Tax Incentives In The Philippines For Foreign Companies

Foreign investors and enterprises seeking to set up a business in the Philippines can take advantage of tax incentive programs offered by the government to boost engagements in priority areas for development in the country. Among the most common tax incentives are administered by PEZA, BOI, CEZA, and TIEZA. The eligibility requirements for these agencies will vary depending on the type of business that foreign investors will engage in.

Philippine Economic Zone Authority (PEZA)

Foreign companies engaging in the export industry in the Philippines, including outsourcing and offshoring business operations, are eligible to register with the Philippine Economic Zone Authority (PEZA).

If eligible, they will be entitled to income tax holidays valid for 4, 5, or 6 years. After the expiration of validity, they will be subject to 5% tax on gross income (in lieu of all national and local taxes). Foreign companies will also enjoy exemption from expanded withholding taxes, tax and duty-free importation of capital equipment, tax credits for exporters using local materials, special visa privileges, and many more.
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To apply for tax incentives from PEZA, foreign companies and investors must locate their business in any of PEZA’s Special Economic Zones (SEZs) or engage in the list of activities qualified for PEZA incentives, which are as follows:

• Export Manufacturing
• Information Technology (IT) Service Export
• Tourism
• Medical Tourism
• Agro-Industrial Export/Bio-Fuel Manufacturing
• Logistics and Warehousing Services
• Economic Zone Development and Operations
• Facilities Providers
• Utilities

Board of Investments (BOI)

Foreign enterprises engaged in the Business Process Outsourcing (BPO) industry, including IT and shared services, are eligible to register their business with the Board of Investments (BOI). Those engaging in activities that promote the general economic development of the Philippines or in activities determined to be investment priorities by the government are also qualified to register with BOI.

If eligible, they will be entitled to income tax holidays of 4 to 8 years and exemption from local business taxes for 4 to 6 years (for pioneer and non-pioneer industries, subject to different requirements). They will also have tax exemption from wharfage dues, tax and duty-free importation of consigned equipment, tax credits on imported raw materials, special visa privileges, and many more.

To apply for tax incentives from BOI, foreign companies and investors must engage in BOI’s pioneer projects under the Investment Priorities Plan (IPP) and satisfy any of these requirements:

• At least 70% of services or products are for export; or
• Proposed projects are to be undertaken in areas listed by BOI as less developed areas (LDAs)

BOI-registered companies are obliged to attain 60% Filipino ownership within 30 years from registration unless they export or plan to export 100% of their production.

Cagayan Economic Zone Authority (CEZA)

Foreign companies engaging in tourism-related activities (entertainment, amusement, games, etc.) and sports and recreation-related activities (horse racing, gambling, virtual gaming, online gaming, etc.) are qualified to register their business with the Cagayan Economic Zone Authority (CEZA).

If eligible, they will be entitled to income tax holidays valid for 4 to 6 years. After the expiration of validity, they will be subject to 5% tax on gross income (in lieu of all national and local taxes). They will also enjoy tax and duty-free importation of capital equipment, zero-rating for articles admitted to the Cagayan Special Economic Zone and Freeport (CSEZFP) under legal permit, tax credits, special visa privileges, and many more.

To apply for tax incentives from CEZA, foreign companies and investors must locate their business in the CSEZFP or engage in any of the lists of activities eligible for CEZA incentives.

Tourism Infrastructure and Enterprise Authority (TIEZA)

Foreign companies engaging in tourism-related activities (such as travel and tour agencies, tour guides, restaurants, spas, theme parks, and galleries) with the main purpose of attracting as many visitors as possible to travel to and in the Philippines are qualified to register their business with the Tourism Infrastructure and Enterprise Zone Authority (TIEZA).

If eligible, foreign companies will be entitled to income tax holidays. After the expiration of these tax holidays, they will be subject to 5% on gross income. They will also have tax exemption from customs duties and special visa privileges.

To apply for tax incentives from TIEZA, foreign companies must locate their business in a Tourism Enterprise Zone (TEZ) and register with TIEZA or engage in tourism activities included in the Investment Priorities Plan (IPP) of BOI.