Rates of Income Tax on Foreign Corporations

CHAPTER I: GENERAL PROVISIONS ON TAX INCENTIVES

Section 291. Scope and Coverage

This title shall cover all existing Investment Promotion Agencies as defined in this Code or related laws unless otherwise specifically exempted from the coverage of this Code.

“The Investment Promotion Agencies shall maintain their functions and powers as provided under the special laws governing them except to the extend modified by the provisions of this Code: Notwithstanding the provisions of this Section, the Department of Finance, the Bureau of Internal Revenue, and the Bureau of Customs shall retain their respective mandates, powers and functions as provided for under this Act and related laws.

Section 292. Extent of Authority to Grant Tax Incentives

The Fiscal Incentives Review Board, or the Investment Promotion Agencies, under a delegated authority from the Fiscal Incentives Review Board, shall grant the appropriate tax incentives provided in this title to be granted to registered business enterprises only to the extent of their approved registered project or activity under the Strategic Investment Priority Plan.

Section 293. Definitions

• (A) Capital equipment refers to machinery, equipment, major components thereof, tools, devices, applications or apparatus, which are directly or reasonably needed in the registered project or activity of the registered enterprise;

• (B) Direct local employment refers to the full and decent employment of Filipinos by registered business enterprise under a employer-employee relationship to perform functions that are directly related to the production of goods or performance of services under the registered project or activity

• (C) Domestic input refers to purchases of locally manufactured goods or locally produced raw materials or domestically outsourced services known as services embedded in manufacturing that are used directly in the production of goods under the registered project or activity. In the case of locally manufactured goods, fifty percent (50%) of the value-added of the said good should likewise be locally produced or manufactured;

“(D) Domestic market enterprise refers to any enterprise registered with the Investment Promotion Agency other than export enterprise;

“(E) Export enterprise refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine laws and registered with the Investment Promotion Agency to engage in manufacturing, assembling or processing activity, and services such as information technology (IT) activities and business process outsourcing (BPO), and resulting in the direct exportation, and/or sale of its manufactured, assembled or processed product or IT/BPO services to another registered export enterprise that will form part of the final export product or export service of the latter, of at least seventy percent (70%) of its total production or output;

“(F) Freeport zones refers to an isolated and policed area adjacent to a port of entry, which shall be operated and managed as a separate customs territory to ensure free flow or movement of goods, except those expressly prohibited by law, within, into, and exported out of the freeport zone where imported goods may be unloaded for immediate transshipment or stored, repacked, sorted, mixed, or otherwise manipulated without being subject to import duties. However, movement of these imported goods from the free-trade area to a non-free trade area in the country shall be subject to all applicable internal revenue taxes and duties: Provided, That for the freeport to shall have a permanent customs control or customs office at its perimeter;

“(G) Investment capital refers to the value of investment indicated in Philippine currency, excluding the value of land and working capital, that shall be used to carry out a registered project or activity, except that land shall be included as investment capital for registered real estate development. Investment capital may include the cost of land improvements, building, leasehold improvements, machinery and equipment, and other non-current tangible assets;

“(H) Investment Promotion Agencies refer to government entities created by law, executive order, decree or other issuance, in charge of promoting investments, granting and administering tax and non-tax incentives, and overseeing the operations of the different economic zones and freeports in accordance with their respective special laws.

These include:

• BOI
• Regional Board of Investments-Autonomous Region in Muslim Mindanao (RBOI-ARMM)
• PEZA
• BCDA
• Subic Bay Metropolitan Authority (SBMA)
• Clark Development Corporation (CDC)
• John Hay Management Corporation (JHMC)
• Poro Point Management Corporation (PPMC)
• Cagayan Economic Zone Authority (CEZA)
• Zamboanga City Special Economic Zone Authority (ZCSEZA)
• PHIVIDEC Industrial Authority (PIA)
• Aurora Pacific Economic Zone and Freeport Authority (APECO)
• Authority of the Freeport Area of Bataan (AFAB)
• Tourism Infrastructure and Enterprise Zone Authority (TIEZA) and
• all other similar existing authorities or that may be created by law unless otherwise specifically exempted from the coverage of this Code;

(I) Metropolitan areas refers to Metro Cebu and Metro Davao or those local government units which are later qualified or grouped as such by the National Economic Development Authority or through laws or executive issuances;

“(J) Other govenrment agencies administering tax incentives refer to government agencies other than Investment Promotion Agencies which register or administer tax incentives of any kind to any specific entities and/or class of persons pursuant to any law;

“(K) Other registered entities refer to any individual, partnership, organization, corporation, Philippine branch of a foreign corporation, or other entity incorporated and/or organized and existing under Philippine laws, and registered with other government agencies administering tax incentives;

“(L) Qualified capital expenditure refers to purchases of capital goods with a useful life of more than one (1) year acquired for the entity’s production of goods and services to be directly used in the project or activity of the registered business enterprise;

“(M) Registered business enterprise refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine laws and registered with an Investment Promotion Agency excluding service enterprises such as those engaged in customs brokerage, trucking or forwarding services, janitorial services, security services, insurance, banking, and other financial services, consumers’ cooperatives, credit unions, consultancy services, retail enterprises, restaurants, or such other similar services, as may be determined by the Fiscal Incentives Review Board, irrespective of location, whether inside or outside the zones, duly accredited or licensed by any of the Investment Promotion Agencies and whose income delivered within the economic zones shall be subject to taxes under the National Internal Revenue Code of 1997, as amended;

“(N) Research and development refers to experimental or other related projects or activities:

“(1) Whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work;

“(i) Based on principles of established science; and

“(ii) Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions.

“(2) That are conducted for the purpose of generating new knowledge, including new knowledge in the form of new or improved materials, products, devices, processes or services;

“(O) Sophisticated refers to the state when a product or service requires a high level of technology, human capital, competencies or know-how, and infrastructure to be produced or offered;

“(P) Sophistication refers to the level of technology, human capital, competencies or know-how, and infrastructure required for a product or service to be offered by an economy like that of the Philippines;

“(Q) Source document refers to input materials and documents reasonable needed by information technology (IT) and IT-enabled industries such as books, directories, magazines, newspapers, brochures, pamphlets, medical records or files, legal records or files, instruction materials, and drawings, blueprints, or outlines;

“(R) Special economic zone or ecozone refers to a selected area, which shall be operated and managed as a separate customs territory that is highly developed or has the potential to be developed into an agro-industrial, industrial, information technology, or tourist/recreational area, whose metes and bounds are fixed or delimited by presidential proclamations and within a specific geographical area which includes industrial estates (IEs), export processing zone (EPZs), ICT parks and centers, and free trade zones: Provided, That for the ecozone to qualify as a separate customs territory, an ecozone shall have a permanent customs control or customs office at its perimeter: Provided, however, That areas where mining extraction is undertaken shall not be declared as an ecozone: Provided, further, That vertical ecozones, such as, but not limited to, buildings, selected floors within buildings, and selected areas on a floor, need to comply with the minimum contiguous land area as determined by the Fiscal Incentives Review Board; and

“(S) Training refers to courses, curricula, certifications or modules provided to Filipino employees that are directly related to the production of goods and performance of service under the registered project or activity and that are of a technical nature, which shall develop or improve the specific skills or practical knowledge of the employee especially in the mechanical, industrial art, scientific field or practical science of a particular position or job function in the registered project or activity, or in preparation for enhancing the value chain.”