Question & AnswerQ&A (PROCLAMATION NO. 199)
The short title of Republic Act No. 5186 is the Investment Incentives Act.
The Act declares the policy to encourage Filipino and foreign investments in projects that develop agricultural, mining, and manufacturing industries which increase national income, exports, economic stability, employment, living standards, and equitable wealth distribution.
A registered enterprise is a Philippine corporation with at least 60% of its capital stock owned by Philippine Nationals, at least 60% of its Board of Directors are Philippine citizens, engaged in a preferred area of investment, and duly registered with the Board of Investments, excluding certain financial institutions and service providers as detailed in the Act.
Investors are entitled to repatriation of investment proceeds, remittance of earnings, freedom from expropriation except with just compensation, requisition only during war or emergency with compensation, and rights related to foreign loans and technological contracts, all subject to specific provisions of law.
Incentives include protection of patents and proprietary rights, and exemption from income tax on capital gains realized from sale of capital assets invested in new shares of registered enterprises under specified conditions.
They receive tax allowance deductions up to 10% of actual investment, capital gains tax exemption on reinvested gains, and exemption from income tax on gains from stock dividends if sold within seven years of registration.
These include deduction of organization and pre-operating expenses, accelerated depreciation, net operating loss carry-over, tax exemption on imported capital equipment, tax credit on domestic capital equipment, tax credit for withholding tax on interest, controlled employment of foreign nationals, deduction for reinvestment, anti-dumping protection, and protection from government competition.
Pioneer enterprises enjoy graduated tax exemptions on income tax for specific periods, limited employment of foreign nationals who must be repatriated within five years, and post-operative tariff protection on imported items similar to those produced by the pioneer enterprise.
The Board of Investments is composed of five full-time members appointed by the President with consent from the Commission on Appointments; members are nominated by various business and labor organizations. The Board administers the Act, including preparing investment priority plans, registering enterprises, resolving disputes, and enforcing compliance.
Violations may be punished by a fine up to fifty thousand pesos, imprisonment up to three years, or both. Non-citizens may also be deported. Government officials violating provisions are subject to dismissal and penalties; Board members face double penalties.