Law Summary
Declaration of Policy
- Accelerate national economic development.
- Promote economic nationalism.
- Encourage dispersal of industries.
- Support Filipino and foreign investments in agriculture, mining, and manufacturing.
- Increase national income, exports, employment.
- Raise living standards and equitable wealth distribution.
- Encourage capital-intensive pioneer enterprises with joint Filipino and foreign capital.
Definition of Terms
- "Board": Board of Investments.
- "Registered enterprise": Corporation with at least 60% Filipino ownership and control involved in preferred investments, excluding banks and financial intermediaries.
- "Technological assistance contracts": Transfer of patents, processes, or foreign technical/management assistance.
- "Foreign loan": Financial assistance obtained from outside the Philippines registered with authorities.
- "Foreign investments": Equity owned by non-Filipinos registered with authorities.
- "Philippine National": Filipino citizens or corporations with 60% Filipino ownership and control.
- "Preferred areas of investment": Economic activities designated by the Board.
- "Pioneer enterprise": Enterprises producing goods not yet commercially made locally or using new production methods, processing local raw materials.
- "Measured capacity": Board-determined desirable additional production volume without fostering monopolies.
- "Tax credit": Tax credits given to registered enterprises, non-transferable, usable against taxes.
- "Investment Priorities Plan": Plan prepared by the Board detailing demand, capacities, investment needs, raw materials, manpower, locations, government roles, tariffs, competition, etc.
Basic Rights and Guarantees
- Repatriation of investment proceeds and earnings in original currency at prevailing exchange rates.
- Remittance of sums for foreign loan obligations.
- Protection from expropriation except for public use with just compensation.
- Protection from requisition during war or emergency with compensation.
Incentives to Investors in Registered Enterprises
- Protection of patents and proprietary rights.
- Capital gains tax exemption if gains reinvested in registered enterprise stock within six months and held for five years.
Incentives to Philippine Nationals Investing in Pioneer Enterprises
- Investment allowance deductible from taxable income up to 10%.
- Capital gains tax exemption on reinvested proceeds with holding requirements.
- Income tax exemption on gains from the sale of stock dividends within seven years.
Incentives to Registered Enterprises
- Deduction for organizational and pre-operating expenses amortized up to ten years.
- Accelerated depreciation options for fixed assets.
- Net operating loss carry-over for six years.
- Tax exemption on import duties for capital equipment if conditions met.
- Tax credit for purchase of domestic capital equipment.
- Tax credit for withholding tax on foreign loan interest under conditions.
- Permission to employ foreign nationals in supervisory/technical/advisory positions up to five years.
- Deduction on reinvestment of undistributed profits for approved capital expenditures.
- Anti-dumping measures to protect from unfair import competition.
- Protection from government agencies competing or importing tax-free.
Incentives to Pioneer Enterprises
- Graduated tax exemptions on income taxes for up to 14 years.
- Conditions on employing foreign nationals including registration and duration limitations.
- Post-operative tariff protection up to 50% of dutiable value upon operation at commercial scale.
Special Export Incentives
- Double deduction of promotional expenses abroad.
- Double deduction of shipping costs with specific conditions.
- Tax credit for raw materials used in exports.
- Application approvals require proof of market creation and compliance with standards.
Preference in Grant of Government Loans
- Government financial institutions prioritize financing registered and pioneer enterprises.
- Participation restricted to Philippine Nationals.
- Limited capital contribution by financial institutions (up to 30%).
- Coordination among government financial institutions and reporting to the Board.
Private Financial Assistance
- Insurance companies authorized to invest in stocks of registered enterprises under diversification rules.
Loans for Investment
- Government insurance systems to provide five-year loans to members for buying shares in registered enterprises with escrow and amortization requirements.
- Overall investment by these institutions capped at 49% of enterprise capitalization.
Board of Investments
- Composition of five full-time members appointed by the President with confirmed qualifications and sector nominations.
- Terms and appointment rules with administrative supervision under the Office of the President.
Qualifications and Compensation of Board Members
- Qualifications: Filipino citizens, at least 30 years old, good character, professional competence.
- Restrictions on political candidacy and financial interests during and after term.
- Chairman and members receive fixed salaries and allowances.
Powers and Duties of the Board
- Annual Investment Priorities Plan preparation.
- Rulemaking and regulations.
- Registration processing and certification.
- Dispute resolution between investors and government agencies.
- Recommendations on foreign nationals' employment.
- Monitoring compliance and enforcement including cancellation of registration.
- Staffing and management functions.
- Conduct feasibility studies for pioneer areas.
- Annual reporting to President and Congress.
Powers and Duties of the Chairman
- Manage Board affairs and meetings.
- Collect and provide statistical data.
- Facilitate investor assistance and serve as liaison.
Preferred and Pioneer Areas of Investment
- Annual submission of Investment Priorities Plan.
- Criteria include economic gaps, market potential, employment, investment size, risk, indigenous resource use, profitability, competition.
- Priority to high-return projects.
- Inclusion of export-oriented activities meeting defined thresholds.
- Procedures for approval and publication.
- Amendment and appeals process with protections for vested rights.
Qualification of Applicants
- Filipino ownership requirements or specific conditions for non-Filipino involvement in pioneer projects.
- Obligation to become majority Filipino ownership within a prescribed period.
- Capability and soundness assessments.
- Accounting requirements to separate preferred projects.
- Relaxed ownership requirements for unfilled non-pioneer areas after three years.
Application Process
- First-come-first-served registration until measured capacity filled.
- Selection criteria favor Filipino ownership, integration, experience, costs, exchange impacts, labor use, equity spread, competition, and public participation.
- Preference to enterprises expanding or integrating existing facilities.
- Appeals to National Economic Council and then the President.
Certification of Registration
- Issuance of certificate specifying enterprise name, investment area, activity, capacity, terms.
General Provisions
- Directors' cap at 15.
- Dual voting share structure to ensure Filipino majority control.
- Marketing affiliates wholly Filipino owned may be established under conditions.
Other Incentives Laws
- Coordination with other incentive laws to avoid duplication.
- Enterprises may avail incentives from multiple laws, but not duplicative benefits for same capacity.
Penal Provisions
- Violations punishable by fines or imprisonment.
- Deportation of foreign offenders.
- Government officials prohibited from representing parties in transactions with the Board.
- Additional sanctions including dismissal for offending officials.
Applicability and Interpretation
- Existing enterprises entitled to registration and benefits prospectively.
- Benefits limited to preferred/pioneer activities in multi-area enterprises.
- Doubts resolved in favor of investors and registered enterprises.
Separability Clause
- Unconstitutional provisions do not invalidate entire Act.
Appropriations
- Initial appropriation of two million pesos for Board operation.
- Subsequent funding from General Appropriations Act.
Repealing Clause
- Repeals inconsistent laws and regulations.
Effectivity
- The Act takes effect upon approval.