
the corporation commenced its business
operations, when the MCIT is greater
than the RCIT - 2% of the gross income

Improperly accumulated earnings tax

(IAET). This is imposed when the
accumulated earnings of a corporation
are in excess of 100% of the paid up
capital.

The IAET does not apply to listed

corporations, banks and non-bank
financial
intermediaries,
insurance
companies, companies registered with
the Philippine Economic Zone Authority
(PEZA), or pursuant to the Bases
Conversion
Development
Authority
(BCDA), or other special economic
zones. - 10% of the improperly
accumulated taxable income.

SECTION 23. Fiscal Incentives. Business

establishments operating within the ECOZONES
shall be entitled to the fiscal incentives as
provided for under Presidential Decree No. 66,
the law creating the Export Processing Zone
Authority, or those provided under Book VI of
Executive Order No. 226, otherwise known as
the Omnibus Investment Code of 1987.
Furthermore, tax credits for exporters using local
materials as inputs shall enjoy the same benefits
provided for in the Export Development Act of
1994.
Population fifty percent (50%);

(1)

(2)
(25%); and
(3)
(25%)

Land area twenty-five percent

Equal sharing twenty-five percent

CORPORATE INCOME TAX

Domestic corporations (on all income

whether
from within or outside the Philippines)

Resident foreign corporations (on all

Philippine-sourced income)

Non-resident foreign corporations (on all

Philippine sourced income) - 30% of
gross income

Regular corporate income tax (RCIT)30% of taxable income

Benefits
enjoyed
companies are:

by

BOI

registered

Income tax holidays for 3-8 years

Exemption from local business taxes for
a 4-6 year period
An equity investment in a Philippine
corporation

Companies opting to register with BOI in the

Philippines must first comply with the
following requirements:

notarized application form

project
summary-contains
activities
related to those listed in the Investment
Priorities plan
feasibility
report-contains
projected
financial statements for the next five
years

PEZA, on the other hand, offers the broadest

set of incentives for export-oriented
enterprises
locating
within
identified
economic zones. These are:

Offshore profit remittances, this will not

be subject to remittance tax;
Income Tax Holiday for four (4) years for
Non-Pioneer IT Enterprises, or six (6)
years for Pioneer IT Enterprises;

After the ITH period, the option to pay a

special 5% tax on gross income earned,
in lieu of all national and local taxes,
except real property taxes on land
owned by developers;
Exemption from payment of import
duties and taxes on imported machinery
and equipment and raw materials;
Additional deduction equivalent to 50%
of training expenses, chargeable against
the 3% share of the national
government in the special 5% tax on
gross income;
Permanent resident status for foreign
investors with initial investments of US$
150,000.00 or more;
Special tax rate of 5% of gross income
(measured as sales less direct costs) in
lieu of all Philippine taxes after the ITH;
Exemption
from
Branch
Profit
Remittance tax for PEZA-registered
branches of foreign corporations; and
Other incentives, as determined by the
PEZA Board

Enterprises located in an ecozone, as well

as the developers and operators of the zone, are
entitled to these incentives available to BOIregistered enterprises, as well as to additional
incentives available under the Act. Ecozones are
essentially export-oriented. Enterprises located
inside the zones are required to export 100% of
their production but PEZA allows up to 30% of
production in the Philippine domestic market.
ADVANTAGES/DISADVANTAGES
One of the advantages of these being a
PEZA-registered economic zone enterprise is
you can benefit from some fiscal incentives
including Income Tax Holiday (ITH). This tax
holiday grants each enterprise with 100%
exemption from corporate income tax and can
be enjoyed for 4 to 6 years, depending on the
enterprise, the project, and/or the operations
involved.
Once the ITH has expired, a PEZA-registered
enterprise will only have to pay 5% Special Tax
on gross income (as specified by PEZA) and will
be exemption from all national and local taxes.
The enterprise can also take advantage of its
exemption from expanded withholding tax and
VAT- free local purchases.

Some enterprises are also exempted from

wharfage dues, imposts, export taxes, and/or
fees; payment for all local government imposts,
fees, licenses, permits, and/or taxes.
De Minimis benefits
De minimis benefits are perks of small
values offered by employers to their employees
on top of their basic compensation as a way of
promoting their health, satisfaction, or efficiency.
These benefits are advantageous to both the
employers (tax-wise) and the employees (salarywise). For the former, the amount of de minimis
is considered as a deductible salary expense,
which can be excluded from their gross income
while for the latter, the amount is added to their
salary without being taxed.
Among the redefined de minimis benefits are:
a) Private employees unavailed vacation leave
credits (10 days maximum) that are converted to
cash during the calendar year;
b) Cash conversions of sick and vacation leave
credits given to government employees and
officials;
c) Medical allowance for the employees
dependents, which is given in a form of cash not
exceeding P750 per employee per semester or
P125 per month;
d) P1,500 rice subsidy or one sack of rice (50
kg.) per month provided that the price per sack
e) Clothing allowance of not more than P5,000
per annum;
f) Actual medical assistance not exceeding
P10,000 per year;
g) Laundry allowance amounting to P300 or less
per month;
h) Gifts and awards to recognize employees
achievement, which shouldnt be given as cash
or gift certificate, but rather in a form of tangible
personal property with an annual monetary
value that wouldnt go beyond P10,000 and
should be awarded to employees under an
established written plan or contract;
i) Christmas or anniversary gifts which should
not go above P5,000 per employee per year);
j) Daily meal allowance of not more than 25% of
the regions basic minimum wage, given to
Again, these are two of the lawful ways to lessen
your tax burdens. The sooner you start taking
advantage of these, the more money you will
save in the long run. and employees who render
overtime work and those who work on
night/graveyard shift.