Income Tax Holiday

Pioneer enterprises and enterprises registered in less developed areas are entitled
to an income tax holiday for their first six years of operations, extendible by up to
two years if certain conditions are met.
Non-pioneer enterprises are entitled to an income tax holiday for their first four
years of operations, extendible by up to three years if certain conditions are met.
Registered expanding export-oriented firms are granted a three-year income tax
holiday.
To encourage the regional dispersal of industry, however, projects located in the
Metro Manila area are generally not granted an income tax holiday benefit.

The initial years of entitlement to an income tax holiday are guaranteed in the Specific
Terms and Conditions attached to the enterprises certificate of registration with the
BOI. Any annual extension of the income tax holiday will, however, depend on the
companys compliance with certain conditions.
Other tax incentives

Subject to certain conditions being met, the importation of spare parts by export
producers operating a customs bonded warehouse and exporting at least 70% of
their production will be exempt from taxes and duties.
Subject to certain conditions being met, the importation of breeding stocks and
genetic materials will be exempt from taxes and duties for the first ten years of
operation. If breeding stocks and genetic materials are locally sourced, there may
be an entitlement to a tax credit for the amount of taxes and duties that would
have been waived had they been imported.
Enterprises registered in less developed areas may deduct from their taxable
income the cost of constructing necessary and major infrastructure and public
facilities. Any amount that cannot be deducted fully in the year incurred may be
carried forward and offset in a future year up to the tenth year of operations. Title
to the infrastructure works will, however, be transferred to the Philippine
government upon completion.
For the first five years from registration, a registered enterprise is allowed an
additional deduction from taxable income equivalent to 50% of the wages of
additional skilled and unskilled workers in the direct labor force, subject to
meeting a prescribed capital to labor ratio. This incentive cannot be used by
enterprises enjoying an income tax holiday.
Pioneer enterprises registered with the BOI are exempt from the payment of local
business tax for a period of six years, while registered non-pioneer enterprises are
exempt for four years from the time of their BOI registration.

Non-tax incentives
Access to the bonded manufacturing/trading warehouse system of registered
export-oriented enterprises, which can result in the deferral or elimination of
taxes and customs duties;
Customs bonded manufacturing warehouses are outside of the jurisdiction of the
Philippine Customs Territory and, thus, the raw materials and spare parts are
deemed not to have entered said territory and were never introduced into
Philippine commerce.
The generally unrestricted use of consigned equipment for a period of ten years
from date of registration;
Employment in general of foreign nationals for five years in supervisory,
technical, or advisory positions for five years from registration.

With regard to incentives, while the fiscal and non-fiscal incentives were preserved, the 2014 IPP
introduces some innovations, among which are the following:

1.

it offers incentives for business models that integrate low-income groups into the business as
producers, distributors, or employees;

2.
3.

income tax holidays are limited to projects that are not granted any government guarantee;
income tax holidays shall only be applicable to revenues on sales generated/services rendered
to other enterprises subject to the condition that 70% of the revenues are generated from non-related
entities;

4.

registered enterprises cannot claim incentives for backward integration projects even if these
are still connected to the core business; and

5.

the basis of net income qualified for income tax holidays will be limited to 110% of a registered
enterprises projected revenue as presented to BOI (but the BOI has the power to adjust availments of
the income tax holiday depending on the actual revenues of the registered enterprise).

Eligibility
Only Philippine citizens and enterprises organized under Philippine law are entitled to apply for BOI
incentives. Thus, foreign investors seeking to obtain incentives need to do so through an equity
investment into a Philippine corporation.
Enterprises owned 100% by foreign investors are generally entitled to BOI incentives if they engage in
pioneer projects, export at least 70% of their total production (or some lower percentage that the BOI
determines), or undertake projects in areas identified by the BOI as less developed areas of the country.
However, the enterprises are obliged to attain 60% Filipino ownership within 30 years from registration
(or such longer period as the BOI allows), unless they will be exporting 100% of their production. The
maximum foreign ownership for certain activities is constrained for constitutional or national interest
reasons (see the FINL at the end of Chapter 5 for further details).
For enterprises engaged in non-pioneer projects, BOI incentives are available only if foreign ownership is
limited to 40%, unless the enterprise will export more than 70% of its annual production.
The BOI approves registration and the entitlement to incentives on a case by case basis, based on
documents submitted during the application process. The following documents, among others, will need
to be submitted:
A feasibility report, containing the applicants five-year projected financial statements; and
Anotarized application form, indicating the type of project, how the activity relates to those listed in the
IPP, the production capacity geared for export, the capital structure of the enterprise, and the nationality
of its investors.