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Foreign Investment Laws in the Philippines.

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FOREIGN INVESTMENT LAWS IN THE PHILIPPINES Introduction The Philippines is an archipelago of some 7,100 islands in Southeast Asia. Known as the "Gateway of the East to Asia," this developing country has a liberal foreign investment regime. The country, through fiscal incentives and foreign ownership liberalization, seeks to attract foreign direct investments which will assist in its reconstruction and modernization. The new and fresh approach in its foreign investment laws is consistent with economic globalization and cooperation. The heart of the foreign investment laws in the Philippines lies in the 1987 Constitution, the Omnibus Investments Code 1987, the Foreign Investments Act 1991 and the Special Economic Zone Act 1995. While numerous other legislations one way or another affect foreign investments in the Philippines, this article's scope is limited to discussing important provisions of the abovementioned legislations. The Constitution of the Philippines The 1987 Constitution of the Philippines1 empowers the Government to regulate foreign investments within its jurisdiction in accordance with national goals and priorities.2 The Government has exclusive control over the country's natural resources, although the Government may undertake exploration and development through co-production, joint ventures, or production-sharing agreements with Filipinos or entities in which at least 60% of capital is owned by Filipinos.3 This 60% requirement also applies in relation to foreign ownership of public utilities and educational institutions.4 The Constitution further authorizes the Congress, when ...read more.


Incentives for Registered Enterprises Fiscal Incentives: The code provides for a six-year income tax holiday (ITH) for pioneer enterprises and a four-year ITH for non-pioneer enterprises.14 During the ITH period, enterprises are fully exempt from income taxes levied by the national government. Non-pioneer registered enterprises may avail of a six-year ITH if it is located in a less-developed area.15 The objective is to promote investments in areas with low per capita gross domestic product, low level of investments or employment or infrastructure, and low access to developed urban centers.16 Moreover, registered enterprises in certain less developed areas may deduct from taxable income up to 100% of any infrastructure and public utility projects they undertake.17 Basic Rights and Guarantees: The Code provides foreign investors with the right to: repatriate the entire proceeds of the liquidation of their investments, remit earnings from investments in the currency in which the investment was originally made; remit amounts necessary to meet interest and principal obligations on foreign loans; and be free from expropriation and requisition of investments.18 Incentives for Multinationals: The Code incorporates a sweetener for multinational corporations which establish regional headquarters or regional operating headquarters in the Philippines. These multinational corporations are given exemptions from income tax,19 import tax20 and various charges and local fees.21 Further, these multinationals can establish regional warehouses in economic zones, and thereby import goods or inventory for ...read more.


66,30 or the incentives for export processing zones under the Code.31 Additionally, like the Code, the ecozone guarantees the protection of assets, profits, and other interests of investors.32 There are generally no ownership restrictions in ecozones.33 Conclusion The foreign investment laws in the Philippines incorporate concepts and themes which are conducive to attract foreign investment. Through the Code, foreign investors can avail of useful fiscal incentives as well as the advantages of setting up regional headquarters, operating headquarters, and warehouses. The FIA enables foreign investors to enjoy greater equity participation. Besides fiscal and equity incentives, the Ecozone Act enables foreign investors to locate enterprises in specialized ecozones to get the benefit of improved infrastructure and facilities therein. While these laws are positive developments, there are still opportunities for improvements. Efforts in the years ahead must include: harmonizing and reconciling all the foreign investment laws, liberalizing foreign ownership restraints on non-pioneer enterprises, adopting long-term Investment Priorities Plan and Negative List to ensure certainty, reducing bureaucracy to eliminate corruption, complexity and abuse, and streamlining registration procedures and rules. The ultimate goal is to attract foreign capital into the national economy, and the laws should therefore open the economy to foreign investments as much as possible without compromising other national interests. ...read more.

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