Investment Incentives for Less Developed Areas

Policy and purpose

Section 2 declares State policy to encourage investments and assist the establishment and development of industrial and agricultural projects.
Section 2 ties the policy to equitable distribution of wealth and balanced national economic growth and development.
Section 2 targets employment generation and raising the standard of living in less developed areas.

Key definitions established

Section 3 defines “Board” as the Board of Investments created under Republic Act No. 5186, as amended.
Section 3 defines “Less Developed Area” as specific localities appearing in the “Less Developed Areas List” prepared jointly by the Ministry of Industry, the Ministry of Human Settlements, and the National Economic and Development Authority.
Section 3 defines “Less Developed Area Registered Enterprise” as enterprises located in an identified less developed area and registered with the Board for incentive availment in industrial and agricultural activities listed in the priorities plans of the Board, under Republic Act No. 5186 or Republic Act No. 6135 or Presidential Decree No. 1159 or this Act.

Coverage: eligible areas and enterprises

Section 3 limits incentive coverage to enterprises located in areas included in the “Less Developed Areas List.”
Section 3 limits registration/incentive availment to industrial and agricultural activities listed in the Board’s priorities plans.
Section 3 provides that an enterprise is a Less Developed Area Registered Enterprise when it is located in an identified less developed area and registered with the Board under the specified laws or this Act.

Additional allowance for investors

Section 4 grants an investor in a Less Developed Area Registered Enterprise an investment allowance in addition to incentives under Republic Act No. 5186, Republic Act No. 6135, or Presidential Decree No. 1159.
Section 4 allows the allowance as a deduction from taxable income, equal to the investor’s actual investment paid in cash or property.
Section 4 caps the deduction at not to exceed thirty per cent (30%) of taxable income, inclusive of the normal tax allowance under the enterprise’s law of registration.
Section 4 excludes the incentive for investments in mining ventures.
Section 4 requires that the investment be made in subscription of shares in the original and/or increased capital stock of an enterprise within seven years from the date of registration as a less developed area registered enterprise.
Section 4 requires that the investor hold the shares for a period of not less than three years.
Section 4 requires that the investment be registered with the Board and deemed necessary by the Board for setting up the business or expanding/strengthening an existing business already located, or proposed to be transferred, to a less developed area.
Section 4 provides a loss of benefit if the shares are disposed of within the three-year holding period; the taxpayer’s income tax liability must be recomputed and the taxpayer must pay the same plus any additional amount due with interest thereon within thirty days from the date of disposition.
Section 4 mandates a surcharge if the taxpayer fails to pay within the 30-day period.

Incentives for less developed enterprises

Section 5 requires that an enterprise registered as a less developed area registered enterprise comply with nationality requirements in the applicable law of registration to obtain incentives.
Section 5 provides that a less developed area registered enterprise—whether a proposed venture or an expansion of an existing venture—is entitled to the incentives provided for a pioneer registered enterprise under its law of registration.
Section 5 provides that, if not otherwise exempt, such enterprises are exempt from the application of Presidential Decree No. 1395.
Section 5 imposes a limitation: less developed area registered enterprises engaged in non-pioneer activities are not exempt from the payment of sales taxes.

Financial assistance and lending policy

Section 6 enjoins all government-owned or controlled financing institutions to liberalize collateral requirements, rediscounting policies, and other lending policies and requirements in favor of less developed area registered enterprises.
Section 6 specifies eligible borrowers for the lending relief as:
- sole proprietorships of Filipino citizens, or
- partnerships with at least sixty per cent (60%) of capital owned by citizens of the Philippines, or
- corporations or cooperatives with at least sixty per cent (60%) of the outstanding capital stock entitled to vote owned by citizens of the Philippines.
Section 6 provides that, to produce a meaningful differential financing cost advantage, loans to less developed area registered enterprises are exempted from Section 78 of the General Banking Act regarding collateral requirements.
Section 6 directs other concerned government agencies to render necessary assistance to carry out the Act’s purposes.

Identification and classification of areas

Section 7 requires the joint preparation of the “Less Developed Areas List” by the Ministry of Industry, Ministry of Human Settlements, and National Economic and Development Authority.
Section 7 directs that area selection consider each area’s relation to developed areas using criteria of:
- low per capita gross domestic product,
- low level of investments,
- high rate of unemployment and/or underemployment, and
- low level of infrastructure development, including accessibility to developed urban centers.
Section 7 caps the total population of listed areas so that it shall not exceed twenty per cent (20%) of the national population.
Section 7 requires the preparation of the initial Less Developed Areas List within six months from the approval of the Act.
Section 7 mandates classification or re-classification of the list at least once every three years by the same joint agencies.
Section 7 authorizes the Board to recommend delisting of a less developed area.
Section 7 protects existing status: a less developed area registered enterprise continues to enjoy its status notwithstanding deletion of the area where it is located from the Less Developed Areas List.

Fee exemptions for registered enterprises

Section 8 exempts less developed area registered enterprises with total assets worth less than one million pesos (P1,000,000) from the payment of:
- filing fees,
- processing fees,
- and all other fees of the Board of Investments.
Section 8 likewise exempts the same enterprises from payment of fees of the Securities and Exchange Commission.

Implementing rules and effect

Section 9 authorizes the Board of Investments to promulgate rules and regulations necessary to implement the Act’s intent and provisions.
Section 9 sets the effectivity rule for those implementing rules at 30 days after their publication in two (2) newspapers of general circulation in the Philippines.

Penal provision and sanctions

Section 10 provides that the penal provisions in Republic Act No. 5186 apply to violations of any provision of this Act or of rules and regulations promulgated under it.

Suppletory application of other incentives laws

Section 11 provides that Republic Acts 5186 and 6135 and Presidential Decree No. 1159, so far as applicable and not inconsistent with this Act, apply to enterprises registered under this Act.

Repeal, separability, and control clauses

Section 12 repeals or modifies acts, decrees, executive orders, rules and regulations, or parts thereof, that are inconsistent with any provision of this Act.
Section 13 provides separability: if any provision is declared invalid, the remaining provisions continue in full force and effect.