Income Tax Holiday Rules and Regulations

The Board of Investments (BOI) regulates investment registration, sets conditions, approves incentives, and can cancel or suspend them.
BOI can demand refund of incentives plus interest and penalties in cases of violations of applicable laws or regulations.

Registered Enterprise excludes banks, financial institutions, investment firms, trust companies, and certain cooperatives mainly involved in financial activities.
Pioneer Enterprise involves manufacturing/production of goods not commercially produced in the Philippines, or employs new, untried production processes.
Non-pioneer Enterprise refers to registered producer enterprises not classified as pioneer.
New Firm: Newly registered/incorporated BOI enterprise.
Expanding Firm: Increases production volume or value.
Modernizing Firm: Upgrades or retrofits for better capacity or efficiency.
Income and Taxable Income derive from BOI-registered activities.
Date of Commercial Operation: Scheduled start date as per registration terms.

New Pioneer firms: 6 years from commercial operation.
New firms in Less Developed Areas (LDA) get 6 years regardless of status.
New Non-pioneer firms: 4 years.
Expanding and Modernizing firms: 3 years from commercial operation of expansion/modernization.

Up to 2 extra years granted based on criteria:
- Capital equipment to worker ratio below US$10,000.
- Use of indigenous raw materials at least 50% of total raw material costs.
- Net foreign exchange savings/earnings of at least US$500,000 annually in first 3 years.
Extension requests must be filed with proof of compliance.

All new and expanding BOI-registered entities claiming ITH must file applications with the BOI.
Applications must be filed within 30 days after BIR’s ITR filing deadline or actual ITR filing date, whichever is later.
For tentative ITR filers, application must be filed within 30 days of final ITR or expiration of 3-year period for filing final ITR.

ITH entitlement generally applies to registered new, expanding, and modernizing firms.
Only firms outside National Capital Region (NCR) qualify, except:
- Those in specified government industrial estates declared prior to Jan 1, 1989.
- Export-oriented projects.
- Service-type activities.
- Other projects exempted by Industrial Priorities Plan (IPP).

New enterprises get 100% income tax exemption on income from registered operations.
Expanding firms' exemption is proportional to incremental production/sales.
For no capacity increase projects, exemption rate is based on the ratio of new investment to total investments.
Terms and formulas vary based on product homogeneity and whether multiple registrations exist.
Audited financial statements and segregated income statements support computation.

Applications filed between day 31 and day 180 after prescribed deadline incur 1% penalty of ITH amount (min P500, max P2 million).
Applications filed after 180 days lose ITH for the entire taxable year.

Complete and notarized BOI application form.
Certificates of Entitlement and Registration.
Income Tax Returns with detailed reconciliations.
Audited financial statements with segregated income for registered and non-registered activities.
Cost benefit analysis, sales summaries, stockholder list, and management responsibility statement.
Additional supporting documents depending on case (first-time availors, less-than-a-year availment).

Obtain Certificate of ITH Entitlement prior to filing ITR with BIR.
File ITR with BOI-issued certificate and ITH claim to BIR.
Submit application to BOI within 30 days after ITR filing deadline.
BOI reviews eligibility and documents, categorizes application for acceptance or provisional acceptance.
Filing fee payment and date stamping by BOI Records Section.
BOI processes application within 1 year, evaluates, and endorses to BIR Assessment Service.
BIR may defer audit activities until BOI completes evaluation but within statutory limits.
Final evaluation report approved by BOI officials and Board of Governors.
Endorsement sent to BIR and notification to applicant.
BIR conducts post-audit and enforces deficiency assessments if found.

BOI defers issuing audit notices to fully registered applicants for 1.5 years from ITR deadline, shorter for firms with mixed operations.
Deferral exceptions include cases under Run After Tax Evaders, tax informer reports, refund claims, or significant sales/purchases discrepancies.