EXECUTIVE ORDER NO.

226 July 16, 1987 THE OMNIBUS INVESTMENTS CODE OF 1987

2. The State shall ensure the holistic development by safeguarding the well-being of the social, cultural and ecological life of the people. For this purpose, consultation with affected communities will be conducted whenever necessary. lawphi1.net 3. The Sate shall extend to projects which will significantly contribute to the attainment of these objectives, fiscal incentives without which said projects may not be established in the locales, number and/or pace required for optimum national economic development. Fiscal incentive system shall be devised to compensate for market imperfections, to reward performance contributing to economic development, be cost-efficient and be simple to administer. 4. The Sate considers the private sector as the prime mover for economic growth. In this regard, private initiative is to be encouraged, with deregulation and self-regulation of business activities to be generally adopted where dictated by urgent social concerns. 5. The State shall principally play a supportive role, rather than a competitive one, providing the framework, the climate and the incentives within which business activity is to take place. 6. The State recognize that there are appropriate roles for local and foreign capital to play in the development of the Philippine economy and that it is the responsibility of Government to define these roles and provide the climate for their entry and growth. 7. The State recognizes that industrial peace is an essential element of economic growth and that it is a principal responsibility of the State to ensure that such condition prevails. 8. Fiscal incentives shall be extended to stimulate the establishment and assist initial operations of the enterprise, and shall terminate after a period of not more than 10 years from registration or start-up of operation unless a specific period is otherwise stated. The foregoing declaration of investment policies shall apply to all investment incentive schemes.

WHEREAS, the Government is committed to encourage investments in desirable areas of activities; WHEREAS, to facilitate investment, there is a need to adopt a cohesive and consolidated investments incentives law; WHEREAS, it is imperative to integrate basic laws on investment, to clarify and harmonize their provisions for the guidance of domestic and foreign investors; NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines, do hereby order and ordain the following: Article 1. Short Title. This Order shall be known as the "Omnibus Investments Code" of 1987. Article 2. Declaration of Investment Policies. To accelerate the sound development of the national economy in consonance with the principles and objectives of economic nationalism and in pursuance of a planned economically feasible and practical dispersal of industries and the promotion of small and medium scale industries, under conditions which will encourage competition and discourage monopolies, the following are declared policies of the State: 1. The State shall encourage private Filipino and foreign investments in industry, agriculture, forestry, mining, tourism and other sectors of the economy which shall: provide significant employment opportunities relative to the amount of the capital being invested; increase productivity of the land, minerals, forestry, aquatic and other resources of the country, and improve utilization of the products thereof; improve technical skills of the people employed in the enterprise; provide a fountain for the future development of the economy; meet the tests of international competitiveness; accelerate development of less developed regions of the country; and result in increased volume and value of exports for the economy. lawphi1.net

CHAPTER II BOARD OF INVESTMENTS Article 3. The Board of Investments. The Board of Investments shall implement the provisions of Books One to Five of this Code. Article 4. Composition of the Board. The Board of Investments shall be composed of seven (7) governors: The Secretary of Trade and Industry, three (3) Undersecretaries of Trade and Industry to be chosen by the President, and three (3) representatives from other government agencies and the private sector. The Secretary of Trade and Industry shall be concurrently Chairman of the Board and the Undersecretary of the Department of Trade and Industry for Industry and Investments shall be appointed by the President for a term of four (4) years: Provided, That upon the expiration of his term, a governor shall serve as such until his successor shall have been appointed and qualified: Provided, further, That no vacancy shall be filled except for the unexpired portion of any term, and that no one may be designated to be governor of the Board in an acting capacity but all appointments shall be ad interim or permanent. Article 5. Qualifications of Governors of the Board. The governors of the Board shall be citizens of the Philippines, at least thirty (30) years old, of good moral character and of recognized competence in the fields of economics, finance, banking, commerce, industry, agriculture, engineering, law, management or labor. Article 6. Appointment of Board Personnel. The Board shall appoint its technical staff and other personnel subject to Civil Service Law, rules and regulations. Article 7. Powers and Duties of the Board. The Board shall be responsible for the regulation and promotion of investments in the Philippines. It shall meet as often as may be necessary generally once a week on such day as it may fix. Notice of regular and special meetings shall be given all members of the Board. The presence of four (4) governors shall constitute a quorum and the affirmative vote of four (4) governors in a meeting validly held shall be necessary to exercise its powers and perform its duties, which shall be as follows:

(1) Prepare annually the Investment Priorities Plan as defined in Article 26, which shall contain a listing of specific activities that can qualify for incentives under Book I of this Code, duly supported by the studies of existing and prospective demands for such products and services in the light of the level and structure of income, production, trade, prices and relevant economic and technical factors of the regions as well as existing facilities; (2) Promulgate such rules and regulations as may be necessary to implement the intent and provisions of this Code relevant to the Board: (3) Process and approve applications for registration with the Board, imposing such terms and conditions as it may deem necessary to promote the objectives of this Code, including refund of incentives when appropriate, restricting availment of certain incentives not needed by the project in the determination of the Board, requiring performance bonds and other guarantees, and payment of application, registration, publication and other necessary fees and when warranted may limit the availment of the tax holiday incentive to the extent that the investor's country law or treaties with the Philippines allows a credit for taxes paid in the Philippines; (4) After due hearing, decide controversies concerning the implementation of the relevant books of this Code that may arise between registered enterprises or investors therein and government agencies, within thirty (3)) days after the controversy has been submitted for decision: Provided, That the investor or the registered enterprise may appeal the decision of the Board within thirty (30) days from receipt thereof to the President; (5) Recommend to the Commissioner of Immigration and Deportation the entry into the Philippines for employment of foreign nationals under this Code; (6) Periodically check and verify, either by inspection of the books or by requiring regular reports, the proportion of the participation of Philippine nationals in a registered enterprise to ascertain compliance with its qualification to retain registration under this Code; (7) Periodically check and verify the compliance by registered enterprises with the

relevant provisions of this Code, with the rules and regulations promulgated under this Code and with the terms and conditions of registration; (8) After due notice, cancel the registration or suspend the enjoyment of incentives benefits of any registered enterprise and/or require refund of incentives enjoyed by such enterprise including interests and monetary penalties, for (a) failure to maintain the qualifications required by this Code for registration with the Board of (b) for violation of any provisions of this Code, of the rules and regulations issued under this Code, of the terms and conditions of registration, or of laws for the protection of labor or of the consuming public: Provided, That the registration of an enterprise whose project timetable, as set by the Board is delayed by one year, shall be considered automatically cancelled unless otherwise reinstated as a registered enterprise by the Board; (9) Determine the organizational structure taking into account Article 6 of this Code; appoint, discipline and remove its personnel consistent with the provisions of the Civil Service Law and Rules; (10) Prepare or contract for the preparation of feasibility and other pre-investment studies for pioneer areas either upon its own initiative; or upon the request of Philippine nationals who commit themselves to invest therein and show the capability of doing so; Provided, That if the venture is implemented, then the amount advanced by the Board shall be repaid within five (5) years from the date the commercial operation of said enterprise starts; (11) When feasible and considered desirable by the Board, require registered enterprises to list their shares of stock in any accredited stock exchange or directly offer a portion of their capital stock to the public and/or their employees; (12) Formulate and implement rationalization programs for certain industries whose operation may result in dislocation, overcrowding or inefficient use of resources, thus impeding economic growth. For this purpose, the Board may formulate guidelines for progressive manufacturing programs, local content programs, mandatory sourcing requirements and dispersal of industries. In appropriate cases and upon approval of the President, the Board may restrict, either totally or partially, the

importation of any equipment or raw materials or finished products involved in the rationalization program; (13) In appropriate cases, the subject to the conditions which the Board deems necessary, suspend the nationality requirement provided for in this Code or any other nationalization statute in cases of ASEAN projects or investments by ASEAN nationals in preferred projects, and with the approval of the President, extend said suspension to other international complementation arrangements for the manufacture of a particular product on a regional basis to take advantage of economies of scale; (14) Extend the period of availment of incentives by any registered enterprise; Provided, That the total period of availment shall not exceed ten (10) years, subject to any of the following criteria: (a) The registered enterprise has suffered operational force majeure that has impaired its viability; (b) The registered enterprise has not fully enjoyed the incentives granted to it for reasons beyond its control; (c) The project of the registered enterprise has a gestation period which goes beyond the period of availment of needed incentives; and (d) The operation of the registered enterprise has been subjected to unforeseen changes in government policies, particularly, protectionalism policies of importing countries, and such other supervening factors which would affect the competitiveness of the registered firm; (15) Regulate the making of investments and the doing of business within the Philippines by foreigners or business organizations owned in whole or in part by foreigners; (16) Prepare or contract for the preparation of industry and sectoral development programs and gather and compile statistical, technical, marketing, financial and other data required for the effective implementation of this Code; (17) Within four (4) months after the close of the fiscal year, submit annual reports to the President which shall cover its activities in the administration of this Code, including recommendations on investment policies;

(18) Provide, directly or through Philippine Diplomatic Missions, such information as may be of interest to prospective foreign investors; (19) Collate, analyze and compile pertinent information and studies concerning areas that have been or may be declared preferred areas of investments; and (20) Enter into agreements with other agencies of government for the simplification and facilitation of systems and procedures involved in the promotion of investments, operation of registered enterprises and other activities necessary for the effective implementation of this Code; (21) Generally, exercise all the powers necessary or incidental to attain the purposes of this Code and other laws vesting additional functions on the Board. Article 8. Powers and Duties of Chairman. The Chairman shall have following powers and duties: the the

Chairman deems necessary and proper to carry out the provisions of this Code; (4) Assist registered enterprises and prospective investors to have their papers processed with dispatch by all government offices, agencies, instrumentalities and financial institutions; and (5) Perform the other duties of the Chairman in the absence of the latter, and such other duties as may be assigned to him by the Board of Governors.

BOOK I INVESTMENTS WITH INCENTIVES TITLE I PREFERRED AREAS OF INVESTMENTS CHAPTER I DEFINITIONS OF TERMS

(1) To preside over the meetings of the Board; (2) To render annual reports to the President and such special reports as may be requested; (3) To act as liaison between investors seeking joint venture arrangements in particular areas of investments; (4) Recommend to the Board such policies and measures he may deem necessary to carry out the objectives of this Code; and (5) Generally, to exercise such other powers and perform such other duties as may be directed by the Board of Governors from time to time. Article 9. Powers and Duties of the ViceChairman. The Vice-Chairman shall have the following powers and duties: (1) To act as Managing Head of the Board;

Article 10. "Board" shall mean the Board of Investments created under this Code. Article 11. "Registered Enterprises" shall mean any individual, partnership, cooperative, corporation or other entity incorporated and/or organized and existing under Philippine laws; and registered with the Board in accordance with this Book: Provided, however, That the term "registered enterprise" shall not include commercial banks, savings and mortgage banks, rural banks, savings and loan associations, building and loan associations, developmental banks, trust companies, investment banks, finance companies, brokers and dealers in securities, consumers cooperatives and credit unions, and other business organizations whose principal purpose or principal source of income is to receive deposits, lend or borrow money, buy and sell or otherwise deal, trade or invest in common or preferred stocks, debentures, bonds or other marketable instruments generally recognized as securities, or discharge other similar intermediary, trust of fiduciary functions. Article 12. "Technological assistance contracts" shall mean contracts for: (1) the

(2) To preside over the meetings of the Board in the absence of the Chairman; (3) Prepare the Agenda for the meetings of the Board and submit for its consideration and approval the policies and measures which the

transfer, by license otherwise, of patents, processes, formulas or other technological rights of foreign origin; and/or (2) foreign assistance concerning technical and factory management, design, planning, construction, operation and similar matters. Article 13. "Foreign loans" shall mean any credit facility or financial assistance other than equity investment denominated and payable in foreign currency or where the creditor has the option to demand payment in foreign exchange and registered with the Central Bank and the Board. Article 14. "Foreign Investments" shall mean equity investments owned by a nonPhilippine national made in the form of foreign exchange or other assets actually transferred to the Philippines and registered with the Central Bank and the Board, which shall assess and appraise the value of such assets other than foreign exchange. Article 15. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly-owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines, or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals; Provided, That where a registered and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine national. Article 16. "Preferred areas of investments" shall mean the economic activities that the Board shall have declared as such in accordance with Article 28 which shall be either non-pioneer or pioneer. Article 17. "Pioneer enterprise" shall mean a registered enterprise (1) engaged in the manufacture, processing or production, and not

merely in the assembly or packaging of goods, products, commodities or raw materials that have not been or are not being produced in the Philippines on a commercial scale or (2) which uses a design, formula, scheme, method, process or system of production or transformation of any element, substance or raw materials into another raw material or finished goods which is new and untried in the Philippines or (3) engaged in the pursuit of agricultural, forestry and mining activities and/or services including the industrial aspects of food processing whenever appropriate, predetermined by the Board, in consultation with the appropriate Department, to be feasible and highly essential to the attainment of the national goal, in relation to a declared specific national food and agricultural program for self-sufficiency and other social benefits of the project or (4) which produces non-conventional fuels or manufactures equipment which utilize nonconventional sources of energy or uses or converts to coal or other non-conventional fuels or sources of energy in its production, manufacturing or processing operations. Provided, That the final product in any of the foregoing instances, involves or will involve substantial use and processing of domestic raw materials, whenever available; taking into account the risks and magnitude of investment: Provided, further, That the foregoing definitions shall not in any way limit the rights and incentives granted to less-developed-area enterprises provided under Title V, Book I, hereof. Article 18. "Non-pioneer enterprise" shall include all registered producer enterprises other than pioneer enterprises. Article 19. "Expansion" shall include modernization and rehabilitation and shall mean increase of existing volume or value of production or upgrading the quality of the registered product or utilization of inefficient or idle equipment under such guidelines as the Board may adopt. Article 20. "Measured capacity" shall mean the estimated additional volume of production or service which the Board determines to be desirable in each preferred area of investment in order to supply the needs of the economy at reasonable prices, taking into account the export potential of the product, including economies of scale which would render such product

competitive in the world market. Measured capacity shall not be less than the amount by which the measurable domestic and country's potential export market demand exceeds the existing productive capacity in said preferred areas. For export market industries, when warranted the Board shall base measured capacity on the availability of domestic raw materials after deducting the needs of the domestic market therefor. Article 21. "Tax credit" shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, if so delegated by the Secretary of Finance. The tax credit certificates including those issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability under their laws of issue are transferable under such conditions as may be determined by the Board after consultation with the Department of Finance. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the National Government; Provided, That the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore not taxable: Provided, further, That such tax credits shall be valid only for a period of ten (10) years from date of issuance. Article 22. "Export products" shall mean manufactured or processed products the total F.O.B. Philippine port value of the exports of which did not exceed five million dollars in the United States Currency in the calendar year 1968 and which meet the local content requirement, if any, set by the Board, and standards of quality set by the Bureau of Product Standards, or, in default of such standards, by the Board or by such public or private organization, chamber, group or body as the Board may designate. The above definition notwithstanding, the Investment Priorities Plan may include other products for export subjects to such conditions and limited incentives as may be determined by the Board. Article 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of credit,

landing certificates, and other commercial documents, of exports products exported directly by a registered export producer or the net selling price of export product sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same: Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents: Provided, further, That without actual exportation the following shall be considered constructively exported for purposes of this provision: (1) sales to bonded manufacturing warehouses of exportoriented manufacturers; (2) sales to export processing zones; (3) sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not: Provided, further, That export sales of registered export trader may include commission income: and Provided, finally, That exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee. Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales. Article 24. "Production cost" shall mean the total of the cost of direct labor, raw materials, and manufacturing overhead, determined in accordance with generally accepted accounting principles, which are incurred in manufacturing or processing the products of a registered enterprise. Article 25. "Processing" shall mean converting of raw materials into marketable from through physical, mechanical, chemical, electrical, biochemical, biological or other means

or by a special treatment or a series of actions, such as slaughtering, milling, pasteurizing, drying or dessicating, quick freezing, that results in a change in the nature or state of the products. Merely packing or packaging shall not constitute processing. Article 26. "Investment Priorities Plan" shall mean the over-all plan prepared by the Board which includes and contains: (a) The specific activities and generic categories of economic activity wherein investments are to be encouraged and the corresponding products and commodities to be grown, processed or manufactured pursuant thereto for the domestic or export market; (b) Specific public utilities which can qualify for incentives under this Code and which shall be supported by studies of existing and prospective regional demands for the services of such public utilities in the light of the level and structure of income, production, trade, prices and relevant economic and technical factors of the regions as well as the existing facilities to produce such services; (c) Specific activities where the potential for utilization of indigenous no-petroleum based fuels or sources of energy can be best promoted; and (d) Such other information, analyzes, data, guidelines or criteria as the Board may deem appropriate. The specific and generic activities to be included in the Investment Priorities Plan with their status as pioneer or non-pioneer shall be determined by the Board in accordance with the criteria set forth in this Book.

Article 28. Criteria in Investment Priority Determination. No economic activity shall be included in the Investment Priority Plan unless it is shown to be economically, technically and financially sound after thorough investigation and analysis by the Board. The determination of preferred areas of investment to be listed in the Investment Priorities Plan shall be based on long-run comparative advantage, taking into account the value of social objectives and employing economic criteria along with market, technical, and financial analyses. The Board shall take into account the following: (a) Primarily, the economic soundness of the specific activity as shown by its economic internal rate of return; (b) The extent of contribution of an activity to a specific developmental goal; (c) Other advantage; indicators or comparative

(d) Measured capacity as defined in Article 20; and (e) The market and technical aspects and considerations of the activity proposed to be included. In any of the declared preferred areas of investment, the Board may designate as pioneer areas the specific products and commodities that meet the requirements of Article 17 of this Code and review yearly whether such activity, as determined by the Board, shall continue as pioneer, otherwise, it shall be considered as non-pioneer and accordingly listed as such in the Investment Priorities Plan or removed from the Investment Priorities Plan. Article 29. Approval of the Investment Priorities Plan. The President shall proclaim the whole or part of such plan as in effect; or alternatively, return the whole or part of the plan to the Board of Investment for revision. Upon the effectivity of the plan or portions thereof, the President shall issue all necessary directives to all departments, bureaus, agencies or instrumentalities of the government to ensure the implementation of the plan by the agencies concerned in a synchronized and integrated

CHAPTER II INVESTMENT PRIORITIES PLAN Article 27. Investment Priorities Plan. Not later than the end of March of every year, the Board of Investments, after consultation with the appropriate government agencies and the private sector, shall submit to the President an Investment Priorities Plan: Provided, however, That the deadline for submission, may be extended by the President.

manner. No government body shall adopt any policy or take any course of action contrary to or inconsistent with the plan. Article 30. Amendments. Subject to publication requirements and the criteria for investment priority determination, the Board of Investments may, at any time, add additional areas in the plan, alter any of the terms of the declaration of an investment area or the designation of measured capacities, or terminate the status of preference. In no case, however, shall any amendment of the plan impair whatever rights may have already been legally vested in qualified enterprises which shall continue to enjoy such rights to the full extent allowed under this Code. The Board shall not accept applications in an area of investment prior to the approval of the same as a preferred area nor after approval of its deletion as a preferred area of investment. Article 31. Publication. Upon approval of the plan, in whole or in part, or upon approval of an amendment thereof, the plan or the amendment, specifying and declaring the preferred areas of investment and their corresponding measured capacity shall be published in at least one (1) newspaper of general circulation and all such areas shall be open for application until publication of an amendment or deletion thereof, or until the Board approves registration of enterprises which fill the measured capacity.

Article 15 of this Code, and at least sixty per cent (60%) of the members of the Board of Directors are citizens of the Philippines. If it does not possess the required degree of ownership as mentioned above by Philippine nationals, the following circumstances must be satisfactorily established: (a) That it proposes to engage in a pioneer projects as defined in Article 17 of this Code, which, considering the nature and extent of capital requirements, processes, technical skills and relative business risks involved, is in the opinion of the Board of such a nature that the available measured capacity thereof cannot be readily and adequately filled by Philippine nationals; or, if the applicant is exporting at least seventy per cent (70%) of is total production, the export requirement herein provided may be reduced in meritorious cases under such conditions and/or limited incentives as the Board may determine; (b) That it obligates itself to attain the status of a Philippine national, as defined in Article 15, within thirty (30) years from the date of registration or with such longer period as the Board may require taking into account the export potential of the project: Provided, That a registered enterprise which exports one hundred percent (100%) of its total production need not comply with this requirement; (c) That the pioneer are it will engage in is one that is not within the activities reserved by the Constitution or other laws of the Philippines to the Philippine citizens or corporations owned and controlled by Philippine citizens; (2) The applicant is proposing to engage in a preferred project listed or authorized in the current Investment Priorities Plan within a reasonable time to be fixed by the Board or, if not so listed, at least fifty percent (50%) of its total production is for export or it is an existing producer which will export part of production under such conditions and/or limited incentives as the Board may determine; or that the enterprise is engaged or proposing to engage in the sale abroad of export products bought by it from one or more export producers; or the enterprise in engaged or proposing to engage in rendering technical, professional or other services or in exporting television and motion pictures and musical recordings made or

CHAPTER III REGISTRATION OF ENTERPRISES Article 32. Qualifications of a Registered Enterprises. To be entitled to registration under the Investment Priorities Plan, an applicant must satisfy the Board that: (1) He is a citizen of the Philippines, in case the applicant is a natural person, or in case of a partnership or any other association, it is organized under Philippine laws and that at least sixty percent (60%) of its capital is owned and controlled by citizens of the Philippines; or in case of a corporation or a cooperative, it is organized under Philippine laws and that at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by Philippine nationals as defined under

produced in the Philippines, either directly or through a registered trader. (3) The applicant is capable of operating on a sound and efficient basis of contributing to the national development of the preferred area in particular and of the national economy in general; and (4) If the applicant is engaged or proposes to engage in undertakings or activities other than preferred projects, it has installed or undertakes to install an accounting system adequate to identify the investments, revenues, costs, and profits or losses of each preferred project undertaken by the enterprise separately from the aggregate investment, revenues, costs and profits or losses of the whole enterprise or to establish a separate corporation for each preferred project if the Board should so require to facilitate proper implementation of this Code. Article 33. Application. Applications shall be filed with the Board, recorded in a registration book and the date appearing therein and stamped on the application shall be considered the date of official acceptance. Whenever necessary, the Board, through the People's Economic Councils, shall consult the communities affected on the acceptability of locating the registered enterprise within their community. Article 34. Approval and Registration Procedures. The Board is authorized to adopt rules and regulations to facilitate action on applications filed with it; prescribe criteria for the evaluation of several applications filed in one preferred area; devise standard forms for the use of applicants and delegate to the regional offices of the Department of Trade and Industry the authority to receive and process applications for enterprises to be located in their respective regions. Applications filed shall be considered automatically approved if not acted upon by the Board within twenty (20) working days from official acceptance thereof. Article 35. Criteria for Evaluation of Applications. The following criteria will be considered in the evaluation of applications for registration under a preferred area:

(a) The extent of ownership and control by Philippine citizens of the enterprises; (b) The economic rates of return;

(c) The measured capacity Provided, That estimates of measured capacities shall be regularly reviewed and updated to reflect changes in market supply and demand conditions; Provided, Further, That measured capacity shall not result in a monopoly in any preferred area of investment which would unduly restrict trade and fair competition nor shall it be used to deny the entry of any enterprise in any field of endeavor or activity; (d) The amount of foreign exchange earned, used or saved in their operations; (e) The extent to which labor, materials and other resources obtained from indigenous sources are utilized; (f) The extent to which technological advances are applied and adopted to local condition; (g) The amount of equity and degree to which the ownership of such equity is spread out and diversified; and (h) Such other criteria as the Board may determine. Article 36. Appeal from Board's Decision. Any order or decision of the Board shall be final and executory after thirty (30) days from its promulgation. Within the said period of thirty (30) days, said order or decision may be appealed to the Office of the President. Where an appeal has been filed, said order or decision shall be final and executory ninety (90) days after the perfection of the appeal, unless reversed. Article 37. Certificate of Registration. A registered enterprise under this Code shall be issued a certificate of registration under the seal of the Board of Investments and the signature of its Chairman and/or such other officer or employee of the Board as it may empower and designate for the purpose. The certificate shall be in such form and style as the Board may determine and shall state, among other matters: (a) The name of the registered enterprise;

(b) The preferred area of investment in which the registered enterprise is proposing to engage; (c) The nature of the activity it is undertaking or proposing to undertake, whether pioneer or non-pioneer, and the registered capacity of the enterprise; and (d) The other terms and conditions to be observed by the registered enterprise by virtue of the registration.

(d) Freedom from Exploriation. There shall be no expropriation by the government of the property represented by investments or of the property of the enterprise except for public use or in the interest of national welfare or defense and upon payment of just compensation. In such cases, foreign investors or enterprises shall have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made and at the exchange rate at the time of remittance, subject to the provisions of Section 74 of Republic Act No. 265 as amended; (e) Requisition of Investment. There shall be no requisition of the property represented by the investment or of the property of enterprises, except in the event of war or national emergency and only for the duration thereof. Just compensation shall be determined and paid either at the time of requisition or immediately after cessation of the state of war or national emergency. Payments received as compensation for the requisitioned property may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance, subject to the provisions of Section 74 of Republic Act No. 265 as amended.

TITLE II BASIC RIGHTS AND GUARANTEES Article 38. Protection of Investments. All investors and registered enterprises are entitled to the basic rights and guarantees provided in the Constitution. Among other rights recognized by the Government of the Philippines are the following: (a) Repatriation of Investments. In the case of foreign investments, the right to repatriate the entire proceeds of the liquidation of the investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of repatriation, subject to the provisions of Section 74 of Republic Act No. 265 as amended; For investments made pursuant to Executive Order No. 32 and its implementing rules and regulations, remittability shall be as provided therein. (b) Remittance of Earnings. In the case of foreign investments, the right to remit earnings from the investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance, subject to the provisions of Section 74 of Republic Act No. 265 as amended; (c) Foreign Loans and Contracts. The right to remit at the exchange rate prevailing at the time of remittance such sums as may be necessary to meet the payments of interest and principal on foreign loans and foreign obligations arising from technological assistance contracts, subject to the provisions of Section 74 of Republic Act No. 265 as amended;

TITLE III INCENTIVES TO REGISTERED ENTERPRISES Article 39. Incentives to Registered Enterprises. All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment; (a) Income Tax Holiday.

(1) For six (6) years from commercial operation for pioneer firms and four (4) years for non-pioneer firms, new registered firms shall be fully exempt from income taxes levied by the National Government. Subject to such guidelines as may be prescribed by the Board, the income tax exemption will be extended for another year in each of the following cases: i. the project meets the prescribed ratio of capital equipment to number of workers set by the Board;

ii. utilization of indigenous raw materials at rates set by the Board; iii. the net foreign exchange savings or earnings amount to at least US$500,000.00 annually during the first three (3) years of operation. The preceding paragraph notwithstanding, no registered pioneer firm may avail of this incentive for a period exceeding eight (8) years. (2) For a period of three (3) years from commercial operation, registered expanding firms shall be entitled to an exemption from income taxes levied by the National Government proportionate to their expansion under such terms and conditions as the Board may determine; Provided, however, That during the period within which this incentive is availed of by the expanding firm it shall not be entitled to additional deduction for incremental labor expense. (3) The provision of Article 7 (14) notwithstanding, registered firms shall not be entitled to any extension of this incentive. (b) Additional Deduction for Labor Expense. For the first five (5) years from registration a registered enterprise shall be allowed an additional deduction from the taxable income of fifty percent (50%) of the wages corresponding to the increment in the number of direct labor for skilled and unskilled workers if the project meets the prescribed ratio of capital equipment to number of workers set by the Board: Provided, That this additional deduction shall be doubled if the activity is located in less developed areas as defined in Art. 40. (c) Tax and Duty Exemption on Imported Capital Equipment. Within five (5) years from the effectivity of this Code, importations of machinery and equipment and accompanying spare parts of new and expanding registered enterprise shall be exempt to the extent of one hundred percent (100%) of the customs duties and national internal revenue tax payable thereon: Provided, That the importation of machinery and equipment and accompanying spare parts shall comply with the following conditions: (1) They are not manufactured domestically in sufficient quantity, of comparable quality and at reasonable prices;

(2) They are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval of the Board is secured for the parttime utilization of said equipment in a nonregistered activity to maximize usage thereof or the proportionate taxes and duties are paid on the specific equipment and machinery being permanently used for non-registered activities; and (3) The approval of the Board was obtained by the registered enterprise for the importation of such machinery, equipment and spare parts.

In granting the approval of the importations under this paragraph, the Board may require international canvassing but if the total cost of the capital equipment or industrial plant exceeds US$5,000,000, the Board shall apply or adopt the provisions of Presidential Decree Numbered 1764 on International Competitive Bidding. If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts without prior approval of the Board within five (5) years from date of acquisition, the registered enterprise and the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of the tax exemption given it. The Board shall allow and approve the sale, transfer or disposition of the said items within the said period of five (5) years if made: (aa) to another registered enterprise or registered domestic producer enjoying similar incentives; (bb) for reasons obsolescence; or of proven technical

(cc) for purposes of replacement to improve and/or expand the operations of the registered enterprise. (d) Tax Credit on Domestic Capital Equipment. A tax credit equivalent to one hundred percent (100%) of the value of the national internal revenue taxes and customs duties that would have been waived on the machinery, equipment and spare parts, had these items been imported shall be given to the new and expanding registered enterprise which

purchases machinery, equipment and spare parts from a domestic manufacturer: Provided, That (1) That the said equipment, machinery and spare parts are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval of the Board is secured for the parttime utilization of said equipment in a nonregistered activity to maximize usage thereof; (2) that the equipment would have qualified for tax and duty-free importation under paragraph (c) hereof; (3) that the approval of the Board was obtained by the registered enterprise; and (4) that the purchase is made within five (5) years from the date of effectivity of the Code. If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts, the provisions in the preceding paragraph for such disposition shall apply. (e) Exemption from Contractor's Tax. The registered enterprise shall be exempt from the payment of contractor's tax, whether national or local. (f) Simplification of Customs Procedure. Customs procedures for the importation of equipment, spare parts, raw materials and supplies, and exports of processed products by registered enterprises shall be simplied by the Bureau of Customs. (g) Unrestricted Use of Consigned Equipment. Provisions of existing laws notwithstanding, machinery, equipment and spare part consigned to any registered enterprises shall not be subject to restrictions as to period of use of such machinery, equipment and spare parts Provided, that the appropriate re-export bond is posted unless the importation is otherwise covered under subsections (c) and (m) of this Article. Provided, further, that such consigned equipment shall be for the exclusive use of the registered enterprise. If such equipment is sold, transferred or otherwise disposed of by the registered enterprise the related provision of Article 39 (c) (3) shall apply. Outward remittance of foreign exchange covering the proceeds of such sale, transfer or disposition shall be allowed only upon prior Central Bank approval. (h) Employment of Foreign Nationals. Subject to the provisions of Section 29 of Commonwealth Act Number 613, as amended, a registered enterprise may employ foreign

nationals in supervisory, technical or advisory positions for a period not exceeding five (5) years from its registration, extendible for limited periods at the discretion of the Board: Provided, however, That when the majority of the capital stock of a registered enterprise is owned by foreign investors, the position of president, treasurer and general manager or their equivalents may be retained by foreign nationals beyond the period set forth herein. Foreign nationals under employment contract within the purview of this incentive, their spouses and unmarried children under twentyone (21) years of age, who are not excluded by Section 29 of Commonwealth Act Numbered 613, as amended, shall be permitted to enter and reside in the Philippines during the period of employment of such foreign nationals. A registered enterprise shall train Filipinos as understudies of foreign nationals in administrative, supervisory and technical skills and shall submit annual reports on such training to the Board. (i) Exemption on Breeding Stocks and Genetic Materials. The importation of breeding stocks and genetic materials within ten (10) years from the date of registration or commercial operation of the enterprise shall be exempt from all taxes and duties: Provided, That such breeding stocks and genetic materials are (1) not locally available and/or obtainable locally in comparable quality and at reasonable prices; (2) reasonably needed in the registered activity; and (3) approved by the Board. (j) Tax Credit on Domestic Breeding Stocks and Genetic Materials. A tax credit equivalent to one hundred percent (100%) of the value of national internal revenue taxes and customs duties that would have been waived on the breeding stocks and genetic materials had these items been imported shall be given to the registered enterprise which purchases breeding stocks and generic materials from a domestic producer: Provided, 1) That said breeding stocks and generic materials would have qualified for tax and duty free importation under the preceding paragraph; 2) that the breeding stocks and genetic materials are reasonably needed in the registered activity; 3) that the approval of the board has been obtained by the registered enterprise; and 4) that the purchase is made within ten (10) years from date of registration or

commercial enterprise.

operation

of

the

registered

exempted from any wharfage dues, and any export tax, duty, impost and fee.

(k) Tax Credit for Taxes and Duties on Raw Materials. Every registered enterprise shall enjoy a tax credit equivalent to the National Internal Revenue taxes and Customs duties paid on the supplies, raw materials and semimanufactured products used in the manufacture, processing or production of its export products and forming part thereof, exported directly or indirectly by the registered enterprise: Provided, however, that the taxes on the supplies, raw materials and semi- manufactured products domestically purchased are indicated as a separate item in the sales invoice. Nothing herein shall be construed as to preclude the Board from setting a fixed percentage of export sales as the approximate tax credit for taxes and duties of raw materials based on an average or standard usage for such materials in the industry. (l) Access to Bonded Manufacturing/Trading Warehouse System. Registered export oriented enterprises shall have access to the utilization of the bonded warehousing system in all areas required by the project subject to such guidelines as may be issued by the Board upon prior consultation with the Bureau of Customs. (m) Exemption from Taxes and Duties on Imported Spare Parts. Importation of required supplies and spare parts for consigned equipment or those imported tax and duty free by a registered enterprise with a bonded manufacturing warehouse shall be exempt from customs duties and national internal revenue taxes payable thereon, Provided, However, That at least seventy percent (70%) of production is exported; Provided, further, that such spare parts and supplies are not locally available at reasonable prices, sufficient quantity and comparable quality; Provided, finally, That all such spare parts and supplies shall be used only in the bonded manufacturing warehouse of the registered enterprise under such requirements as the Bureau of Customs may impose. (n) Exemption from Wharfage Dues and any Export Tax, Duty, Impost and Fee. The provisions of law to the contrary notwithstanding, exports by a registered enterprise of its nontraditional export products shall be exempted of its non-traditional export products shall be

TITLE IV INCENTIVES TO LESS-DEVELOPED-AREA REGISTERED ENTERPRISE Article 40. A registered enterprise regardless of nationality located in a lessdeveloped-area included in the list prepared by the Board of Investments after consultation with the National Economic & Development Authority and other appropriate government agencies, taking into consideration the following criteria: low per capita gross domestic product; low level of investments; high rate of unemployment and/or underemployment; and low level of infrastructure development including its accessibility to develop urban centers, shall be entitled to the following incentives in addition to those provided in the preceding article: (a) Pioneer incentives. An enterprise in a less-developed-area registered with the Board under Book I of this Code, whether proposed, or an expansion of an existing venture, shall be entitled to the incentives provided for a pioneer registered enterprise under its law of registration. (b) Incentives for necessary and Major Infrastructure and Public Utilities. Registered enterprise establishing their production, processing or manufacturing plants in an area that the Board designates as necessary for the proper dispersal of industry or in area which the Board finds deficient in infrastructure, public utilities, and other facilities, such as irrigation, drainage or other similar waterworks infrastructure may deduct from taxable income an amount equivalent to one hundred percent (100%) of necessary and major infrastructure works it may have undertaken with the prior approval of the Board in consultation with other government agencies concerned; Provided, That the title to all such infrastructure works shall upon completion, be transferred to the Philippine Government: Provided, further, That any amount not deducted for a particular year may be carried over for deduction for subsequent years not exceeding ten (10) years from commercial operation.

TITLE V GENERAL PROVISIONS Article 41. Power of the President to Rationalize Incentives. The President may, upon recommendation of the Board and in the interest of national development, rationalize the incentives scheme herein provided; extend the period of availment of incentives or increase rates of tax exemption of any project whose viability or profitability require such modification. Article 42. Refund and Penalties. In case of cancellation of the certificate granted under this Code, the Board may, in appropriate cases, require the refund of incentives availed of and impose corresponding fines and penalties. Article 43. Benefits of Multiple Area Enterprises. When a registered enterprise engages in activities or endeavors that have not been declared preferred areas of investments, the benefits and incentives accruing under this Code to registered enterprises and investors therein shall be limited to the portion of the activities of such registered enterprise as is a preferred area of investment. BOOK II FOREIGN INVESTMENTS WITHOUT INCENTIVES TITLE I CHAPTER I DEFINITIONS AND SCOPE OF THIS BOOK

dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. Article 45. Non-Applicability to Banking Institutions. This Book shall not apply to banking institutions which are governed and regulated by the General Banking Act and other laws which are under the supervision of the Central Bank. CHAPTER II INVESTMENTS Article 46. Permitted Investments.

(1) Without need of prior authority, anyone not a Philippine national as that term is defined in Article 15 of this Code, and not otherwise disqualified by law, may invest: (a) In any enterprise registered under Book One hereof, to the extent that the total investment of non-Philippine nationals therein would not affect its status as a registered enterprise under the law; (b) In an enterprise not registered under Book One hereof, to the extent that the total investment of non-Philippine nationals herein shall not exceed forty percent (40%) of the outstanding capital of that enterprise, unless existing law forbids any non- Philippine ownership in the enterprise or limits ownership by non-Philippine national to a percentage smaller than forty percent (40%). (2) Within thirty (30) days after notice of the investment is received by it, the enterprise in which any investment is made by a nonPhilippine national shall register the same with the Board of Investments for purposes of record. Investments made in the form of foreign exchange or other assets actually transferred to the Philippines shall also be registered with the Central Bank. The Board shall assess and appraise the value of such assets other than foreign exchange. Article 47. Permissible Investments. If an investment by a non-Philippine national in an enterprise not registered under Book One hereof is such that the total participation by nonPhilippine nationals in the outstanding capital

Article 44. Definition of terms. As used in this Book, the term "investment" shall mean equity participation in any enterprise formed, organized or existing under the laws of the Philippines; and the phrase "doing business" shall include soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial

thereof shall exceed forty percent (40%), the enterprise must obtain prior authority from the Board of Investments, which authority shall be granted unless the proposed investment (a) Would conflict with existing constitutional provisions and laws regulating the degree of required ownership by Philippine nationals in the enterprise; or (b) Would pose a clear and present danger of promoting monopolies or combinations in restraint of trade; or (c) Would be made in enterprise engaged in an area adequately being exploited by Philippine nationals; or (d) Would conflict or be inconsistent with the Investment Priorities Plan in force at the time the investment is sought to be made; or (e) Would not contribute to the sound and balanced development of the national economy on a self-sustaining basis. Investments made in the form of foreign exchange or other assets actually transferred to the Philippines shall also be registered with the Central Bank. The Board shall assess and appraise the value of such assets other than foreign exchange.

(1) That the operation or activity of such alien, firm, association, partnership, corporation or other form of business organization, is not inconsistent with the Investment Priorities Plan; (2) That such business or economic activity will contribute to the sound and balanced development of the national economy on a selfsustaining basis; (3) That such business or economic activity by the applicant would not conflict with the Constitution or laws of the Philippines; (4) That the field of business or economic activity is not one that is being adequately exploited by Philippine nationals; and (5) That the entry of applicant therein will not pose a clear and present danger of promoting monopolies or combinations in restraint of trade. Article 49. Requirements to be Imposed by the Board. Upon granting said certificate, the Board shall impose the following requirements on the alien or the firm, association, partnership, corporation or other form of business organization that is not organized or existing under the laws of the Philippines (1) To appoint a citizen of the Philippines, of legal age, good moral character and reputation, and sound financing standing, as resident agent, who shall be authorized to accept summons and other legal process in behalf of the applicant; (2) To establish an office in the Philippines and to notify the Securities and Exchange Commission in writing of the applicant's exact address and of every contemplated transfer thereof or of the opening of new offices, at least fifteen (15) days before the same are to be effected; and once effected, not later than ten (10) days afterwards; (3) To bring assets into the Philippines to constitute the capital of the office or offices, of such kind and value as the Board may deem necessary to protect those who may deal with the applicant, and to maintain that capital unimpaired during the period it does business in the Philippines; (4) To present prior proof that citizens of the Philippines and corporations or other business organizations organized or existing under the

CHAPTER II LICENSE TO DO BUSINESS Article 48. Authority to Do Business. No alien, and no firm association, partnership, corporation or any other form of business organization formed, organized, chartered or existing under any laws other than those of the Philippines, or which is not a Philippine national, or more than forty per cent (40%) of the outstanding capital of which is owned or controlled by aliens shall do business or engage in any economic activity in the Philippines or be registered, licensed, or permitted by the Securities and Exchange Commission or by any other bureau, office, agency, political subdivision or instrumentality of the government, to do business, or engage in any economic activity in the Philippines without first securing a written certificate from the Board of Investments to the effect:

laws of the Philippines are allowed to do business in the country or individual state within the federal country of which applicant is a citizen or in which it is domiciled: Provided, however, That if the state or country of domicile of the applicant imposes on, or requires of, Philippine nationals other conditions, requirements or restrictions besides those set forth in this Code, the Board of Investments shall impose the said other conditions, requirements or restrictions on the applicant, if in its judgment, the imposition thereof shall foster the sound and balanced development of the national economy on a selfsustaining basis; (5) To submit to the Securities and Exchange Commission certified copies of applicant's charter and by-laws and all amendments thereto, if any, with their translation into an official language within twenty (20) days after their adoption or after the grant of the prescribed certificate by the Board of Investments and annually of applicant's financial statements showing all assets, liabilities and net worth and results of operations, setting out separately those pertaining to the branch office; (6) To keep a complete set of accounting records with the resident agent, which shall fully and faithfully reflect all transactions within the Philippines, and to permit inspections thereof by the Securities and Exchange Commission, the Bureau of Internal Revenue and the Board of Investments; (7) To give priority to resident creditors as against non-resident creditors and owners or stockholders in the distribution of assets within the Philippines upon insolvency, dissolution or revocation of the license; (8) To give the Securities and Exchange Commission at least six (6) months advance notice in writing of applicant's intention to stop doing business within the Philippines; and to give such public notice thereof as the Securities and Exchange Commission may require for the protection of resident creditors and others dealing with the applicant; and (9) Not to terminate any franchise, licensing or other agreement that applicant may have with a resident of the Philippines authorizing the latter to assemble, manufacture or sell within the Philippines the products of the applicant, except for violation thereof or other just cause and upon payment of compensation and reimbursement of

investment and other expenses incurred by the licensee in developing a market for the said products: Provided, however, That in case of disagreement, the amount of compensation or reimbursement shall be determined by the country where the licensee is domiciled or has its principal office who shall require the applicant to file a bond in such amount as, in its opinion, is sufficient for this purpose. The above requirements shall be in addition to those set forth in the Corporation Code of the Philippines for authorizing foreign corporations to transact business in the Philippines. Article 50. Cause for Cancellation of Certificate of Authority or Payment of Fine. A violation of any of the requirements set forth in Article 49 or of the terms and conditions which the Board may impose shall be sufficient cause to cancel the certificate of authority issued pursuant to this Book and/or subject firms to the payment of fines in accordance with the rules and regulations issued by the Board: Provided, however, That aliens or foreign firms, associations, partnerships, corporations or other forms of business organization not organized or existing under the laws of the Philippines which may have been lawfully licensed to do business in the Philippines prior to the effectivity of R.A. 5455, shall, with respect to the activities for which they were licensed and actually engaged in prior to the effectivity of said Act, not be subject to the provisions of Article 48 and 49 but shall be subject to the reporting requirements prescribed by the Board: Provided, further, That where the issuance of said license has been irregular or contrary to law, any person adversely affected thereby may file an action with the Regional Trial Court where said alien or foreign business organization resides or has its principal office to cancel the said license. In such cases, no injunction shall issue without notice and hearing; and appeals and other proceedings for review shall be filed directly with the Supreme Court.

TITLE II GENERAL PROVISIONS Article 51. Mergers and Consolidations. The provisions of this Book Two shall apply to any merger, consolidation, syndicate or any other combination of firms, associations,

partnership or other forms of business organization that will result in ownership or control by persons or entities that are not Philippine nationals or have foreign equity participation, of more than forty per cent (40%) of the outstanding capital of whatever organizations results from the merger, consolidation, syndicate or other combination. Article 52. Local Government Action. No agency, instrumentality or political subdivision of the Government shall take any action in conflict with or which will nullify the provisions of Book Two of this Code, or any certificate of authority granted hereunder. Article 53. Automatic Registration. Application filed under this Book shall be considered automatically approved if not acted upon within ten (10) working days from official acceptance thereof. Article 54. Publication and Posting of Notices. Immediately after the application has been given due course by the Board, the Secretary of the Board or any official designated by the Board shall require the applicant to publish the notice of the action of the Board thereon at his expense once in a newspaper of general circulation in the province or city where the applicant has its principal office, and post copies of said notice in conspicuous places, in the office of the Board or in the building where said office is located; setting forth in such copies the name of the applicant, the business in which it is engaged or proposes to engage or invest, and such other data and information as may be required by the Board. No approval or certificate shall be valid without the publication and posting of notices as herein provided. Article 55. Limited Authority to do Business. When appropriate, the Board may grant permissible investments or authority to do business under Book Two of this Code for a limited period where the need to prove economic viability of such activity warrants the issuance of a temporary authorization. Article 56. Periodic Reports. The Board shall periodically check and verify compliance with these provisions, either by inspection of the books or by requiring regular reports from aliens or foreign firms, domestic enterprises with foreign investments and new entities licensed to do business under Article 48 of this Code.

A summary of said reports shall be periodically submitted by the Board to the President. For this purpose, the Board may require other government agencies licensing and/or regulating foreign enterprises or domestic firms with foreign equity, to furnish the Board with reports on such foreign investments. Article 57. Penal Clause.

(1) Without prejudice to the provisions of Articles 42 and 50 hereof a violation of any provision of Books I and II of this Code, or of the terms and conditions of registration, or of the rules and regulations promulgated pursuant thereto, or the act of abetting or aiding in any manner any such violation, shall be punished by a fine not to exceed one hundred thousand pesos (P100,000.00) or imprisonment for not more than ten (10) years, at the discretion of the Court. (2) No official or employee of the government, its subdivisions or instrumentalities shall appear as counsel for or act as agent or representative of, or in any manner intervene or intercede, directly or indirectly, in behalf of any party in any transaction with the Board regarding any application under Books I and II of this Code. The penalty for violation of this prohibition is the same as that provided for in the preceding paragraph. If the offender is an appointive official or employee, the maximum of the penalty herein prescribed shall be imposed, and the offender shall suffer the additional penalty of perpetual disqualification from public office, without prejudice to any administrative action against him. (3) If the offense is committed by a juridical entity, its president and/or other officials responsible therefor shall be subject to the penalty prescribed above. If the offender or the president/official, in cases where the offense was committed by a juridical entity, is an alien, he shall be deported without further proceedings on the part of the Deportation Board in addition to the penalty herein prescribed and shall, if naturalized, be automatically denaturalized from the date his sentence becomes final. (4) Payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of this Code.

BOOK III INCENTIVES TO MULTINATIONAL COMPANIES ESTABLISHES REGIONAL OR AREA HEADQUARTERS IN THE PHILIPPINES CHAPTER I LICENSING OF THE MULTINATIONAL COMPANY Article 58. Qualifications of Multinational Company. Any foreign business entity formed, organized and existing under any laws other than those of the Philippines whose purpose, as expressed in its organizational documents or by resolution of its Board of Directors or its equivalent, is to supervise, superintend, inspect or coordinate, its own affiliates, subsidiaries, or branches in the Asia-Pacific Region may establish a regional or area headquarters in the Philippines, after securing a license therefor from the Securities and Exchange Commission, upon the favorable recommendation of the Board of Investments. The Securities and Exchange Commission shall, within thirty (30) days from the effectivity of this Code, issue the implementing rules and regulations. The following minimum requirements shall, however, be complied with by the said foreign entity. (a) A certification from the Philippine Foreign Trade Senior Officer or in the absence of such an official, a Philippine Consul in the foreign firm's home country that said foreign firm is an entity engaged in international trade with affiliates, subsidiaries or branch offices in the Asia-Pacific Region. (b) A certification from a principal officer of the foreign entity to the effect that the said foreign entity has been authorized by its Board of Directors or governing copy to establish its regional headquarters in the Philippines, specifying that: 1. The activities of the regional headquarters shall be limited to acting as a supervisory, communications and coordinating center for its subsidiaries, affiliates and branches in the region; 2. The headquarters will not derive any income from sources within the Philippines and will not participate in any manner in the

management of any subsidiary or branch office it might have in the Philippines; 3. The headquarters shall notify the Board of Investments and the Securities and Exchange Commission of any decision to close down or suspend operations of its headquarters or terminate the services of any expatriate at least fifteen (15) days before the same is effected. (c) Any undertaking that the multinational company will remit into the country such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than fifty thousand United States dollars or its equivalent in other foreign currencies annually. Within thirty (30) days from receipt of Certificate of Registration from the Securities and Exchange Commission, the multinational company will submit to the Securities and Exchange Commission a Certificate of inward remittance from a local bank showing that it has remitted to the Philippines the amount of at least thirty thousand United States dollars or its equivalent in other foreign currencies and converted the same to Philippine currency. Annually, within thirty (30) days from the anniversary date of the multinational company's registration as a regional or area headquarters with the Securities and Exchange Commission, it will submit proof to the Securities and Exchange Commission of inward remittance amounting to at least fifty thousand United States dollars or its equivalent in other foreign currencies during the past year. (d) Any willful violation by the regional or area headquarters of a multinational company of any of the provisions of this Code, or its implementing rules and regulations, or other terms and conditions of its registration, or any provision of existing laws, shall constitute a sufficient cause for the cancellation of its license or registration.

CHAPTER II INCENTIVES TO EXPATRIATES Article 59. Multiple entry visa. Foreign personnel of regional or area headquarters of multinational companies, their respective spouses, and unmarried children under twentyone years of age, if accompanying them or if following to join them after their admission into

the Philippines as non- immigrant shall be issued a multiple entry special visa, valid for a period of one year, to enter the Philippines: Provided, That a responsible officer or the applicant company submits a certificate to the effect that the person who seeks entry into the Philippines is an executive of the applicant company and will work exclusively for applicant's company and will work exclusively for applicant's regional or area headquarters which is duly licensed to operate in the Philippines, and that he will receive a salary and will be paid by the headquarters in the Philippines an amount equivalent to at least twelve thousand United States dollars, or the equivalent in other foreign currencies per annum. The admission and stay shall be co-terminus with the validity of the multiple entry special visa. The stay, however, is extendible yearly upon submission to the Commission on Immigration and Deportation of a sworn certification by a responsible officer of the regional or area headquarters; that its license to operate remains valid and subsisting; that he has been paid in the Philippines from the date of original admission, the equivalent of at least one thousand United States dollars per month, or its equivalent in other foreign currencies; and that the regional or area headquarters has withheld the tax due on said compensation and the same has been paid to the Bureau of Internal Revenue. Non-immigrant who have been admitted under the multiple entry special visa, as well as their respective spouses and dependents, shall be exempt from: the payment of all fees due under the immigration and alien registration laws; securing alien certificates of registration; and obtaining immigration clearance certificates, and all types of clearances required by any government department or agency, except that upon final departure from the Philippines the employer of the said non-immigrants shall so advise in writing the Commission on Immigration and Deportation at least five (5) working days prior to the non-immigrant's departure, and the finally departing non-immigrant employee shall be required to submit to the said office a tax clearance from the Bureau of Internal Revenue. Article 60. Withholding Tax of 15 %. Aliens employed by regional or area headquarters of multinational corporations shall be subject for each taxable year upon their gross income

received from the regional or area headquarters established in the Philippines by multinational companies as salaries, wages, annuities, compensations, remunerations, and emoluments to a tax equal to fifteen percentum of such gross income. Article 61. Tax and Duty Free Importation. An alien executive of the regional or area headquarters of a multinational company shall enjoy tax and duty free importation of personal and household effects as provided for under Section 105 (h) of the Tariff and Customs Code, as amended, and Section 169 (b) (4) of the Internal Revenue Code, as amended. Article 62. Travel Tax Exemption. Personnel of multinational companies performing technical and supervisory functions with regional headquarters at, but not engaged in business in the Philippines and the dependents of such foreign personnel if joining them during the period of their assignment in the Philippines, as certified to by the Board of Investments, shall be exempted from the payment of travel tax imposed under Section 1 of Presidential Decree No. 1183, by securing a Travel Tax Certificate from the Philippine Tourism Authority. CHAPTER III INCENTIVES TO THE REGIONAL HEADQUARTERS Article 63. Exemption from Income Tax. Regional or area headquarters established in the Philippines by multinational corporations and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Regional shall not be subject to income tax. Article 64. Exemption from Contractor's Tax. The regional or area headquarters established in the Philippines by multinational corporations, including their alien executives, are exempted from the contractor's tax. Article 65. Exemption from all Kinds of Local Licenses Fees, Dues. The regional or area headquarters of multinational companies shall be exempt from all kinds of local licenses, fees, dues, imposts or any other local taxes or burdens.

Article 66. Tax and Duty Free Importation of Training Materials; Importation of Motor Vehicles. Regional or area headquarters shall also enjoy tax and duty free importation of equipment and materials for training, conferences which are needed for the functions of the regional or area headquarters and which are not locally available subject to the prior approval of the Board of Investments. Regional or area headquarters shall be entitled to the importation of motor vehicles subject to the prior approval of the Board and the payment of the corresponding taxes and duties: Provided, That such motor vehicles shall be for the exclusive use of its expatriate executives and that the number thereof shall not exceed the number of its expatriate executives and that such motor vehicles may be replaced every three (3) years from their importation. Article 67. Exemption from Registration Requirements. The regional or area headquarters of multinational companies shall be exempt from the provisions of Book II of this Code.

regulations to be issued by the Board of Investments as provided for in Article 7 (2) of this Code. (a) A certification from the Foreign Trade Officer or in the absence of such an official, a Philippine Consul in the foreign firm's home country that said foreign firm is engaged in international trade and supplies or will supply spare parts or manufactured components and raw materials to its distributors or markets in the Asia-Pacific Region. (b) A certification from a principal officer of the foreign entity to the effect that said foreign entity has been authorized by its Board of Directors or governing body to establish its regional warehouse in the Philippines, specifying that: 1. The activities of the regional warehouse shall be limited to serving as a supply depot for the storage, deposit, safekeeping of its spare parts or manufactured components and raw materials including the packing, covering, putting up, marking, labelling and cutting or altering to customer's specification, mounting and/or packaging into kits or marketable lots thereof, to fill up transactions and sales made by its head offices or parent companies and to serving as a storage or warehouse of goods purchased locally by the home office of the multinational for export abroad; Provided, That said locally purchased goods for export may be stored in the regional warehouse only after they have been cleared for export in accordance with the laws and regulations, including those of the Central Bank and simplified procedures governing exports. The regional warehouse shall not directly engage in trade nor directly solicit business, promote any sale, nor enter into any contract for the sale or disposition of goods in the Philippines. 2. The regional warehouse will not derive any income from the sources within the Philippines and its personnel will not participate in any manner in the management of any subsidiary, affiliate or branch office it might have in the Philippines. 3. The personnel of the regional headquarters shall be responsible for the operation of the regional warehouse subject to the provisions of this Code.

BOOK IV INCENTIVES TO MULTINATIONAL COMPANIES ESTABLISHING REGIONAL WAREHOUSES TO SUPPLY SPARE PARTS OR MANUFACTURED COMPONENTS AND RAW MATERIALS TO THE ASIA-PACIFIC REGION AND OTHER FOREIGN MARKETS Article 68. Qualifications. A multinational company organized and existing under any laws other than those of the Philippines which is engaged in international trade and supplies spare parts or manufactured components and raw materials to its distributors or markets in the Asia-Pacific Area and other foreign areas and which has established or will simultaneously establish a regional or area headquarters in the Philippines in accordance with the provisions of Book III of this Code and the rules and regulations implementing the same may also establish regional warehouse or warehouses in the Philippines, after securing a license therefor from the Board of Investments. The following minimum requirements shall be submitted or complied with by the said foreign entity in accordance with the rules and

(c) The multinational company shall pay the Board of Investments and the appropriate Regional Collector of Customs the corresponding license fees and storage fees to be determined by said offices.

Collector of Customs and they shall be directly delivered to and kept in the regional warehouses and released therefrom only in accordance with Article 69 paragraphs (a) and (b) and the guidelines implementing Book IV of this Code; In the absence of a Regional Collector of Customs where the volume of the establishment of regional warehouses does not yet warrant the creation of said offices, the duties of the Regional Collector of Customs shall be performed by the Collector of Customs of the district where the regional warehouse will be located. 5) Each shipment of goods which will be stored in the regional warehouse shall be covered by an affidavit of the multinational company operator setting forth that said articles shall be exclusively used as supply for its AsiaPacific markets and stating the C & F price thereof; 6) That it shall file an ordinary warehousing bond in an amount equal to ONE HUNDRED PER CENT (100%) of the ascertained customs duties on the articles imported without prejudice to its filing a general warehousing bond in lieu of the ordinary warehousing bond. 7) The percentage of annual allowable withdrawal for domestic use shall be subject to the approval of the Board of Investments; Provided, however, That in no case shall such withdrawals exceed thirty per cent (30%) of the value of goods it has brought in for any given year and the payment of the corresponding taxes and duties. Article 69. Tax Treatment of Articles in the Regional Warehouse. Imported

(d) An application for the establishment of a regional warehouse shall be made in writing to the Board of Investments upon recommendation of the Bureau of Customs. The application shall describe the premises, the location and capacity of the regional warehouse and the purpose for which the building is to be used. The jurisdiction and responsibility of supervising the regional warehouses shall be vested on the Bureau of Customs. The Board of Investments, in consultation with the Regional Director of Customs of the district where the warehouse will be situated shall cause an examination of the premises to be made with reference particularly to the location, construction and means provided for the safekeeping of its articles and if found satisfactory, it may authorize its establishment without complying with the requirements of any other government body and aimed at providing speedy procedure for its establishment, subject to the following conditions: 1) That the articles to be stored in the warehouse are spare parts or manufactured components and/or raw materials of the multinational company operator for distribution and supply to its Asia-Pacific markets including packaging, coverings, brands, labels and warehouse equipment as provided in Art. 69 (a) hereof; 2) That the entry or importation, storage or re-export of the goods destined for or to be stored in the regional warehouse will not involve any dollar outlay from Philippine sources; 3) That they are of such character as to be readily identifiable for re-export; and in case of local distribution they shall be subject to Article 69 paragraph (b) and the guidelines implementing Book IV of this Code; 4) That they shall be allowed provisional entry expeditiously by means of a pro forma invoice of the parent company, identified, examined and appraised by the Regional

(a) Tax Incentives for Qualified Goods Destined for Re-exportation to the Asia-Pacific and other Foreign Markets. Except as otherwise provided in this Code, imported spare parts or manufactured components, raw materials and other items including any packages, coverings, brands and labels and warehouse equipment as may be allowed by the Board of Investments for the use exclusively on the goods stored, except those prohibited by law, brought into the regional warehouse from abroad to be kept, stored and/or deposited or used therein and reexported directly therefrom under the

supervision of the Regional Collector of Customs for distribution to its Asia-Pacific and other foreign markets in accordance with the guidelines implementing Book IV of this Code including to a bonded manufacturing warehouse in the Philippines and eventually re-exported shall not be subject to customs duty, internal revenue tax, export tax nor to local taxes, the provisions of law to the contrary notwithstanding. (b) Payment of Applicable Duties and Taxes on Qualified Goods subject to Laws and Regulations Covering Imported Merchandise if destined for the Local Market. Any spare parts, manufactured components, raw materials and other items sent, delivered, released or taken from the regional warehouse to the local market in accordance with the guidelines implementing Book IV of this Code shall be subject to the payment of customs duties, taxes and other charges and for which purpose, the proper commercial invoice of the head offices or parent companies shall be submitted to the Regional Collector of Customs; and shall be subject to laws and regulations governing imported merchandise, Provided, that in case any of the foregoing items are sold, bartered, hired or used for purposes other than they were intended for without prior compliance with the guidelines implementing Book IV of this Code and without prior payment of the duty, tax or other charge which would have been due and payable at the time of entry if the articles had been entered without the benefit of this decree, shall be subject to forfeiture and the importation shall constitute a fraudulent practice against customs revenue punishable under Section 3602, as amended, of the Tariff and Customs Code of the Philippines; Provided, further, that a sale pursuant to a judicial order shall not be subject to the preceding proviso without prejudice to the payment of duties, taxes and other charges. Article 70. Exemption from the Maximum Storage Period under the Tariff and Customs Code; Period of Storage in the Regional Warehouse. The provision of the law in Section 1908 of the Tariff and Customs Code of the Philippines, as amended, to the contrary notwithstanding, articles duly entered for warehousing may remain in the regional warehouses for a period of two (2) years from the time of their transfer to the regional warehouse, which period may be extended with the approval of the Board of Investments for an additional period of one (1) year upon payment

of the corresponding storage fee on the unexported articles, as provided for under Article 68 paragraph (c) for each extension until they are re-exported in accordance with the guideline implementing Book IV of this Code. Any article, withdrawn, release or removed contrary to the provisions of said guidelines shall be forfeited pursuant to the provisions of Article 69, paragraph (b) hereof. Article 71. Rules and Regulations on the Jurisdiction, Operation and Control over Qualified Goods Stored in the Regional Warehouse. The Board of Investments and the Bureau of Customs shall jointly issue special rules and regulations on the receiving, handling, custody, entry, examinations, classifications, delivery, storage, warehousing, manipulation and packaging, release for re-exportation and for the safekeeping, recording, inventory and liquidation of said qualified goods, any existing law notwithstanding. Such rules and regulations shall be formulated in consultation with the applicants/operators of regional warehouses in order to be responsive to the objective of providing a procedure for the speedy inflow and outflow of the qualified goods which are destined for the Asia-Pacific and other foreign markets and keeping a proper balance between promoting the Philippines as a center for multinational regional warehouses and safeguarding the revenue laws of the country. The Commissioner of customs is directed is directed to expedite the immediate reexportation or transhipment of the foregoing goods destined for regional warehousing to their Asia-Pacific and other foreign markets, including the emergency withdrawal for re-exportation by air and ship and the partial liquidation of bonds adopting simplified export procedures therefor. Article 72. Penalties. Any willful violation by the regional or area headquarters of a multinational company which has established regional warehouse or warehouses of the provisions of existing laws and the implementing guidelines of Book IV of this Code shall constitute a sufficient cause for the cancellation of its license or registration in addition to the penalties hereinabove provided in Article 69, paragraph (b) hereof. Article 73. The regional or area headquarters of multinational companies establishing regional warehouses shall be

exempt from the provisions of Book II of this Code.

BOOK V SPECIAL INVESTORS RESIDENT VISA Article 74. Qualifications. Any alien who possesses the following qualifications may be issued a Special Investors Resident Visa. 1. He had not been convicted of a crime involving moral turpitude; 2. He is not afflicted with any loathsome, dangerous or contagious disease; 3. He has not been institutionalized for any mental disorder or disability; 4. He is willing and able to invest the amount of at least US$75,000.00 in the Philippines; Provided, That the foregoing invested amount shall be lowered to US$50,000 for aliens availing of Executive Order No. 63 and Executive Order No. 1037 subject to the conditions imposed by said legislations: Provided, further, That for purposes of compliance with this particular condition, the alien-applicant should prove that he has remitted such amount in acceptable foreign currency to the Philippines. Article 75. Reportorial Requirements. As a holder of the Special Investors Resident Visa, an alien shall be entitled to reside in the Philippines while his investment subsists. For this purpose, he should submit an annual report, in the form fully prescribed for the purpose, to prove that he has maintained his investment in the country. Should said alien withdraw his said investment from the Philippines, then the Special Investors Resident Visa issued to him will automatically expire.

"Authority" may authorize an alien or an association, partnership, corporation or any other form of business organization formed, organized, chartered or existing under any law other than those of the Philippines, or which is not a Philippine national, or the working capital of which id fully owned or controlled by aliens to do business or engage in an industry inside the export processing zone. Subject to the provisions of Section 29 of Commonwealth Act No. 613, as amended, an enterprise, a zone registered enterprise may employ foreign nationals in supervisory, technical or advisory positions for a period not exceeding five (5) years from its registration, extendible for limited periods at the discretion of the Authority: Provided, however, That when the majority of the capital stock of a zone registered enterprise is owned by foreign national, the positions of president, treasurer, and general manager or their equivalents may be retained by foreign nationals beyond the period set forth herein. Foreign nationals employed within the purview of this Book, their spouses, and unmarried children under twenty-one years of age who are not excluded by Sec. 29 of C.A. No. 613, as amended, shall be permitted to enter and reside in the Philippines during the period of employment of such foreign nationals. They shall be issued a multiple entry visa, valid for a period of three years, to enter and leave the Philippines without further documentary requirements other than valid passports or other travel documents in the nature of passports. The validity of the multiple entry special visa shall be extendible yearly. Foreign Nationals who have been issued multiple entry special visas under this provision, as well as their respective spouses and dependents, shall be exempt from obtaining alien certificates and all types of clearances required by any government department or agency. For this purpose, the Commission on Immigration and Deportation and the authority shall jointly issue the necessary implementing rules and regulations. A registered enterprise shall train Filipinos as understudies of foreign nationals in administrative, supervisory and technical skills and shall submit annual reports of such training to the Board.

BOOK VI INCENTIVES OF EXPORT PROCESSING ZONE ENTERPRISES Article 76. Employment of Foreign Nationals. The provisions of law to the contrary notwithstanding, Export Processing Zone Authority, hereinafter referred to as the

Article 77. in the Zone.

Tax Treatment of Merchandise

(1) Except as otherwise provided in this Code, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise whether directly or indirectly related in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding. (2) Merchandise purchased by a registered zone enterprise from the customs territory and subsequently brought into the zone, shall be considered as export sales and the exported thereof shall be entitled to the benefits allowed by law for such transaction. (3) Domestic merchandise sent from the zone to the customs territory shall, whether or not combined with or made part of other articles likewise of local origin or manufactured in the Philippines while in the export processing zone, be subject to internal revenue laws of the Philippines as domestic goods sold, transferred or disposed of for local consumption. (4) Merchandise sent from the export processing zone to the customs territory shall, whether or not combined with or made part of other articles while in the zone, be subject to rules and regulations governing imported merchandise. The duties and taxes shall be assessed on the value of imported materials (except when the final product is exempt) and the internal revenue taxes on the values added. (5) Domestic merchandise on which all internal revenue taxes have been paid, if subject thereto, and foreign merchandise previously imported on which duty or tax has been paid, or which have been admitted free of duty and tax, may be taken into the zone from the customs territory of the Philippines and be brought back thereto free of quotas, duty or tax. (6) Subject to such regulations respecting identity and safeguarding of the revenue as the Authority may deem necessary when the identity of an article entered into the export processing

zone under the immediately preceding paragraph has been lost, such article when removed from the zone and taken to the customs territory shall be treated as foreign merchandise entering the country for the first time, under the provisions of the Tariff and Customs Code. (7) Articles produced or manufactured in the zone and exported therefrom shall, on subsequent importation into the customs territory, be subject to the import laws applicable to like articles manufactured in a foreign country; (8) Unless the contrary is shown, merchandise taken out of the zone shall be considered for tax purposes to have been sent to customs territory. lawphi1.net Article 78. Additional Incentives. A zone registered enterprise shall also enjoy all the incentive benefits provided in Article 39 hereof under the same terms and conditions stated therein. In addition zone registered enterprises shall also be entitled to the following: (a) Exemption from Local Taxes and Licenses. Notwithstanding the provisions of law to the contrary, zone registered enterprise shall, to the extent of their construction, operation or production inside the zone be exempt from the payment of any and all local government imposts, fees, licenses or taxes except real estate taxes which shall be collected by the Province/City/Municipality responsible for the collection thereof under the provisions of the Real Property Tax Code: Provided, That machineries owned by zone registered enterprises which are actually installed and operated in the Zone for manufacturing, processing or for industrial purposes shall not be subject to the payment of real estate taxes for the first three (3) years of operation of such machineries: Provided, further, That fifty percent (50%) of the proceeds of the real estate taxes collected from all real properties located in the Zone and such other areas owned or administered by the Authority shall be remitted to the Authority by the province/city/municipality responsible for the collection of such taxes under the provisions of the Real Property Tax Code. All real estate taxes accruing to the Authority as herein provided shall be expanded for such community facilities, utilities and/or services as the Authority may determine.

(b) Production equipment or machineries, not attached to real estate, used directly or indirectly, in the production, assembly or manufacture of the registered product of the zone registered enterprise shall be exempt from real property taxes.

following its publication in newspaper of general circulation in the Philippines. Article 84. Separability Clause. The provisions of this Code are hereby declared to be separable and, in the event any such provisions is declared unconstitutional, the other provisions which are not affected thereby shall remain in force and effect. Article 85. Repealing Clause. The following provisions or laws are hereby repealed: 1) 2) 3) 4) 5) 6) 7) 8) 9) Batas Pambansa 44 Batas Pambansa 391 (1983) Presidential Decree 218 Presidential Decree 1419 Presidential Decree 1623, as amended Presidential Decree No. 1789 (1981) Presidential Decree 2032 Executive Order 815 Executive Order 1945 (1985)

FINAL PROVISIONS Article 79. Interpretation. All doubts concerning the benefits and incentives granted enterprises and investors by this Code shall be resolved in favor of investors and registered enterprises. Article 80. Vested Rights. Existing registered enterprises which are enjoying the incentives under the laws repealed by Books One and Six of this Code shall continue to enjoy such incentives for the period therein stated: Provided, however, That firms which made investments in new or expansion projects approved or registered by the Board of the Authority on or after December 1, 1986 but before the effectivity of this Code may opt to be governed by the provisions of this Code. Article 81. Confidentiality of Applications. All applications and their supporting documents filed under this Code shall be confidential and shall not be disclosed to any person, except with the consent of the applicant or on orders of a court of competent jurisdiction. Article 82. Judicial Relief. All orders or decisions of the Board in cases involving the provisions of this Code shall immediately be executory. No appeal from the order or decision of the Board by the party adversely affected shall stay such order or decision: Provided, That all appeals shall be filed directly with the Supreme Court within thirty (30) days from receipt of the order or decision. Article 83. Effectivity of Implementing Rules and Regulations. The Board shall promulgate rules and regulations to implement the intent and provisions of this Code and shall have the authority to impose such fines in amounts that are just and reasonable in cases of late submission or non-compliance on the part of registered enterprises, with reporting and other requirements under this Code and its implementing rules and regulations. Such rules and regulations shall take effect fifteen (15) days

All other laws, decrees, executive orders, administrative orders, rules and regulations or parts thereof which are inconsistent with the provisions of this Code are hereby repealed, amended or modified accordingly. lawphi1.net

Article 86. Effectivity. This Code shall take effect immediately upon approval. DONE in the City of Manila, this 16th day of July, in the year of Our Lord, nineteen hundred and eighty-seven.

FOREIGN INVESTMENTS ACT OF 1991

[Republic Act No. 7042 as amended by RA 8179]

AN ACT TO INVESTMENTS,

PROMOTE

FOREIGN FOR

PRESCRIBE THE PROCEDURES REGISTERING ENTERPRISES

DOING BUSINESS IN THE PHILIPPINES AND FOR OTHER PURPOSES

SECTION 1. Title. - This Act shall be known as the "Foreign Investments Act of 1991." SEC. 2. Declaration of Policy. - It is the policy of the State to attract, promote and welcome productive investments from foreign individuals, partnerships, corporations, and governments, including their political subdivisions, in activities which significantly contribute to national industrialization and socio-economic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws. Foreign investments shall be encouraged in the enterprises that significantly expand livelihood and employment opportunities for Filipinos; enhance economic value of farm products; promote the welfare of Filipino consumers; expand the scope, quality and volume of exports and their access to foreign markets; and/or transfer relevant technologies in agriculture, industry and support services. Foreign investments shall be welcome as a supplement to Filipino capital and technology in those enterprises serving mainly the domestic market. As a general rule, there are no restrictions on extent of foreign ownership of export enterprises. In domestic market enterprises, foreigners can invest as much as one hundred percent [100%] equity except in areas included in the negative list. Foreign-owned firms catering mainly to the domestic market shall be encouraged to undertake measures that will gradually increase Filipino participation in their businesses by taking in Filipino partners, electing Filipinos to the board of directors, implementing transfer of technology to Filipinos, generating more employment for the economy and enhancing skills of Filipino workers. SEC. 3. Definitions. - As used in this Act: a. The term "Philippine national" shall mean a citizen of the Philippines; of a domestic partnership or association wholly owned by

citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a "Philippine national." [as amended by Republic Act No. 8179] b. The term "investment" shall mean equity participation in any enterprise organized or existing under the laws of the Philippines; c. The term "foreign investment" shall mean an equity investment made by non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange; d. The phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty [180] days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and

in progressive prosecution of commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account; e. The term "export enterprise" shall mean an enterprise wherein a manufacturer, processor or service [including tourism] enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty per cent (60%) or more of such purchases; the term "domestic market enterprise" shall mean an enterprise which produces goods for sale, or renders services to the domestic market entirely or if exporting a portion of its output fails to consistency export at least sixty percent (60%) thereof; and f. The term "Foreign Investments Negative List" or "Negative List" shall mean a list of areas of economic activity whose foreign ownership is limited to a maximum of forty percent (40%) of the equity capital of the enterprises engaged therein. SEC. 4. Scope. - This Act shall not apply to banking and other financial institutions which are governed and regulated by the General Banking Act and other laws under the supervision of the Central Bank. SEC. 5. Registration of Investments of NonPhilippine Nationals. - Without need of prior approval, a non-Philippine national, as that term is defined in Section 3 [a], and not otherwise disqualified by law may, upon registration with the Securities and Exchange Commission [SEC], or with the Bureau of Trade Regulation and Consumer Protection [BTRCP] of the Department of Trade and Industry in the case of single proprietorships, do business as defined in Section 3 [d] of this Act or invest in a domestic enterprise up to one hundred percent (100%) of its capital, unless participation of non-Philippine nationals in the enterprise is prohibited or limited

to a smaller percentage by existing law and/or under the provisions of this Act. The SEC or BTRCP, as the case may be, shall not impose any limitations on the extent of foreign ownership in an enterprise additional to those provided in this Act: Provided, however, That any enterprise seeking to avail of incentives under the Omnibus Investment Code of 1987 must apply for registration with the Board of Investments [BOI], which shall process such application for registration in accordance with the criteria for evaluation prescribed in said Code: Provided, finally, That a non-Philippine national intending to engage in the same line of business as an existing joint venture, in which he or his majority shareholder is a substantial partner, must disclose the fact and the names and addresses of the partners in the existing joint venture in his application for registration with the SEC. During the transitory period as provided in Section 15 hereof, SEC shall disallow registration of the applying nonPhilippine national if the existing joint venture enterprise, particularly the Filipino partners therein, can reasonably prove they are capable to make the investment needed for the domestic market activities to be undertaken by the competing applicant. Upon effectivity of this Act, SEC shall effect registration of any enterprise applying under this Act within fifteen [15] days upon submission of completed requirements. SEC. 6. Foreign Investments in Export Enterprises. - Foreign investment in export enterprises whose products and services do not fall within Lists A and B of the Foreign Investment Negative List provided under Section 8 hereof is allowed up to one hundred percent [100%] ownership. Export enterprises which are non-Philippine nationals shall register with BOI and submit the reports that may be required to ensure continuing compliance of the export enterprise with its export requirement. BOI shall advise SEC or BTRCP, as the case may be, of any export enterprise that fails to meet the export ratio requirement. The SEC or BTRCP shall thereupon order the non-complying export enterprise to reduce its sales to the domestic market to not more than forty percent [40%] of its total production; failure to comply with such SEC or BTRCP order, without justifiable reason, shall subject the enterprise to cancellation of SEC or BTRCP registration, and/or the penalties provided in Section 14 hereof.

SEC. 7. Foreign Investments in Domestic Market Enterprises. - Non-Philippine nationals may own up to one hundred percent [100%] of domestic market enterprises unless foreign ownership therein is prohibited or limited by the Constitution and existing law or the Foreign Investment Negative List under Section 8 hereof. [as amended by Republic Act No. 8179] SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative List]. - The Foreign Investment Negative List shall have two [2] component lists: A and B: a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws.chanrobles virtual law library b. List B shall contain the areas of activities and enterprises regulated pursuant to law: 1. which are defense-related activities, requiring prior clearance and authorization from the Department of National Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military ordnance, explosives, pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically authorized, with a substantial export component, to a nonPhilippine national by the Secretary of National Defense; or 2. which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and massage clinics. Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars [US$200,000.00], are reserved to Philippine nationals: Provided, That if: [1] they involve advanced technology as determined by the Department of Science and Technology; or [2] they employ at least fifty [50] direct employees, then a minimum paid-in capital of One hundred thousand US dollars [US$100,000.00] shall be allowed to nonPhilippine nationals.

Amendments to List B may be made upon recommendation of the Secretary of National Defense or the Secretary of Health, or the Secretary of Education, Culture and Sports, endorsed by NEDA, approved by the President, and promulgated by a Presidential Proclamation. The Transitory Foreign Investment Negative List established in Section 15 hereof shall be replaced at the end of the transitory period by the first Regular Negative List to be formulated and recommended by NEDA, following the process and criteria provided in Sections 8 and 9 of this Act. The first Regular Negative Lists shall be published not later than sixty [60] days before the end of the transitory period provided in said section, and shall become immediately effective at the end of the transitory period. Subsequent Foreign Investment Negative Lists shall become effective fifteen [15] days after publication in a newspaper of general circulation in the Philippines: Provided, however, That each Foreign Investment Negative List shall be prospective in operation and shall in no way affect foreign investment existing on the date of its publication. Amendments to List B after promulgation and publication of the first Regular Foreign Investment Negative List at the end of the transitory period shall not be made more often than once every two [2] years. [as amended by Republic Act No. 8179] SEC. 9. Investment Rights of Former NaturalBorn Filipinos. - For purposes of this Act, former natural born citizens of the Philippines shall have the same investment rights of a Philippine citizen in Cooperatives under Republic Act No. 6938, Rural Banks under Republic Act. No. 7353, Thrift Banks and Private Development Banks under Republic Act No. 7906, and Financing Companies under Republic Act No. 5980. These rights shall not extend to activities reserved by the Constitution, including [1] the exercise of profession: [2] in defenserelated activities under Section 8 [b] hereof, unless specifically authorized by the Secretary of National Defense: and, [3] activities covered by Republic Act No. 1180 [Retail Trade Act]. Republic Act No. 5187 [Security Agency Act], Republic Act No. 7076 [Small Scale Mining Act], Republic Act No. 3018. as amended [Rice and Corn Industry Act], and P.D. No. 449 [Cockpits Operation and Management]. [as amended by Republic Act No. 8179]

SEC. 10. Other Rights of Natural-Born Citizen Pursuant to the Provisions of Article XII, Section 8 of the Constitution. - Any natural-born citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippine laws may be a transferee of a private land up to a maximum area of five thousand [5,000] square meters in the case of urban land or three [3] hectares in the case of rural land to be used by him for business or other purposes. In the case of married couples, one of them may avail of the privilege herein granted: Provided, That if both shall avail of the same, the total area acquired shall not exceed the maximum herein fixed. In case the transferee already owns urban or rural land for business or other purposes, he shall still be entitled to be a transferee of additional urban or rural land for business or other purposes which when added to those already owned by him shall not exceed the maximum areas herein authorized. A transferee under this Act may acquire not more than two [2] lots which should be situated in different municipalities or cities anywhere in the Philippines: Provided, That the total land area thereof shall not exceed five thousand [5,000] square meters in the case of urban land or three [3] hectares in the case of rural land for use by him for business or other purposes. A transferee who has already acquired urban land shall be disqualified from acquiring rural land and vice versa. [as amended by Republic Act No. 8179] SEC. 11. Compliance with Environmental Standards. - All industrial enterprises regardless of nationality shall comply with existing rules and regulations to protect and conserve the environment and meet applicable environmental standards. SEC. 12. Consistent Government Action. - No agency, instrumentality or political subdivision of the Government shall take any action in conflict with or which will nullify the provisions of this Act, or any certificate or authority granted hereunder. SEC. 13. Implementing Rules and Regulations. NEDA, in consultation with BOI, SEC and other government agencies concerned, shall issue the rules and regulations to implement this Act within one hundred and twenty [120] days after its effectivity. A copy of such rules and

regulations shall be furnished the Congress of the Republic of the Philippines. SEC. 14. Administrative Sanctions. - A person who violates any provision of this Act or of the terms and conditions of registration or of the rules and regulations issued pursuant thereto, or aids or abets in any manner any violation shall be subject to a fine not exceeding One hundred thousand pesos [P100,000]. If the offense is committed by a juridical entity, it shall be subject to a fine in an amount not exceeding 1/2 of 1% of total paid-in capital but not more than Five million pesos [P5,000,000]. The president and/or officials responsible therefor shall also be subject to a fine not exceeding Two hundred thousand pesos [P200,000]. In addition to the foregoing, any person, firm or juridical entity involved shall be subject to forfeiture of all benefits granted under this Act. SEC shall have the power to impose administrative sanctions as provided herein for any violation of this Act or its implementing rules and regulations. SEC. 15. Transitory Provisions. - Prior to the effectivity of the implementing rules and regulations of this Act, the provisions of Book II of Executive Order No. 226 and its implementing rules and regulations shall remain in force. During the initial transitory period of thirty-six [36] months after issuance of the Rules and Regulations to implement this Act, the Transitory Foreign Investment Negative List shall consist of the following: A. List A: 1. All areas of investment in which foreign ownership is limited by mandate of the Constitution and specific laws. B. List B: 1. Manufacture, repair storage and/or distribution of firearms, ammunition, lethal weapons, military ordnance, explosives, pyrotechnics and similar materials required by law to be licensed by and under the continuing regulation of the Department of National Defense; unless such manufacturing or repair activity is specifically authorized, with substantial

export component, to a non-Philippine national by the Secretary of National defense; 2. Manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls; sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks they may pose to public health and morals; 3. Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent of Two hundred thousand US dollars [US$200,000.00], are reserved to Philippine nationals: Provided, That if: [1] they involve advanced technology as determined by the Department of Science and Technology, or [2] they employ at least fifty [50] direct employees, then a minimum paid-in capital of One hundred thousand US dollars [US$100,000.00] shall be allowed to nonPhilippine nationals. SEC. 16. Repealing Clause. - Articles forty-four [44] to fifty-six [56] of Book II of Executive Order No. 226 are hereby repealed. All other laws or parts of laws inconsistent with the provisions of this Act are hereby repealed or modified accordingly. SEC. 17. Separability Clause. - If any part or section of this Act is declared unconstitutional for any reason whatsoever, such declaration shall not in any way affect the other parts or sections of this Act. SEC. 18. Effectivity. - This Act shall take effect fifteen [15] days after approval and publication in two [2] newspapers of general circulation in the Philippines. Approved: June 13, 1991 Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::

Section 1. Declaration of Policy. It is the declared policy of the State to recognize the indispensable role of the private sector as the main engine for national growth and development and provide the most appropriate favorable incentives to mobilize private resources for the purpose. Section 2. Definition of Terms. The following terms used in this Act shall have the meanings stated below: (a) Build-operate-and-transfer scheme. A contractual arrangement whereby the contractor undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The contractor operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges sufficient to enable the contractor to recover its operating and maintenance expenses and its investment in the project plus a reasonable rate of return thereon. The contractor transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years. For the construction stage, the contractor may obtain financing from foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino constructor: provided, that the ownership structure of the contractor of an infrastructure facility whose operation requires a public utility franchise must be in accordance with the Constitution: provided, however, that, in the case of corporate investors in the build-operate-and-transfer corporation, the citizenship of each stockholder in the corporate investors shall be the basis for the computation of Filipino equity in the said corporation: provided, further, that, in the case of foreign constructors, Filipino labor shall be employed or hired in the different phases of the construction where Filipino skills are available: provided, furthermore, that the financing of a foreign or foreign-controlled contractor from Philippine government financing institutions shall not exceed twenty percent (20%) of the total cost of the infrastructure facility of project: provided,

Republic Act No. 6957 July 9, 1990

AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR, AND FOR THE OTHER PURPOSES

finally, that financing from foreign sources shall not require a guarantee by the Government or by government-owned or controlled corporations. The build-operate-and-transfer scheme shall include a supply-and-operate situation which is a contractual arrangement whereby the supplier of equipment and machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility providing in the process technology transfer and training to Filipino nationals. (b) Build-and-transfer scheme. A contractual arrangement whereby the contractor undertakes the construction, including financing, of a given infrastructure facility, and its turnover after completion to the government agency or local government unit concerned which shall pay the contractor its total investment expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure project including critical facilities which, for security or strategic reasons, must be operated directly by the Government. Section 3. Private Initiative in Infrastructure. All government infrastructure agencies, including government-owned and controlled corporations and local government units, are hereby authorized to enter into contract with any duly prequalified private contractor for the financing, construction, operation and maintenance of any financially viable infrastructure facilities through the build-operate-and-transfer or build-andtransfer scheme, subject to the terms and conditions hereinafter set forth. Section 4. Priority Projects. All concerned infrastructure agencies, including governmentowned and controlled corporations and local government units, shall include in their infrastructure programs those priority projects that may be financed, constructed, operated and maintained by the private sector under the provisions of this Act.t shall be the duty of all concerned infrastructure agencies to give wide publicity to all projects eligible for financing under this Act, including publication in national newspapers of general circulation once every six (6) months and official notification of contractors registered with them. The lists of all such national projects must be part of the mediumterm infrastructure programs of the agencies concerned and must be duly approved by Congress. Local projects funded and

implemented by the local government units concerned shall be submitted to the local development councils for confirmation or approval. Section 5. Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of this Act, the concerned head of the infrastructure agency or local government unit shall forthwith cause to be published, once every week for three (3) consecutive weeks, in at least two (2) newspapers of general circulation and in at least one (1) local newspaper which is circulated in the region, province, city or municipality in which the project is to be constructed a notice inviting all duly prequalified infrastructure contractors to participate in a public bidding for the projects so approved.n the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed tolls, fees, rentals, and charges over a fixed term or the facility to be constructed, operated, and maintained according to the prescribed minimum design and performance standards, plans, and specifications. For this purpose, the winning contractor shall be automatically granted by the infrastructure agency or local government unit the franchise to operate and maintain the facility, including the collection of tools, fees, rentals, and charges in accordance with Section 6 hereof. In the case of build-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed schedule of amortization payments for the facility to be constructed according to the prescribed minimum design and performance standards, plans and specifications: provided, however, that a Filipino constructor who submits an equally advantageous bid shall be given preference. A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to Congress for its information. Section 6. Repayment Scheme. For the financing, construction, operation, and maintenance of any infrastructure project undertaken pursuant to the provisions of this Act, the contractor shall be entitled to a reasonable return of its investment and operating and maintenance costs in accordance

with its bid proposal as accepted by the concerned contracting infrastructure agency or local government unit and incorporated in the contract's terms and conditions.n the case of a build-operate-and-transfer arrangement, this repayment scheme is to be effected by authorizing the contractor to charge and collect reasonable tools, fees, rentals, and charges for the use of the project facility not exceeding those proposed in the bid and incorporated in the contract: provided, that the government infrastructure agency or local government unit concerned shall approve the fairness and equity of the tolls, fees, rentals and charges except in case of tolls for national highways, roads, bridges and public thoroughfares which shall be approved by the Toll Regulatory Board: provided, further, that the imposition and collection of tolls, fees, rentals and charges shall be for a fixed term as proposed in the bid and incorporated in the contract but in no case shall this term exceed fifty (50) years: provided, finally, that during the lifetime of the franchise, the contractor shall undertake the necessary maintenance and repair of the facility in accordance with standards prescribed in the bidding documents and in the contract.n the case of a build-and-transfer arrangement, the repayment scheme is to be effected through amortization payments by the government infrastructure agency or local government unit concerned to the contractor according to the scheme proposed in the bid and incorporated in the contract. In the case of land reclamation or the building of industrial estates, the repayment scheme may consist of the grant of a portion or percentage of the reclaimed land or industrial estate built, subject to the constitutional requirements with respect to the ownership of lands. Section 7. Contract Termination and Adjustment. In the event that a project is revoked, cancelled or terminated by the Government through no fault of the contractor or by mutual agreement, the Government shall compensate the said contractor for its actual expenses incurred in the project plus a reasonable rate of return thereon not exceeding that stated in the bidding documents and in the contract as of the date of such revocation, cancellation or termination: provided, that the interest of the Government in these instances shall be duly insured with the Government Service Insurance System or any other insurance entity duly

accredited by the Office of the Insurance Commissioner: provided, finally, that the cost of the insurance coverage shall be included in the terms and conditions of the bidding referred to above. The tolls, fees, rentals and charges on the facility are subject to adjustment according to a formula related to official government price indices which shall be defined before the bidding, through the bidding documents, and incorporated in the contract. Section 8. Toll Regulatory Board. The Toll Regulatory Board is hereby attached to the Department of Public Works and Highways with the Secretary of Public Works and Highways as Chairman. Section 9. Project Supervision. Every infrastructure project undertaken under the provisions of this Act shall be constructed, operated and maintained by the contractor concerned in accordance with the plans, specifications, standards, and costs approved by the concerned government infrastructure agency and under the technical supervision of the said agency. Section 10. Implementing Rules and Regulations. A committee composed and representatives from the Department of Public Works and Highways, the Department of Finance, the Department of Local Government, the National Economic and Development Authority, and duly accredited organizations representing the private Philippine construction industry shall formulate and prescribe, after public hearing and publication as required by law, the implementing rules and regulations, including, among others, the criteria and guidelines for evaluation of bid proposals, provisions to subject the facility collections to audit by the Commission on Audit, and conditions for the cancellation of contracts, in order to carry out the provisions of this Act. Section 11. Repealing Clause. All laws or parts of any law inconsistent with the provisions of this Act are hereby repealed or modified accordingly. Section 12. Separability Clause. If any provision of this Act is held invalid, the other provisions not affected thereby shall continue in operation.

Section 13. Effectivity. This Act shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general circulation. Approved: July 9, 1990

REPUBLIC ACT NO. 7718 AN ACT AMENDING CERTAIN SECTIONS OF REPUBLIC ACT NO. 6957, ENTITLED "AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR, AND FOR OTHER PURPOSES" SECTION 1.Section 1 of Republic Act No. 6957 is hereby amended to read as follows: "SECTION 1. Declaration of Policy. - It is the declared policy of the State to recognize the indispensable role of the private sector as the main engine for national growth and development and provide the most appropriate incentives to mobilize private resources for the purpose of financing the construction, operation and maintenance of infrastructure and development projects normally financed and undertaken by the Government. Such incentives, aside from financial incentives as provided by law, shall include providing a climate of minimum government regulations and procedures and specific government undertakings in support of the private sector." SEC. 2. Section 2 of the same Act is hereby amended to read as follows: "SEC. 2. Definition of Terms. - The following terms used in this Act shall have the meaning stated below: "[a] Private sector infrastructure or development projects. - The general description of infrastructure or development projects normally financed and operated by the public sector but which will now be wholly or partly implemented by the private sector, including bit not limited to, power plants, highways, ports, airports, canals, dams, hydropower projects, water supply, irrigation, telecommunications, railroads and railways, transport systems, land reclamation projects, industrial estates or townships, housing, government buildings, tourism projects, markets,

slaughterhouses, warehouses, solid waste management, information technology networks and database infrastructure, education and health facilities, sewerage, drainage, dredging, and other infrastructure and development projects as may be authorized by the appropriate agency pursuant to this Act. Such projects shall be undertaken through contractual arrangements as defined hereunder and such other variations as may be approved by the President of the Philippines. "For the construction stage of these infrastructure projects, the project proponent may obtain financing from foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino contractor. Provided, That, in case an infrastructure or a development facility's operation requires a public utility franchise, the facility operator must be Filipino or if a corporation, it must be duly registered with the Securities and Exchange Commission and owned up to at least (60%) by Filipinos: Provided, further, That in the case of foreign contractors, Filipino labor shall be employed or hired in the different phases of the construction where Filipino skills are available: Provided, finally, That projects which would have difficulty in sourcing funds may be financed partly from direct government appropriations and/or from Official Development Assistance [ODA] of foreign governments or institutions not exceeding [50%] of the project cost, and the balance to be provided by the project proponent. "[b] Build-operate-and-transfer. A contractual arrangement whereby the project proponent undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The project proponent operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding these proposed in its bid or as negotiated and incorporated in the contract to enable the project proponent to recover its investment, and operating and maintenance expenses in the project. The project proponent transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty [50] years: Provided, That in case of an infrastructure or development facility whose operation requires a public utility franchise, the proponent must be Filipino or, if a corporation, must be duly registered with the Securities and Exchange

Commission and owned up to at least sixty percent [60%] by Filipinos. "The build-operate-and-transfer shall include a supply-and-operate situation which is a contractual arrangement whereby the supplier of equipment and machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility providing in the process technology transfer and training to Filipino nationals. "[c] Build-and-transfer. - A contractual arrangement whereby the project proponent undertakes the financing and construction of a given infrastructure or development facility and after its completion turns it over to the government agency or local government unit concerned, which shall pay the proponent on an agreed schedule its total investments expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure or development project, including critical facilities which, for security or strategic reasons, must be operated directly by the Government. "[d] Build-own-and-operate. A contractual arrangement whereby a project proponent is authorized to finance, construct, own, operate and maintain an infrastructure or development facility from which the proponent is allowed to recover its total investment, operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees, rentals or other charges from facility users: Provided, That all such projects, upon recommendation of the Investment Coordination Committee [ICC] of the National Economic and Development Authority [NEDA], shall be approved by the President of the Philippines. Under this project, the proponent which owns the assets of the facility may assign its operation and maintenance to a facility operator. "[e] Build-lease-and-transfer. - A contractual arrangement whereby a project proponent is authorized to finance and construct an infrastructure or development facility and upon its completion turns it over to the government agency or local government unit concerned on a lease arrangement for a fixed period after which ownership of the facility is automatically transferred to the government agency or local government unit concerned.

"[f] Build-transfer-and-operate. A contractual arrangement whereby the public sector contracts out the building of an infrastructure facility to a private entity such that the contractor builds the facility on a turn-key basis, assuming cost overrun, delay and specified performance risks. "Once the facility is commissioned satisfactorily, title is transferred to the implementing agency. The private entity however, operates the facility on behalf of the implementing agency under an agreement. "[g] Contract-add-and-operate. - A contractual arrangement whereby the project proponent adds to an existing infrastructure facility which it is renting from the government. It operates the expanded project over an agreed franchise period. There may, or may not be, a transfer arrangement in regard to the facility. "[h] Develop-operate-and-transfer. A contractual arrangement whereby favorable conditions external to a new infrastructure project which is to be built by a private project proponent are integrated into the arrangement by giving that entity the right to develop adjoining property, and thus, enjoy some of the benefits the investment creates such as higher property or rent values. "[i] Rehabilitate-operate-and-transfer. - A contractual arrangement whereby an existing facility is turned over to the private sector to refurbish, operate and maintain for a franchise period, at the expiry of which the legal title to the facility is turned over to the government. The term is also used to describe the purchase of an existing facility from abroad, importing, refurbishing, erecting and consuming it within the host country. "[j] Rehabilitate-own-and-operate. A contractual arrangement whereby an existing facility is turned over to the private sector to refurbish and operate with no time limitation imposed on ownership. As long as the operator is not in violation of its franchise, it can continue to operate the facility in perpetuity. "[k] Project proponent. - The private sector entity which shall have contractual responsibility for the project and which shall have an adequate financial base to implement said project consisting of equity and firm commitments from reputable financial institutions to provide, upon

award, sufficient credit lines to cover the total estimated cost of the project. "[l] Contractor. - Any entity accredited under Philippine laws which may or may not be the project proponent and which shall undertake the actual construction and/or supply of equipment for the project. "[m] Facility operator. - A company registered with the Securities and Exchange Commission, which may or may not be the project proponent, and which is responsible for all aspects of operation and maintenance of the infrastructure or development facility, including but not limited to the collection of tolls, fees, rentals or charges from facility users: Provided, That in case the facility requires a public utility franchise, the facility operator shall be Filipino or at least sixty per centum [60%] owned by Filipinos. "[n] Direct government guarantee. - An agreement whereby the government or any of its agencies or local government units assume responsibility for the repayment of debt directly incurred by the project proponent in implementing the project in case of a loan default. "[o] Reasonable rate of return on investments and operating and maintenance cost. - The rate of return that reflects the prevailing cost of capital in the domestic and international markets: Provided, That, in case of negotiated contracts, such rate of return shall be determined by the ICC of the NEDA prior to the negotiation and/or call for proposals: Provided, further, That for negotiated contracts for public utility projects which are monopolies, the rate of return on rate base shall be determined by existing laws, which in no case shall exceed twelve per centum [12%]. "[p] Construction. - Refers to new construction, rehabilitation, improvement, expansion, alteration and related works and activities including the necessary supply of equipment, materials, labor and services and related items." SEC. 3. Section 3 of the same Act is hereby amended to read as follows: "SEC. 3. Private Initiative in Infrastructure. - All government infrastructure agencies, including government-owned and -controlled corporations and local government units are hereby authorized to enter into contract with any duly

prequalified project proponent for the financing, construction, operation and maintenance of any financially viable infrastructure or development facility through any of the projects authorized in this Act. Said agencies, when entering into such contracts, are enjoined to solicit the expertise of individuals, groups, or corporations in the private sector who have extensive experience in undertaking infrastructure or development projects." SEC. 4. Section 4 of the same act is hereby amended to read as follows: "SEC. 4. Priority projects. - All concerned government agencies, including governmentowned and -controlled corporations and local government units, shall include in their development programs those priority projects that may be financed, constructed, operated and maintained by the private sector under the provisions of this Act. It shall be the duty of all concerned government agencies to give wide publicity to all projects eligible for financing under this Act, including publication in national and, where applicable, international newspapers of general circulation once every six (6) months and official notification of project proponents registered with them. "The lists of all such national projects must be part of the development programs of the agencies concerned. The list of projects costing up to Three hundred million pesos [300,000,000] shall be submitted to the ICC of the NEDA for its approval and to the NEDA Board for projects costing more than Three hundred million pesos [300,000,000]. The list of projects submitted to the ICC of the NEDA Board shall be acted upon within thirty [30] working days. "The list of local projects to be implemented by the local government units concerned shall be submitted for confirmation to the municipal development council for projects costing up to Twenty million pesos; those costing above Twenty up to Fifty million pesos to the provincial development council; those costing up to Fifty million to the city development council; above Fifty million up to Two hundred million pesos to the regional development councils; and those above Two hundred million pesos to the ICC of the NEDA." SEC. 5. A new section is hereby added after Section 4 of the same Act and numbered as Section 4-A, to read as follows:

"SEC. 4-A. Unsolicited proposals. - Unsolicited proposals for projects may be accepted by any government agency or local government unit on a negotiated basis: Provided, That, all the following conditions are met: [1] such projects involve a new concept or technology and/or are not part of the list of priority projects, [2] no direct government guarantee, subsidy or equity is required, and [3] the government agency or local government unit has invited by publication, for three [3] consecutive weeks, in a newspaper of general circulation, comparative or competitive proposals and no other proposal is received for a period of sixty [60] working days: Provided, further, That in the event another proponent submits a lower price proposal, the original proponent shall have the right to match that price within thirty [30] working days." SEC. 6. Section 5 of the same Act is hereby amended to read as follows: "SEC. 5. Public Bidding of Projects. - Upon approval of the projects mentioned in Section 4 of this Act, the head of the infrastructure agency or local government unit concerned shall forthwith cause to be published, once every week for three [3] consecutive weeks, in at least two [2] newspapers of general circulation and in at least one [1] local newspaper which is circulated in the region, province, city or municipality in which the project is to be constructed, a notice inviting all prospective infrastructure or development project proponents to participate in a competitive public bidding for the projects so approved. "In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder who, having satisfied the minimum financial, technical, organizational and legal standards required by this Act, has submitted the lowest bid and most favorable terms for the project, based on the present value of its proposed tolls, fees, rentals and charges over a fixed term for the facility to be constructed, rehabilitated, operated and maintained according to the prescribed minimum design and performance standards, plans and specifications. For this purpose, the winning project proponent shall be automatically granted by the appropriate agency the franchise to operate and maintain the facility, including the collection of tolls, fees, rentals, and charges in accordance with Section 5 hereof.

"In the case of a build-and-transfer or buildlease-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed schedule of amortization payments for the facility to be constructed according to the prescribed minimum design and performance standards, plans and specifications: Provided, however, That a Filipino contractor who submits an equally advantageous bid with exactly the same price and technical specifications as those of a foreign contractor shall be given preference. "In all cases, a consortium that participates in a bid must present proof that the members of the consortium have bound themselves jointly and severally to assume responsibility for any project. The withdrawal of any member of the consortium prior to the implementation of the project could be a ground for the cancellation of the contract. "The public bidding must be conducted under a two-envelope/two-stage system: the first envelope to contain the technical proposal and the second envelope to contain the financial proposal. The procedures for this system shall be outlined in the implementing rules and regulations of this Act. "A copy of each contract involving a project entered into under this Act shall forthwith be submitted to Congress for its information." SEC. 7. A new section is hereby added after Section 5 of the same Act and numbered as Section 5-A, to read as follows: "SEC. 5-A. Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there in only one complying bidder left as defined hereunder: "[a] If, after advertisement, only one contractor applied for prequalification and it meets the prequalification requirements, after which it is required to submit a bid/proposal which is subsequently found by the agency/local government unit [LGU] to be complying. "[b] If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification requirements, after which it submits bid/proposal which is found by the agency/LGU to be complying.

"[c] If, after prequalification of more than one contractor, only one submits a bid which is found by the agency/LGU to be complying. "[d] If, after prequalification, more than one contractor submit bids but only one is found by the agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder may appeal the decision of the implementing agency/LGUs Prequalification Bids and Awards Committee within fifteen [15] working days to the head of the agency, in case of national projects or to the Department of the Interior and Local Government, in case of local projects from the date the disqualification was made known to the disqualified bidder. Provided, furthermore, That the implementing agency/LGUs concerned should act on the appeal within forty-five [45] working days from receipt thereof." SEC. 8. Section 6 of the same Act is hereby amended to read as follows: "SEC. 6. Repayment Scheme. - For the financing, construction, operation and maintenance of any infrastructure project undertaken through the Build-Operate-andTransfer arrangement or any of its variations pursuant to the provisions of this Act, the project proponent shall be repaid by authorizing it to charge and collect reasonable tolls, fees, and rentals for the use of the project facility not exceeding those incorporated in the contract and, where applicable, the proponent may likewise be repaid in the form of a share in the revenue of the project or other non-monetary payments, such as, but not limited, to the grant of a portion or percentage of the reclaimed land, subject to the constitutional requirements with respect to the ownership of land: Provided, That for negotiated contracts, and for projects which have been granted a natural monopoly or where the public has no access to alternative facilities, the appropriate government regulatory bodies, shall approve the tolls, fees, rentals, and charges based on a reasonable rate of return: Provided, further, That the imposition and collection of tolls, fees, rentals, and charges shall be for a fixed term as proposed in the bid and incorporated in the contract but in no case shall this term exceed fifty [50] years: Provided, furthermore, That the tolls, fees, rentals, and charges may be subject to adjustment during the life of the contract, based on a predetermined formula using official price indices and included in the instructions to bidders and in the contract:

Provided, also, That all tolls, fees, rentals, and charges and adjustments thereof shall take into account the reasonableness of said rates to the end-users of private sector-built infrastructure: Provided, finally, That during the lifetime of the franchise, the project proponent shall undertake the necessary maintenance and repair of the facility in accordance with standards prescribed in the bidding documents and in the contract. In the case of a Build-and-Transfer arrangement, the repayment scheme is to be effected through amortization payments by the government agency or local government unit concerned to the project proponent according to the scheme proposed in the bid and incorporated in the contract." SEC. 9. Section 7 of the same Act is hereby amended to read as follows: "SEC. 7. Contract Termination - In the event that a project is revoked, canceled or terminated by the Government through no fault of the project proponent or by mutual agreement, the Government shall compensate the said project proponent for its actual expenses incurred in the project plus a reasonable rate of return thereon not exceeding that stated in the contract as of the date of such revocation, cancellation or termination: Provided, That the interest of the Government in these instances shall be duly insured with the Government Service Insurance System or any other insurance entity duly accredited by the Office of the Insurance Commissioner: Provided, finally, That the cost of the insurance coverage shall be included in the terms and conditions of the bidding referred to above. "In the event that the government defaults on certain major obligations in the contract and such failure is not remediable or if remediable shall remain unremedied for an unreasonable length of time, the project proponent/contractor may, by prior notice to the concerned national government agency or local government unit specifying the turn-over date, terminate the contract. The project proponent/contractor shall be reasonably compensated by the Government for equivalent or proportionate contract cost as defined in the contract." SEC. 10. Section 8 of the same Act is hereby amended to read as follows: "SEC. 8. Regulatory Boards. - The Toll Regulatory Board which was created by

Presidential Decree No. 1112 is hereby attached to the Department of Public Works and Highways with the Secretary of Public Works and Highways as Chairman." SEC. 11. Section 9 of the same Act is hereby amended to read as follows: "SEC. 9. Project Supervision. - Every infrastructure project undertaken under the provisions of this Act shall be in accordance with the plans, specifications, standards, and costs approved by the concerned government agency and shall be under the supervision of the said agency or local government unit in the case of local projects." SEC. 12. A new section to be numbered as Section 10 is hereby added to read as follows: "SEC. 10. Investment Incentives. - Among other incentives, projects in excess of One billion pesos [1,000,000,000] shall be entitled to incentives as provided by the Omnibus Investments Code, upon registration with the Board of Investments." SEC. 13. Section 10 of the same Act is hereby renumbered as Section 11 to read as follows: "SEC. 11. Implementing Rules and Regulations. - A committee composed of one (1) representative each from the Department of Public Works and Highways, the Department of Transportation and Communications, the Department of Energy, the Department of Environment and Natural Resources, the Department of Agriculture, the Department of Trade and Industry, the Department of Finance, the Department of the Interior and Local Government, the National Economic and Development Authority, the Coordinating Council of the Philippine Assistance Program, and other concerned government agencies shall within sixty [60] days from the effectivity of this Act, formulate and prescribe, after public hearing and publication as required by law, the implementing rules and regulations including, among others, the criteria and guidelines for evaluation of bid proposals, list of financial incentives and arrangements that the Government may provide for the project, in order to carry out the provisions of this Act in the most expeditious manner.

"The Chairman of this committee shall be appointed by the President of the Philippines from its members. "From time to time the Committee may conduct, formulate and prescribe after due public hearing and publication, amendments to the implementing rules and regulations, consistent with the provisions of this Act." SEC. 14. A new section to be numbered as Section 12 is hereby added to read as follows: "SEC. 12. Coordination and Monitoring of Projects. - The Coordinating Council of the Philippine Assistance Program [CCPAP] shall be responsible for the coordination and monitoring of projects implemented under this Act. "Regional development councils and local government units shall periodically submit to CCPAP, information on the status of said projects. "At the end of every calendar year, the CCPAP shall report to the President and to Congress on the progress of all projects implemented under this Act." SEC. 15. Section 11, 12 and 13 of the same Act are hereby renumbered as Sections 13, 14, and 15, respectively. SEC. 16. Repealing Clause. - All laws or parts of any law inconsistent with the provisions of this Act are hereby repealed or modified accordingly. SEC. 17. Separability Clause. - If any provision of this Act is held invalid, the other provisions not affected thereby shall continue in operation. SEC. 18. Effectivity Clause. - This Act shall take effect fifteen [15] days after its publication in at least two (2) newspapers of general circulation. Approved:

REPUBLIC ACT NO. 7652

AN ACT ALLOWING THE LONG-TERM LEASE OF PRIVATE LANDS BY FOREIGN INVESTORS

Section 1. Title. This Act shall be known as the "Investors' Lease Act." Sec. 2. Declaration of Policy. It is hereby declared the policy of the State to encourage foreign investments consistent with the constitutional mandate to conserve and develop our own patrimony. Towards this end, the State hereby adopts a flexible and dynamic policy of the granting of long-term lease on private lands to foreign investors for the establishment of industrial estates, factories, assembly or processing plants, agro-industrial enterprises, land development for industrial, or commercial use, tourism, and other similar priority productive endeavors. Sec. 3. Definitions. For purposes of this Act, unless the context indicates otherwise, the term: (1) "Investing in the Philippines" shall mean making an equity investment in the Philippines through actual remittance of foreign exchange or transfer of assets, whether in the form of capital goods, patents, formulas, or other technological rights or processes, upon registration with the Securities and Exchange Commission; and (2) "Withdrawal of approved investment" shall mean either: (a) the failure to operate the investment project for any three (3) consecutive years; or (b) outright abandonment of the investment project at any time during the approved lease period: Provided, That failure to pay lease rental for three (3) consecutive months coupled with the failure to operate the investment project for the same period shall be deemed as outright abandonment of the project. Sec. 4. Coverage. Any foreign investor investing in the Philippines shall be allowed to lease private lands in accordance with the laws of the Republic of the Philippines subject to the following conditions: (1) No lease contract shall be for a period exceeding fifty (50) years, renewable once for a period of not more than twenty- five (25) years; (2) The leased area shall be used solely for the purpose of the investment upon the mutual agreement of the parties; (3) The leased premises shall comprise such area as may reasonably be required for the purpose of the investment subject however to

the Comprehensive Agrarian Reform Law and the Local Government Code. The leasehold right acquired under long-term lease contracts entered into pursuant to this Act may be sold, transferred, or assigned: Provided, That when the buyer, transferee, or assignee is a foreigner or a foreign-owned enterprise, the conditions and limitations in respect to the use of the leased property as provided for under this Act shall continue to apply. Sec. 5. Limitations. (1) Foreign individuals, corporations, associations, or partnerships not otherwise investing in the Philippines as defined herein shall continue to be covered by Presidential Decree No. 471 and other existing laws in lease of lands to foreigners. (2) Withdrawal of the approved investment in the Philippines within the period of the lease agreement entered into under this Act, or use of the leased area for the purpose other than that authorized, shall warrant the ipso facto termination of the lease agreement without prejudice to the right of the lessor to be compensated for the damages he may have suffered thereby.chanrobles virtual law library (3) Any lease agreement under this Act which is renewable at the option of the lessee subject to the same terms and conditions of the original contract shall be interpreted to mean as renewable upon the mutual agreement of the parties. (4) In addition to the conditions for the renewal of a lease agreement after the period of fifty (50) years as provided herein, the foreign lease shall show that it has made social and economic contributions to the country.cralaw (5) In the case of tourism projects, lease of private lands by foreign investors qualified herein shall be limited to projects with an investment of not less than five million (5M) US dollars, 70% of which shall be infused in said project within three years from the signing of the lease contract. Sec. 6. Termination of Lease Contract. The Secretary of Trade and Industry shall terminate any lease contract entered into under the provisions of this Act, if the investment project is not initiated within three (3) years from the signing of the lease contract.

Sec. 7. Penal Provision. Any contract or agreement made or executed in violation of any of the following prohibited acts shall be null and void ab initio and both contracting parties shall be punished by a fine of not less than One Hundred thousand pesos (P100,000) nor more than One million pesos (P1,000,000), or imprisonment of six (6) months to (6) years, or both, at the discretion of the court: (1) Any provision in the lease agreement stipulating a lease period in excess of that provided in paragraph (1) Section 4; (2) Use of the leased premises for the purpose contrary to existing laws of the land, public order, public policy, morals, or good customs; (3) Any agreement or agreements resulting is the lease of land in excess of the area approved by the DTI: Provided, That, where the excess of the totality of the area leased is due to the acts of the lessee, the lessee shall be held solely liable therefor: Provided, further, That, in the case of corporations, associations, or partnerships, the president, manager, director, trustee, or officers responsible for the violation hereof shall bear the criminal liability. Sec. 8. Separability Clause. In case any provision of this Act or the application of such provision is deemed unconstitutional, the remaining provisions of this Act or the application of such provisions shall not be affected thereby. Sec. 9. Repealing Clause. All acts, rules and regulations contrary to or inconsistent with this Act are hereby repealed or modified accordingly. Sec. 10. Effectivity Clause. this Act shall take effect immediately upon its approval. Approved: June 4, 1993

PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), AND FOR OTHER PURPOSES

CHAPTER I Purposes and Objectives; Establishment and Nature of Special Economic Zones; Coordination with Other Similar Schemes SECTION 1. Title. This Act shall be known and cited as The Special Economic Zone Act of 1995. SECTION 2. Declaration of Policy. It is the declared policy of the government to translate into practical realities the following State policies and mandates in the 1987 Constitution, namely: (a) The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments. (Sec. 20, Art. II) (b) The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive. (Sec. 12, Art. XII) In pursuance of these policies, the government shall actively encourage, promote, induce and accelerate a sound and balanced industrial, economic and social development of the country in order to provide jobs to the people especially those in the rural areas, increase their productivity and their individual and family income, and thereby improve the level and quality of their living condition through the establishment, among others, of special economic zones in suitable and strategic locations in the country and through measures that shall effectively attract legitimate and productive foreign investments. SECTION 3. Purposes, Intents and Objectives. It is the purpose, intent and objective of this Act: (a) To establish the legal framework and mechanisms for the integration, coordination, planning and monitoring of special economic zones, industrial estates/parks, export processing zones and other economic zones;

REPUBLIC ACT NO. 7916

AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISMS FOR THE CREATION, OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE

(b) To transform selected areas in the country into highly developed agro-industrial, industrial, commercial, tourist, banking, investment, and financial centers, where highly trained workers and efficient services will be available to commercial enterprises; (c) To promote the flow of investors, both foreign and local, into special economic zones which would generate employment opportunities and establish backward and forward linkages among industries in and around the economic zones; (d) To stimulate the repatriation of Filipino capital by providing attractive climate and incentives for business activity; (e) To promote financial and industrial cooperation between the Philippines and industrialized countries through technologyintensive industries that will modernize the countrys industrial sector and improve productivity levels by utilizing new technological and managerial know-how; and (f) To vest the special economic zones on certain areas thereof with the status of a separate customs territory within the framework of the Constitution and the national sovereignty and territorial integrity of the Philippines. SECTION 4. Definition of Terms. For purposes of this Act, the following definitions shall apply to the following terms: (a) Special economic zones (SEZ) hereinafter referred to as the ECOZONES, are selected areas with highly developed or which have the potential to be developed into agroindustrial, industrial, tourist/recreational, commercial, banking, investment and financial centers. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones, and tourist/recreational centers. (b) Industrial estate (IE) refers to a tract of land subdivided and developed according to a comprehensive plan under a unified continuous management and with provisions for basic infrastructure and utilities, with or without pre-built standard factory buildings and community facilities for the use of the community of industries.

(c) Export processing zone (EPZ) a specialized industrial estate located physically and/or administratively outside customs territory, predominantly oriented to export production. Enterprises located in export processing zones are allowed to import capital equipment and raw materials free from duties, taxes and other import restrictions. (d) Free trade zone an isolated policed area adjacent to a port of entry (as a seaport) and/or airport 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-freetrade area in the country shall be subject to import duties. Enterprises within the zone are granted preferential tax treatment and immigration laws are more lenient. SECTION 5. Establishment of ECOZONES. To ensure the viability and geographic dispersal of ECOZONES through a system of prioritization, the following areas are initially identified as ECOZONES, subject to the criteria specified in Section 6: (a) So much as may be necessary of that portion of Morong, Hermosa, Dinalupihan, Orani, Samal, and Abucay in the Province of Bataan; (b) So much as may be necessary of that portion of the municipalities of Ibaan, Rosario, Taysan, San Jose, San Juan, and cities of Lipa and Batangas; (c) So much as may be necessary of that portion of the City of Cagayan de Oro in the Province of Misamis Oriental; (d) So much as may be necessary of that portion of the City of Iligan in the Province of Lanao del Norte;

(e) So much as may be necessary of that portion of the Province of Saranggani; (f) So much as may be necessary of that portion of the City of Laoag in the Province of Ilocos Norte;

(g) So much as may be necessary of that portion of Davao City and Samal Island in the Province of Davao del Norte; (h) So much as may be necessary of that portion of Oroquieta City in the Province of Misamis Occidental; (i) So much as may be necessary of that portion of Tubalan Cove, Malita in the Province of Davao del Sur; (j) So much as may be necessary of that portion of Baler, Dinalungan and Casiguran including its territorial waters and islets and its immediate environs in the Province of Aurora; (k) So much as may be necessary of that portion of cities of Naga and Iriga in the Province of Camarines Sur, Legaspi and Tabaco in the Province of Albay, and Sorsogon in the Province of Sorsogon; (l) So much as may be necessary of that portion of Batan Island in the Province of Batanes; (m) So much as may be necessary of that portion of Lapu-lapu in the Island of Mactan, and the municipalities of Balamban and Pinamungahan and the cities of Cebu and Toledo and the Province of Cebu, including its territorial waters and islets and its immediate environs; (n) So much as may be necessary of that portion of Tacloban City; (o) So much as may be necessary of that portion of the Municipality of Barugo in the Province of Leyte; (p) So much as may be necessary of that portion of the Municipality of Buenavista in the Province of Guimaras;

(s) So much as may be necessary of that portion of the Municipality of Ternate and its immediate environs in the Province of Cavite; (t) So much as may be necessary of that portion of Polloc, Parang in the Province of Maguindanao; (u) So much as may be necessary of that portion of the Municipality of Boac in the Province of Marinduque; (v) So much as may be necessary of that portion of the Municipality of Pitogo in the Province of Zamboanga del Sur; (w) So much as may be necessary of that portion of Dipolog City-Manukan Corridor in the Province of Zamboanga del Norte; (x) So much as may be necessary of that portion of Mambajao, Camiguin Province; (y) So much as may be necessary of that portion of Infanta, Real, Polillo, Alabat, Atimonan, Mauban, Tiaong, Pagbilao, Mulanay, Tagkawayan, and Dingalan Bay in the Province of Quezon; (z) So much as may be necessary of that portion of Butuan City and the Province of Agusan del Norte, including its territorial waters and islets and its immediate environs; (aa) So much as may be necessary of that portion of Roxas City including its territorial waters and islets and its immediate environs in the Province of Capiz; (bb) So much as may be necessary of that portion of San Jacinto, San Fabian, Mangaldan, Lingayen, Sual, Dagupan, Alaminos, Manaoag, Binmaley in the Province of Pangasinan; (cc) So much as may be necessary of that portion of the autonomous region; (dd) So much as may be necessary of that portion of Masinloc, Candelaria, and Sta. Cruz in the Province of Zambales; (ee) So much as may be necessary of that portion of the Palawan Island; (ff) So much as may be necessary of that portion of General Santos City in South Cotabato and its immediate environs;

(q) So much as may be necessary of that portion of the municipalities of San Jose de Buenavista, Hamtic, Sibalom, and Culasi in the Province of Antique; (r) So much as may be necessary of that portion of the municipalities of Catarman, Bobon and San Jose in the Province of Northern Samar, the Island of Samar;

(gg) So much as may be necessary of that portion of Dumaguete City and Negros Oriental, including its territorial waters and islets and its immediate environs; (hh) So much as may be necessary of that portion of the Province of Ilocos Sur; (ii) So much as may be necessary of that portion of the Province of La Union; (jj) So much as may be necessary of that portion of the Province of Laguna, including its territorial waters and its immediate environs; (kk) So much as may be necessary of that portion of the Province of Rizal; (ll) All existing export processing zones and government-owned industrial estates; and (mm) Any private industrial estate which shall voluntarily apply for conversion into an ECOZONE. These areas shall be developed through any of the following schemes: (i) Private initiative;

(a) The proposed area must be identified as a regional growth center in the Medium-Term Philippine Development Plan or by the Regional Development Council; (b) The existence of required infrastructure in the proposed ECOZONE, such as roads, railways, telephones, ports, airports, etc., and the suitability and capacity of the proposed site to absorb such improvements; (c) The availability of water source and electric power supply for use of the ECOZONE; (d) The extent of vacant lands available for industrial and commercial development and future expansion of the ECOZONE as well as of lands adjacent to the ECOZONE available for development of residential areas for the ECOZONE workers; (e) The availability of skilled, semi-skilled and non-skilled trainable labor force in and around the ECOZONE; (f) The area must have a significant incremental advantage over the existing economic zones and its potential profitability can be established; (g) and The area must be strategically located;

(ii) Local government initiative with the assistance of the national government; and (iii) National government initiative.

The metes and bounds of each ECOZONE are to be delineated and more particularly described in a proclamation to be issued by the President of the Philippines, upon the recommendation of the Philippine Economic Zone Authority (PEZA), which shall be established under this Act, in coordination with the municipal and/or city council, National Land Use Coordinating Committee and/or the Regional Land Use Committee.

(h) The area must be situated where controls can easily be established to curtail smuggling activities. Other areas which do not meet the foregoing criteria may be established as ECOZONES: Provided, That the said area shall be developed only through local government and/or private sector initiative under any of the schemes allowed in Republic Act No. 6957 (the buildoperate-transfer law), and without any financial exposure on the part of the national government: Provided, further, That the area can be easily secured to curtail smuggling activities: Provided, finally, That after five (5) years the area must have attained a substantial degree of development, the indicators of which shall be formulated by the PEZA. SECTION 7.ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial/Trading, Tourist, Investment and Financial Community. Within the framework of the Constitution, the interest of national sovereignty and territorial

SECTION 6.Criteria for the Establishment of Other ECOZONES. In addition to the ECOZONES identified in Section 5 of this Act, other areas may be established as ECOZONES in a proclamation to be issued by the President of the Philippines subject to the evaluation and recommendation of the PEZA, based on a detailed feasibility and engineering study which must conform to the following criteria:

integrity of the Republic, the ECOZONE shall be developed, as much as possible, into a decentralized, self-reliant and self-sustaining industrial, commercial/trading, agro-industrial, tourist, banking, financial and investment center with minimum government intervention. Each ECOZONE shall be provided with transportation, telecommunications, and other facilities needed to generate linkage with industries and employment opportunities for its own inhabitants and those of nearby towns and cities. The ECOZONE shall administer itself on economic, financial, industrial, tourism development and such other matters within the exclusive competence of the national government. The ECOZONE may establish mutually beneficial economic relations with other entities within the country, or, subject to the administrative guidance of the Department of Foreign Affairs and/or the Department of Trade and Industry, with foreign entities or enterprises. Foreign citizens and companies owned by nonFilipinos in whatever proportion may set up enterprises in the ECOZONE, either by themselves or in joint venture with Filipinos in any sector of industry, international trade and commerce within the ECOZONE. Their assets, profits and other legitimate interests shall be protected: Provided, That the ECOZONE through the PEZA may require a minimum investment for any ECOZONE enterprise in freely convertible currencies: Provided, further, That the new investment shall fall under the priorities, thrusts and limits provided for in this Act. SECTION 8.ECOZONE to be Operated and Managed as Separate Customs Territory. The ECOZONES shall be managed and operated by the PEZA as separate customs territory.

SECTION 9. Defense and Security. The defense of the ECOZONE and the security of its perimeter fence shall be the responsibility of the national government in coordination with the PEZA. Military forces sent by the national government for the purpose of defense shall not interfere in the internal affairs of any of the ECOZONE and expenditure for these military forces shall be borne by the national government. The PEZA may provide and establish the ECOZONES internal security and firefighting forces. SECTION 10.Immigration. Any investor within the ECOZONE whose initial investment shall not be less than One hundred fifty thousand dollars ($150,000), his/her spouse and dependent children under twenty-one (21) years of age shall be granted permanent resident status within the ECOZONE. They shall have freedom of ingress and egress to and from the ECOZONE without any need of special authorization from the Bureau of Immigration. The PEZA shall issue working visas renewable every two (2) years to foreign executives and other aliens, possessing highly-technical skills which no Filipino within the ECOZONE possesses, as certified by the Department of Labor and Employment. The names of aliens granted permanent resident status and working visas by the PEZA shall be reported to the Bureau of Immigration within thirty (30) days after issuance thereof.

CHAPTER II Governing Structures SECTION 11. The Philippine Economic Zone Authority (PEZA) Board. There is hereby created a body corporate to be known as the Philippine Economic Zone Authority (PEZA) attached to the Department of Trade and Industry. The Board shall have a director general with the rank of a department undersecretary who shall be appointed by the President. The director general shall be at least forty (40) years of age, of proven probity and integrity, and with a degree in economics, business, public administration, law, management or its equivalent. The director general shall be assisted by three (3) deputy directors general each for policy and

The PEZA is hereby vested with the authority to issue certificates of origin for products manufactured or processed in each ECOZONE in accordance with the prevailing rules of origin, and the pertinent regulations of the Department of Trade and Industry and/or the Department of Finance.

planning, administration and operations, who shall be appointed by the PEZA Board, upon the recommendation of the director general. The deputy directors general shall be at least thirtyfive (35) years old, with proven probity and integrity and with a degree in economics, business, public administration, law, management or its equivalent. They must have career executive service eligibility. The Board shall be composed of the director general as ex officio chairman with eight (8) members as follows: the Secretaries or their representatives of the Department of Trade and Industry, the Department of Finance, the Department of Labor and Employment, the Department of the Interior and Local Government, the National Economic and Development Authority, and the Bangko Sentral ng Pilipinas, one (1) representative from the labor sector, and one (1) representative from the investors/business sector in the ECOZONE. The existing Export Processing Zone Authority (EPZA) created under Presidential Decree No. 66 shall evolve into the PEZA in accordance with the guidelines and regulations set forth in an executive order issued for this purpose. Members of the Board shall receive a per diem of not less than the amount equivalent to the representation and transportation allowances of the members of the Board and/or as may be determined by the Department of Budget and Management: Provided, however, That the per diem collected per month does not exceed the equivalent of four (4) meetings. SECTION 12.Functions and Powers of PEZA Board. The Philippine Economic Zone Authority (PEZA) Board shall have the following functions and powers: (a) Set the general policies on the establishment and operations of the ECOZONES, industrial estates, export processing zones, free trade zones, and the like; (b) Review proposals for the establishment of ECOZONES based on the set criteria under Section 6 and endorse to the President the establishment of the ECOZONES, industrial estates, export processing zones, free trade zones and the like. Thereafter, it shall facilitate and assist in the organization of said entities;

(c) Regulate and undertake the establishment, operation and maintenance of utilities, other services and infrastructure in the ECOZONE, such as heat, light and power, water supply, telecommunications, transport, toll roads and bridges, port services, etc., and to fix just, reasonable and competitive rates, fares, charges and fees therefor; (d) Approve the annual budget of the PEZA and the ECOZONE development plans; (e) Issue rules and regulations to implement the provisions of this Act insofar as its powers and functions are concerned; (f) Exercise its powers and functions as provided for in this Act; and (g) Render annual reports to the President and the Congress. SECTION 13.General Powers and Functions of the Authority. The PEZA shall have the following powers and functions: (a) To operate, administer, manage and develop the ECOZONE according to the principles and provisions set forth in this Act; (b) To register, regulate and supervise the enterprises in the ECOZONE in an efficient and decentralized manner; (c) To coordinate with local government units and exercise general supervision over the development, plans, activities and operations of the ECOZONES, industrial estates, export processing zones, free trade zones, and the like; (d) In coordination with local government units concerned and appropriate agencies, to construct, acquire, own, lease, operate and maintain on its own or through contract, franchise, license, bulk purchase from the private sector and build-operate-transfer scheme or joint venture, adequate facilities and infrastructure, such as light and power systems, water supply and distribution systems, telecommunications and transportation, buildings, structures, warehouses, roads, bridges, ports and other facilities for the operation and development of the ECOZONE; (e) To create, operate and/or contract to operate such agencies and functional units or

offices of the authority as it may deem necessary; (f) To adopt, alter and use a corporate seal; make contracts, lease, own or otherwise dispose of personal or real property; sue and be sued; and otherwise carry out its duties and functions as provided for in this Act; (g) To coordinate the formulation and preparation of the development plans of the different entities mentioned above; (h) To coordinate with the National Economic and Development Authority (NEDA), the Department of Trade and Industry (DTI), the Department of Science and Technology (DOST), and the local government units and appropriate government agencies for policy and program formulation and implementation; and (i) To monitor and evaluate the development and requirements of entities in subsection (a) and recommend to the local government units or other appropriate authorities the location, incentives, basic services, utilities and infrastructure required or to be made available for said entities. SECTION 14.Powers and Functions of the Director General. The director general shall be the overall coordinator of the policies, plans and programs of the ECOZONES. As such, he shall provide overall supervision over and general direction to the development and operations of these ECOZONES. He shall determine the structure and the staffing pattern and personnel complement of the PEZA and establish regional offices, when necessary, subject to the approval of the PEZA Board. In addition, he shall have the following specific powers and responsibilities: (a) To safeguard all the lands, buildings, records, monies, credits and other properties and rights of the ECOZONE; (b) To ensure that all revenues of the ECOZONE are collected and applied in accordance with its budget;

(d) To give such information and recommend such measures to the Board, as he shall deem advantageous to the ECOZONE; (e) To submit to the Board, the ongoing and proposed projects, work and financial program, annual budget of receipts, and expenditures of the ECOZONE; (f) To represent the ECOZONE in all its business matters and sign on its behalf after approval of the Board, all its bonds, borrowings, contracts, agreements and obligations made in accordance with this Act; (g) To acquire jurisdiction, as he may deem proper, over the protests, complaints, and claims of the residents and enterprises in the ECOZONE concerning administrative matters; (h) To recommend to the Board the grant, approval, refusal, amendment or termination of the ECOZONE franchises, licenses, permits, contracts, and agreements in accordance with the policies set by the Board; (i) To require owners of houses, buildings or other structures constructed without the necessary permit whether constructed on public or private lands, to remove or demolish such houses, buildings, structures within sixty (60) days after notice and upon failure of such owner to remove or demolish such house, building or structure within said period, the director general or his authorized representative may summarily cause its removal or demolition at the expense of the owner, any existing law, decree, executive order and other issuances or part thereof to the contrary notwithstanding; (j) To take such emergency measures as may be necessary to avoid fires, floods and mitigate the effects of storms and other natural or public calamities; (k) To prepare and make out plans for the physical and economic development of the ECOZONE, including zoning and land subdivision, and issue such rules and regulations which shall be submitted to the Board for its approval; and (l) To perform such other duties and exercise such powers as may be prescribed by the Board, and to implement the policies, rules and regulations set by the PEZA.

(c) To ensure that the investors/firms and employees of the ECOZONES are properly discharging their respective duties;

SECTION 15.Administration of Each ECOZONE. Each ECOZONE shall be organized, administered, managed and operated by the ECOZONE executive committee composed of the following: (a) The administrator who shall be appointed by the PEZA Board upon recommendation of the director general; and (b) One (1) deputy administrator to be appointed by the Board upon recommendation of the director general. An ECOZONE advisory body shall be created with the following members: (1) The president of the association of investors in the ECOZONE; (2) The governor of the province where the ECOZONE is located; (3) The mayor/s of the municipality/ies or city/ies where the ECOZONE is located; (4) The president of an accredited labor union in the ECOZONE; (5) The representative of the business sector in the periphery of the ECOZONE; and (6) The representative of the PEZA.

for that purpose may subpoena witnesses, administer oaths, and compel the production of books, papers, and other evidences: Provided, That to arrive at the truth, the investigator(s) may grant immunity from prosecution to any person whose testimony or whose possessions of documents or other evidence is necessary or convenient to determine the truth in any investigation conducted by him or under the authority of the PEZA or the administrator of the ECOZONE concerned. SECTION 18.Prohibition Against Holding Any Other Office. The director general, deputy directors general, administrators, officials and staff or assistants of the PEZA shall not hold any other office or employment within or outside the PEZA during their tenure. They shall not, during their tenure, directly or indirectly, practice any profession, participate in any business, or be financially interested in any contract with, or in any franchise, or special privilege granted by the PEZA or national government, or any subdivision, agency, or instrumentality thereof, including any government-owned or -controlled corporation, or its subsidiary. SECTION 19.Disbursement of Funds. No money shall be paid out of the funds of any ECOZONE except in pursuance of the budget as formulated and approved by the PEZA. SECTION 20.Full Disclosure of Financial and Business Interests. Every member of the Board of the PEZA, the director general, the deputy directors general, and their staff shall, upon assumption of office, make full disclosure of their financial and business interests. CHAPTER III Operations Within the Ecozone SECTION 21.Development Strategy of the ECOZONE. The strategy and priority of development of each ECOZONE established pursuant to this Act shall be formulated by the PEZA, in coordination with the Department of Trade and Industry and the National Economic and Development Authority: Provided, That such development strategy is consistent with the priorities of the national government as outlined in the medium-term Philippine development plan. It shall be the policy of the government and the PEZA to encourage and provide incentives and

The ECOZONE advisory shall have the following functions: (i) Advise the ECOZONE management on matters pertaining to policy initiatives; and (ii) Assist the ECOZONE management in settling problems arising between labor and any enterprise in the ECOZONE. SECTION 16.Salary and Other Emoluments. The salary of the director general shall be in accordance with the revised compensation and position classification system. SECTION 17.Investigation and Inquiries. Upon a written formal complaint made under oath, which on its face provides reasonable basis to believe that some anomaly or irregularity might have been committed, the PEZA or the administrator of the ECOZONE concerned, shall have the power to inquire into the conduct of firms or employees of the ECOZONE and to conduct investigations, and

facilitate private sector participation in the construction and operation of the public utilities and infrastructure in the ECOZONE, using any of the schemes allowed in Republic Act No. 6957 (the build-operate-transfer law). SECTION 22.Survey of Resources. The PEZA shall, in coordination with appropriate authorities and neighboring cities and municipalities, immediately conduct a survey of the physical, natural assets and potentialities of the ECOZONE areas under its jurisdiction. SECTION 23.Fiscal Incentives. Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987. Furthermore, tax credits for exporters using local materials as inputs shall enjoy the same benefits provided for in the Export Development Act of 1994. SECTION 24.Exemption from Taxes Under the National Internal Revenue Code. Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows: (a) Three percent (3%) to the national government; (b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; and (c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE: Provided, however, That the respective share of the affected local government units shall be determined on the basis of the following formula: (1) Population fifty percent (50%);

(2) (25%); and (3) (25%).

Land area twenty-five percent Equal sharing twenty-five percent

SECTION 25.Applicable National Taxes. All income derived by persons and all service establishments in the ECOZONE shall be subject to taxes under the National Internal Revenue Code. SECTION 26.Domestic Sales. Goods manufactured by an ECOZONE enterprise shall be made available for immediate retail sales in the domestic market, subject to payment of corresponding taxes on the raw materials and other regulations that may be adopted by the Board of the PEZA. However, in order to protect the domestic industry, there shall be a negative list of industries that will be drawn up by the PEZA. Enterprises engaged in the industries included in the negative list shall not be allowed to sell their products locally. Said negative list shall be regularly updated by the PEZA. The PEZA, in coordination with the Department of Trade and Industry and the Bureau of Customs, shall jointly issue the necessary implementing rules and guidelines for the effective implementation of this section. SECTION 27.Applicability of Banking Laws and Regulations. Existing banking laws and Bangko Sentral ng Pilipinas (BSP) rules and regulations shall apply to banks and financial institutions to be established in the ECOZONE and to other ECOZONE-registered enterprises. Among other pertinent regulations, these include those governing foreign exchange and other current account transactions (trade and nontrade), local and foreign borrowings, foreign investments, establishment and operation of local and foreign banks, foreign currency deposit units, offshore banking units and other financial institutions under the supervision of the BSP.

SECTION 28.After Tax Profits. Without prior Bangko Sentral approval, after tax profits and other earnings of foreign investments in enterprises in the ECOZONE may be remitted outward in the equivalent foreign exchange through any of the banks licensed by the

Bangko Sentral ng Pilipinas in the ECOZONE: Provided, however, That such foreign investments in said enterprises have been previously registered with the Bangko Sentral. SECTION 29.Eminent Domain. The areas comprising an ECOZONE may be expanded or reduced when necessary. For this purpose, the government shall have the power to acquire, either by purchase, negotiation or condemnation proceedings, any private lands within or adjacent to the ECOZONE for: (a) Consolidation of lands for zone development purposes; (b) Acquisition of right of way to the ECOZONE; and (c) The protection of watershed areas and natural assets valuable to the prosperity of the ECOZONE. SECTION 30.Leases of Lands and Buildings. Lands and buildings in each ECOZONE may be leased to foreign investors for a period not exceeding fifty (50) years, renewable once for a period of not more than twenty-five (25) years, as provided for under Republic Act No. 7652, otherwise known as the Investors Lease Act. The leasehold right acquired under long-term contracts may be sold, transferred or assigned, subject to the conditions set forth under Republic Act No. 7652. SECTION 31.Land Conversion. Agricultural lands may be converted for residential, commercial, industrial and other non-agricultural purposes, subject to the conditions set forth under Republic Act No. 6657 and other existing laws. SECTION 32.Shipping and Shipping Register. Private shipping and related business including private container terminals may operate freely in the ECOZONE, subject only to such minimum reasonable regulations of local application which the PEZA may prescribe.

Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the ECOZONE, subject only to such reasonable requirements as may be prescribed by the PEZA in coordination with the appropriate agencies of the national government. SECTION 33.Protection of Environment. The PEZA, in coordination with the appropriate agencies, shall take concrete and appropriate steps and enact the proper measures for the protection of the local environment. SECTION 34.Termination of Business. Investors in the ECOZONE who desire to terminate business or operations shall comply with such requirements and procedures which the PEZA shall set, particularly those relating to the clearing of debts. The assets of the closed enterprises can be transferred and the funds can be remitted out of the ECOZONE subject to the rules, guidelines and procedures prescribed jointly by the Bangko Sentral ng Pilipinas, the Department of Finance and the PEZA. SECTION 35.Registration of Business Enterprises. Business enterprises within a designated ECOZONE shall register with the PEZA to avail of all incentives and benefits provided for in this Act. SECTION 36.One Stop Shop Center. The PEZA shall establish a one stop shop center for the purpose of facilitating the registration of new enterprises in the ECOZONE. Thus, all appropriate government agencies that are involved in registering, licensing or issuing permits to investors shall assign their representatives to the ECOZONE to attend to investors requirements. CHAPTER IV Industrial Harmony in the Ecozones SECTION 37.Labor and Management Relations. Except as otherwise provided in this Act, labor and management relations in the ECOZONE shall be governed by the existing Labor Code of the Philippines. Employees and personnel in the ECOZONE enterprises shall receive salaries and benefits and shall enjoy working conditions not less than those provided under the Philippine Labor Code and other relevant laws, issuances, rules and regulations of the Philippine government and the Department of Labor and Employment.

The PEZA shall, in coordination with the Department of Transportation and Communications, maintain a shipping register for each ECOZONE as a business register of convenience for ocean-going vessels and issue related certification.

SECTION 38.Promotion of Industrial Peace. In the pursuit of industrial harmony in the ECOZONE, a tripartite body composed of one (1) representative each from the Department of Labor and Employment, labor sector and business and industry sectors shall be created in order to formulate a mechanism under a social pact for the enhancement and preservation of industrial peace in the ECOZONE within thirty (30) days after the effectivity of this Act. SECTION 39.Master Employment Contracts. The PEZA, in coordination with the Department of Labor and Employment, shall prescribe a master employment contract for all ECOZONE enterprise staff members and workers, the terms of which provide salaries and benefits not less than those provided under this Act, the Philippine Labor Code, as amended, and other relevant issuances of the national government. SECTION 40.Percentage of Foreign Nationals. Employment of foreign nationals hired by ECOZONE enterprises in a supervisory, technical or advisory capacity shall not exceed five percent (5%) of its workforce without the express authorization of the Secretary of Labor and Employment. SECTION 41.Migrant Worker. The PEZA, in coordination with the Department of Labor and Employment, shall promulgate appropriate measures and programs leading to the expansion of the services of the ECOZONE to help the local governments of nearby areas meet the needs of the migrant workers. SECTION 42.Incentive Scheme. An additional deduction equivalent to one-half (1/2) of the value of training expenses incurred in developing skilled or unskilled labor or for managerial or other management development programs incurred by enterprises in the ECOZONE can be deducted from the national governments share of three percent (3%) as provided in Section 24. The PEZA, the Department of Labor and Employment, and the Department of Finance shall jointly make a review of the incentive scheme provided in this section every two (2) years or when circumstances so warrant. CHAPTER V National Government and Other Entities

SECTION 43.Relationship with the Regional Development Council. The PEZA shall determine the development goals for the ECOZONE within the framework of national development plans, policies and goals, and the administrator shall, upon approval by the PEZA Board, submit the ECOZONE plans, programs and projects to the regional development council for inclusion in and as inputs to the overall regional development plan. SECTION 44.Relationship with the Local Government Units. Except as herein provided, the local government units comprising the ECOZONE shall retain their basic autonomy and identity. The cities shall be governed by their respective charters and the municipalities shall operate and function in accordance with Republic Act No. 7160, otherwise known as the Local Government Code of 1991. SECTION 45. Relationship of PEZA to Privately-Owned Industrial Estates. Privatelyowned industrial estates shall retain their autonomy and independence and shall be monitored by the PEZA for the implementation of incentives. SECTION 46. Transfer of Resources. The relevant functions of the Board of Investments over industrial estates and agri-export processing estates shall be transferred to the PEZA. The resources of government-owned industrial estates and similar bodies, except the Bases Conversion Development Authority and those areas identified under Republic Act No. 7227, are hereby transferred to the PEZA as the holding agency. They are hereby detached from their mother agencies and attached to the PEZA for policy, program and operational supervision. The Boards of the affected government-owned industrial estates shall be phased out and only the management level and an appropriate number of personnel shall be retained. Government personnel whose services are not retained by the PEZA or any government office within the ECOZONE shall be entitled to separation pay and such retirement and other benefits they are entitled to under the laws then in force at the time of their separation: Provided, That in no case shall the separation pay be less than one and one-fourth (1 1/4) month of every year of service. CHAPTER VI

Miscellaneous Provisions SECTION 47. Appropriation. Upon the effectivity of this Act, all funds of the former Export Processing Zone Authority (EPZA) shall be transferred to the newly-created Philippine Economic Zone Authority. Thereafter, any sum as may be necessary to augment its capital outlay shall be included in the General Appropriations Act to be treated as an equity of the national government. Additional funding shall come from the following: (a) The annual subsidies, appropriations and/or other assets of the exports processing zone, and the industrial estates and other economic areas that have been absorbed/transferred to the PEZA as mandated in this Act; (b) The proceeds from the rent of lands, buildings, and other properties of the ECOZONES concerned; (c) The proceeds from fees, charges and other revenue-generating instruments which the PEZA is authorized to impose and collect under this Act; (d) The proceeds from bonds which the PEZA is authorized to float both domestic and abroad; and (e) The advance rentals, license fees, and other charges which the PEZA is authorized to impose under this Act and which an investor is willing to advance payment for. SECTION 48.Applicability of National Laws. National laws shall prevail vis-a-vis ECOZONE rules, regulations and standards, unless there is a clear intent in this Act or other Acts of Congress to vest the ECOZONE specific powers and privileges not otherwise allowed under existing laws. SECTION 49.Authority of the President to Advance Initial Funding. Subject to existing laws, the President of the Philippines is hereby authorized to advance out of the savings of the Office of the President such funds as may be necessary to effect the organization of an ECOZONE which shall be reimbursed by the PEZA at reasonable terms and conditions.

SECTION 50.Non-applicability on Areas Covered by Republic Act No. 7227. This Act shall not be applicable to economic zones and areas already created or to be created under Republic Act No. 7227 or other special laws, governed by authorities constituted pursuant thereto. Any provision of this Act which provides benefits or privileges less than those granted or imposes obligations or burdens more onerous to special economic zones created or to be created under special laws shall not apply to them. SECTION 51. Ipso-Facto Clause. All privileges, benefits, advantages or exemptions granted to special economic zones under Republic Act No. 7227, shall ipso facto be accorded to special economic zones already created or to be created under this Act. The free port status shall not be vested upon the new special economic zones. SECTION 52.Separability Clause. The provisions of this Act are hereby declared separable, and in the event one or more of such provisions or part thereof are declared unconstitutional, such declaration of unconstitutionality shall not affect the validity of the other provisions thereof. SECTION 53.Interpretation/Construction. The powers, authorities and functions that are vested in the Philippine Economic Zone Authority (PEZA) and the ECOZONES concerned are intended to establish decentralization of governmental functions and authority as well as an efficient and effective working relationship between the ECOZONE, the central government and the local government units. SECTION 54.Repealing Clause. All laws, acts, presidential decrees, executive orders, proclamations and/or administrative regulations which are inconsistent with the provisions of this Act, are hereby amended, modified, superseded or repealed accordingly. SECTION 55.Implementing Rules and Regulations. The Department of Trade and Industry, the National Economic and Development Authority, the Department of Finance, the Bureau of Customs, the Department of Agrarian Reform, the Department of the Interior and Local Government, the Philippine Economic Zone Authority, and the representatives from the technical staff of the

Committee on Economic Affairs of both Houses of Congress shall formulate the implementing rules and regulations of this Act within ninety (90) days after its approval. Such rules and regulations shall take effect fifteen (15) days after their publication in a newspaper of general circulation in the Philippines. SECTION 56. Transitory Provision. Prior to the effectivity of the implementing rules and regulations of this Act, the provisions of Presidential Decree No. 66, amended, and its implementing rules and regulations shall remain in force. SECTION 57. Effectivity. This Act shall take effect upon its approval. Approved: February 24, 1995

or goods for consumption, but the restriction of this law shall not apply to the following: (a) Sales by a manufacturer, processor, laborer, or worker, to the general public the products manufactured, processed or produced by him if his capital does not exceed One Hundred Thousand Pesos (P100,000.00); (b) Sales by a farmer or agriculturist selling the products of his farm; (c) Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital: Provided, that the restaurant is incidental to the hotel business; and (d) Sales which are limited only to products manufactured, processed or assembled by a manufacturer through a single outlet, irrespective of capitalization. (2) "High-end or luxury goods" shall refer to goods which are not necessary for life maintenance and whose demand is generated in large part by the highest income groups. Luxury goods shall include, but are not limited to, products such as: jewelry, branded or designer clothing and footwear, wearing apparel, leisure and sporting goods, electronics and other personal effects. Sec. 4. Treatment of Natural-Born Citizen Who Has Lost His Philippine Citizenship. - A naturalborn citizen of the Philippines who has lost his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipino citizens for purposes of this Act. Sec. 5. Foreign Equity Participation. - Foreignowned partnerships, associations and corporations formed and organized under the laws of the Philippines may, upon registration with the Securities and Exchange Commission (SEC) and the Department of Trade and Industry (DTI) or in case of foreign-owned single proprietorships, with the DTI, engage or invest in the retail trade business, subject to the following categories: Category A - Enterprises with paid-up capital of the equivalent in Philippine Pesos of less than Two Million Five Hundred Thousand US Dollars (US$2,500,000.00) shall be reserved exclusively for Filipino citizens and corporations whollyowned by Filipino citizens.

REPUBLIC ACT NO. 8762 AN ACT LIBERALIZING THE RETAIL TRADE BUSINESS, REPEALING FOR THE PURPOSE REPUBLIC ACT NO. 1180, AS AMENDED, AND FOR OTHER PURPOSES. Section 1. Title. - This Act shall be known as the "Retail Trade Liberalization Act of 2000." Sec. 2. Declaration of Policy. - It is the policy of the State to promote consumer welfare in attracting, promoting and welcoming productive investments that will bring down prices for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable Philippine goods and services to become globally competitive through the liberalization of the retail trade sector. Pursuant to this policy, the Philippine retail industry is hereby liberalized to encourage Filipino and foreign investors to forge an efficient and competitive retail trade sector in the interest of empowering the Filipino consumer through lower prices, higher quality if goods, better services and wider choices. Sec. 3. Definition. - As used in this Act: (1) "Retail Trade" shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities

Category B - Enterprises with a minimum paidup capital of the equivalent in Philippine Pesos of Two Million Five Hundred Thousand US Dollars (US$2,500,000.00) may be wholly owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not more than (60%) of total equity. Category C - Enterprises with a paid-up capital of the equivalent in Philippine Pesos of Seven Million Five Hundred Thousand US Dollars (US$7,500,000.00) or more maybe wholly owned by foreigners: Provided, however, that in no case shall the investments for establishing a store in Categories B and C be less than the equivalent in Philippine Pesos of Eight Hundred Thirty Thousand US Dollars (US$830,000.00). Category D - Enterprises specializing in highend or luxury products with a paid up capital of the equivalent in Philippine Pesos of Two Hundred Fifty Thousand US Dollars (US$250,000.00) per store may be whollyowned by foreigners. The foreign investor shall be required to maintain in the Philippines, the full amount of the prescribed minimum capital. Unless the foreign investor has notified the SEC and the DTI of its intention to repatriate its capital and cease operations in the Philippines. The actual use in Philippine operations of the inwardly remitted minimum capital requirements shall be monitored by the SEC. Failure retail stores shall secure a certification from the Bangko Sentral ng Pilipinas (BSP) and the DTI, which will verify or confirm inward remittance of the minimum required capital investment. Sec.. 6. Foreign Investors Acquiring Shares of Stock of Local Retailers. - Foreign Investors acquiring shares from existing retail stores whether or not publicly listed whose net worth is in excess of the peso equivalent of Two Million Five Hundred Thousand US Dollars (US$2,500,000.00) may purchase only up to a minimum of sixty percent (60%) of the equity thereof within the first two (2) years from the effectivity of this Act and thereafter, they may acquire the remaining percentage consistent with the allowable foreign participation as herein provided.

Sec. 7. Public Offering of Shares of Stock. - All retail trade enterprises under Categories B and C in which foreign ownership exceeds eighty percent (80%) of equity shall offer a minimum of thirty percent (30%) of their equity to the public through any stock exchange in the Philippines within eight (8) years from their start of operations. Sec. 8. Qualifications of Foreign Retailers. - No foreign retailer shall be allowed to engage in retail trade in the Philippines unless all the following qualifications are met: (a) A minimum of Two Hundred Million US Dollars (US$200,000,000.00) net worth in its parent corporation for Categories B and C, and Fifty Million US Dollars (US$50,000,000.00) net worth in its parent corporation for Category D; (b) Five (5) retailing branches or franchises in operation anywhere around the world unless such retailers has at least one (1) store capitalized at a minimum of Twenty-Five Million US Dollars (US$25,000,000.00); (c) Five (5)-year track record in retailing; and (d) Only nationals from, or judicial entities formed or incorporated in, countries which allow the entry of Filipino retailers, shall be allowed to engage in retail trade in the Philippines. The DTI is hereby authorized to pre-qualify all foreign retailers, subject to the provisions of this Act, before they are allowed to conduct business in the Philippines. The DTI shall keep a record of qualified foreign retailers who may, upon compliance with law, establish retail stores in the Philippines. It shall ensure that the parent retail trading company of the foreign investor complies with the qualifications on capitalization and track record prescribed in this Sec.. The Inter-Agency Committee on Tariff and Related Matters of the National Economic Development Authority (NEDA) Board shall formulate and regularly update a list of foreign retailers of high-end or luxury goods and render an annual report on the same to Congress. Sec. 9. Promotional of Locally Manufactured Products. - For ten (10) years after the effectivity of this Act, at least thirty percent (30%) of the aggregate cost of the stock inventory of foreign

retailers falling under Categories B and C and ten percent (10%) for Category D, shall be made in the Philippines. Sec. 10. Prohibited Activities of Qualified Foreign Retailers. - Qualified foreign retailers shall not be allowed to engage in certain retailing activities outside their accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-todoor selling, restaurants and sari-sari stores and such other similar retailing activities: Provided, that a detailed list of prohibited activities shall hereafter be formulated by the DTI. Sec. 11. Implementing Agency; Rules and Regulations. - The monitoring and regulation of foreign sole proprietorships, partnerships, associations or corporations allowed to engage in retail trade shall be the responsibility of the DTI. This shall include resolution of conflicts. The DTI, in coordination with the SEC, the NEDA and the BSP, shall formulate and issue the implementing rules and regulations necessary to implement this Act within ninety (90) days after its approval. Sec. 12. Penalty Clause. - Any person who shall be found guilty of violation of any provision of this Act shall be punished by imprisonment of not less than six (6) years and one (1) day but not more than eight (8) years, and a fine of not less than One Million Pesos (P1,000,000.00) but not more than Twenty Million Pesos (P20,000,000.00). In the case of associations, partnerships or corporations, the penalty shall be imposed upon its partners, president, directors, managers and other officers responsible for the violation. If the offender is not a citizen of the Philippines, he shall be deported immediately after service of sentence. If the Filipino offender is a public officer or employee, he shall, in addition to the penalty prescribed herein, suffer dismissal and permanent disqualification from public office. Sec. 13. Repealing Clause. - Republic Act No. 1180, as amended, is hereby repealed. Republic Act No. 3018, as amended, and all other laws, executive orders, rules and regulations or parts thereof inconsistent with this Act are repealed or modified accordingly. Sec. 14. Separability Clause. - If any provision of this Act shall be held unconstitutional, the other

provisions not otherwise affected thereby shall remain in force and effect. Sec. 15. Effectivity. - This Act shall take effect fifteen (15) days after its approval and publication in at least two (2) newspapers of general circulation in the Philippines.