Investment Incentives Act - Investment Promotion Law

Key definitions and covered concepts

Section 3 defines “Board” as the Board of Investments created under the Act.
Section 3 defines “Registered enterprise” as a corporation organized under Philippine laws that meets all ownership and governance thresholds, is engaged in a preferred area of investment, and is duly registered with the Board.
Section 3 expressly excludes from “Registered enterprise” specified financial institutions and certain intermediaries/trading entities whose principal purpose or income source is receiving deposits, lending/borrowing, dealing in securities, or similar intermediary or fiduciary functions, and also excludes organizations whose exclusive or principal purpose is to provide services or buy and resell goods substantially in the same form.
Section 3 defines “Technological assistance contracts” as contracts for transfer (by license or otherwise) of patents, processes, formulas, or technological rights of foreign origin, and/or foreign assistance concerning technical and factory management, design, planning, construction, and similar matters.
Section 3 defines “Foreign loan” and “Foreign investments” as credits or equity investments obtained from outside the Philippines and brought into the Philippines (including appraisals of assets other than foreign exchange) and registered with the Central Bank and the Board.
Section 3 defines “Philippine National” for purposes of ownership and control requirements, including conditions for corporate ownership and board membership, and includes special coverage for trustees of pension or retirement funds with specified Philippine-foreseeable accrual and trustee nationality (Section 3(f)).
Section 3 defines investment planning inputs including “Preferred areas of investment,” “Pioneer enterprise,” and “Measured capacity,” and defines the fiscal instrument “Tax credit” as credits against taxes evidenced by a tax credit certificate issued by the Bureau of Internal Revenue, which is non-transferrable and usable only while benefits apply and not to result in a refund.
Section 3 defines the “Investments Priorities Plan” as a Board-prepared plan approved by the President on recommendation of the National Economic Council, including enumerated analyses, demand/supply gaps, product and region selections, capital and raw material inputs, manpower needs, public works, tariffs protection during infancy, competition requirements, and other relevant factors.

Investor rights and constitutional guarantees

Section 4 guarantees that investors and enterprises are entitled to the basic rights and guarantees provided in the Constitution.
Section 4(a) grants foreign investments the right to repatriate the entire proceeds of liquidation in the currency originally made and at the exchange rate prevailing at repatriation, subject to Section seventy-four of Republic Act Numbered Two hundred sixty-five.
Section 4(b) grants foreign investments the right to remit earnings in the currency originally made and at the exchange rate prevailing at remittance, subject to Section seventy-four of Republic Act Numbered Two hundred sixty-five.
Section 4(c) grants foreign loans and technological assistance obligations the right to remit sums needed to pay interest and principal at the exchange rate prevailing at remittance, subject to Section seventy-four of Republic Act Numbered Two hundred sixty-five.
Section 4(d) bars expropriation of investment property or enterprise property except for public use or interest of national welfare and defense and upon payment of just compensation, with the additional right of foreign investors to remit compensation in the original investment currency and at the exchange rate at remittance, subject to Section seventy-four of Republic Act Numbered Two hundred sixty-five.
Section 4(e) bars requisition except in war or national emergency, limited to the duration, with just compensation determined and paid at the time of requisition or immediately after cessation of the emergency and with the right to remit compensation under Section seventy-four of Republic Act Numbered Two hundred sixty-five.

Board, registration system, and governance

Section 13 creates a Board of Investments to be organized within sixty days after approval, composed of five full-time members appointed by the President with consent of the Commission on Appointments from nominee lists of specified business organizations and labor confederations/federations of national standing.
Section 13 requires each nominating association to submit not less than three (3) and not more than five (5) nominees, and no association may have more than one Board member at any time; the President may also appoint qualified persons not nominated.
Section 13 provides that the Board elects a Chairman from among themselves; each member has a six (6)-year tenure, with the initial staggering for first appointees and rules on succession and filling vacancies only for unexpired portions; no acting appointments as member apply.
Section 14 sets Board member qualifications: Philippine citizenship, at least thirty (30) years old, good moral character, and recognized competence in specified fields, certified by the nominating or professional association; Board members face election candidacy and investment conflict restrictions during incumbency and for specified post-term periods.
Section 15 fixes compensation: the Chairman receives an annual salary of P50,000 and monthly commutable allowance of P2,000, while each member receives annual salary of P40,000 and monthly commutable allowance of P1,500.
Section 16 grants the Board quorum and voting rules: three (3) members constitute a quorum, and three (3) affirmative votes are required for valid exercise of powers and duties.
Section 16 tasks the Board to: (1) draw annually the investments priorities plan; (2) promulgate implementing rules effective thirty (30) days after publication in two (2) newspapers of general circulation; (3) process and approve registration applications with fees not exceeding two hundred pesos (P200); (4) decide implementation controversies within thirty (30) days, with an appeal within fifteen (15) days to the Court of First Instance specified by the enterprise’s principal office; (5) recommend foreign employment entries to the Commissioner of Immigration; and (6) verify national ownership participation and compliance.
Section 16 empowers the Board, after notice and hearing, to cancel registration or suspend enjoyment of incentive benefits for (1) failure to maintain qualifications or (2) willful or grossly negligent violation of the Act, its rules, registration terms, or laws protecting labor or the consuming public, with an appeal within fifteen (15) days to the specified Court of First Instance.
Section 16(j) authorizes the Board to prepare feasibility and pre-investment studies for pioneer areas with expenditure capped at P125,000 per study, and repayment within five (5) years from the date commercial operation starts if the venture is implemented.
Section 17 makes the Chairman the Managing Head with authority to prepare agendas, manage Board affairs, gather statistical data, provide information to prospective foreign investors via Philippine diplomatic missions, collate investment studies, assist with fast processing of papers in government offices, act as liaison for joint ventures, and perform other Board-assigned duties.

Preferred and pioneer areas and the plan process

Section 18 requires the Board to submit the Investments Priorities Plan to the President through the National Economic Council within one hundred twenty (120) days after organization and not later than the end of January of every year thereafter.
Section 18 requires the Board to determine preferred and pioneer areas using the Act’s investment criteria and to prioritize projects with the highest rates of return to the national economy given the estimated available investment capital for the year.
Section 18 provides for a preferred area rule: an area where an enterprise exports finished products completely processed and manufactured in the Philippines with at least seventy (70%) per cent of the peso value of total raw material content as Philippine raw material, exports more than fifty (50%) per cent of total production, and does not enjoy preferential treatment arising from government-importing-country agreements or arrangements qualifies as a preferred area and is included in the plan.
Section 18 requires the Board to take account of criteria including demand-supply gaps, market creation, productive employment and dispersal, integration of facilities, import substitution and export promotion, capital needs, investment risks, indigenous input proportions, profitability and return to the economy, maintenance of competition, and other criteria the Board adopts.
Section 18 bars inclusion or designation as preferred/pioneer unless the area/project is shown economically, technically and financially sound after thorough Board investigation and analysis.
Section 18 obligates the National Economic Council to evaluate the plan within sixty (60) days from receipt and recommend approval of the whole or portions; if it fails to act within that period, the plan is automatically submitted to the President for approval.
Section 18 provides presidential action: on approval, the President proclaims the whole or part as effective, or returns the whole/part for revision; portions not returned are proclaimed effective.
Section 18 mandates synchronized implementation: after effectivity, the President issues directives to government departments and agencies to ensure synchronized and integrated implementation, and no government body may adopt policies or actions inconsistent with the plan.
Section 18 allows Board amendment after notice and public hearing, including altering measured capacities, terms of declaration, or terminating preference/pioneer status, but rights legally vested in qualified enterprises continue in full to the extent allowed.
Section 18 prohibits the Board from accepting applications in an area before Presidential approval as preferred/pioneer, and after approval of deletion as preferred/pioneer.
Section 18 requires publication in the Official Gazette and in at least two newspapers of general circulation, with areas open for application until publication of an amendment/deletion, or until the Board approves registration of enterprises that fill measured capacity.

Qualification, applications, and registration issuance

Section 19 requires Board satisfaction for registration eligibility, including the registered enterprise ownership and control qualification in Section 3(b) unless the applicant qualifies through pioneer-project pathways.
Section 19(a)(3) requires undertakings for non-required ownership degree applicants: listing shares with a Philippine stock exchange within ten (10) years and offering shares to Philippine Nationals not later than the beginning of the eleventh year from registration, with enough shares disposed of within twenty (20) years to ensure Philippine Nationals hold at least sixty percent (60%) of capital stock outstanding and entitled to vote.
Section 19(a)(3) authorizes the Board to extend the share-acquisition timeline by another period not exceeding twenty (20) years, subject to conditions tied to bona fide offers not bought by Philippine Nationals, no buying by the enterprise from Philippine Nationals, and Board sufficiency in the national interest.
Section 19(a)(4) requires that the applicant’s pioneer area is not reserved by the Constitution or other laws for Filipino citizens or corporations owned and controlled by Filipino citizens.
Section 19(b) requires that the enterprise proposes to start and operate a preferred/pioneer project within a reasonable time fixed by the Board.
Section 19(c) requires capability to operate soundly and efficiently and contribute to national development of the preferred/pioneer area and to the national economy.
Section 19(d) requires adequate accounting systems to separately identify investments, revenues, costs, and profits/losses of each preferred/pioneer project or establishment of a separate corporation if the Board requires it.
Section 19 provides a fill-gap mechanism: if the measured capacity of any preferred, non-pioneer area is not filled within three years from declaration, the Board permits enterprises not meeting required Philippine ownership/control but otherwise qualified to be registered in such areas under the pioneer-like conditions.
Section 20 governs applications: they are recorded in a registration book, processed in the order filed, and the stamped book date is the filing date.
Section 20 stops registration in a preferred/pioneer area once the measured capacity is filled, while enterprises registered within capacity enjoy preferred/pioneer status.
Section 20 directs selection if combined proposed production exceeds measured capacity: the Board approves only those within available measured capacity and better suited to objectives, using criteria on Filipino ownership/control, integration and experience, cost factors/economies of scale, foreign exchange earned/used/saved, indigenous labor/material/resource use, equity amount and spread, maintenance of competition, and public participation.
Section 20 provides tie-breaker preferences for identical/substantially identical products: prefer expansion/addition/integration of existing facilities, and if otherwise equal, prefer greater Philippine ownership/control.
Section 20 confirms that non-registered enterprises may engage in activities declared preferred areas within constitutional/statutory limits without enjoying incentives, with a rule that a non-Philippine National may engage in preferred areas where Philippine Nationals are already engaged only after three (3) years from declaration if measured capacity remains unfilled, except for manufacture primarily for export.
Section 20 sets an export-primary test for non-Philippine Nationals: the Board fixes the percentage required for “manufacture primarily for export,” which must be not less than seventy per cent (70%) of total production.
Section 20 provides appeals: Board orders may be appealed within thirty (30) days to the National Economic Council; if the National Economic Council fails to act within ninety (90) days, the Board decision is deemed upheld; decisions of the National Economic Council may be appealed to the President within thirty (30) days from promulgation.
Section 21 requires issuance of a certificate of registration under the Board seal and Chairman signature (or empowered officer), stating the enterprise name, preferred area, nature of activity (preferred or pioneer) and registered capacity, and other registration terms and conditions.

Incentives for registered and pioneer enterprises

Section 5 grants, to investors in a registered enterprise, incentives consisting of (a) protection of patents and proprietary rights registered with the Board and appropriate agencies, and (b) capital gains tax exemption for the portion of gains corresponding to proceeds reinvested in new issues of capital stock within six months of realization, subject to registration of the sale/disposition/transfer and investment with the Board and Bureau of Internal Revenue and subject to a five (5)-year restriction on disposal/transfer/assignment/conveyance of the shares.
Section 5 requires that if shares representing the investment are disposed within the five (5) years, all taxes due on gains from the original capital asset transfer become immediately due and payable.
Section 6 grants Philippine Nationals investing in pioneer enterprises additional incentives: (a) tax allowance deduction from taxable income of actual cash/property investment not exceeding ten per cent (10%) of taxable income, subject to investment in subscription of pioneer shares within seven (7) years from registration, holding shares at least three (3) years, and Board registration; if shares are disposed within the three (3) years, the deduction benefit is lost, income tax liability is recomputed, and the taxpayer pays additional sum plus interest within thirty (30) days from disposition.
Section 6 grants capital gains tax exemption to Philippine Nationals for gains portion corresponding to proceeds reinvested within six months in new issues of pioneer capital stock, or purchase of stock owned by foreigners in pioneer enterprises, subject to Board and Bureau registration and a three (3)-year restriction on share disposition; if disposed within three (3) years, all taxes due on gains become immediately due and payable.
Section 6 provides an exemption on income tax for all gains realized from sale/disposition/transfer of stock dividends received from a pioneer enterprise if the sale occurs within seven (7) years from enterprise registration.
Section 7 grants registered enterprises engaged in preferred areas the following incentives:
- Deduction of capitalized organizational and pre-operating expenses over a period not more than ten (10) years starting with the month operations begin, with the taxpayer indicating the amortization period in the first taxable year return; organizational and pre-operating expenses include pre-investment studies, startup costs, initial recruitment/training costs, and similar expenses.
- Accelerated depreciation at taxpayer option and BIR procedure: fixed assets may be depreciated (1) up to not more than twice as fast as normal rate, or at normal rate if expected life is ten (10) years or less, or (2) over any number of years between five (5) years and expected life if expected life exceeds ten (10) years; the taxpayer must notify the BIR at the beginning of the depreciation period which depreciation rate will be used.
- Net operating loss carry-over: losses incurred in any of the first ten (10) years of operations may be carried over as deductions from taxable income for the six (6) years immediately following; the entire loss is carried to the first of the six years, and any excess over taxable income of the first year is deducted similarly in the next five (5) years, computed under the National Internal Revenue Code with the same gross income rule for income not taxable under this Act or other laws.
- Tariff- and compensating tax exemption on imported capital equipment and shipped spare parts for use exclusively by the registered enterprise, within seven (7) years from registration, but only if conditions apply, including (1) no domestic manufacture in reasonable quantity/quality at reasonable prices, (2) direct and exclusive use by the registered enterprise, (3) shipping documents in the registered enterprise’s name with delivery direct by customs authorities, (4) prior Board approval before importation, and (5) non-availment of privileges under Republic Act No. 3127, as amended.
- Double tax exemption penalty if the registered enterprise sells/transfers/disposes the exempted items without prior Board approval within five (5) years from acquisition: it must pay twice the amount of the tax exemption given; Board may approve within the five-year window if sale/transfer/disposition is to another registered enterprise, due to proven technical obsolescence, or for replacement to improve/expand operations.
- Tax credit on domestic capital equipment: registered enterprise purchases from domestic manufacturer may claim a tax credit equal to one hundred per cent (100%) of compensating tax and customs duties that would have been paid had imports occurred; the domestic manufacturer gets a tax credit equal to fifty per cent (50%) of that same amount, subject to conditions including direct and exclusive use, prior Board approval by the local manufacturer, and sale within seven (7) years from registration.
- Double credit penalty if the registered enterprise sells/transfers/disposes without prior Board approval within five (5) years from acquisition: it must pay twice the amount of tax credit given; Board may approve within the five-year window for the same permitted reasons (sale to another registered enterprise, proven technical obsolescence, replacement to improve/expand operations).
- Tax credit for withholding tax on interest: a registered enterprise receives a tax credit for taxes withheld on interest payments on foreign loans if (1) no such credit is enjoyed by the lender-remittee in his country and (2) the registered enterprise assumed the liability for payment of the tax due from the lender-remittee.
- Employment of foreign nationals: within five (5) years from registration, an enterprise may employ foreign nationals in supervisory, technical, or advisory positions not exceeding five per centum (5%) of total personnel in each category, and in no case each employment exceeds five (5) years; employment beyond five years or within five years beyond the proportion is governed by Section 20 of Commonwealth Act No. 613, as amended. Foreign nationals under employment contract (and their spouse and unmarried children under twenty-one (21) years) may enter and reside during the employment period, subject to exclusion rules in Section 29 of Commonwealth Act No. 613, as amended. The enterprise must train Filipinos in administrative, supervisory, and technical skills and submit annual training reports to the Board.
- Deduction for expansion reinvestment: reinvestment of undistributed profits/surplus by actual transfer to capital stock for Board-approved machinery/equipment previously approved under Sections 7(d) and 7(e), or expansion-related uses (including buildings, improvements, or facilities for the installation of the machinery), may be deducted from taxable income in the year of reinvestment, provided Board prior approval and no capital stock reduction representing the reinvestment within seven (7) years; failure to order machinery/equipment within two (2) years or reduction within seven (7) years triggers recomputation of income tax liability for the period when the deduction was taken, with proper taxes assessed and paid with interest.
- Anti-dumping protection: upon Board recommendation after notice and hearing, the President issues a directive banning for a limited period importation of goods/commodities that unfairly or unnecessarily compete with those produced by registered enterprises, if Board certifies satisfactory quality and enterprises agree not to increase price during the period unless for good cause approved by the Board.
- Protection from government competition: no government agency or instrumentality may import or allow duty/tax-free importation of products/items being produced or manufactured by registered enterprises, except when the President determines national interest so requires or when international commitments require international competitive bidding.
Section 8 grants pioneer enterprises additional incentives: (a) tax exemptions from all taxes under the National Internal Revenue Code except income tax, with rates declining by calendar date: 100% up to December 31, 1972; 75% up to December 31, 1975; 50% up to December 31, 1977; 20% up to December 31, 1979; 10% up to December 31, 1981; (b) foreign nationals employment rules requiring registration with the Board and cessation and repatriation five (5) years after the pioneer enterprise begins operating, with exceptions for retained foreign nationals as president, treasurer, and general manager/equivalents when majority capital is foreign-owned, and exceptional Board approvals for other positions if limitations under Section 7(g) apply; and permission for foreign nationals and their spouse and unmarried children under twenty-one (21) years to enter and reside during employment; and (c) post-operative tariff protection: upon Board recommendation and certification that a pioneer industry operates on a commercial scale, the President issues certification granting post-operative tariff protection up to fifty per cent (50%) of the dutiable value of imported items similar to those manufactured by pioneer enterprises, taking effect automatically upon Board certification and subject to tariff code modification under Section 401 of the Tariff and Customs Code.

Export incentives and priority financing

Section 9 grants registered enterprises export incentives for exports of completely finished products and commodities:
- Double deduction of promotional expenses: deduction of twice the ordinary and necessary promotional expenses incurred to promote sales abroad.
- Double deduction of shipping costs: deduction of twice the shipping freight incurred when shipments are made in vessels of Philippine registry to their regular ports of call; and deduction of one hundred fifty per cent (150%) of freight when shipments are made in vessels of foreign registry to a port not a regular port of call of Philippine vessels.
- Special tax credit on rate materials: a tax credit equal to seven per cent (7%) of the total cost of raw materials and supplies purchased, or an amount equal to taxes actually paid on such raw materials, whichever is higher, to the extent used in manufacturing exported products.
Section 9 requires Board approval before using export incentives, with approval upon proof of: good faith plan to create export market; export product included in the government priorities plan or, if not included, export will not adversely affect domestic market needs for finished product and domestic raw materials; adequate accounting system segregating export-market operations from domestic operations; and compliance of exported products with Bureau of Standards standards or Board standards if Bureau standards are not available.
Section 10 requires government financial institutions including Development Bank of the Philippines, Philippine National Bank, Government Service Insurance System, Social Security System, Land Bank, and other qualifying government institutions to accord high priority to applications for financial assistance submitted by pioneer and other registered enterprises, subject to their enabling charters and laws, including equity participation and loans and guarantees.
Section 10 prohibits such financial assistance under this section to any investor or enterprise that is not a Philippine National.
Section 10 limits institutional capital contribution to the amount not contributed by private Filipino investors and in no case beyond thirty per cent (30%) of the total capitalization of the pioneer or other registered enterprises, with shares representing institutional contribution offered for public sale to Philippine Nationals through all members of a registered Philippine stock exchange.
Section 10 requires coordination among the financial institutions, including program coordination, exchange of relevant information, and a monthly report to the Board showing funds available; the Board recommends to each institution the priority order for applications.
Section 11 authorizes the Insurance Commissioner to allow insurance companies to invest in new issues of stock of registered enterprises even if the enterprise has not paid regular dividends, subject to specified rules and requiring diversified investments.

Loans for investment via social systems

Section 12 requires Government Service Insurance System and Social Security System to extend to their respective members five-year loans at an interest rate not to exceed six per cent per annum for purchase of shares of stock in any registered enterprise.
Section 12 requires share deposit in escrow with the lending institution for the full five-year term, with partial releases allowed only to the extent of amortization payments.
Section 12 mandates that dividends earned while shares are held in escrow must be delivered to the employee.
Section 12 requires amortization in sixty (60) equal monthly installments withheld by the employer from employee salary and remitted to the lending institution.
Section 12 caps the maximum loan available per employee in any one calendar year at fifty per centum (50%) of the employee’s annual gross income.
Section 12 sets an overall institutional cap: the total investment of the government financial institution concerned, consisting of its direct investment plus member loans invested in registered enterprises, must not exceed forty-nine per cent (49%) of the total capitalization of the registered enterprise in which the investments have been made.

Governing plan publication, alignment, and governance integrity

Section 18 requires proclamation and directives to ensure synchronized and integrated implementation by agencies, and prohibits adoption of policies inconsistent with the plan.
Section 16 authorizes