OMNIBUS INVESTMENT CODE OF 1987

(EXECUTIVE ORDER 226)

BOOK 1

Q: What is a pioneer enterprise?

A: pioneer enterprise means a registered enterprise:
1) Engaged in the manufacture, processing or production, and not merely in the assembly or
packaging of goods, products or raw materials that have not been or are not being
produced in the Philippines on a commercial scale.
2) Which uses design, formula or system of production of any element, or raw materials into
another raw material or finished goods which is new and untried in the Philippines
3) Engaged in the pursuit of agricultural, forestry and mining activities and/or services
including the industrial aspects of food processing whenever appropriate to be feasible and
highly essential to the attainment of the national goal
4) Which produces non-conventional fuels or manufactures equipment which utilize non-
conventional sources of energy

Q: What is the criterion in the determination of preferred areas of investment?

A: In determining preferred areas of investment the Board shall take into account:
1) the economic soundness of the specific activity as shown by its internal rate of return
2) the extent of contribution of an activity to a specific development goal
3) long-run comparative advantage and other indicators or comparative advantage
4) measured capacity
5) market and technical aspects and considerations of the activity proposed to be included

Q: State the allowed foreign investments according to classification of preferred areas of

investment.
A: a) Preferred pioneer Foreigners may invest up to the extent of 100% equity, subject only to
constitutional or statutory limitations
b) Preferred nom-pioneer Foreigners may invest only up to 40% equity

Q: give the incentives given to registered enterprises

A: The incentives given to registered enterprise under the code are:
1) guarantee of investment repatriation in original currency of investment, and at the
exchange rate prevailing at time of repatriation;
2) guarantee of remittance of earnings in currency of original investment was originally made
and at the exchange rate prevailing at time of remittance;
3) freedom from expropriation and requisition of investment;
4) income tax holiday for 6 years from commercial operation for pioneer firms and 4 years for
non-pioneer firms
5) additional deduction for labor expense for first 5 years from registration of 50% of the
wages corresponding to increment in number of direct labor for skilled and non-skilled
workers;
6) tax and duty exemption on imported capital equipment;
7) tax credit on domestic capital equipment;
8) exemption from contractors tax;
9) simplification of customs procedure;
10) unrestricted use of consigned equipment;
11) employment of foreign nationals;
12) tax credit for taxes and duties on raw materials;
13) exemption from taxes and duties on imported spare parts;
14) Exemption from wharfage dues and any export tax, duty, impost and fee.

Q: Outline the principles on preferred investments

A: the principles to be followed on preferred investments:
If an enterprise is not listed in Investment Priority Plan (IPP) and foreign equity shall NOT
EXCEED 40%, it must export 50% of its production in order to be entitled to the incentives
given
 If an enterprise is not listed in IPP and foreign equity shall EXCEED 40%, it must export
60% of its production to be entitled to the incentives given
a location restriction, however is imposed on the enterprise in order to avail of certain
incentives. Thus, projects locating in Metro Manila are not entitled to income tax holiday and
capital equipment incentives

Q: First Lepanto Ceramics, Inc. was registered as a non-pioneer enterprise with BOI in the
manufacture of glazed floor tiles. In a letter addressed to the BOI, First Lepanto rquested
for an amendment of its registered product to ceramic tiles in order to likewisw enable it to
manufacture ceramic wall tiles; However, Mariwasa and Fil-Hispano ceramics, Inc., filed
their separate complaints with the BOI against First Lepanto for violating the terms and
conditions of its registration by the use of its tax and duty free equipment in the
production of ceramic wall tiles and thus prayed for the cancellation of its certificate of
registration. Decide.
A: Under Art. 7(8), Chapter II of Omnibus Investment Act, BOI need not cancel the certificate of
a registrant found to have infringed the terms and conditions of its registration, otherwise it would
defeat the declaration of investment policies expressed in the law. Therefore, the decision of the
BOI to impose a fine and to allow the registrant to amend its certificate of registration that would
change the registered product, cannot be set aside by the courts since BOI is the agency tasked
with evaluating the feasibility of an investment project and to decide which invesment might be
compatible with its development plans. (First Lepanto Ceramics, Inc. v. CA 253 SCRA 552)

Q: Discuss the suspension of nationality requirements for ASEAN national investments

A: Republic act 7888 amended Art. 7(13) of the Omnibus Investment Code of 1987, by
suspending the nationality requirements provided in said Code in cases of ASEAN projects,
or investments by ASEAN nationals, regional ASEAN or multilateral financial institutions
including their subsidiaries in preferred projects and/or projects allowed either financial or
technical assistance agreements entered into, by the President, and in the case of regional
complementation for the manufacture of a particular product which seeks to take advantage
of economies of scale.
The suspension of nationality requirement for ASEAN projects or investments under the code
can only be done however to the extent that such activities are allowed by the Constitution and
relevant laws.

BOOK II

Q: Did the provisions in the Foreign Investment Law repeal the foreign equity requirement
in Book II of the Omnibus Investment Code to be denominated as a permitted investment?
Discuss.
A: Before the enactment of the Foreign Investment Law of 1991 (FIA 91), because foreign
equity in the enterprise will not exceed 40%, the enterprise is denominated as a permitted
investment under the Omnibus Investment Code. Under the Code, the enterprise may immediately
incorporate with directly with SEC without need of prior BOI authority.
Now the requirements of FIA 91 should be complied with, which operates under the policy
that except for those found in the Negative Lists, all areas of investments are opened to 100%
foreign equity Investment.

BOOK III

Q: Outline the amendments introduced by RA 8756 to Book III of the Omnibus Investment
Code (Regional or Area Headquarters, Regional Operating Headquarters)
A: The following are the changes introduced under RA 8756 to the provisions of the Omnibus
Investment Code pertaining to RHQ, thus:
a) Inclusion of term other foreign markets to expand the coverage from the original Asia-
Pacific Region for multinational corporations applying for incentives
 b) Express provision that an RHQ shall not solicit or market goods and services whether on
behalf of its mother company or its branches, affiliates, subsidiaries or any other company
c) Amendments and changes in available incentives to RHQ, thus:
Removal of the exemption from contractors tax;
Expressly exempting RHQ from the payment of VAT;
Now subjecting RHQ the real property tax on land improvements and equipment;
On the importation of new motor vehicles, removing the need to secure prior BOI
approval and also of the following conditions: (1) that the said motor vehicle shall be for
the exclusive use of its expatriate executives; (2) that the number thereof shall not exceed
the number of its expatriate executives; and (3) that such motor vehicles may be replaced
every three years from their importation
Granting to Filipinos employed by RHQ and occupying the same positions as those
aliens employed by multinational companies, the option of availing of the same tax
treatment of being subjected to withholding tax of 15% gross income on the salaries,
wages, annuities, compensations, remuneration and emoluments of the aliens employed by
the RHQ

Q: Who are qualified entities to apply?

A: 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 and other foreign markets, may
establish a RHQ in the Philippines.

Q: What is a multinational company

A: A multinational company shall mean a foreign company or group of companies with business
establishments in two or more countries

Q: What is the nature of RHQ?

A: A Regional or Area Headquarters (RHQ) is an office whose purpose is to act as an
administrative branch of multinational company engaged in international trade which principally
serves as a supervision, communications and coordination center for its subsidiaries, branches or
affiliates in the Asia-Pacific Region and other foreign markets and which doss not earn or derive
income in the Philippines.
The RHQ submits a formal undertaking that:
a) its activities shall be limited to acting as supervisory, communications and coordinating center
for its subsidiaries, affiliates and branches in the region;
b) It 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 nor shall solicit or market goods and services whether on behalf of its mother
company or its branches affiliates, subsidiaries or any other company; and
c) Notify the BOI and SEC of any decision to close or suspend operation of its headquarters at
least fifteen days before the same is effected

The multinational company will remit into the Philippines such amount as may be necessary to
cover its operations in the country which will not be less US$50,000.00 or its equivalent in
other foreign currencies annually, which shall be supported by certificates of inward remittance
from a local bank, to be submitted to SEC within thirty (30) days from receipt of certificate of
registration.

Q: What are the incentives available to RHQ?

A: The following are the incentives available to RHQ, thus:
a) Corporate Income Tax incentive
b) Exempted from Value- Added Tax
c) Exemption from all kinds of local taxes, fees, or charges
d) Tax and duty free importation of training materials and equipment, importation of
motor vehicle
e) Importation of vehicles subject to the payment of the corresponding taxes and duties
 f) Incentives to expatriates such as multiple entry visa to foreign personnel, their
respective spouses and unmarried children under 21 years of age, exemption from
immigration fees, withholding tax of 15% on compensation income
g) An alien executive of the RHQ shall enjoy tax and duty free importation of personal
and household effects provided they shall arrive in the Philippines within 90 days before
or after conversion of the alien executives admission category to multiple entry visa
h) Travel tax exemption

Q: What is the meaning of Regional Operating Headquarter (ROHQ)?

A: Regional Operating Headquarter shall mean a foreign business entity which is allowed to
derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or
branches in the Philippines, in the Asia-Pacific Region and in other foreign markets.

Q: What are the Qualifying Services from which income may be derived by ROHQ?
A: A ROHQ may engage in any of the following qualifying services:
a) general administration and planning
b) business planning and coordination
c) sourcing or procurement of raw materials and components
d) corporate finance advisory services
e) marketing control and sales promotion
f) training and personnel management
g) logistics services
h) research and development and maintenance
i) data processing and communication
j) business development

Q: What activities of ROHQ are prohibited by the code?

A: ROHQs are prohibited from offering qualifying services to entities other than their affiliates,
branches or subsidiaries nor shall they be allowed to directly and indirectly solicit or market goods
and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any
other company.

Q: Give the incentives and tax liabilities applicable to ROHQ

A: The same incentives available to RHQ are likewise granted to ROHQ; except as follows:
a) ROHQ shall be subject to a tax rate of 10% of their taxable income as provided for under
the National Internal Revenue Code
b) Subject to 10% Value- Added Tax
c) Subject to real property Tax on land improvements and equipment

BOOK IV

Q: Who are qualified to establish in the regional warehouse in the Philippines?

A: 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 which has established or will simultaneously establish a regional or area headquarter
in the Philippines may also establish regional warehouse or warehouses in the Philippines, after
securing a license therefor from the Board of Investment
Q: What are the limitations on the activities of a regional warehouse?
A: 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, labeling and cutting or altering to
customers 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
after they have been cleared for export.

Q: Give some incentives given to multinational companies establishing regional warehouse

in the Philippines
A: multinational companies establishing regional warehouse in the Philippines are given the
following incentives:
a) exemption from custom duties, internal revenue taxes and export tax, and from local taxes
on their products;
b) Exemption from the maximum storage period under the Tariff and Customs Code.

BOOK V

Q: Who are the qualifications of an alien in order to be issued a Special Investors Resident
Visa?
A: Any alien who possesses the following qualifications shall be granted a special investors
resident visa:
a) He has not been convicted of a crime involving moral turpitude:
b) He is not afflicted with any loathsome, dangerous or contagious disease;
c) He has not been institutionalized for any mental disorder of disability;
d) He is willing and able to invest the amount of at least US$75,000.00 in the Philippines.

Q: What are the reportorial requirements to be complied with by said alien?

A: As a holder of the special investors resident visa, an alien shall be entitled to reside in the
Philippines while his investments subsist. 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.

BOOK VI

Q: May the Export Processing Zone Authority allow an alien to engage in an industry
inside the export-processing zone?
A: Yes, the EPZA my 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
the Philippines or the working capital of which is fully owned or controlled by aliens to do
business in an industry inside the export processing zone.
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

Q: Give some incentives given within the export processing zone areas
A: Among the incentives given within the export-processing zone areas are:
a) Exemption from customs duties and internal revenue taxes on raw materials, supplies and
equipment imported within the zones;
b) Net-operating loss carry over for the first 5 years of operations;
c) Accelerated depreciation of fixed assets to not more than twice the normal rate of
depreciation;
d) Exemption from export tax;
e) Exemption from local taxes and licenses;
f) Deduction of labor training expenses incurred of the value of such expenses;
g) Deduction for organizational and pre-operating expenses over a period of 10 years;
h) Grant of tax credit equivalent to the sales, compensating and specific taxes and duties paid
on supplies, raw materials and other products purchased.
 FOREIGN BORROWINGS ACT (R.A. 4860, As Amended by P.D Nos. 81, 150, 351, 588
and 621-A)

Q: State the main feature of the Foreign Borrowings Act

A: Under the Foreign Borrowings Act the President of the Philippines is authorized, in behalf of
the Republic of the Philippines, to contract such loans, credits, including suppliers credit,
deferred payment arrangements, and to enter into and conclude bilateral agreements involving
other forms of official assistance such as grants and commodity credit arrangements or
indebtedness as may be necessary and upon such terms and conditions as may be agreed upon
with Governments of foreign countries with whom the Philippines has diplomatic or trade
relations or which are members of the United Nations, their agencies, instrumentalities or financial
institutions or with reputable international lending institutions or firms extending suppliers credit
or deferred payment arrangements.

Q: Up to how much can the President contract such loans, credits or indebtedness?
A: The total amount of loans, credits or indebtedness, excluding interests and other normal
banking charges shall not exceed five billion United States dollars or its equivalent in other
foreign currencies at the exchange rate prevailing at the time the loans, credits or indebtedness are
incurred at terms of payment of not less than 10 years except those contacted in the interest of
national security and rehabilitation resulting from natural calamities

Q: Where can this total authorized amount of loans, credits or indebtedness be allocated?
A: 75% of such total authorized amount of five billion United States dollars shall be incurred for
projects of the public sector and 25% thereof shall be utilized for projects of the private sector
and that no individual, partnership, cooperative, association or private corporation shall be
allowed to borrow more than 15% of the total of such loans, credits or indebtedness.

Q: May the President guarantee such loans, credits or indebtedness? Is there a limitation?
A: Yes, the President upon the recommendation of the proper government agencies is authorized
to guarantee such loans, credits or indebtedness but shall not be more than two and one half
billion United States dollars or its equivalent in other foreign currencies at the exchange rate
prevailing at the time the guarantee is made excluding interest and other normal banking charges
imposed.

Q: What is the duty of the President required by the Act after contracting the loans, credits
or indebtedness?
A: It shall be the duty of the President, within 30 days after the opening of every regular session,
to submit a separate report to Congress on the amount of loans, credits and indebtedness
contacted in the process of the negotiation and of the bonds, debenture, securities, or other
evidences of indebtedness sold in the international markets and proposed to be sold, as well as the
guarantees extended, their respective terms and conditions and the purposes and projects for
which the loan, credits or indebtedness were incurred and for which the bonds, debentures,
securities were floated.