Question & AnswerQ&A (BOI)
The legal basis for the grant of ITH is Article 39 (a) of Executive Order (E.O.) 226, as amended by Republic Act (RA) 7918, which provides a full exemption from income taxes for pioneer firms for six years and for non-pioneer firms for four years from commercial operation.
The Board of Investments (BOI) is responsible for regulating and promoting investments and is empowered to process and approve registrations, cancel registrations, suspend incentives, and require refunds for violations under the Code and related regulations.
A Registered Enterprise refers to any individual, partnership, cooperative, or corporation incorporated or organized under Philippine laws and registered with the BOI according to Book I of E.O. 226. It excludes certain financial institutions and cooperatives whose primary activities involve money lending, securities trading, or fiduciary functions.
A Pioneer Enterprise is a registered enterprise reflected as such on its BOI Certificate of Registration, engaged in activities like manufacturing goods not produced commercially in the Philippines, using new production methods untried in the country, or involved in essential agricultural, forestry, mining, or energy-related activities as determined by the BOI.
New registered pioneer firms are entitled to a six-year Income Tax Holiday period starting from the date of commercial operation.
An extension of one extra year may be granted for each qualifying criterion met, such as maintaining a capital equipment-to-worker ratio not exceeding US$10,000 or using at least 50% indigenous raw materials, or generating net foreign exchange savings or earnings of at least US$500,000 annually during the first three years, but the total ITH period cannot exceed eight years for pioneer enterprises.
All new and expanding enterprises registered under E.O. 226 and amended by RA 7918 that have claimed ITH in their Income Tax Returns (ITRs) must file their application with the BOI within thirty (30) days from the date of filing their annual ITR or from the last day prescribed by law for ITR filing, whichever is later.
The conditions include being a new, expanding or modernizing enterprise registered under the relevant laws, complying with locational restrictions (outside NCR except specific exemptions), and meeting other terms specified in the firm's registration.
For expanding firms, the rate of exemption is proportional to the incremental sales of the registered product or activity divided by total sales of the same, expressed as a ratio to determine the exemption from income tax.
Applications filed within 31 to 180 days after the prescribed deadline incur a penalty of 1% of the ITH amount but not less than PHP 500 and not more than PHP 2 million. Applications filed after 180 days result in forfeiture of the ITH for that taxable year.
Enterprises must file notarized BOI application forms, Certificate of Entitlement, BOI Certificate of Registration, Income Tax Return and audited financial statements including segregated income statements, cost-benefit analysis data, management responsibility statement, SSS certificate of good standing if required, and other compliance certificates related to registration terms.
The enterprise must secure a Certificate of ITH Entitlement from the BOI before filing ITR with the BIR, file their ITR with BOI-issued CE and claim, file the application with BOI within 30 days after ITR filing deadline with complete documents, and comply with BOI evaluation and possible follow-up for deficiencies, with final endorsements to the BIR for post-audit.
Generally, only firms located outside the National Capital Region (NCR) are entitled to the ITH, except for projects located in certain government-declared industrial estates, export-oriented projects, service-type activities, and other projects exempt from locational restrictions as listed in the Investment Priorities Plan (IPP).
Yes, the BOI has the power to amend, modify, or repeal any provisions of the Rules and Regulations governing the availment of the Income Tax Holiday incentive.