Philippines Ears R a Ye ! 2006 Edition Quality Ineverythingwe Do a MEMBERPRACTICEOFERNST&YOUNG GLOBAL SGV & Co ©2006 SGV & Co

©2006 SGV & Co. All rights reserved. Doing Business inthe Philippines ears r a Ye ! 2006 Edition Quality InEverythingWe Do A MEMBERPRACTICEOFERNST&YOUNG GLOBAL SGV & Co ©2006 SGV & Co. All rights reserved. Philippines the in Business Doing ©2006 SGV & Co. All rights reserved. MANILA MABUHAY! with usaswestrengthenourpresenceinthe Asian andglobalmarket. for ourpeople. We invitetheinternationalcommunitytomoveforward we believehavesetuptheenvironmentformorejobsand betterlives omy, coupledwithour fiscal reformsandrevitalizedrevenueprogram, reform agendaandacceleratedgrowth. With theturnaroundofourecon lication isacredibleandup-to-datesourceofinformationonourfiscal Doing BusinessinthePhilippines All thesedevelopmentsandmorearefeaturedinthislatesteditionof the world. financial reportingstandardsnotonlyacrosstheregion,butthroughout rability infinancialreportingandpushforwardtheadoptionofuniform (IFRS) in2005. This willbringaboutgreatertransparencyandcompa targets itsfulltransitiontoInternationalFinancialReportingStandards Apart fromthesedevelopments,thePhilippineaccountingindustry Zomboanga delNorte,andDavao. mining prospectsinsuchlocationsasBenguet, Albay, Palawan,Surigao, are beingtakentoensuresustainabledevelopmentasweexplorethe investors. As weanticipatemoreactivitiesinthissector, propersteps The rebirthofthePhilippineminingindustrycontinuestoattractforeign tion ofCongress. revenue performancewiththeencouragingsupportandvitalparticipa Meanwhile, wecontinuetoimproveourfiscalsituationandenhance Purpose Vehicle Act of2002hashelpedinmitigatingthefiscaldeficit. loans intheprivatesectorfrom19%to13%asaresultofSpecial and stockmarketsoaringtorecordhighs. The dropinnonperforming We began2005withgreaterpromise,our sovereigncurrency posted ayear-on-year growthof6.2%exceedingourtarget of5.8%. Despite enormouschallengesin2004,thePhilippineeconomyhad

GLORIA MACAPAGAL-ARROYO , publishedbySGV &Co. This pub - - - - MALACAÑAN PALACE MANILA ©2006 SGV & Co. All rights reserved. economy. strong foreigninvestorconfidenceinthe (accounting for82%ofthetotal)reflects PhP151.05 billionforeigncomponent from PhP64billionin2003.Notably, the amount ismorethanathree-foldincrease 2004, reachingPhP183.88billion. This Economic Zone Authority grew286%in Board ofInvestmentsandthePhilippine Combined investmentsregisteredwiththe ASEAN region. tive investmentlocationintheheartof make thePhilippinesanevenmoreattrac investments andexportsperformance, coupled withthecountry’s impressive ate moreefficiently. Thesedevelopments, fast-tracked, enablingbusinessestooper Critical infrastructureprojectsarebeing technology servicescontinuetogrow. the countryasdemandforinformation More callcentersareemerging allover tors cannowfullyownaminingbusiness. Supreme Courtruledthatforeigninves attractive prospectafterthePhilippine 2005. Forone,mininghasbecomean prospects forthePhilippineeconomyin Recent developmentspresentvibrant to reachUS$43.84billion. and services exports this year are expected recorded in2003.Philippine merchandise provement overtheactualgrowth of2.9% projection of8.5%,andasignificantim than the Asian DevelopmentBank’s lion in2003. This performanceishigher US$39.6 billionfromonlyUS$36.2bil whole of2004grewby9.3%,reaching Merchandise exportearningsforthe - - - - - can berealizedthroughstrongermarket The exporttargets, ontheotherhand, ted fortheirexpansionprojects. ments thatdevelopedcountrieshaveallot capture aconsiderableamountofinvest par withthoseofour Asian neighborsto make thecountry’s perksforindustriesat rationalize thefiscalincentives. We aimto are workingcloselywithCongressto To enhancetheinvestmentclimate,we Department of Trade andIndustry Secretary PETER B.FAVILA Mabuhay progress, andprosperity. ors towardssustainedeconomicgrowth, mutually beneficialcollaborativeendeav Together, letusembarkonahostof that canexpandyourbusinessinterests. of investmentandtradeopportunities and seewhatwehavetooffer interms We inviteyoutocomethePhilippines dollars inpotentialincome. which whentappedwilloffer billionsof such asthoseforhalalandkosherfoods— focus onspecialculture-basedmarkets required bybigcompanies. We willalso export baseorserveassuppliersofinputs particularly SMEswhichcanwidenthe to developacompendiumofindustries, export-oriented investments. We willseek of dollar-earning services,andinflow of beyond traditionalproducts,promotion versification andexpansionoftheexports penetration andpromotionstrategies,di ! - - - - ©2006 SGV & Co. All rights reserved. mining. Costofeducation,especially for as educationalandmedicaltourism, and opened doorstoemerging industriessuch This riseinBPO-relatedbusinesses has vices inthePhilippines. advantages insettingupICT-related ser relationships withexpatriatesaredistinct English language,andsatisfactorywork costs, theFilipinos’ excellentgraspofthe in thenextyear. Competitiveoperating panies. This numberisexpectedtodouble most aresubsidiariesofUS-basedcom over 70contactcentersinthePhilippines; parts ofthecountry. There arecurrently companies thatarelocatinginseveral tion andcommunicationtechnology(ICT) enced thecontinuousgrowthofinforma As aresult,thePhilippineshasexperi investors. services byenhancingtheincentivesfor has shownitsstrongsupportforoffshore try intheworld.Philippinegovernment is thethirdlargest English-speakingcoun skilled workers.Further, thePhilippines with competentseniormanagersand Philippines asoneofthetop10countries Yearbook 2005 is affirmed inthe information technologyservices. This scription, researchanddevelopment, such ascontactcenters,medicaltran ness processoutsourcing(BPO)services site forforeigndirectinvestmentsinbusi resources, thePhilippinesisapreferred environment. Richinskilledhuman enhance thequalityofitsbusiness strengthen itsemerging industriesand In 2005,thePhilippinescontinuesto , whichcitesthe IMD Competitiveness ------To complement itsrichpoolofquali Philippine Mining Act of1995. by theSupremeCourtrulingon investment interestinthisindustrycaused ness opportunitiesinresponsetorenewed in astrongpositiontooffer viablebusi country intheworld. The Philippinesis trillion. Itisthefifthlargest mineralized mated mineralresourcesvaluedatUS$1 mining industry. The countryhasesti ing growthareaforthePhilippinesis BPO services,perhapsthemostexcit Aside fromincreasingopportunitiesin treatment. ing surgical andotherformsofspecialized tive medicaltreatmentforpatientsneed Medical Cityareabletooffer cost-effec Medical Center, Asian Hospital, and fessionals, hospitalssuchasSt.Luke’s of experiencedandefficient healthpro With technologytransferenceandapool tourism hasalsotakenoff inthecountry. to thecountryforthesecourses.Medical and manyofits Asian neighborscome are relativelylowerinthePhilippines, courses onEnglishasasecondlanguage, development. country ushersinaneweraof growthand infinite investmentpossibilities asour Philippines With thisissueof China. just asimportantly, agatewaytodynamic 560 million-strong ASEAN marketand investors awindowfortradingwiththe the Philippines’ strategiclocationoffers fied workersandthesunriseindustries, , weinviteyoutoexplorethe Doing Businessinthe ------Mabuhay succeed intoday’s knowledgeeconomy. eager tohelpyourbusinessthriveand Welcome tothePhilippines. We aremost by visitingourwebsite: concerns. You canlearnmoreaboutSGV mation toaddressinvestors’ needsand expertise andexperiencetoprovideinfor ness. Ourpartnersandprincipalshavethe up, operating,andcultivatingtheirbusi committed toassistinvestorsinsetting firm inthecountry, weatSGV &Co.are As thepremierprofessionalservices ! Chairman andManagingPartner SGV ! David L.Balangue SGV &Co. www.sgv.com.ph & Co - -

©2006 SGV & Co. All rights reserved. Table of Contents SPECIAL What thePhilippines Can Offer Your Business Partial List of Approved/Proclaimed Ecozones Unlimited BusinessOpportunities Hospitable Lifestyle Creative Forces Executive Caliber Competencies andSkills At theRight TimeandPlace TheCountry’s Bests Matching Strengths andOpportunities Why You Philippines Investthe Should in Excise Tax Value-Added Tax Withholding Tax IncomeTaxation Taxation Bangko Sentral ngPilipinas Clark Development Corporation SubicBay Metropolitan Authority PhilippineEconomic Zone Authority Board of Investments Department of Trade andIndustry Securities andExchange Commission Registration Procedures with Government Build-Operate-Transfer Amended Offices Law Development Export Act of 1994 35 Investors’ Lease Act Requirements of RHQs, ROHQs, andRWs AnAct Providing for theTerms, Conditions, andLicensing Bases Conversion andDevelopment Act of 1992 Economic Special Zone Act of 1995 Foreign Investments Act of 1991 OmnibusInvestments Codeof 1987 General Policy onInvestments Investment Policy andLaws How Philippines to the Operate in ElectricPower Industry Agriculture andFisheries Industry MiningIndustry Maritime Industry LawsEnabling for Investments SECTION 25 24 15 12 11 11 10 10 52 50 50 46 46 45 45 44 43 42 41 40 38 37 37 37 36 33 32 30 30 30 29 28 27 26 9 8 Percentage Tax 53 Charts Stock Transaction Tax 53 No. Initial Public Offering Tax 53 1 Growth of Output, % 69 Documentary Stamp Tax 54 2 Growth of Output by Sector 69 Customs Duty 55 3 Consumer Spending 70 Local Taxes 55 4 CPI and Inflation by Commodity Group 70 Labor Requirements 56 5 OFW Remittances 71 Hours of Work 56 6 Key Export Products 72 Work Day 56 7 Key Export Markets 72 Overtime Remuneration 56 8 Key Import Products 73 Night-Shift Differential Pay 56 9 Key Import Suppliers 73 Service Incentive Leave Pay 56 10 Approved Foreign Direct Investments 74 Meal and Rest Periods 56 Minimum Wage 56 Employees’ Compensation Program 57 Tables National Health Insurance 57 No. Emergency, Medical, and Dental Services 57 1 Sixth Regular Foreign Investment Negative List 34 Woman and Child Labor 58 2 Some Incentives of RHQs and ROHQs 37 Paternity Leave 58 3 Incentives of Exporters Registered under EDA 37 Termination of Employment 58 4 Income Tax Rates on Passive Income of Domestic/ Unions 59 Resident Foreign Corporations 47 Financial and Monetary Policies 59 5 Preferential Income Tax Rates for Nonresident Corporations 48 Other Business Regulations 59 6 Rates of Income Tax on Citizens, Resident Aliens, and Immigration and Employment Regulations for Nonresident Aliens Engaged in Trade or Business 49 Foreigners in the Philippines 59 7 Income Tax Rates on Passive Income of Individuals 49 Philippine Environmental Laws 60 8 Payments Subject to CWT 50 Philippine Laws on Intellectual Property Rights 61 9 VAT-Exempt Transactions 51 Costs of Doing Business in Metro Manila 62 10 Zero-Rated Sales of Goods and Services 53 Costs of Doing Business in Clark, Subic, Cebu, and Davao 64 11 Selected Percentage Tax Rates 54 12 Some Documents Requiring Documentary Stamps 55 The Philippines 13 Overtime Rates 57 The People 66 14 Minimum Wage Rates by Region (Nonagricultural Jobs) 57 The Land 67 15 Partial List of National Health Insurance Program Benefits 58 The Resource Base 68 16 Key Features of BSP Circular No. 5 59 Currency 68 The Philippine Economy in 2005 69 The Political System 74

SGV & Co. Services 77 Partners and Principals 78 Offices 78

Glossary/Abbreviation

Significant reserves. Substantial finds. Rich deposits. Without doubt, the Philippines is a resource-rich country. However, all these riches of the land and sea pale against the country’s most precious resource—its people. Filipinos are friendly, warm, and tolerant, qualities which make them easy to live and work with.

They are also open to foreign ideas, and flexible and adaptable when faced with new challenges.1 With their competence and skills, they make excellent workers and managers.

The services sector has become the larg- Fast Facts Matching Strengths and Opportunities est productive sector in most economies. How the Philippines ranks:* In 2001, it accounted for an average of #2 Skilled Labor The authoritative World Investment Report 72% of gross domestic product (GDP) in #8 Senior Managers 2004 published by the United Nations developed countries and 52% of GDP in #12 Language Skills Conference on Trade and Development developing countries. With new technol- #13 Finance Skills (UNCTAD) 2 gives an optimistic outlook ogy making it easier to digitize informa- #19 Information Technology Skills for flows of foreign direct investment tion, services can be produced in one #20 Engineers (FDI) in 2004 and takes note of the “dra- location and consumed elsewhere—they matic shift” of FDI to the services sector. have become “tradable.” * IMD World Competitiveness Yearbook 2005 The Philippines stands to gain from this Newly tradable services can be simple, shift in investment flows. In surveys con- low value-added activities like data entry ducted by UNCTAD in the first quarter or those with higher value-added like of 2004 with 335 of the world’s largest architectural designs, financial analysis, transnational corporations (TNCs) and software programming, and R&D. More 87 international site-selection experts, and more companies—whether large or the Philippines is identified as one of the small, from both developed and develop- Asian countries expected to have higher ing countries—are offshoring the produc- FDI inflows in research and development tion of these services to countries with (R&D), information and communications the right mix of costs, skills, and infra- technology (ICT), and corporate services structure. The Philippines is one of these (such as business processing operations countries. and call centers).

1 IMD World Competitiveness Yearbook 2005, (Switzerland: IMD); available from http://www.imd.ch/wcy. 2 World Investment Report 2004. (New York : United Nations Conference on Trade and Development); available from http://www.unctad.org/en/docs/wir2004_en.pdf.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV The country’s strengths match the opportunities opened by the shift to services. Telecommunications is the infrastructure that allows services to become tradable and, with deregulation, the country’s telecommunications infrastructure has leaped to world-class standards. Moreover, bandwidth costs have dipped by 70% in the last four years. Filipinos’ inborn artistry and flexibility have made them naturals in design and software development, skills that are highly tradable. Familiarity with American culture, learned from textbooks, bestsellers, magazines, television, and movies, makes it easy for Filipinos to adopt American accents for back office services.

The Country’s Bests

The 2005 edition of the IMD World after India, Israel, and Ireland. Philippine are superior to that of India, Ireland, or Competitiveness Yearbook covers 60 workers were cited for being highly profi- other offshore destinations,” the study economies, including regional econo- cient in mainframes, minicomputers, and noted. mies. Back in 2002, only 49 economies microcomputers as well as in technical were covered. In this expanded list, the and business skills for ICT projects. The study also showed that the Philippine Philippines comes out with high ratings workforce is technically proficient in for skilled labor (#2), competent senior A study on the Competitiveness of computer science and programming, and managers (#8), language skills (#12), the Philippines’ IT sector conducted many can achieve the desired level of finance skills (#13), information technol- by Gartner Research in March 20023 expertise in US business processes (such ogy (IT) skills (#19), and qualified engi- confirmed the competitiveness of the as accounting and human resources) and neers (#20). Philippines in world-class English lan- knowledge specific to an industry (for guage proficiency. “…verbal skills in example, medical terms for transcrip- In the 2002 Global New Economy Index the Philippines with regard to clarity and tions). (GNEI) of the META Group, a US-based understandability to a United States buyer research firm, the Philippines was given

the highest rating in Southeast Asia for 3 The study was initiated by the Philippine Department of Trade and Industry (DTI) with funding from the the “excellent availability” of skilled IT Board of Investments (BOI) and private companies. The researchers visited IT companies and met with IT workers. The Philippines ranked fourth practitioners from government agencies, private sector groups, IT associations, and IT firms to arrive at an analysis of the Philippine market’s strengths, weaknesses, opportunities, and threats.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV The Organization for Economic Co-opera- Average Flying Time from Manila Competencies and Skills to Selected Foreign Cities: tion and Development (OECD) reports (in hours) that the Philippines represents “a large Accountancy is the first of the professions supplier of English-speaking college-edu- in the Philippines to be included under the Hong Kong 1:40 cated accountants, software writers, archi- World Trade Organization’s (WTO) policy Taipei 1:40 tects, telemarketers, and graphic artists.” of liberalization of services. Philippine Shenzhen 2:00 The country is one of the major suppliers accountants can therefore freely compete Singapore 3:00 of information processing services and in the global playing field with accoun- Shanghai 3:10 has become a “prominent hub for shared tants from other parts of the world. In the Kuala Lumpur 3:15 financial and accounting services.”4 Philippines, many capable accountants Jakarta 3:25 and auditors can produce corporate finan- Seoul 3:25 At the Right Time and Place Tokyo 3:40 cial statements of internationally compa- 5 Guangzhou 4:20 rable standards. This is the general view Macau 4:20 The Philippines’ strategic location places cited by a World Bank report in December Bangkok 4:30 it at the crossroads of international ship- 2001 on the observance of standards and Beijing 5:15 ping and air lanes. United Parcel Service, codes in the Philippines. Brisbane 5:35 the world’s largest package delivery com- Vientiane 6:00 pany operates its intra-Asia hub in the Because of its rich supply of skilled Yangon 7:00 Clark Special Economic Zone, a mere 1½ accountants, the Philippines is consid- Sydney 7:30 to 4 hours away from major Asian desti- ered a center of trained manpower in Melbourne 8:00 nations. accounting work.6 A number of US firms Auckland 11:30 outsource their accounting work to the Wellington 13:50 The country’s 12-hour time gap with the Philippines. US east coast is ideal for 24-hour worksharing of projects for this publicly owned Philippine engineers have successfully engineering, procurement, construction carried out worksharing at the Manila Conversion to International Financial and maintenance services organization, Global Execution Center of this leading Reporting Standards (IFRS) is a global one of the world’s largest. Their vice pres- engineering, construction, maintenance trend which will bring about greater ident says, “We have been worksharing transparency and a higher degree of and diversified services company with with the Manila office (Global Execution comparability in financial reporting, both more than 50 offices worldwide. About of which will benefit investors worldwide. Center) for 15 years, and our investment 70% of the multidiscipline workforce in The Philippines chose a gradual transition and commitment are evident in the quality Manila are skilled in implementing the approach to IFRS (previously referred to of the work and increased productivity we design system and its related modules. as International Accounting Standards or are able to provide our projects.” Manila had almost 50 projects involving IAS) to ensure greater transparency and worksharing with 13 offices, and com- globally accepted quality in local financial reporting. The Philippine transition to IFRS formally started in 2001, ending in the full adoption of IFRS in 2005. Many companies have already undergone intensive training of officers and personnel to prepare them for the challenges ahead. The Philippines’ full adoption of IFRS makes the country a credible and 4 Julia Nielson and Daria Taglioni, Service Trade Liberalisation: Identifying Opportunities and Gains (Paris: efficient player in the worldwide capital OECD, 6 February 2004); available from http://www.oecd.org/TD/TC/WP(2003)/FINAL. market. 5 World Bank, Report on the Observance of Standards and Codes (ROSC) of the Philippines (New York: World Bank, 17 December 2001); available from http://www. worldbank.org/ifa/Philippinesrosc12_01.pdf. 6 Nirupam Bajpai, Jeffrey Sachs, Rohit Arora, and Harpreet Khurana, Global Services Sourcing: Issues of Cost and Quality, working paper, Center on Globalization and Sustainable Development, The Earth Insti- tute of Columbia University, New York. 2004.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 10 pleted the execution of the largest work- availability of competent senior managers. share project in the company’s history Companies setting up a business in the involving more than 550,000 work-hours. country will find an abundance of capable The company uses this ability to work- executives with the required academic share engineering services as a competi- degrees, experience, and know-how. tive advantage. The following are some of the multina- The country’s nurses, doctors, physical tionals in the Philippines being run by therapists, and dentists are magnets for Filipinos: Bank of America NT & SA, foreign tourists in search of affordable ABN-AMRO Bank, Chase Manhattan medical services. The Department of Bank, Dresdner Bank AG, ING Bank, Tourism (DOT) has launched medical Macquarie Bank, Procter & Gamble, tourism to bring in foreign tourists for Colgate-Palmolive, Texas Instruments, medical services such as dental and cos- Philips Group of Companies, Fujitsu, metic surgery. Many people in the US IBM, Compaq, Sun Microsystems, Fuji and Europe already know the caliber of Xerox, Intel Microelectronics, McCann- Filipino nurses, physical therapists, and Erickson, Pfizer, GlaxoSmithKline, doctors who staff their hospitals, and find Reuters, PruLife, Philamlife (AIG), it easier to deal with English-speaking Sunlife, Monark Equipment Corp., Road to Seventh Avenue - an original animation American Wire & Cable, Du Pont Far content of NAVEL Productions, has caught the eye of medical practitioners. some Asian studios for co-production. RSA is a story East, Heinz UFC, Singer, Hershey about musical instruments with the Ifugao nose flute in the stellar role. The European Chamber of Commerce of International, Wyeth, Jardine Davies, and Hooven. the Philippines (ECCP) sees bright pros- Animation Council of the Philippines, Inc. pects for building up the Philippines as a Creative Forces destination of choice for health and medi- 3/F Hatchasia Global City 31st St. cor 2nd Ave, e-Square IT Park cal services outsourcing. ECCP Executive For many Filipinos, looking out for the Bonifacio Global City, Taguig Vice President Henry J. Schumacher bahay kubo (nipa hut) in the aquarium Metro Manila, Philippines believes that the some 500,000 Filipino Tel: (632) 818-5019/818-5020/818-5008 added to the fun of watching the Disney/ Fax: (632) 818-5005 doctors and nurses working abroad can Pixar film Finding Nemo. The bahay E-mail: [email protected] be tapped to promote the Philippines as kubo was a tribute to the old homeland by http://www.animationcouncil.org/index.php a health destination. “These are profes- Nelson Bohol, one of the movie’s main sionals who have surely made a lot of background designers. Another Filipino patients happy in those countries. They artist, Gini Cruz, animated Dory, the blue would be the best ambassadors who can fish with short-term memory loss, given Filipinos’ creativity spill over to what- tell Europeans that there are many profes- voice by Ellen DeGeneres. Cruz had ever they do. One area where this talent sionals like them back home, where ser- also done work for Toy Story 2, A Bug’s comes in handy is software development. vices are more affordable than in Europe,” Life, and Monsters, Inc. The two artists Filipinos are adept in system software, 7 Schumacher says. were also involved in the production of middleware, and application packages The Incredibles. Not too many know that for sectors such as banking, financial, Executive Caliber Filipino animators have helped produce hotel, health, and manufacturing. The classic TV cartoons like Scooby Doo, Center for International Trade Expositions In its survey of 60 economies, the IMD The Flintstones, Tom and Jerry, Addams and Missions (CITEM) has reported a World Competitiveness Yearbook 2005 Family, as well as the more recent G.I. continuing expansion of the Philippines’ gave the Philippines a rating of #8 in Joe, DragonBall Z, and Rugrats. share in the global market for offshore IT outsourcing, estimated to reach US$140 billion in 2008. 7 Philippine Department of Trade and Industry, Dataline (Manila: DTI, 25 October 2004); available from http://www.dti.gov.ph/contentment/7/150/906b.jsp#special1.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 11 Philippine Comparative Advantage Invention is another outlet for Filipino Schools at a Glance creativity and innovation. Diosdado Banatao, the most well-known Filipino- Most public and private schools and uni- ...located strategically in the Asia-Pacific American entrepreneur in Silicon Valley, versities in the Philippines use English as region, a natural gateway to the East-Asian holds several patents and is responsible the medium of instruction, so expatriates economies for several “firsts” such as developing the need not worry that their children will industry’s first Windows graphical user have to face a language barrier. A number …offers a highly educated and literate interface (GUI) accelerator chip, pioneer- of international schools in Manila and workforce with most people having a good ing the local bus concept for the PC, and its suburbs offer primary and secondary command of English putting the Ethernet controller in a single levels of education. A few international chip, among others. His contributions …ranked in 2000 as the # 1 source of schools can also be found in major cities knowledge workers in the Meta Group's have helped make PCs smaller, more outside Manila, such as in Cebu and 8 Global New E-Economy Index powerful, and easier to network. Davao.

…has opened up its economy by allowing Eduardo San Juan built the first Lunar Brent International School 100% foreign ownership in almost all Rover or moon buggy out of scrap alumi- (www.brent.edu.ph) sectors of the economy and has established num, an old umbrella, bicycle handlebars, Brent International School has cam- numerous special economic zones and automobile hubcaps, and batteries. The puses in Manila and Subic, among other industrial estates all over the country prototype he built was chosen over other places in Luzon. It is a co-educational designs and became the model for the day school associated with the Episcopal …has redefined government's role through Lunar Rover used by Apollo XV astro- privatization and allowing private sector Church in the Philippines, accepting participation in developing infrastructure nauts in moving around on the moon. students from Nursery to Grade 12. The and some services which used to be population includes a mix of students government's domain through its innovative Hospitable Lifestyle from more than 46 countries and like- Build-Operate-Transfer scheme, a model wise has an international teaching staff. now being followed by other countries due Lifestyle may not be at the forefront Brent International School is accredited to its success of things expatriates think about when as a college preparatory school by the considering a foreign posting, but this Western Association of Schools and …has deregulated its banking, energy, becomes an important factor once a Colleges (WASC) and by the Philippine insurance, telecommunications, shipping, family moves. After all, the lifestyle is Accrediting Association of Schools, and retail trade sectors, removing most, if what enables foreigners to turn a house Colleges, and Universities (PAASCU). not all, of the monopoly structures in the into a home—and the Philippines has It is recognized by the Philippine Philippines' market economy what it takes to do just that. Department of Education (DepEd). …has granted income tax holiday (ITH)/5% preferential tax rate based on gross income For expatriates living in the Philippines, The British School Manila in lieu of all other taxes to companies comfort and convenience spell the differ- (www.britishschoolmanila.org) located in economic zones/export zones ence. The cost of living is very affordable; Located in Fort Bonifacio Global City, the the food, shopping, and entertainment are British School Manila currently has over …offers a dynamic consumer market used very easy on one’s pocket. While there are 500 students representing 33 nationalities. to an array of product choices created by a many dialects, English is widely spoken, It provides British education following competitive domestic economy thereby facilitating communication the English National Curriculum from …offers expatriates a comfortable lifestyle between foreigners and locals. And while Nursery to Year 13. Students are prepared — internationally known educational such basic needs can be met in many other for various tests such as the National institutions, entertainment and leisure countries, the Philippines offers all these Curriculum Tests and the International facilities, a range of housing choices, and with warmth and hospitality. Baccalaureate. Comparatively, the luxury of access to household help 8 Francis Huang, “From Cagayan Valley to Silicon Valley: An Interview with Dado Banatao,” SGV Review 2, no. 3 (October 2004): 102-113.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 12 school’s students perform well above Reedley International School national United Kingdom averages. (www.reedleyschool.com) European International School Eurocampus Manila Reedley International School is a co- 75 Swaziland St. Cebu International School educational school with an international Better Living Subdivision (www.cis.edu.ph) program combining Singaporean and 1711 Parañaque City, Philippines Cebu International School was first called American curricula. It offers classes for Faith Academy the American School of Cebu when it was Grades 1 to 12 and follows the American Manila Campus established in 1924. The school currently Grading System. The school’s latest Penny Lane off Valley Golf Road offers education from the Kindergarten innovation is its Personalized Classroom Victoria Valley Subdivision level to Grade 12. Learning Program which benefits students Cainta, Rizal Davao Campus with specific learning difficulties. 7 Jade St., Marfori Heights Eurocampus Manila Davao City (www.eurocampus.org.ph) Southville International School Manila Eurocampus includes two schools, each (www.southville.edu.ph) University Parkway, Fort Bonifacio with a different curriculum: one closely Southville International School and Taguig 1634, Metro Manila follows the curriculum of France, while Colleges (SISC) is a nonsectarian school Reedley International School the other follows the curriculum of accredited by the WASC. It offers pre- Pasig Boulevard corner Rosemarie Lane, Germany. Both schools employ teachers school, grade school, and high school 1600 Pasig City, Metro Manila and staff from their homelands. Aside education and has formed linkages with Southville International School from normal classes, Eurocampus offers prestigious schools abroad—such as and Colleges many extra-curricular activities which the London City College in the United Early Childhood Campus (Elizalde) allow interaction between the students of Kingdom, affiliated with the Schiller 136 Elizalde St., BF Homes, Parañaque City the two schools. International University in Europe and the Early Childhood to Grade 3 United States—to offer foreign college (Lower School) Campus (Munich) Munich St. corner Tropical Avenue, Faith Academy diplomas. BF Homes International, Las Piñas City (www.faith.edu.ph) Grade 4 to High School (Lower & Upper School) Faith Academy is located in Manila, with Campus (Tropical) The Philippines is also home to the a branch campus in Davao. It is an inter- 1281 Tropical Avenue corner Asian Institute of Management (AIM), Luxembourg St., BF Homes International national Christian School primarily for the an institute offering management Las Piñas City children of expatriate Christian workers in College Campus (Luxembourg) programs geared towards develop- the Philippines and throughout Asia. Luxembourg St., BF Homes International, ing professional, entrepreneurial, and Las Piñas City socially responsible leaders and manag- The International School (IS) Manila Foreign Colleges (Yokohama) Southville Foreign ers. The institute attracts professionals Colleges (SFC) (www.ismanila.com) Yokohama St. corner Luxembourg St., from across Asia with its postgraduate IS Manila offers an American-based BF Homes International, Las Piñas City degrees in Business Administration, curriculum from early primary to high Management, Development Management, Asian Institute of Management school. It was the first school in the Eugenio Lopez Foundation Building and Entrepreneurship, as well as with its Philippines to receive accreditation by Joseph R. McMicking Campus certificate courses. AIM professors have the WASC and is accredited until 2007. 123 Paseo de Roxas doctorate and master’s degrees in manage- MCPO Box 2095 IS Manila has also been recognized and ment and related fields from prestigious 1260 Makati City accredited by the DepEd. IS Manila Tel: (632) 892-4011 to 25 universities in Asia, the United States, students represent 59 different nationali- Fax: (632) 892-1724 and Europe. They are also experienced ties. 65% of faculty members come from E-mail: [email protected] managers who have worked in business, http://www.aim.edu.ph 13 other countries while 35% are host government, and nongovernment organi- nationals. zations. Coming from various countries in Asia, AIM faculty members provide Asian solutions to Asian management problems.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 13 AIM was awarded the European Quality who gather in Donsol every year from Top Philippine Tourist Spots Label in 2003, the first in the Association February to May. The experience has been of Southeast Asian Nations (ASEAN) to dubbed the “Best Animal Encounter” in Beaches receive the accreditation, thus becoming a Asia by Time magazine.9 Boracay (Aklan) member of the European Foundation for Pagudpud (Ilocos Norte) Management Development. In 2002, AIM Over the last few years, surfing has been Mactan Island (Cebu) Panglao (Bohol) was selected by the World Bank to be its making a splash in the Philippines. Locals Dakak (Zamboanga del Norte) strategic partner in Asia with the estab- and foreigners alike troop to surf spots Honda Bay (Palawan) lishment of the AIM-World Bank Global such as La Union and Siargao. Other El Nido (Palawan) Distance Learning Center. The institute exciting activities for thrill-seekers are Pearl Farm (Davao) has also received a number of citations white water rafting, scuba diving, moun- Siargao (Surigao del Norte) and is the first graduate school of manage- tain climbing, even trekking in Taal— Heritage Tours ment in the world to be awarded the ISO where there is a lake within a volcano Tubbataha Reef Marine Park 14001 Certification for its Environmental within a lake. (Palawan) Management System. Ifugao Rice Terraces (Banawe) The nightlife will certainly not disap- Vigan Heritage Village (Ilocos Sur) Entertainment and Recreation point anyone. Long known as a musi- St. Paul Subterranean National Park cal people, Filipinos have rediscovered (Palawan) From day to night, there is something to the many talented performers the local Philippine Baroque Churches (Manila, occupy tourists and residents alike in the scene has to offer. New local artists have Bulacan, Ilocos Norte, Iloilo) Philippines. reawakened the Philippine music scene in recent years. Restaurants, bars, and water- Source: Department of Tourism Those who are after relaxation have ing holes feature nightly performers who options. Spas have sprouted all over appeal to varied audiences: acoustic art- Manila, giving customers a choice ists who tap into the hearts of romantics, between relatively inexpensive day spas rock bands who get the adrenaline going, and high-end spas that are all about pop groups who perform danceable tunes. luxury, ideal for those who wish to With covers of favorite foreign songs and indulge in a few hours of pampering. local compositions, these music acts bring Those who have a little more time can “life” to the Philippine nightlife. spend a weekend at beaches that are just a few hours’ drive from Manila. The beau- For those who prefer a quiet evening, tiful beaches in Boracay, Palawan and there are restaurants offering many dif- other farther parts of Luzon, Visayas, or ferent cuisines. Filipinos love to eat, after Mindanao are perfect for those who need all. Coffee-lovers can unwind at the many a few days to rejuvenate. local and franchised coffee outlets scattered all over the country’s major cities. Adventure-seekers will not be disap- pointed. The whale sharks in Donsol—a Be it for an afternoon, an evening, seaside town in Sorsogon, 540 km south- a weekend, or a long vacation, the east of Manila—are fast becoming a Philippines has something in store for very popular tourist attraction. Tourists everyone who wants to take a break. can swim with the world’s largest fish,

9 Alex Perry, “Best of Asia – Best Animal Encounter,” Time, 22 November 2004, 42-43.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 14 Banking Unlimited Business Fast Facts Opportunities As of December 31, 2005, there are 41 Filipino innovations in agriculture and universal and commercial banks, consist- Agriculture fisheries ing of 20 private domestic banks, 3 gov- Coconets, coconuts for erosion control - ernment banks, 4 subsidiaries of foreign The agriculture sector remains an im- Coconets was the overall winner of The banks, and 14 branches of foreign banks. portant and integral part of the economy, World Challenge 2005, a competition contributing about 14% of total gross sponsored by BBC World and Newsweek domestic product in 2005. It remains the One main banking legislation that has in association with the Shell Group of primary activity in the rural areas and shaped the banking industry in recent Companies to find entrepreneurs whose employs almost 40% of the country’s years is the General Banking Law of projects are making a difference in workers. 2000, which has allowed the Bangko Sen- grassroots communities. Coconets were tral ng Pilipinas (BSP) to further make the developed by agricultural engineer Dr. Agriculture grew by 2.2% in 2005 despite banking industry more competitive and Justino Arboleda from waste coconut the mild El Nino in the first quarter and highly regulated. Aiming to relax the limi- husks. The coconets prevent landslides by occurrence of typhoons in the third quar- tation of foreign ownerships of banks, the acting as surrogate tree roots. The product ter. All subsectors grew in output, led by Law authorizes foreign banks to acquire also won the Global 100 eco-Tech Award in fishery with a 6.5% growth rate. Livestock up to 100% of the voting stock of domes- the 2005 World Exposition in Aichi, Japan. recovered with 2.0% growth versus last tic banks. Because of this, the 14 foreign year’s negative growth. The sector’s gross banks that have set up their branches in Waterless transport of live fish - The Buhi value of production, at current prices, was the Philippines, and the four foreign banks Marine Worldwide Supply Inc. won the prize estimated at PhP815.5 billion. that have subsidiaries in the country ac- for Best International Business at the 2005 counted for 17% of the total resources in International Business Plan competition held by the University of San Francisco in Indicative plans for 2006 cover programs the Philippine banking system as of late March 2005. Bonifacio Comandante Jr., for rice, corn, high-value cash crops, live- 2004. The increasing presence of foreign a Filipino aquaculture practitioner, has stock, and fisheries. Mindanao, considered banks has also heightened competition not developed a technology for waterless the “food basket of the country,” is push- only in the corporate market, but has also transport of live fish, both marine and ing for commodity champions that will allowed domestic banks to focus on the freshwater. The technology is covered by an commercial middle-market. become recognized in the global market. application for international patent. To this end, development roadmaps for To encourage and create stronger and commodities like banana, coffee, mango, Substrates for accelerated coral competitive banking systems, the BSP has coconut, rubber, palm oil, seaweeds, and restoration - The Philippine team led by been offering various incentive packages tilapia have been approved, and various Ronald Roland Cesar Rodriguez won the Mindanao investment forums are sched- for merging and consolidating banks. Sev- Silver Award in the Asia Pacific Region in uled in the first part of 2006. eral business combinations have already the 2005 regional competitions held by taken place, resulting in larger and strong- the Holcim Foundation for Sustainable Construction. Their project provides a habitat for marine life by assisting in the Agriculture Sector in 2005 regeneration of coral reefs. The project is low-cost, has a positive environmental Sector/Subsector Growth Rates Gross value of output (in billions) impact, and increases the quantity and Overall 2.2% PhP815.5 diversity of fish species for nearby fishing Crops 0.5% PhP406.8 communities. The Philippine entry qualifies Poultry 1.4% PhP107.8 for the global Holcim Award to be given in Aquaculture 6.5% PhP146.8 2006. Livestock 2.0% PhP154.2

Source: Bureau of Agricultural Statistics, Department of Agriculture

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 15 Universal and Commercial Banks ly capitalized banks. Also revitalizing the of which 72% are foreign-owned and 28% of the Philippines banking industry is the Special Purpose are Filipino-owned. Vehicle Act of 2002, which allowed Private Domestic Banks banks to dispose of nonperforming assets The Semiconductor and Electronics Allied Banking Corporation Asia United Bank Corporation (NPAs) and maintain financial viability. Industries in the Philippines Inc. (SEIPI), Banco de Oro Universal Bank Disposition of NPAs improved while the the leading and the largest organization of Bank of Commerce law was in effect. The law expired on foreign and Filipino electronics manu- Bank of the Philippine Islands BDO Private Bank, Inc. April 12, 2005, but House Bill 2311 seeks facturers in the Philippines, is working China Banking Corporation to extend the deadline by two years. If the closely with the government to sustain East West Banking Corporation law is extended, it is expected that more and further the growth of the industry. Equitable PCI Bank banks will liquefy their assets and avail of SEIPI projects a growth rate of 10% for Export & Industry Bank International Exchange Bank the tax incentives, among others. 2006 and aims to achieve the target of Metropolitan Bank and Trust Company US$50 billion in exports in 2010. Philippine Bank of Communication Reeling off the Arroyo Administration’s Philippine National Bank Philippine Trust Company 10-point agenda, the BSP has provided Energy and Utilities Philippine Veterans Bank opportunities to micro-finance institu- Rizal Commercial Banking Corporation tions to help expand small and medium Energy production in the Philippines is Security Bank Corporation enterprises. This has auspiciously created concentrated in the electricity sector, Union Bank of the Philippines United Coconut Planters Bank prospects for entrepreneurship and em- which is facing tremendous opportunities Government Banks ployment and has encouraged the major with the passage of the Electric Power Al Amanah Islamic Investment Bank of the players in the banking industry to explore Industry Reform Act (Republic Act [RA] Philippines Development Bank of the Philippines this previously untapped sector. No. 9136 or EPIRA) on June 8, 2001. Land Bank of the Philippines Its passage paves the way for the re- Subsidiaries of Foreign Banks Electronics structuring of the power industry and the ABN Amro Bank, Inc. privatization of the generating assets of Chinatrust (Phils.) Commercial Bank Corp. Maybank Philippines, Inc. The electronics industry is the driver of the National Power Corporation and the United Overseas Bank Philippines* the Philippine economy. transmission assets of the National Trans- Branches of Foreign Banks mission Corporation (TransCo).10 The law ING Bank N.V.-Manila Branch Standard Chartered Bank In 2005, the industry accounted for seeks to dismantle the industry’s monopo- The Hongkong and Shanghai Banking US$27.3 billion or 71% of the total listic structure and establish a competitive Corporation, Ltd. Philippine exports of merchandise goods. environment that will ensure the provision ANZ Banking Group, Ltd. The industry directly employs more of quality, reliable, and affordable power Bangkok Bank Public Company, Ltd.- Manila Branch than 402,000 engineers, technicians, and to all consumers. Bank of America, N.A. operators and provides the transfer of Bank of China-Manila Branch best global practices on high-technology Another requirement of EPIRA is the Bank of Tokyo-Mitsubishi, Ltd.- Manila Branch manufacturing to Filipino workers. operationalization of the Wholesale Elec- Citibank, N.A. (Phils.) tricity Spot Market (WESM). WESM is Deutsche Bank AG After three years of continued decline, the electricity trading mechanism among International Commercial Bank of China investments went up from US$443 mil- generators, suppliers, and wholesale JP Morgan Chase Bank Korea Exchange Bank lion in 2004 to US$776 million last year. consumers. It will enable industries and Mizuho Corporate Bank, Limited- These investments were accounted for by consumer groups to benefit from the open Manila Branch (Fuji Bank) 23 new firms which set up their compa- access scheme in the competitive genera- * On September 16, 2005, the Monetary Board nies and 72 existing companies which tion market, and to choose their suppliers approved subject to certain conditions the have expanded their operations in the at the least possible cost. WESM will conversion of United Overseas Bank Philippines into a thrift bank. As of December 31, 2005, such Philippines. To date, there are 883 elec- be initially operated by the Philippine conditions have not been fully complied with. tronics firms operating in the Philippines, Electricity Market Corporation (PEMC), Source: Bangko Sentral ng Pilipinas 10 Philippine Department of Energy, Philippine Energy Plan 2005 Update (Manila: Philippine DOE, 29 March 2006); available from http://www.doe.gov.ph/PEP/PEP_2005_2014.pdf.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 16 The Philippines, ranked second in Asia which was created in 2003, and will be Fast Facts implemented in phases, beginning with by the Meta Group as the destination of 11 choice for e-services, is poised to become Luzon and Visayas in 2006. EO No. 428 cuts bureaucratic red tape the next ICT hub in Asia. The country Executive Order (EO) No. 428 signed by The power generation sector is expected has the potential to lure more investors President Gloria Macapagal-Arroyo in to register an average annual growth rate with its strategic location, affordable and May 2005 directs departments, bureaus, of 7.7% in total electricity generation flexible human resource base, expanding agencies, and offices in the Executive within the 10-year planning period. Total infrastructure, and affinity with Western Branch of the government, including govern- installed capacity in 2004 was 15,548 culture. ment-owned and controlled corporations (GOCCs), to simplify their rules and reduce megawatts (MW), with dependable capac- reportorial requirements imposed on busi- 12 There are about 300 software develop- ity at 13,792 MW. Current contracts ness and industry. For many years, potential provide about half that amount, with the ment firms in the Philippines delivering investors have been turned off by bureau- remainder expected to be filled once the software solutions to North America, cratic red tape, which causes delays, raises market deregulates.13 Europe, Japan, and the Asia Pacific. These costs, and encourages corruption. With EO companies offer such services as system No. 428 in place, local and foreign investors House Bill No. 4839, an act that further design and analysis; testing and quality may now find it easier to cut through the promotes the development, utiliza- assurance; software maintenance; and red tape, and ultimately cut the costs of doing business in the country. tion, and commercialization of new and software project management.16 renewable energy (NRE) sources, was recently approved in the Philippine House The Technical Education and Skills De- outbound services. Most contact centers of Representatives.14 The bill mandates velopment Authority (TESDA) said in its in the country are located in Metro Manila power firms to source a certain percent- latest Labor Market Intelligence Report and Cebu, but there are a few in Clark, age of their requirements from renewable (LMIR) that e-service priority sectors are and new ones in Baguio, Davao, and even energy. It offers significant incentives for contact centers, medical transcription, and Cagayan de Oro. developers of renewable energy facili- computer animation. ties, such as tax and tariff exemptions and According to the LIMR, the Philippines privileges. It is expected to significantly The Philippines is fast emerging as the aims to serve 50% of the rapidly growing boost investments not only for micro-hy- location of choice in Asia for global contact center demand in the next four to dro power, but also for wind and geother- contact centers, which have been bring- five years. mal power.15 ing in the bulk of the country’s revenues from outsourced IT and IT-enabled The US is the world’s largest market for Information & Communications business services for global markets in medical transcription services, a US$25 Technology recent years. Contact centers are customer billion industry dealing with the electronic service operations manned by customer interpretation and encoding of medical ICT services offer very exciting business service representatives that interact with procedures and data. The Philippines is opportunities for investors. customers via voice, e-mail, or live chat. establishing itself as an offshore medical They often provide a mix of inbound and transcription services provider of choice, with about 20 firms in the country currently offering such services.17 11 Ibid. 12 Ibid. 13 Energy and Utilities Overview. In SGV E&U Database. Manila: SyCip Gorres Velayo & Co., 2005. Computer animation, another e-services 14 “Renewable Energy Bill Approved,” BusinessWorld, 1 March 2006, sec. S1, p. 7. priority, is seen as one of the develop- 15 Philippine Department of Energy, New & Renewable Energy (Manila: Philippine DOE, 29 March 2006); available from http://www.doe.gov.ph/NRE/default.htm. ing fields in ICT. Based on government 16 Global Sourcing in Asia (Hong Kong: Hewitt Quarterly Asia Pacific, 29 March 2006); available from forecasts, the industry is expected to http://was4.hewitt.com/ap/resource/rptspubs/hewittquart/HQ_12/articles/globe_source_asia.html. double annually over the next couple of 17 E-Services Philippines, Medical Transcription (Manila: E-Services Philippines, 31 March 2005); 18 available from http://www.e-servicesphils.com/mt.htm. years. Philippine animation studios 18 http://itmatters.com.ph/news/news_02092004a.html have been doing subcontracted anima-

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 17 ports that there are 53 registered business Ten-Point Agenda to "BEAT THE ODDS" in Six Years process outsourcing (BPO) operators in Under the Arroyo Administration the Philippines. Moreover, the 2005 Map- ping Offshore Markets Update, published What it stands for: by NeoIT, ranks the Philippines as no. 3 B - Balanced budget in terms of top global BPO destinations.20 E - Education for all Indeed, the Philippines is fast becom- A - Automated elections ing a regional and global hub for shared T - Transport and digital infrastructure to connect the country corporate backroom operations, especially T - Terminate the Moro Islamic Liberation Front (MILF) and New Peoples Army for financial services such as accounting (NPA) conflicts and bookkeeping, account maintenance, H - Heal the wounds of EDSA accounts receivable collection, accounts E - Electricity and water for all barangays payable administration, payroll processing, asset management, financial analysis O - Opportunities for 10 million jobs and auditing, management consulting, D - Decongest Metro Manila inventory control and purchasing, expense Ds - Develop Clark and Subic and revenue reporting, financial reporting, tax reporting, and other finance-related services such as financial leasing, credit tion work for nearly two decades for such card administration, factoring and stock huge entertainment companies as Warner brokering as well as logistics manage- Bros., Hanna-Barberra, and more recently, ment, cargo ship management, engineer- Cartoon Network.19 At present there are ing design and architectural drawings.21 around 22 animation service providers in the Philippines. According to the Anima- In recognition of the vital role of commu- tion Council of the Philippines (ACPI), nication and information in nation build- Filipino animators are preferred by big ing, President Arroyo issued EO No. 269 entertainment companies due to their creating the Commission on ICT (CICT) world-class talent, creativity, and lower to oversee ICT matters in the Philippines. services cost and are recognized for ef- The creation of the commission aims to ficient and quality output. They provide promote a central regulatory environ- pre- and post-production services such as ment that will encourage the use of new layout, cleanup, digital background pro- technology. The CICT is now the primary duction, special effects creation, and other policy planning, regulating, and adminis- such services. trative entity that will promote, develop, and regulate integrated and strategic ICT Recognizing the great technological systems and reliable and cost-efficient strides the country has taken over the past communication facilities and services. years, a considerable number of foreign multinational companies have located The Business Development Services their back-office shared services centers group of CICT has drafted blueprints in the Philippines. Outsourcing Digest re- for flagship projects that are expected

19 Offshore Outsourcing World Staff. 2004. Interview. Tape recording, 20 February. 20 Athena e-services, The Philippines: Your Offshore Outsourcing Destination (Manila: Athena e-services, 29 March 2006); available from http://www.athenaeservices.com/news.php?newsid=7. 21 E-Services Philippines, Business Process Outsourcing (Manila: E-Services Philippines, 29 March 2006); available from http://www.e-servicesphils.com/bpo.htm.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 18 to propel the growth of the Philippines’ bidding out and awarding projects to the Strong Republic Nautical Highway Pro- IT-enabled services industry. One of the most qualified entities; and the prioritiza- gram of President Arroyo, the government projects is the development of the Philip- tion of infrastructure projects such as the has implemented 23 major road projects pine Cyberservices Corridor, which is Roll-on/Roll-off (RORO) ports and the in 2005. The idea is to spur economic primarily a branding strategy to help sell highways connecting them, roads and rail growth by interconnecting the country’s the country’s e-services industry in the systems that will decongest Metro Manila, three main islands through the RORO global market.22 and roads and airports in tourism hubs. System. The RORO provides easy trans- Planned expressways will be opened for port of commuters, agricultural products, Infrastructure and Transportation private financing through the BOT or and services from Mindanao to Visayas other related schemes where investment and Luzon and vice versa.26 The Arroyo administration’s Medium- cost can be recovered by toll fees.24 The Term Development Plan for 2004-2010 government also plans to increase infra- Based on the highlights of the 2005 provides many potential opportunities for structure spending to 4% of GDP over the DPWH accomplishment report, seven local government units and the private next two to three years from current 2.2% road improvement works were undertaken sector to be the government’s partners in of GDP.25 in the Western Nautical Highway, 12 in the development and implementation of the Central Nautical Highway, and four infrastructure. With the growth of the ICT sector, the in the Eastern Nautical Highway sectors. government is also looking into ways of These nautical highways not only further The administration has a 10-point agenda improving the country’s digital infrastruc- reduce transport cost but also enhance providing the guiding framework for ture while reducing the cost of connectiv- public access to tourism areas throughout the Department of Public Works and ity. One of the government’s thrusts is the country and serve as alternate routes Highways’ medium-term infrastructure to continue to promote investments that for the flow of agricultural products. Upon program, which focuses on the decen- support the provision of physical infra- its completion, the Nautical Highway will tralization of development to different structure for high-speed connectivity, high reduce travel time by 10 to 12 hours, and regions by developing a reliable trans- capacity, and secured network services at decrease transport cost by 37% to 43% port network, the decongestion of Metro low cost. This will be accelerated through for passengers and 24% to 34% for cargo. Manila, the development of Clark and the participation of and partnership with Reduced travel time will also mean im- Subic Ecozones, the provision of clean the private sector. proved delivery of supplies and products water to all barangays in the country, the for business.27 construction of new school buildings and To capture long-term investors in infra- classrooms, and the creation of at least six structure, the government also plans to The Batangas Port has become an alter- million jobs in six years.23 securitize portions of Clark and Subic, native to the Port of Manila. Industrial creating areas where investors can be estates and tenant companies that have Among the government’s plans are the comfortable and free from political inter- located in Batangas did so with an eye to amendment of the Build-Operate-Trans- ference. the convenience of locating near the port. fer (BOT) Law to promote wider private A new international seaport was recently participation; the creation of a Philippine Philippine ports are now ready to accom- opened at Balayan Bay in Calaca, Batan- Infrastructure Corporation (PIC) that modate bigger inter-island cargo vessels. gas, for the exclusive use of locators in will manage the infrastructure fund by In relation to this and in support of the the Batangas Union Industrial Park.

22 Grace Clavecilla, “CICT Drafts Roadmap for E-Services Growth,” ComputerWorld Philippines The Manila International Airport Author- (August 2004). ity, which now exercises administrative 23 Philippine Department of Public Works and Highways. 2005. Presentation presented at Philippine Infrastructure Conference, at InterContinental Manila. supervision and control over all interna- 24 Ibid. tional airports in the country, is embarking 25 “NEDA Pushes Increase in Infrastructure Spending,” BusinessWorld, 9 March 2005. on a two-year, PhP1.25 billion, medium- 26 Philippine Department of Public Works and Highways, DPWH Pushes Road Projects to Support Nautical Highway (Manila: Philippine DPWH, 29 March 2006); available from http://www.dpwh.gov.ph/News_index. term plan to upgrade the Ninoy Aquino asp. International Airport’s (NAIA) security 27 Ibid.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 19 system in preparation for the planned EO No. 270 directing the Department Fast Facts transfer to NAIA 3, the modern US$640 of Environment and Natural Resources million facility set to open in 2006. The (DENR) to take the lead in the prepara- Abundant Philippine Reserves security system would be comparable to tion of the Minerals Action Plan, which Metallic minerals those of other international terminals in provides the strategies and programs, as Gold, silver, platinum, iron, chromite, Asia, if not in the world.28 well as the rules and regulations for the nickel, cobalt, manganese, copper, lead, exploration, development, and utilization zinc, molybdenum, mercury, aluminum Mining of the country’s mineral resources. In line Nonmetallic minerals with EO No. 270, the DENR, in coordina- Phosphate rock, guano, magnesite, sulfur, Data from the Mines and Geosciences Bu- tion with various agencies and sectors, asbestos, barite, clay bentonite, dolomite, reau (MGB) show that the Philippines has has continuously undertaken measures to diatomite, feldstar, gypsum, limestone, established reserves of about 14 metallic further simplify and streamline procedures marble, perlite, rock aggregates, silica, and 27 nonmetallic minerals. It ranks sec- for granting mining rights and permits. sand and gravel, salt, jade, quartz, rhodomite, tektite, opal, obsidian, diorite, ond in the world in terms of gold depos- Government has also pledged to maintain agate, serpentinite its, third in copper, and fourth in nickel fiscal and nonfiscal incentives for the min- deposits. Considered a highly mineralized ing sector to attract more foreign capital Source: Mines and Geosciences Bureau, Department of Environment and Natural Resources area, the Philippines is estimated to have and accelerate the development of the mineral resources in high-potential sites country’s mineral resources. At present, covering nine million hectares, or about holders of mineral agreements, financial 30% of the country’s total land area. So and technical assistance agreements, and far, only 420,000 of the nine million have exploration permits are entitled to incen- mining permits,29 leaving almost 8.6 mil- tives from the BOI under the Omnibus lion hectares unexplored. Investments Code.

Given recent developments, investors are In September 2003, the Department of eyeing the Philippine mining industry Trade and Industry (DTI) and the DENR with renewed interest. On December 1, issued a joint memorandum circular creat- 2004, the Supreme Court reversed its ing the Mining Investment Assistance January 27, 2004 decision that nullified Center, which was tasked to facilitate the Mining Act of 1995. The Court ruled mining investments by providing in- there was nothing unconstitutional about formation on mining rights, investment the mining law’s implementing rules and procedures, fiscal regimes, and business, regulations, and, in effect, reversed the environmental, and social norms, as well ban on foreign ownership of large-scale as referrals to other government offices mining operations. and advisory services.

New policies and existing incentives The DENR has canceled 84 inactive make the mining industry an even more mining permits and contracts covering attractive prospect for investors. On Janu- 100,000 hectares as part of its measures ary 16, 2004, President Arroyo issued to weed out speculators and encourage

28 Patricia Ann Perez and Erik Lorenzana, E-bulletin: Good News About the Philippines (Washington DC: Embassy of the Republic of the Philippines, 29 March 2006); available from http://www.philippineem- bassy-usa.org/events/ebulletin_21feb06.htm. 29 Angelo Reyes, Philippine Secretary of Interior and Local Government, The Philippines: A New Oppor- tunity for Africa in Asia (Manila: Philippine Mines and Geosciences Bureau, 29 March 2006); available from http://www.mgb.gov.ph/SATR_Philippines_A_New_Opportunity_files/frame.htm.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 20 the entry of real investors who have the ing retail market monitoring.33 For the port industry participants in negotiating financial capacity to venture into the min- natural gas industry, the government plans with natural gas contractors for reasonable ing industry. New and serious investors to establish a domestic infrastructure fees, terms, and conditions for possible could take over the canceled agreements network and expand the use of natural gas supply agreements.36 provided they comply with all the require- gas by considering the use of compressed ments. natural gas (CNG) as district cooling Other government programs include plans for industrial use and other commercial to enhance energy exploration and devel- For 2005, the government has succeeded applications. CNG-powered buses will opment through the conduct of the Philip- in generating interest in 24 new and ex- soon ply the Laguna/Batangas-Manila pine Energy Contracting Round (PECR). panded flagship mining projects.30 These and vice-versa routes. By 2014, all Metro The PECR in 2005 offered 22 prospect will require US$8 billion in investments Manila public utility buses are expected to areas for exploration, development and for the next five to six years.31 A mining run on CNG.34 Refueling stations are cur- production of petroleum, geothermal, and road show in China alone created US$1.6 rently under construction to pave the way coal.37 billion in investments, and other road for the commercial run of the CNG buses. shows have been brought to several coun- Under the government’s Natural Gas Among petroleum products, diesel which tries in Europe, Africa, and Asia.32 With Vehicle Program for Public Transport, the will grow at an annual rate of 4.7% will various potential onshore and offshore price per diesel liter equivalent for CNG dominate the oil mix. Liquified petroleum mineral resources, the Philippines may buses is half that of the prevailing price of gas, motor gasoline, and fuel oil follow become one of the largest mining powers diesel. The promotion and increased use with an average annual growth rate of in the world. of alternative transport fuels, one of the around 5.0%, 4.5% and 1.8% respectively. major pillars of the government’s five- Kerosene and jet oil round up the mix Oil and Gas point energy independence program, will with an average annual growth rate of thus lessen the country’s dependence on around 1.5% and 3.0% respectively. The 2005 Philippine Energy Plan lays imported fuel.35 down the government’s plans and pro- The Philippine transport sector depends grams for the improvement of the oil To attract potential investors to invest heavily on imported oil, but the govern- and gas industry. For the downstream oil in the processing of natural gas and the ment aims to increase the country’s ener- industry, the government plans to encour- construction of the necessary infrastruc- gy self-sufficiency level to 60% by 2010. age private sector participation in industry ture for CNG, the Department of Energy To this end, it has launched the National activities and at the same time safeguard (DOE) has declared open access to all Bioethanol Program, which encourages consumer welfare by promoting oil sup- existing and future natural gas resources the use of bioethanol (ethyl alcohol) as an ply security programs; improving quality in the country. As such, the DOE will sup- alternative fuel to reduce the Philippines’ standards and facilities; and strengthen- dependence on imported oil.38 Ethanol is seen as one of the most promising

30 Ibid. alternative energy sources. It is produced 31 Ibid. from crops such as corn, wheat, and sugar, 32 Benjamin Philip Romualdez, “Investment Opportunities in the Philippine Mining Sector,” Industry Bulletin 1, no. 2 (September 2005): 4. and can be used as a transportation fuel 33 Philippine Department of Energy, Philippine Energy Plan 2005 Update (Manila: Philippine DOE, 29 in three ways: as a blend to gasoline, a March 2006); available from http://www.doe.gov.ph/PEP/PEP_2005_2014.pdf. component of reformulated gasoline, or a 34 Ibid. 35 Philippine Department of Energy, President Arroyo Welcomes Arrival of CNG Buses for Commercial primary fuel with gasoline as blend. The Operations (Manila: Philippine DOE, 29 March 2006); available from http://www.doe.gov.ph/press/ DOE has also spearheaded the introduc- 2005-07-01-CNG_Buses.htm. tion of coco methyl ester (CME) as an 36 “DOE Declares Open Access to RP Gas Resources,” Philippine Daily Inquirer, 11 July 2005, sec. A, p. 7. 37 Philippine Department of Energy, Philippine Energy Contracting Round 2005 Official Announcement alternative transport fuel. The use of etha- (Manila: Philippine DOE, 31 August 2005); available from http://www.doe.gov.ph/PECR2005/ nol and CME will not only help alleviate announcement.htm. the impact of rising oil prices but may 38 Philippine Fuel Ethanol Alliance, About Us (Manila: Philippine Fuel Ethanol Alliance 29 March 2006); available from http://www. bioethanol.com.ph/about/about.htm. also benefit sugar and coconut farmers 39 Philippine Department of Energy, Lotilla Hails NDC Involvement in Ethanol Program (Manila: Philippine throughout the country.39 DOE, 29 March 2006); available from http://www.doe.gov.ph/press/2005-04-05-NDC_Ethanol.htm.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 21 Professional Services Approved investments in the trade sector Fast Facts reached PhP 303.8 million in the first The Philippines is a rich source of skilled three quarters of 2005. About PhP 84 mil- Retail Trade Liberalization Act of 2000 workers and ranks second among offshore lion or 28% of the total approved invest- allowed foreign investors to sell to the destination countries. Each year, the ment was foreign direct investments general public merchandise, commodi- country produces about 405,000 college (FDI). The approved FDI in the trade ties, or goods for consumption, subject graduates specializing in diverse fields. sector was a big jump from the PhP 40 to certain exceptions. The OECD reports that the Philippines million registered in 2004, reflecting an improvement in the investment climate in Allows full foreign ownership of retail represents a “large supplier of English- the trade sector. • enterprises if paid-up capital is at speaking college-educated accountants, least US$2.5 million software writers, architects, telemarketers, and graphic artists.” Stock Market Allows full ownership of existing retail • businesses (subject to investment Filipino accountants have recently been Despite increasing world oil prices, requirement of at least US$830,000 receiving much attention, with a number domestic political controversies, and per store or branch, Section 3, Rule of US firms outsourcing their accounting weak economic data, the Philippine Stock V of the Implementing Rules and work to the Philippines. Foreign firms are Exchange (PSE) performed well in 2005. Regulations) likewise outsourcing engineering services; The PSE Composite Index climbed 15.0% Filipino engineers, skilled in implement- higher to 2,096.04 from 1,822.83 in 2004. ing design systems and related modules, The market was buoyed by foreign funds have successfully carried out worksharing that were attracted to companies that were Fast Facts in Manila offices. The country’s nurses, able to sustain their earnings in the midst Top Tourists by Country of Origin doctors, physical therapists, and dentists of the oil and political crisis. continue to attract foreigners in search of 1. Korea affordable medical services. Favorable macroeconomic fundamentals 2. USA enabled the PSE to continue its strong 3. Japan Retail Trade performance by starting off 2006 with a 4. Taiwan robust 6.23% rise in January to 2,145.39 Retail trade sustained its growth although 5. China from 2,019.56 in 2005. Monthly compara- at a moderated pace in 2005. Retail trade, 6. Hong Kong tive change stood at 2.35%. News of the which accounts for about three-fourths of budget deficit being lower than target, 7. Australia total trade, rose 5.9% in 2005 compared high economic growth rates, slower infla- 8. United Kingdom to 6.9% in the previous year. Meanwhile, tion rate, and steady interest rates pro- 9. Canada wholesale trade slowed down to 5.5% vided positive leads to the market. 10. Singapore and Germany (tie) in 2005 from 6.3% the year before. The growth in retail trade came amidst higher The PSE ended February 2006 1.61% Source: Department of Tourism oil prices and the subsequent rise in higher at 2,178.99 or 33.60 points more inflation. Higher sales revenues resulted than in January. Investor sentiment gave in part from the increased remittances of more weight to economic fundamentals overseas Filipinos, particularly the OFWs than to political turbulence. Also, the (see discussion on OFWs on page 71) and market got its boost from credit rating the expansion of operations of retailers. upgrades from international credit rating Major retailers and fast food chains have agencies, and buying into selected stocks. put up new branches and outlets in the NCR as well as in emerging urban areas in the regions.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 22 Tourism Calabarzon SOCSKSARGEN Calabarzon is a large-scale multisectoral SOCSKSARGEN is the more popular With its beautiful beaches and rich marine project complex in a region contiguous to name for the areas of South Cotabato, life, year-round fiestas, shopping bargains, Metro Manila. Calabarzon is composed of Sultan Kudarat, Sarangani, and Gen- and hospitable people, the Philippines the Southern Luzon provinces of Cavite, eral Santos City. This economic growth makes a very attractive tourist destina- Laguna, Batangas, Rizal, Quezon, and corridor contains abundant agriculture tion. America, Japan, and Korea are the Aurora. The region has been transformed and natural resources, as well as mod- Philippines’ major tourist markets, and from an agro-base rural economy to a ern physical infrastructure including an the Chinese market has been cited as the thriving industrial/urban-based economy. international airport. The area also offers fastest-growing. While other prime tour- Calabarzon is now the site of at least access to nearby ASEAN growth markets. ist destinations in Asia may have bigger 65 major private industrial estates and The Philippine, US, and Japanese govern- volume of tourists, the Philippines attracts Ecozones (see pages 33 to 35 of the Chap- ments have allocated US$200 million for “quality tourists”—family vacationers ter How to Operate in the Philippines for the development of projects in this area. who spend more and stay longer in the a discussion on Ecozones). country. Infrastructure and Build-Operate- Cagayan de Oro-Iligan Corridor Transfer Projects Tourism-related business recorded a 20% Lying along the northern coast of Mind- growth in 2005, and tourist arrivals were anao island, the Cagayan-Iligan Corridor Economic reforms have allowed the estimated to have reached 2.6 million. unites the two cities of Cagayan de Oro private sector, particularly foreign Given these figures, the DOT is hoping to in Misamis Oriental, an agro-industrial investors, to have wider participation in attract at least 3 million tourists by 2006. center, and Iligan City in Lanao del Norte, almost every aspect of the economy. In an industrial hub. The corridor abounds addition to the government’s revitalized Under the 2005 Investment Priorities in the supply of hydroelectric power and privatization program, the landmark BOT Plan (IPP) guidelines, hospital services, is the location of several industrial plants. legislation redefined government’s role medical and dental services, nursing care, It is being promoted as an ideal location by prescribing the legal and administra- rehabilitation and recuperation services, for investments in metals (engineering tive framework for private investment retirement villages, and related services and metalworking); construction and in infrastructure and other development located in identified medical zones or out- infrastructure; oleochemicals and basic projects—areas previously exclusive to side Metro Manila when catering mainly chemicals; and agriculture/aquaculture public investments. to foreigners and nonresidents are eligible and agro-forestry. for registration with the BOI and the Phil- RA No. 7718 or the amended BOT Law ippine Economic Zone Authority (PEZA). North Quad enables the private sector to participate in Medical tourism facilities and retirement The Northwestern Luzon Growth Quad- the financing, construction, operation and villages may qualify for pioneer status. rangle or North Quad integrates the maintenance of infrastructure projects. The government is promoting the Philip- coastal provinces of Ilocos Norte, Ilocos The Private Sector Participation Program pines as a major destination for medical Sur, La Union, Pangasinan, and the inland is regarded as one of the success stories tourists. areas of Abra and Southern Benguet at in infrastructure privatization not only by the northwestern tip of Luzon. Due to its private companies but also by multilateral Regional Growth Areas location, it is considered as an ideal gate- agencies and other countries. way for trade with China, Taiwan, Hong To promote regional development, the Kong, Korea, Japan, and the ASEAN. government has identified 11 growth The region is envisioned to be an indus- networks/corridors scattered around the trial, financial, and tourist haven. Possible country that are currently under various investment areas include the development stages of implementation. Four of these and expansion of existing infrastructure, areas are in the investment promotion agri-industrial estates, and tourism stage. centers.

Ilocos Norte Toyota Sta. Rosa (Laguna) Special Economic Zone II Fort Ilocandia Tourism Economic Zone YTMI Realty Special Economic Zone Abra Batangas Abra Agro-Industrial Center Cocochem Agro-Industrial Park Benguet First Batangas Industrial Park Kelly Special Economic Zone First Philippine Industrial Park Baguio First Philippine Industrial Park (Expansion I) Baguio City Economic Zone First Philippine Industrial Park (Expansion II) Pangasinan Light Industry & Science Park III Pangasinan Industrial Park II Lima Technology Center (Lipa) Ilocos Norte Zambales Lima Technology Center (Malvar) Subic Shipyard Special Economic Zone Philtown Technology Park Abra Tarlac RLC Special Economic Zone Central Technopark South Coast Ecozone Luisita Industrial Park Tabangao Special Economic Zone Benguet Tarlac Provincial Information Technology Park II Camarines Norte Pampanga Global Industrial/Maritime Complex Baguio Angeles Industrial Park Albay Pangasinan TECO Special Economic Zone Legaspi City Special Economic Zone Zambales Bulacan Rapu-Rapu Ecozone Tarlac Agus Industrial Estate Palawan Bataan Rio Tuba Export Processing Zone Pampanga Bulacan Bataan Economic Zone Aklan Bataan Rizal Plastic Processing Center SEZ Boracay Eco-Village Resort Tourism NCR PNOC Petrochemical Industrial Estate Economic Zone Cavite Laguna Camarines Norte Subic Hermosa Cyber City Negros Occidental Camarines Sur Rizal San Carlos Ecozone Batangas Eastbay Arts, Recreational and Tourism Zone Cebu Albay Robinsons Big R Supercenter Cainta Junction Cebu Light Industrial Park National Capital Region Cebu South Reclamation Project Amkor Technology Special Economic Zone Mactan Economic Zone Macroasia Ecozone Mactan Ecozone II Manila Harbour Center MRI Ecozone Philippine International Air Terminals Co. SEZ New Cebu Township Victoria Wave Special Economic Zone Polambato-Bogo Economic Zone Cavite West Cebu Industrial Park Aklan Leyte Cavite Economic Zone Cavite Economic Zone (Annexation) Cavite Eco-Industrial Estate Negros Cebu Cavite Productivity Economic Zone Palawan Occidental Daiichi Industrial Park EMI Special Economic Zone Negros Surigao del Fil-Estate Industrial Park Oriental Norte Filoil Special Economic Zone Agusan del First Cavite Industrial Estate Norte Gateway Business Park Misamis Oriental Gateway Business Park I Cagayan de Oro Island Cove Tourism Economic Zone People’s Technology Complex Agusan del Sur Laguna Lanao del Davao del Norte Norte Calamba Premiere International Park Leyte Carmelray Industrial Park Amihan Woodlands Township Zamboanga Carmelray Industrial Park II Eastern Visayas Regional Growth Center South Cotabato Carmelray International Business Park Leyte Industrial Development Estate Filinvest Technology Park Calamba Leyte Information Communication Technology Park Greenfield Automative Park Zamboanga Laguna International Industrial Park Ayala de Zamboanga Industrial Park Laguna Technopark I Misamis Oriental Laguna Technopark II Jasaan Misamis Oriental Ecozone Laguna Technopark III Lanao del Norte Laguna Technopark IV CIIF Agro-Industrial Park Light Industry & Science Park I Davao del Norte Light Industry & Science Park II Samal Casino Resort Toyota Sta. Rosa (Laguna) Special Economic Zone First Oriental Business and Industrial Park

1. Basic rights and guarantees to investors a. Guarantee against expropriation b. Guarantee against losses due to: (1) Nationalization South Cotabato (2) Damage caused by war Sarangani Economic Development Zone SRC Calumpang Economic Development Zone c. Remittance of foreign exchange Agusan del Norte (1) Earnings, profit, and dividends (on investments) Nasipit Agusan del Norte Industrial Estate (2) Principal and interest on foreign loans Tubay Agri-Processing Center Agusan del Sur (3) Others Shannalyne Technological and Environmental Park d. Repatriation of capital Surigao del Norte Philnico Industrial Estate 2. Protection schemes and priorities given to investors and aliens IT PARKS/BUILDINGS a. Employment of aliens National Capital Region b. Patent protection 6750 Ayala Avenue Building c. Protection against unjust competition Convergys IT Building Diliman IT Building (1) Import competition E-Square IT Park (2) Local competition through imposition of barriers to entry in the industry Eastwood City CyberPark EDSA Central IT Center Eugenio Lopez Jr. Communication Center 3. Exemptions from or reduction of taxes and tariff duties Exportbank Plaza Building Gateway Callcenter Office a. Exemption from corporate income taxes Gateway Office Tower GT Tower International (1) Tax holiday years and conditions MSE Center (2) Reduction in income tax rate and preferential tax treatment Multinational Bancorporation Centre (3) Applicability to other income Northgate Cyber Zone Pacific IT Center b. Exemption from or reduction of taxes on imported capital goods PBCom Tower c. Exemption from or reduction of taxes on imported raw materials People Support Center IT Building Philamlife IT Building d. Exemption from other taxes and fees PSMT IT Building RCBC Plaza Information Technology Park Red Flower Company, Inc. IT Building 4. Deductions from taxable corporate income Riverbank Center ICT Bldg. 1 Robinsons Cyberpark a. Accelerated depreciation allowance Robinsons Equitable Tower b. Carryforward of loss Robinsons Place Novaliches SM Cyberzone 1 c. Other deductions SM iCity Summit One Office Tower The Enterprise Center 5. Reduction from corporate income taxes Unionbank Plaza UP Science and Technology Park (South) a. Tax credit on domestic capital equipment Laguna b. Other tax credits Allegis Information Technology Park Camarines Sur Camarines Sur Information Technology Park 6. Special incentives Negros Oriental Federated IT Park a. To multinational companies Cebu Arcenas Estate IT Building b. To exporters Asia Town Information Technology Park HDMF-WTCI IT Tower 7. Government assistance to investors Innove IT Plaza JY Square IT Center KRC IT Building a. Joint venture brokerage Cagayan de Oro b. Processing of application and other forms of assistance Pueblo de Oro IT Park

Maritime Industry comply with the age limit requirement at the time of acquisition counted from For an archipelagic country of more than the date of the vessel’s original com- 7,000 islands, setting up and maintaining missioning a viable transport infrastructure and pro- • Exemption from value-added tax on viding maritime services are difficult to the importation of life-saving equip- achieve. To address the issue, the government, safety and rescue equipment, SECTION ment is propelling the maritime industry and communication and navigation as an effective and efficient logistics sup- safety equipment, steel plates and port and services sector through the enact- other metal plates including marine- ment of RA No. 9295, otherwise known grade aluminum plates, used for trans- as the Domestic Shipping Development port operations Act of 2004 and its complementary law, • Accelerated depreciation for fixed RA No. 9301, otherwise known as the assets, provided that the domestic Overseas Shipping Development Act. shipping operator notifies the BIR at the beginning of the depreciation RA No. 9295 aims to empower the devel- period. opment of Philippine domestic shipping, shipbuilding, ship repair, and shipbreaking RA No. 9301 or the Overseas Shipping through investment incentives, deregula- Development Act, on the other tion of the rates/operation, enhancement hand, which amended RA No. 7471, SPECIAL of safety standards, compulsory insurance the Philippine Overseas Shipping coverage for passengers and cargoes, Development Act, is expected to reasonable fines and penalties, and other “stimulate private sector investment in constructive measures for a strong and Philippine overseas shipping that can competitive domestic merchant fleet. enhance the competitiveness of the country’s merchant fleets and give them Under the said Act, a system of invest- better access to cargoes worldwide.” ment incentives which shall be uniformly The amendatory law is also expected to applied in domestic shipping, shipbuild- encourage local ship owners and operators ing, and ship repair industry includes the to increase their investments by acquiring following: more vessels that will carry exported and imported products, and thus result in for- • Exemption from value-added tax on eign exchange savings. the importation and local purchase of passenger and/or cargo vessels of 150 Foreign investment in a Philippine ship- tons and above, including engine and ping enterprise is allowed up to 40% of spare parts of said vessels, provided the capital of such enterprise. that the vessels to be imported shall

Mining Industry

The Philippine Mining Act and Its Affirmation by the Supreme Court

While the 1987 Constitution provided that the exploration, development, and utilization of natural resources shall be under the full control and supervision of the State, it also allowed foreign-owned corporations to provide technical or financial assistance for large-scale exploration, development, and utilization of minerals. Congress then passed RA No. 7942 or the Philippine Mining Act of 1995 and, together with Presidential Decree (PD) No. 1586 or the Philippine Environmental Impact Statement (EIS) System, the current Philippine policy framework for mining was put in place.

RA No. 7942 is considered as the primary 7942 guarantees the mining contractor to • Pollution control devices shall not be tool to revitalize the mining industry. repatriation of investments, remittance of subject to real property and other tax The purpose is clear: to provide the posi- its earnings, freedom from expropriation, assessments tive and competitive climate for mining requisition of investment, and confidenti- • A net operating loss without the ben- investments with equal considerations for ality of information supplied. efit of incentives incurred in any of both social and environmental responsi- the first 10 years of operations may bilities. Under the Act, the government Further, it provides a regulatory structure be carried over as a deduction from was authorized to enter into three major that offers the following benefits: taxable income for the next five years modes of mining rights: Exploration immediately following the year of Permit (EP), Mineral Agreement (MA), • Contractors in mineral agreements such loss and Financial or Technical Assistance and financial or technical assistance • Income tax accelerated depreciation Agreements (FTAA).40 agreements shall be entitled to the • Option to deduct exploration and applicable fiscal and non-fiscal incen- development expenditures accumu- Apart from the basic rights and guaran- tives as stated under the Omnibus lated as cost for purposes of arriving tees provided in the Constitution, RA No. Investments Code at the taxable income

40 An FTAA may be entered into for the exploration, development and utilization of gold, copper, nickel, chromite, lead, zinc, and other minerals, provided, that no FTAAs may be granted with respect to cement raw materials, marble, granite, sand and gravel, and construction aggregates.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 27 ©2006 SGV & Co. All rights reserved. 28 SPECIAL SECTION managerial expertiseinthecreationand logical andtechnicalknow-how, and contractor providesthecapital,techno fact servicecontractswheretheforeign technical orfinancialassistancearein held thatagreementsinvolvingeither unconstitutional, theSupremeCourthas Although initiallychallengedforbeing the Constitution. referred toinSection2of Article XIIof stitutional insofarastheyrelate toFTAAs through FTAAs, were thusdeclaredcon which allowedtheentryofforeign firms Implementing RulesandRegulations, prise. The Mining Act of1995andits and supervisionovertheentireenter Bureau, activelyexercisesfullcontrol the DENRandMinesGeosciences tive enterprise. The government,through operation ofthelarge-scale mining/extrac Agreement Assistance Technical Financial or Agreement Mineral Permit Exploration Type of Mining Right Philippines, beyond500meters Offshore, intheentire Philippines: 16,200 Onshore, intheentire 8,100 Onshore, inany oneprovince: from themean low tide: 81,000 Philippines, beyond500meters Offshore, intheentire Philippines: 32,400 Onshore, intheentire 16,200 Onshore, inany oneprovince: Offshore: 405,000 Combination of Onshore/ Offshore: 324,000 Onshore: 81,000 from themean low tide: 40,500 Corporations (has.) Maximum Area for - - - - in theareasof public productionand The AFMA seeksrealpolicy changes push theruraleconomyforward. public investmentstreamnecessary to policy environmentandpinpoints the and the AFMA definesthenecessary 1997. Policyandfundingarekeyissues, Fisheries Modernization Act (AFMA)of ment iscontainedinthe Agriculture and The blueprintforthesector’s advance agriculture andfisheriessector. cultivate amodernandsociallyequitable government hasmadeaspecialeffort to new economytotheruralcountryside, In abidtoextendtheopportunitiesof Industry Fisheries and Agriculture exceeding 25years for another term not 25 years; renewable of 6years for amaximum term 2 years; renewable exceeding 25years for another term not 25 years; renewable Term owned by Filipinocitizens least 60%of thecapital is ciations, cooperatives, at asso partnerships, In caseof corporations, Filipino citizen Foreign-owned corporation owned by Filipinocitizens least 60%of thecapital is ciations, cooperatives, at asso partnerships, In caseof corporations, Filipino citizen Foreign-owned corporation owned by Filipinocitizens of thecapital of which is cooperative, at least 60% partnership, association or In caseof corporation, Filipino citizen Person Qualified - - - Special Section

marketing services, training, education, Electric Power Industry same time, it is flinging the door open and industrialization. As for funding, the to new industry players and creating a AFMA confers an initial PhP20 billion- With the enactment of the Electric Power wholesale electricity spot market. The budget and PhP17 billion annually for the Industry Reform Act (EPIRA) on June 26, resulting market competition is expected next six years. An added boost comes in 2001, the Philippine electricity industry to deliver quality, reliable, and affordable the form of trade and fiscal incentives, has shown it can change. The EPIRA, electricity to both industrial and house- particularly the exemption of all agricul- which came into force after seven years hold consumers and ratchet up demand tural and fishery enterprises from tariffs of being the subject of much debate in by around 9% per year through the end of and duties in the importation of specific Congress, set in motion the deregulation the decade. Some 10,000 megawatts of types of input. of the power industry and the breakup and newly installed electric capacity will be privatization of state-owned enterprises. needed, only half of which will be sup- The government has also set out to draw plied by current contracts. The remainder private sector investments and participa- The EPIRA required the state-owned util- will be filled once the market deregulates. tion to maximize the AFMA’s potential. ity National Power Corporation (Napocor) Already, infrastructure developments are to dismantle its vertically integrated assets The government is shunting acknowl- being shifted from developed mega-cent- into smaller subsectors such as generation, edged geographical difficulties and ers like Metro Manila, to the designated transmission, distribution, and supply in targeting full electrification of the archi- regional growth centers, particularly for preparation for eventual privatization. As pelago by 2006. Linking the country’s the identified Strategic Agriculture and of 2004, six power plants had been priva- three major power grids (Luzon, Visayas, Fisheries Development Zones. Roads tized. and Mindanao) and setting up separate and highways leading to and from devel- local systems around small generating oping regions are being constructed, The EPIRA is creating the necessary plants (where it is not economical to link rehabilitated, or upgraded. Among these conditions for the fulfillment of its three small islands’ grids into the national grid) projects are the Pan-Philippine Highway main objectives of developing indigenous is an elaborate venture. Opportunities for in several parts of Cagayan Valley and resources, slashing electricity costs, and growth abound in this front. the Camarines provinces, the Sto. Tomas- encouraging foreign investment. At the Lipa Expressway, the Pan-Philippine Highway from Camarines to Sorsogon and from Agusan del Norte to Compostela Valley, arterial roads in Negros, North Cebu, Samar, the Zamboanga peninsula, and the General Santos-Davao-Bukidnon corridor, inter-urban expressways such as the North Luzon Expressway and the South Expressway, the Southern Tagalog Arterial Road (STAR) or Batangas Expressway (Lipa-Batangas City), and the Subic-Clark-Tarlac Expressway.

Opportunities for growth and diversifica- tion are expected to be tied in with the implementation of the AFMA, and it is hoped that the agriculture sector will chalk up real and important gains in the immediate future.

Investment Policy and Laws Omnibus Investments Code of 1987 (EO No. 226), as amended by RA General Policy on Investments No. 7918

Investments are most welcome in the Implemented by the BOI, the Omnibus Philippines. In general, anyone, regard- Investments Code of 1987 provides less of nationality, is welcome to invest a comprehensive set of incentives for in the country. For most economic activi- local and foreign enterprises engaged in ties, restriction on foreign investments is activities considered by government as on the extent of ownership allowed for a high priority for national development. particular activity. To qualify for BOI incentives, an Philippine laws and regulations guarantee enterprise must engage in an area of the basic rights of all investors and enter- activity listed in the current Investment prises, including the following: Priorities Plan (IPP).

• Freedom from expropriation without If not listed in the IPP, an enterprise is just compensation also entitled to incentives if either of the • Right to remit profits, capital gains, and following criteria is met: dividends within the guidelines of the BSP, the country’s monetary authority • At least 50% of production is for • Right to remit the proceeds of the liqui- export (for Filipino-owned enterprises) dation of investments • At least 70% of production is for • Right to obtain foreign exchange to export (for enterprises with more than meet principal and interest payments 40% foreign equity) on foreign obligations Investment Activities under the 2005 There are several important laws gov- IPP erning investments in the Philippines. Presently, there are moves to consolidate The IPP form, formulated annually by the all the incentive laws into one law to BOI and approved by the President, lists rationalize the grant and administration of the priority activities for investment. fiscal and nonfiscal incentives given by various incentive bodies. The 2005 IPP is focused on the sectors identified in the 2004-2010 Medium-Term The major investment laws are discussed Philippine Development Plan (MTPDP) as follows. of the President. The 2005 IPP sup-

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 30 ports government objectives to promote globally competitive economic activities, build up the capabilities of small and medium enterprises (SME), generate jobs, provide food, deliver basic services, and spur countryside development.

The 2005 IPP identifies 11 preferred activities for investment, namely: health- care and wellness products and services; various electronics services; production and/or manufacture of motor vehicle parts; exploration, development, and/or utilization of energy sources; shipbuilding and shipping operations; manufacture by the Autonomous Region of Muslim Newly registered pioneer and of fine jewelry and costume jewelry; pro- Mindanao (ARMM). nonpioneer enterprises may avail of duction of fashion garments as endorsed a bonus year in each of the following by the DTI; and expansion of infrastruc- Investments in these areas are classified cases if: ture activities to include business parks, as either pioneer or nonpioneer activities. mass housing, mass transport involving • Indigenous raw materials used are railway system, among others. The 2005 at least 50% of the total cost of raw IPP also retained the following activities: Incentives Available to BOI-Registered materials for the preceding years commercial production and commercial Enterprises • The ratio of total imported and processing of agricultural and fishery domestic capital equipment to products; ICT; and tourism. Fiscal incentives number of workers does not exceed US$10,000 to one worker Other preferred activities include other • Income tax holiday. From the start • The net foreign exchange savings export activities not identified above, of commercial operations, newly or earnings amount to at least industry clusters supporting the preferred registered pioneer projects are exempt US$500,000 annually during the first and other preferred activities and manda- from income taxes for six years, three years of operation tory inclusions in the IPP under special nonpioneer firms for four years, laws, and modernization activities. expansion or modernization projects • Additional deduction of labor for three years (for incremental expenses from taxable income There is also a special listing of econom- sales revenue/volume), and new or • Tax credit for taxes and duties on raw ic activities determined for promotion expansion projects in less developed materials used in the manufacture, and eligible for investment incentives areas for six years. processing, or production of export products

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 31 • Additional deduction of necessary association, it must be organized under and major infrastructure expenses Philippine laws and at least 60% of The key features of the Foreign from taxable income its capital is owned and controlled by Investments Act (FIA) are the following: • Exemption from taxes and duties on Philippine citizens. • No restriction on 100% foreign imported supplies and spare parts 3. If a corporation, it must be organized ownership of export enterprises for consigned or imported equipment under Philippine laws and at least • No restriction on foreign ownership of (Until June 6, 2006 per EO No. 313) 60% of the capital stock outstanding domestic enterprises unless in areas • Exemption from wharfage dues and and entitled to vote is owned and held included in the Foreign Investments any export tax, duty, impost, and fee by Philippine nationals, and at least Negative List (FINL) or when paid-up • Exemption from local business taxes 60% of the members of the Board capital is less than US$200,000 or its for four or six years from date of BOI of Directors are Philippine citizens. equivalent registration. If the corporation does not possess • Waiver of FINL restriction if 60% output the required degree of ownership by is exported Nonfiscal incentives Philippine nationals, the following circumstances must be satisfactorily • Simplification of customs procedures. established: Customs procedures are simplified for the importation of equipment, spare • It proposes to engage in a pioneer parts, raw materials, and supplies, project which cannot be readily and the export of products of BOI- and adequately filled by Philippine registered firms. nationals as determined by BOI, or • Unrestricted use of consigned the applicant will export at least 70% equipment. BOI-registered enterprises’ of its total production. use of consigned equipment is • It obligates itself to attain the status unrestricted provided a re-export bond of a Philippine national within 30 is posted. years from date of registration, but a • Access to bonded manufacturing and registered enterprise which exports warehouse system 100% of its total production need not • Employment of foreign nationals. comply with this requirement. Foreign nationals may be employed • The pioneer area it will engage in in supervisory, technical, or advisory is not within the activities reserved positions for five years from a by the Constitution or other laws to registered project's registration, Philippine citizens or corporations extendible for limited periods to be owned and controlled by citizens. determined by the BOI. The positions of president, general manager, and Foreign Investments Act (FIA) of treasurer, or their equivalents, of 1991 (or Republic Act No. 7042 as foreign-owned registered firms may amended by RA No. 8179) be retained by foreign nationals for a longer period. The Foreign Investments Act (FIA) of 1991 liberalized the entry of foreign Qualifications for BOI-Registered investments into the Philippines. Its Enterprises passage marked the end of decades of protectionism for local business. 1. If a natural person, he or she must be a Philippine citizen. Under the FIA, foreign companies are 2. If a partnership or any other generally allowed to conduct business

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 32 in the Philippines subject to restrictions The types of Ecozones are as follows: by professionals and workers involved in spelled out in the Foreign Investments IT Enterprises. Negative List (FINL). The FINL is a Industrial Estates (IEs) are tracts of land short list of areas of economic activities developed for the use of industries. They Each Ecozone is to be developed as an where foreign investments are restricted have basic infrastructure, such as roads, independent community with minimum or limited (see Table 1 on page 34 for the water and sewage systems, pre-built government interference. It shall adminis- current FINL). It has two components: factory buildings, and residential housing. ter its own economic, financial, industrial, and tourism development without help List A contains areas of activities reserved Export Processing Zones (EPZs) are from the national government. It shall to Philippine nationals by mandate of the special IEs whose locator companies are also provide adequate facilities to estab- Constitution and other specific laws. mainly export-oriented. EPZ incentives lish linkages with surrounding communi- include tax- and duty-free importation ties and other entities within the country. List B contains the areas of activity and of capital equipment, raw materials, and enterprises where foreign ownership is spare parts. Enterprises Qualified to Locate in the limited pursuant to law. Among these Ecozone are defense- or law enforcement-related Free Trade Zones are areas in nearby activities and those with implications ports of entry, such as seaports and The following describes each type of on public health and morals. This list airports. Imported goods may be Ecozone enterprise. includes small- and medium-sized unloaded, repacked, sorted, and domestic market enterprises with paid-in manipulated without being subjected to • Export Enterprise – manufactures, equity capital less than the equivalent of import duties. However, if these goods assembles, or processes products which US$200,000 unless they involve advanced are moved into a non-free trade zone, they are 100% exported, unless a lower technology as certified by the Department will be subjected to customs duties. percentage is approved by PEZA. of Science and Technology or they • Free Trade Zone Enterprise – im- employ at least 50 direct employees, in Tourism Ecozone refers to a tourism ports and markets tax- and duty-free which case a minimum paid-up capital of development zone/tourism estate goods within the free trade area in the US$100,000 is allowed. declared as a special economic zone Ecozone. Goods brought outside the suitable for development into an free trade area will be subject to cus- Special Economic Zone Act of 1995 integrated resort complex with prescribed toms and tariff duties. (RA No. 7916, as amended by RA carrying capacities of tourist facilities • Service Enterprise – is engaged in any No. 8748) and activities, such as, but not limited one or a combination of the following to, sports and recreation centers, activities: customs brokerage, trucking/ This law was passed in 1995 to accomodations, convention and cultural forwarding, janitorial, security, insur- encourage economic growth through the facilities, food and beverage outlets, ance and/or banking, consulting, or any development of special economic zones commercial establishments and other such service approved by PEZA. called Ecozones. PEZA implements this special interest and attraction activities/ • Domestic Market Enterprise – manu- law and also grants incentives to qualified establishments, and provided with the facturer, assembler, or processor of enterprises that locate in the Ecozone. necessary infrastructure. goods which continually fails to export at least 50% of its total output for a Ecozones are areas earmarked by IT Parks/IT Buildings are special period of three years if majority-owned the government for development economic zones for IT projects and by Filipinos and at least 70% if major- into balanced agricultural, industrial, services. An IT Park is an area or an ity-owned by foreign nationals. commercial, and tourist/recreational IT building whole or part of which • Pioneer Enterprise – falls under any regions (see pages 24-25of the Chapter has been developed into a complex of the following conditions: Why You Should Invest in the Philippines capable of providing infrastructures and • Manufactures, processes, or produc- for a partial list of approved/proclaimed other support facilities required by IT es goods not produced in a commer- Ecozones). Enterprises including amenities required cial scale in the country

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 33 Table 1 Sixth Regular Foreign Investments Negative List Due to limitations set by the Constitution and other specific laws, the following industries are fully or partly nationalized under the Sixth Foreign Investments Negative List:

LIST A: Foreign Ownership is Limited by Mandate of the Constitution and Specific Laws

No Foreign Equity Up to 20% Foreign Equity 4. Ownership/establishment and administration 1. Mass media except recording (Art. XVI, 1. Private radio communications network (RA No. of educational institutions (Art. XIV, Sec. 4 of Sec. 11 of the Constitution, Presidential 3846) the Constitution) Memorandum dated May 4, 1994) 5. Culture, production, milling, processing, 2. Practice of all professions Up to 25% Foreign Equity trading, except retailing, of rice and corn and a. Engineering 1. Private recruitment, whether for local or over- acquiring, by barter, purchase or otherwise, b. Medicine and allied professions seas employment (Art. 27 of PD No. 442) rice and corn and the by-products thereof c. Accountancy 2. Contracts for the construction and repair of (Sec. 5 of PD No. 194; Sec. 15 of RA No. 8762) d. Architecture locally-funded public works (Sec. 1 of Com- 6. Contracts for the supply of materials, goods e. Criminology monwealth Act No. 541, Letter of Instruction No. and commodities to a government-owned or f. Chemistry 630) except: controlled corporation, company, agency, or g. Customs brokerage a. Infrastructure/development projects cov- municipal corporation (Sec. 1 of RA No. 5183) h. Environmental planning ered in RA No. 7718 7. Project proponent and facility operator of a i. Forestry b. Projects which are foreign-funded or-as- BOT Project requiring a public utilities fran- j. Geology sisted and required to undergo international chise (Art. XII, Sec. 11 of the Constitution; Sec. k. Interior design competitive bidding (Sec. 2(a) of RA No. 7718) 2(a) of RA No. 7718) l. Landscape architecture 3. Contracts for the construction of defense-re- 8. Operation of deep sea commercial fishing ves- m. Law lated structures (Sec. 1 of CA No. 541) sels (Sec. 27 of RA No. 8550) n. Librarianship 9. Adjustment companies (Sec. 323 of PD No. o. Marine desk officers Up to 30% Foreign Equity 612 as amended by PD No. 1814) p. Marine engine officers 1. Advertising (Art. XVI, Sec. 11 of the Constitu- 10. Ownership of condominium units where the q. Master plumbing tion) common areas in the condominium project are r. Sugar technology co-owned by the owners of the separate units s. Social work Up to 40% Foreign Equity or owned by a corporation (Sec. 5 of RA No. t. Teaching 1. Exploration, development, and utilization of 4726) u. Agriculture natural resources (Art. XII, Sec. 2 of the Consti- v. Fisheries tution) Up to 60% Foreign Equity 3. Retail trade enterprises with paid-up capital 2. Ownership of private lands (Art. XII, Sec. 7 of the of less than US$2,500,000 (Sec. 5 of RA Constitution; Ch. 5, Sec. 22 of CA 141; Sec. 4 of 1. Financing companies regulated by the Securi- No. 8762) RA No. 9182) ties and Exchange Commission (SEC) (Sec. 6 4. Cooperatives (Ch. III, Art. 26 of RA No. 6938) 3. Operation and management of public utilities of RA No. 5980 as amended by RA No. 8556) 5. Private security agencies (Sec. 4 of RA No. (Art. XII, Sec. 11 of the Constitution; Sec. 16 of 2. Investment houses regulated by the SEC (Sec. 5487) CA No. 146) 5 of PD No. 129 as amended by RA No. 8366) 6. Small-scale mining (Sec. 3 of RA No. 7076) 7. Utilization of marine resources in archipe- LIST B: Foreign Ownership is Limited for Reasons of Security, Defense, Risk to Health and lagic waters, territorial sea, and exclusive Morals and Protection of Small-and-Medium Scale Enterprises economic zone as well as small-scale utilization of natural resources in rivers, lakes, Up to 40% Foreign Equity 5. All forms of gambling, e.g., race track op- bays, and lagoons (Art. XII, Sec. 2 of the 1. Manufacture, repair, storage, and/or distribu- eration (RA No. 7042 as amended by RA No. Constitution) 8. Ownership, operation, and management of tion of products and/or ingredients requiring 8179) cockpits (Sec. 5 of PD No. 449) Philippine National Police (PNP) clearance 6. Domestic market enterprises with paid-in 9. Manufacture, repair, stockpiling and/or 2. Manufacture, repair, storage, and/or distribution equity capital of less than the equivalent of distribution of nuclear weapons (Art. II, Sec. of products requiring Department of National US$200,000 (RA No. 7042 as amended by RA 8 of the Constitution) Defense clearance No. 8179) 10. Manufacture, repair, stockpiling, and/or distribution of biological, chemical and 3. Manufacture and distribution of dangerous 7. Domestic market enterprises which involve radiological weapons, and anti-person- drugs (RA No. 7042 as amended by RA No. advanced technology or employ at least 50 nel mines (various treaties to which the 8179) direct employees with paid-in-equity capital Philippines is a signatory and conventions 4. Sauna and steam bathhouse, massage clinics, of less than the equivalent of US$100,000 (RA supported by the Philippines) and other like activities regulated by law be- No. 7042 as amended by RA No. 8179) 11. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of RA No. 7183) cause of risks posed to public health and morals (RA No. 7042 as amended by RA No. 8179)

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 34 • Uses a design, formula, scheme, Incentives Available to Ecozone Bases Agreement between the Philippines method, or process which is new and Enterprises and the United States of America, and untried in the Philippines within the territorial jurisdiction of the • Produces nonconventional fuels or The incentives that are available to Municipalities of Morong and Hermosa, manufactures equipment that utilizes Ecozone enterprises, depending on the Province of Bataan. nonconventional sources of energy nature of their activities, are: • Develops areas for agri-export The SSEFZ is a former US military facil- processing development • Tax- and duty-free importation of ity converted into civilian use. The vision • Given such a status under the annual capital equipment, raw materials, spare for the 67,000-hectare Subic Bay Freeport IPP approved by the President. parts, supplies, breeding stocks, and (SBF) is to create a self-sustaining indus- • Utilities Enterprise – contracted to genetic materials trial, commercial, financial, and invest- provide light and power, water supply • ITH of four years for nonpioneer ment center in addition to its international and distribution, communications, and projects or six years for pioneer seaport, which can anchor 600 ships. transportation systems in the Ecozone. projects • Facilities Enterprise – contracted • A special tax rate of 5% of modified Registered enterprises in the SSEFZ enjoy to build and maintain necessary gross income in lieu of all national and various investment incentives including infrastructure such as warehouses, local taxes after the ITH access to first-class commercial, residen- buildings, road networks, ports, • Tax credit for import substitution tial, and tourist facilities. A registered sewerage and drainage systems, and • Exemption from wharfage dues, export SBF enterprise is a business enterprise other facilities considered as necessary tax, and import fees organized and existing under Philippine or by PEZA in the development and • Tax credit on domestic capital foreign laws, registered with the SBMA, operations of the Ecozone. equipment, breeding stocks, and and located within the SBF Zone. • Tourism Enterprise – operates sports genetic materials and recreation centers, accomodations, • Additional deduction for incremental Incentives to entities registered with the convention and cultural facilities, and labor expenses and training expenses SSEFZ include: other special interest and attraction • Unrestricted use of consigned activities/establishments with foreign equipment • Tax- and duty-free importation of raw tourists as primary clientele. • Permanent resident status for foreign materials for manufacture and actually • Ecozone Developer/Operator– investors and immediate family manufactured into finished products, develops, operates, and maintains • Employment of foreign nationals and on capital goods and equipment the Ecozone, all component sectors • Remittance of earnings without prior needed for the business operation (i.e., IEs, EPZs, Free Trade Zones, approval from the BSP within the zone. and Tourist Ecozones) and all related • Exemption from local business taxes. • Exemption from national and local infrastructure (roads, light and power taxes. In lieu thereof, SBF enterprises systems, drainage facilities, etc.). Bases Conversion and Development pay a tax of 5% of gross income • IT Enterprise – provides or Act of 1992 (RA No. 7227) earned, which refers to gross sales or operates IT services. IT is the revenues derived from any business collective term for the various Passed in 1992, this law created the Bases activity within the zone, less cost of technologies involved in processing Conversion Development Authority, production or direct cost of services as and transmitting information, which the Subic Bay Metropolitan Authority well as other costs specifically deter- include computing, multimedia, (SBMA), and the Subic Special Economic mined in regulations to be material in telecommunications, microelectronics, and Freeport Zone (SSEFZ) consisting of the operation of the business. and their interdependences. Also the City of Olongapo and the Municipality called “informatics” or “telematics,” of Subic, Province of Zambales, the lands Aside from the aforementioned enact- the term now more often refers to the occupied by the Subic Naval Base and ments, several laws further encourage or convergence of various information- its contiguous extensions as embraced, enhance investments in specific sectors. based, broadcast, and mass-media covered, and defined by the 1974 Military Some of these laws are discussed in the communication technologies. succeeding pages.

Kalookan City Requirements of RHQs, ROHQs, • Serving as a supply depot for the and RWs (RA No. 8756) storage, deposit, safekeeping of spare parts, components, semi-finished Valenzuela RA No. 8756, signed into law on products, and raw materials including Navotas Quezon City the packing, covering, putting up, Malabon November 23, 1999, provides, among Kalookan City others, the rules and guidelines on marking, labeling, and cutting or (South) the establishment and maintenance of altering to customer's specification, multinational companies' Regional or mounting and/or packaging into kits or City of San Juan Manila Area Headquarters (RHQs), Regional marketable lots Mandaluyong Pasig City City Operating Headquarters (ROHQs), and • Filling up transactions and sales Makati City Regional Warehouses (RWs). made by their head offices or parent companies Pasay City Taguig ROHQs are branches established in the • Serving as a storage or warehouse of Philippines by multinational companies goods purchased locally by the home Parañaque that are allowed to derive income by office for export abroad. Las Piñas providing services to their affiliates in the region. Tax Treatment and Incentives of RHQs

Muntinlupa and ROHQs RHQs are branches established in the Philippines by multinational companies RA No. 8756 provides favorable tax and whose headquarters do not earn or treatment and other nonfiscal incentives Metro Manila covers the 12 cities of Manila, Kalookan, Las Piñas, Makati, Mandaluyong, Marikina, Muntinlupa, derive income from the Philippines. for both the RHQs/ROHQs and their non- Parañaque, Pasay, Pasig, Quezon, and Valenzuela, and the Filipino and Filipino employees. Some of 5 municipalities of Malabon, Navotas, Pateros, San Juan, Authorized Activities of RHQs, these incentives are listed in Table 2. and Taguig. ROHQs, and RWs Tax Treatment of Foreign and Filipino RHQs act as supervisory, communica- Employees of RHQs and ROHQs tions, and coordinating centers for their subsidiaries, affiliates, and branches in the Expatriate employees of RHQs and region. ROHQs will enjoy the following incentives: ROHQs, on the other hand, are allowed • Multiple-entry visa to perform the following functions: • 15% preferential tax on gross • General administration and planning compensation income • Business planning and coordination • Tax- and duty-free importation of • Sourcing/procurement of raw materials personal and household effects and components • Travel tax exemption • Corporate finance advisory services • Marketing control and sales promotion The 15% preferential tax is also available • Training and personnel management to Filipinos employed in an RHQ/ROHQ • Logistics services who occupy the same positions as the • Research and development services, non-Filipino employees. However, and product development Filipino employees have the option to be • Technical support and maintenance taxed at either 15% or the normal rates of • Data processing and communication 0% to 32%, depending on their net taxable • Business development. income.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 36 Licensing of RHQs, ROHQs, and RWs Table 2 Some Incentives of RHQs and ROHQs The RHQ license and the ROHQ RHQ ROHQ license of nonbanking and nonfinancial institutions are secured from the SEC, Exemption from income tax Subject to preferential income tax rate of 10% on taxable income upon the favorable recommendation of the BOI. Banks and financial institutions Exemption from branch profits remittance tax Subject to applicable BPRT (generally 15%) (BPRT) secure the ROHQ license from the SEC and the BSP, upon the favorable Exemption from VAT; Subject to 10% VAT recommendation of the BOI. The sale or lease of goods and property, and primary implementing agency for the services to the RHQ is subject to 0% VAT establishment and supervision of RWs Exemption from all kinds of local taxes, fees, or charges imposed by a local government unit, outside the ecozones is the BOI. except real property tax on land improvements and equipment Tax- and duty-free importation of equipment and materials for training and conferences Investors' Lease Act (RA No. 7652) needed and solely used for the RHQ/ROHQ functions, and which are not locally available, subject to prior BOI approval RA No. 7652 allows foreign investors to lease commercial lands in the Philippines Table 3 Incentives of Exporters for a maximum of 75 years (previously 50 Features of the Export Development Registered under EDA years). Act (EDA) • Exemption from PD No. 1853, or Under this law, any foreign investor The following are the key features of Advanced Payment of Customs Duties infusing capital into the country can lease EDA: • Tax credit for increase in current year's private lands, in observance of Philippine export revenues, computed as follows: Increase in Annual Export Revenue laws and the following: • Institutionalization of the Export Tax Credit (in %) Development Council (EDC) to direct First 5% 2.5 1. Lease contract shall first be for 50 the export offensive Next 5% 5.0 years, renewable only once for another • Privatization of export promotion Next 5% 7.5 25 years. functions that can be undertaken by the In excess of 15% 10.0 2. Leased area will be used solely for private sector, including the • Tax credit for use or import-substitution of investment. establishment of world-class Philippine nontraditional products 3. Lease contract will conform with the Trade Centers Comprehensive Agrarian Reform Law • Setup of a privately led export financing and the Local Government Code. institution whose services shall be devoted to supporting the financing agencies such as the BOI and PEZA. EDA Export Development Act of 1994 needs of the export sector incentives are shown on Table 3. (RA No. 7844) • Granting to exporters of much needed fiscal incentives, most of them patterned Amended Build-Operate-Transfer This law provides incentives to exporters after, but not as extensive as those in Law (RA No. 7718) to encourage investments in the export newly industrializing economies. sector. Exporters are generally defined The BOT Law spells out the policy and as earning at least 50% of their normal Incentives Available to Exporters regulatory framework for the participation operating revenue from the sale of Registered under EDA of private sector entities in the products or services abroad. development of infrastructure projects and EDA incentives are granted in addition to the provision of services that are normally existing incentives from other government the responsibility of the government.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 37 Registration Procedures with Investment Houses Law (PD No. 129) Government Offices PD No. 129, otherwise known as the In- vestment Houses Law, has been amended An investor who will do business in the by RA No. 8366 to liberalize the Philip- Philippines will have to register with a pine Investment House industry. Under number of government offices. These RA No. 8366, foreign equity participation include the SEC, the DTI, the BIR, and in an Investment Housing company has the local government. been increased to as much as 60% and foreign nationals are allowed to become Securities and Exchange members of the board of directors to the Commission extent of their participation in the equity of said enterprise. The SEC is the government agency responsible for registering, licensing, Investment Company Act (RA No. 2629) regulating, and supervising all When the mutual funds industry was ini- corporations and partnerships organized tially introduced in 1957, it attracted both in the Philippines, including foreign legitimate and fly-by-night transactions. corporations licensed to engage in After a short four-year boom, the industry business or to establish branch offices in failed due to improper dissemination of the Philippines. information, nonexistence of government rules and regulations, and lack of plan- The SEC is mandated to implement the ning in terms of investments. As a result, following Philippine laws: the Investment Company Act was enacted on June 18, 1969 to protect the public and PD No. 902-A and the Securities impose penalties on unscrupulous fund Regulation Code (SRC) managers. PD No. 902-A dealt with the reorganiza- tion of the SEC and conferred upon it Financing Company Act (RA No. 5980, the power to hear and decide on cases as amended by RA No. 8556) involving corporate fraud, intra-corporate In recognition of the critical role of disputes, election cases involving officers medium-and long-term credit for invest- and directors, suspension of payments ments in capital goods and equipment, es- proceedings, and rehabilitation proceed- pecially in the countryside, the Financing ings. Company Act of 1998 (RA No. 8556) was enacted to amend RA No. 5980. The new With the enactment of the Securities Reg- law regulates and promotes the activities ulation Code, however, Sec. 5.2, Chapter of financing and leasing companies in Securities and Exchange II thereof removed all jurisdiction of the such a way as to place their operations on Commission SEC over all cases enumerated above and a sound, competitive basis as other finan- transferred jurisdiction to hear and decide cial institutions. Foreign equity owner- SEC Building ship is allowed up to 60% of the voting EDSA, Greenhills these cases to the regular courts. With stock of the corporation as long as the Mandaluyong City, Philippines the realignment of its powers, the SEC Tel: (632) 726-0931 to 39 then shifted its focus to the promotion of country of which the prospective investor http://www.sec.gov.ph capital market development, in accor- is a national accords the same reciprocal dance with the mandate of the Securities rights to Filipinos in the ownership of Regulation Code. financing companies or their counterpart entities in such country.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 38 Corporation Code of the Philippines Express Registration Bureau of Internal Revenue (Batas Pambansa Blg. 68) To facilitate registering new corporations, The Corporation Code or BP Blg. 68 be- the SEC operates an “express lane,” with The BIR is tasked to administer the came effective on May 1, 1980. It adopted application forms specially prepared collection of internal revenue taxes various corporate doctrines previously for specific types of business. Filing pursuant to the Tax Code. enunciated by the Supreme Court under normally takes one day, provided all the old Corporation Law and clarified the necessary documents and prior clearances All taxpayers are required to secure from obligations of corporate directors and of- from other agencies are submitted in the the BIR a unique Taxpayer Identification ficers. The Code was enacted to establish morning. Number (TIN) which will be indicated on a new concept for business corporations all tax returns filed with the BIR. so that these are not merely entities Department of Trade and Industry established for private gain but effective Taxpayers will also have to register with partners of the National Government in After registration with the SEC, all the BIR Revenue District Office (RDO) spreading the benefits of capitalism for corporations organized under the having jurisdiction over the place of the social and economic development of Corporation Code are encouraged to business of the taxpayer. The book of the nation. register their business name with the DTI. accounts, invoices, and receipts of a taxpayer will have to be registered with The DTI-National Capital Region (DTI- the RDO before these are used. Procedures for Forming a Domestic NCR) is one of the primary government Corporation or Local Subsidiary agencies tasked with the promotion as • At least five persons, majority of them well as the registration of the trade and Philippine residents, subscribe to the industry sector in Metro Manila area. proposed articles of incorporation and file with the SEC documents specifying Among the services of the DTI-NCR the company name and purpose, is the registration of business names as principal office, capital distribution, and provided under RA No. 3883. Business so forth. name registration involves the submission • The treasurer certifies that at least of copies of the corporation's articles 25% of the proposed capitalization has of incorporation, by-laws, and SEC been subscribed and that 25% of the certificate of registration to the DTI and subscription has been paid up. the payment of a registration processing • The incorporators meet to elect a fee. A business name registration is valid board of directors, numbering at least for five years. five but not more than 15. Majority of the directors must be residents of the Philippines. • The board of directors appoints management.

Department of Trade and Bureau of Internal Revenue Industry

385 Industry and Investments Building BIR National Office Building Sen. Gil Puyat Avenue, Makati City Agham Road, Diliman 1200 Philippines Quezon City, Philippines Tel: (632) 895-3611 Tel: (632) 981-7000 http://business.gov.ph http://www.bir.gov.ph

Estimated processing time: Registration with the Securities and Exchange Commission 3 to 7 days This is reckoned from the date of submission and compliance with requirements.

START

 Company representative submits necessary documents to Company Registration and Monitoring Department (CRMD), which checks documents for completeness

 —1 Representative pays SEC cashier a filing fee of 5 of 1% of authorized capital stock of proposed corporation (Basic fee) plus legal research fee of 1% basic fee

 Documents are forwarded to Financial Analysis & Audit Division (FAAD) of the CRMD for review of financial and  accounting aspects

 Are documents No Applicant makes necessary changes in order?  and/or submits additional documents to the SEC  Yes Documents are forwarded to the Corporate and Partnership Registration Division of the CRMD, which ensures compliance with Philippine laws

 Documents are forwarded to the Assistant Director of the CRMD for approval and to the Director of the CRMD for final signature on the Certificate of Registration  Approved papers are brought to Releasing Department for pickup

 END

Estimated processing time: 2 to 3 days This is reckoned from the date of submission and compliance with requirements.

START  Single proprietorships are required to register a business name with the DTI. Registration with the DTI is optional for partnerships and corporations. However, all three are required to register their business names with the SEC  Pay registration processing fee  Obtain registration form (registration valid for five years)  Fill out registration form as required

  For Single Proprietorships For Corporations & Partnerships

A. Applicant must be at least 18 years old

B. Applicant must submit two passport-size pictures taken not more than one year preceding the filing of the application

 C. Non-Filipinos must submit the following: If the corporation or Submit certified true In case there is an 1. Alien Certificate of Registration if any partnership is fully copy of the Articles of increase of capital, 2. Accomplished DTI Form No 17 under RA owned by an alien or Incorporation (AOI) submit certificate is- No. 7042 its capital is more than or Partnership or sued by the SEC 3. A written appointment of Filipino Resident 40% owned by aliens, photocopy of bylaws Agent the SEC certificate and the Registration 4. Authority to verify bank accounts/bank must specify that it is Certificate duly ap- certificate of deposit in accordance with the proved by the SEC. 5. Proof of inward remittance of foreign Foreign Investment If AOI states “Metro currency for nonresident alien and bank Act of 1991 Manila” as principal certificate of deposit for resident alien place of business, 6. Copy of valuation report from BSP if submit a letter duly investment includes assets other than stamped “Received” foreign exchange by the SEC, informing 7. Clearance from other involved agencies such the latter of the pres- as Department of Science and Technology, ent exact business ad- Philippine National Police, etc. dress of the applicant 8. In case of alien retailer, latest permit to engage in retail business per RA No. 1180 without the need to submit the requirements   under letter C except Alien Certificate of Submit duly accomplished registration form to DTI and Industry Provincial Registration Office of business location of applicant  END

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 41 START Registration with the Board of Investments  Estimated processing time: Applicant files duly accomplished BOI Form 2 to 4 weeks 501 with supporting documents This is reckoned from the date of submission and compliance with  requirements. Project Evaluation & Registration Department Board Of (PERD) checks the application for registration Investments including its qualification for registration & completeness of the documents PERD issues formal notice Board of Investments  to complete information/ No documentary requirements Industry and Investments Building Are documents complete?  385 Sen. Gil Puyat Avenue, Yes Existing companies Makati City  with penalties go to the 1200 Philippines Applicant pays filing fee at the cashier Supervision & Monitoring Department for clearance. Tel: (632) 890-1332  (632) 895-8322 Applications are not PERD issues letter of acceptance with advice http://www.boi.gov.ph/ accepted unless penalties to publish the notice of filing in at least one are paid newspaper of general circulation  PERD prepares technical, financial highlights of the project, market aspect (for export producers) including the legal aspect. Executive summary out- lining major highlights of the project is also prepared for presentation.    Plant visit, consultations with the private sector are conducted during this stage. The Industry Group determines the pioneer status  PERD presents application to Management  Committee (ManCom) for approval/denial   ManCom Approval Deferred  Yes PERD prepares for presentation to the Board executive summary  including the ManCom highlights and recommendation for the Board’s final approval  PERD prepares disapproval Board Approval No   letter to be sent to the Firm  Yes PERD prepares approval letter containing preregistration requirements, to be sent to the Firm  Applicant requests waiver of preregistration requirements If 30 days have lapsed, PERD sends follow-up letter.  Applicant submits, within 30 days, preregistration  No PERD prepares memorandum Applicant may request  requirements to the PERD. Request for waiver extension to file does not toll running of 30-day period to submit No  preregistration requirements preregistration requirements  Board approval  Yes Applicant submits Yes  PERD prepares certificate of registration for signing preregistration requirements by the managing head/presiding officer within period of extension granted Yes   Applicant receives Certificate of Registration  No PERD prepares disapproval  letter addressed to applicant  END

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 42 Registration with the Philippine Economic Zone Authority Estimated processing time: 2 to 4 weeks This is reckoned from the date of submission and compliance with requirements.

START Attachments: • Project Brief  • ITR and F/S (if existing) for past 3 Proponent prepares/submits years Application to PEZA-ERD • Biodata of Project Officers

Submission of additional No

Board Approval requirements per Board   Yes   PEZA-ERD evaluates Application.  ERD submits report to the PEZA Board PEZA Corporate Secretary issues Board Resolution regarding Proponent’s Approved Application for registration Standard Pre-registration requirements for submission to PEZA-Legal Department:  • SEC Registration Proponent completes • Acceptance letter or reservation for the preregistration requirements location of the proposed project • Notarized undertaking that proponent will  not engage in child labor Proponent and PEZA sign • Payment of registration fee Registration Agreement • Copy of environmental compliance certificate (ECC) application received by  the PEZA Environment Safety Group End of Registration Process  PEZA-ERD issues VAT zero-rating certificate at request of Enterprise  START OF COMMERCIAL OPERATIONS

Philippine Economic Zone Authority LEGEND: ERD - Enterprise Regulation Department SEC - Securities and Exchange Commission Enterprise Regulation Department DENR - Department of Environment and Natural Resources 4F Almeda Building ITR - Income Tax Return San Luis corner Roxas Boulevard, F/S - Financial Statements Pasay City, Philippines

Tel: (632) 551-3457 (632) 661-9586 E-mail: [email protected] www.peza.gov.ph

Estimated processing time: 4 to 8 weeks This is reckoned from the date of submission and compliance with requirements.

Applicant submits Letter of Intent and application for Subic Bay Freeport registration  SBMA Department (Investment Processing, Ecology, and others) evaluates application  Evaluation Requirements • Company profile • Articles of incorporation and bylaws • Product brochures • Annual reports or audited financial Statements for the previous three years • SEC registration of sponsoring entity • Client/supplier list, with contact information • Credit references (including name and address of creditor, size and description of loan facility, past repayment record and credit rating)  SBMA Department presents application for registration to SBMA Chairman and Board of Directors for approval  SBF Enterprise registers with: • SEC • SBMA • BIR

Subic Bay Metropolitan Authority Building 229, Waterfront Road Subic Bay Freeport Zone 2222 Philippines Tel: (63 47) 252-7262 (63 47) 252-4004 E-Mail: [email protected] http://www.sbma.com

To address concerns of investors and exporters conducting business inside Estimated processing time: the zone, the Clark Development 4 to 6 weeks Corporation, in coordination with This is reckoned from the date of various government agencies, submission and compliance with established a One-Stop-Action-Center requirements. (OSAC).

The OSAC facilitates the prompt evaluation and approval of Clark Development proposed investment projects for CSEZ within a 30-day period. Corporation Aside from this, the OSAC also facilitates the immediate processing of permits, licenses, and other pertinent documents Building 2122 needed by existing locators in their operations by housing agency desks of government agencies concerned like the Bureau of Elpidio Quirino St. Customs, BIR, SSS, DoH, and DOLE. One of its special features Clark Special Economic Zone is the One-Stop-Export Documentation Center (OSEDC), which Clark Field, Pampanga, Philippines is an on-line processing center to ensure expeditious processing Tel: (63 45) 599-9000 of export documents. At OSEDC, all agencies concerned are E-Mail: [email protected] housed under one roof to facilitate prompt processing of exports. http://www.clark.com.ph

Registration with Bangko Sentral ng Pilipinas

Foreign loans and foreign investments may be registered with Estimated processing time: the BSP. Only loans which have been duly registered with the BSP 2 to 4 weeks This is reckoned from the date of shall be eligible for servicing using submission and compliance with foreign exchange purchased from requirements. the banking system. Applications for registration shall be filed by the borrower with the BSP within 3 banking days from drawdown Bangko Sentral ng Pilipinas date for short-term loans, and 15 banking days for medium- and long-term loans using the prescribed forms. The registration of a foreign investment with the BSP is required only if the foreign A. Mabini St. cor. P. Ocampo St. exchange needed to service the repatriation of capital and the 1004 Malate, Manila, Philippines remittance of dividends, profits, and earnings which accrue Tel: (632) 524-7011 thereon shall be sourced from the banking system. E-Mail: [email protected] http://www.bsp.gov.ph

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 45 Taxation Income Tax Rates for Domestic and Resident Foreign Corporations The Philippine Constitution mandates that the rule of taxation shall be uniform, equi- The previous regular corporate income table, and progressive. In 1997, the Tax tax rate of 32% of net taxable income has Reform Act of 1997 (RA No. 8424) was been adjusted by RA No. 9337 to 35%. passed to promote sustainable economic The new tax rate shall be effective begin- growth by rationalizing the Philippine ning November 1, 2005 until December internal revenue system, including tax 31, 2008. It shall, however, be reduced to administration. Various issuances have 30% beginning January 1, 2009. amended the Tax Reform Act of 1997, the most recent of which is RA No. 9337, A 2% minimum corporate income tax which was approved by President Gloria (MCIT) on annual gross income may be Macapagal-Arroyo on May 24, 2005 and imposed on a corporation beginning on implemented on November 1, 2005. its fourth year of business operation, if it has zero or negative taxable income or the Income Taxation MCIT is greater than its regular corporate income tax liability. Corporations Royalties, interest, dividends, and other Classification passive income of domestic and resident foreign corporations are subject to differ- For income tax purposes, corporations are ent rates (see Table 4). classified as domestic or foreign depending on the place of incorporation or orga- Special Income Tax Rates for Certain nization. Domestic and Resident Foreign Corporations A domestic corporation is a corporation organized under Philippine laws. It Proprietary educational institutions and is taxed on the basis of net worldwide nonprofit hospitals are subject to 10% income. A foreign corporation is a corpo- tax on net taxable income. Foreign cur- ration organized under the laws of another rency deposit units (FCDUs) and offshore country and is further classified as a resi- banking units (OBUs) are exempt from dent or nonresident. It is considered a res- all taxes on income from foreign currency ident of the Philippines if it is engaged in transactions with nonresidents and other trade or business in the Philippines (e.g., FCDUs and OBUs in the Philippines. through a branch). A resident foreign cor- However, FCDUs and OBUs are subject poration is taxed on net Philippine-source to a final tax of 10% on interest income income, while a nonresident foreign from foreign currency loans granted to corporation is taxed on gross Philippine- residents other than FCDUs and OBUs. source income. International carriers are subject to 2.5% final tax on gross Philippine billings.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 46 Tax incentives for enterprises in Table 4 Income Tax Rates on Passive Income of Domestic/Resident Ecozones, the Subic Bay Freeport and Foreign Corporations Special Economic Zone, and the Clark Dividends received from domestic corporations Not subject to tax Special and Economic Zone are shown on page 35. Interest on any currency bank deposit and 20% final tax yield or other monetary benefit from deposit Branch Profit Remittance Tax substitutes and from trust fund and similar arrangements Remittances by branches of foreign cor- — 1 porations in the Philippines (except those Interest from foreign currency deposits with 7 2 % final tax activities registered with PEZA) to its foreign currency deposit units (FCDUs) head office are subject to 15% tax. The Gains from sale or exchange of shares of stock 5% capital gains tax (CGT) on net 15% tax may be further reduced to 10% not listed and traded in the local stock exchange gains not exceeding PhP100,000 depending on the double taxation treaty and 10% on the excess with certain countries (e.g., RP-Japan Tax Treaty). The tax is based on the total Gains from sale or exchange of land or buildings 6% CGT on gross selling price or profits applied or earmarked for remit- not actually used in business and treated as fair market value, whichever is tance without any deduction for the tax capital asset higher component thereof. Royalties 20% final tax Other Taxes Imposed on Corporations

Corporations are also liable for the MCIT, fringe benefits tax, and improperly accu- authorized representative, that the cor- Improperly accumulated earnings tax. mulated earnings tax. poration sustained substantial losses on A 10% tax is imposed on the improperly account of a prolonged labor dispute, accumulated earnings of domestic corpo- Minimum corporate income tax force majeure, or legitimate business rations, except in the case of publicly held (MCIT). A 2% MCIT on annual gross losses. corporations, banks, and other non-bank income is imposed on corporations with financial intermediaries and insurance zero or negative taxable income or whose Fringe benefits tax. Fringe benefits companies. When a corporation allows its regular corporate income tax liability granted to supervisory and managerial earnings or profits to accumulate beyond is less than the MCIT beginning on the employees are subject to a 32% tax on the its reasonable needs, it shall be assumed fourth taxable year following the year grossed up monetary value of the fringe that the purpose is to avoid tax on stock- they started business operations. Any benefit. Fringe benefits given by OBUs, holders, unless proven to the contrary. excess of the MCIT over the normal tax regional or area headquarters, regional shall be carried forward and credited operating headquarters of multinational Tax on Nonresident Corporations against the normal tax for the three imme- companies, and petroleum contractors diately succeeding taxable years. and subcontractors to qualified non- Generally, nonresident foreign corpora- Filipino employees and, in certain cases, tions are taxed at 35% (30% effective However, the Secretary of Finance may to Filipino employees, are taxed at 15% January 1, 2009) of the gross amount of suspend the imposition of the MCIT upon of the grossed up monetary value of the Philippine source income such as divi- submission of proof by the applicant-cor- fringe benefit. dends, rents, royalties, compensation, and poration, verified by the Commissioner’s remuneration for technical services. This

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 47 Nonresident citizens. Nonresident Table 5 Preferential Income Tax Rates for Nonresident Corporations citizens, including those working and Interest on foreign loans 20% final tax deriving income from abroad such as

overseas contract workers and seamen Cash and property dividends received In general, 35% (30% effective January 1, who derive compensation for services from domestic corporations 2009). This is reduced to 15% if the recipient foreign corporation is a resident of a country rendered abroad as members of a comple- which: ment of vessels engaged exclusively in i) Does not impose any tax on dividends international trade, are taxed only on received from foreign sources; or income derived from sources within the ii) Allows a credit against the tax due from Philippines. the nonresident foreign corporation taxes

deemed to have been paid in the Philippines Resident aliens. Resident aliens are equivalent to 20% (15% effective January 1, taxed only on income derived from 2009 ) sources within the Philippines. Income derived from any foreign Exempt currency transaction with FCDUs and Nonresident aliens engaged in trade or OBUs business in the Philippines. Non-resi- Gains from sale of unlisted shares of 5% CGT on net gains not exceeding PhP100,000 dent aliens engaged in trade or business stock in a domestic corporation and 10% on the excess in the Philippines are taxed in the same 1 Rents and other fees paid to non- 7 2 % final tax on gross rentals or fees manner as citizens and resident aliens but resident corporate lessors of aircraft, only on Philippine-source income. machinery, and other equipment

1 Rents or charter fees paid to non- 4 2 % final tax on gross rentals or fees Nonresident aliens not engaged in resident corporate owners of vessels trade or business in the Philippines. chartered by Philippine nationals Nonresident aliens not engaged in trade

Fees paid to nonresident cinemato- 25% final tax on gross income or business in the Philippines are taxed graphic film owners or lessors on gross amount of Philippine source income. Note: Lower tax rates may be availed of under applicable tax treaties Income Tax Rates for Individuals

tax is withheld at source. Preferential Citizens, nonresident citizens, resident income tax rates for nonresident corpora- aliens, and nonresident aliens engaged in tions are shown in Table 5. trade or business in the Philippines are subject to graduated tax rates on income Individuals from 5% to 32% (see Table 6). Non- resident aliens not engaged in trade or Classification business in the Philippines are generally subject to a flat income tax rate of 25%. For income tax purposes, individuals are classified as: Generally, an individual is taxed on two main categories of income: income from Resident citizens. Resident citizens are employment and income from business or taxed on their compensation, business, exercise of a profession. Royalties, inter- and other income derived from sources est, dividends, and other passive income within and outside of the Philippines. of individuals are subject to different tax rates (see Table 7).

Resident citizens and resident aliens are and Nonresident Aliens Engaged in Trade or Business entitled to personal exemptions as fol- Amount Subject to Tax Applicable Rate lows: PhP20,000 for single individuals, Not over PhP10,000 5% PhP25,000 for heads of families, and Over PhP10,000 but not over PhP30,000 PhP500 + 10% of the excess over PhP10,000 PhP32,000 each for married individuals. Over PhP30,000 but not over PhP70,000 PhP2,500 + 15% of the excess over PhP30,000 A married individual or head of a family Over PhP70,000 but not over PhP140,000 PhP8,500 + 20% of the excess over PhP70,000 is allowed an additional exemption of PhP22,500 + 25% of the excess over PhP140,000 PhP8,000 for each dependent, not to Over PhP140,000 but not over PhP250,000 PhP50,000 + 30% of the excess over PhP250,000 exceed four dependents. Married individ- Over PhP250,000 but not over PhP500,000 uals are required to compute their individ- Over PhP500,000 PhP125,000 + 32% of the excess over PhP500,000 ual income tax separately. The additional tax exemption for each dependent shall Table 7 Income Tax Rates on Passive Income of Individuals be claimed only by the husband unless he waives the right in favor of his wife. Interest on any currency bank deposit and 20% final tax for citizens, resident aliens, yield or other monetary benefit from deposit and nonresident aliens engaged in trade substitutes and from trust fund and similar or business; 25% final tax for nonresident Nonresident aliens engaged in trade or arrangements aliens not engaged in trade or business

business in the Philippines are entitled to 1 Interest from foreign currency deposits with 72 % final tax; exempt for nonresident citi- personal exemptions (but not to additional FCDUs zens and nonresident aliens exemptions) only by way of reciprocity. Interest earned from long-term (five-year) In general, tax-exempt; but if preterminated, peso deposits or investments subject to 5% to 20% final tax depending Income of any kind exempted by any on holding period; for nonresident aliens treaty binding on the Philippine govern- not engaged in trade or business, subject ment is likewise exempt. Tax treaties with to 25% flat rate the following countries are currently in Royalties, prizes exceeding PhP10,000, and 10% final tax for citizens, resident aliens, force. other winnings (except Philippine Charity and nonresident aliens engaged in trade Sweepstakes and Lotto winnings) or business; 25% final tax for nonresident aliens not engaged in trade or business Countries with Tax Treaties Royalties on books, literary works, and musi- 20% final tax for citizens, resident aliens, with the Philippines: cal compositions and nonresident aliens engaged in trade or business; 25% final tax for nonresident aliens not engaged in trade or business • Australia • Korea • Austria • Malaysia Cash and property dividends from domestic 10% for citizens and resident aliens; 20% • Belgium • The Netherlands corporations for nonresident aliens engaged in trade or • Brazil • New Zealand business; 25% for nonresident aliens not • Canada • Norway engaged in trade or business • China • Pakistan • Denmark • Romania Gains from sale or exchange of shares of 5% CGT on net gains not exceeding • Finland • Russia stock either listed or unlisted but not traded PhP100,000 and 10% on the excess France Singapore in the local stock exchange • • 6% CGT on gross selling price or fair market • Germany • Spain • Hungary • Sweden Gains from sale or exchange of land or value, whichever is higher • Indonesia • Switzerland buildings not actually used in business and treated as capital asset • India • Thailand Tax-exempt Israel United Kingdom • • Gains from sale of principal residence where • Italy • United States • Japan • Vietnam the proceeds are used in acquiring or building a new principal residence within 18 calendar months from the date of sale

Professional fees to lawyers, medical practitioners, and 15% if gross income exceeds PhP720,000; Systems of Withholding Tax other individuals engaged in the practice of their profession otherwise, 10% Fees to corporate directors 15% if the gross income for the current Creditable withholding tax (CWT). year exceeds PhP720,000; otherwise, 10% Certain income payments made by a Talent fees to professional entertainers and athletes 15%, if the professional entertainer’s resident to another resident are subject to gross income for the current year exceeds PhP720,000; otherwise, 10% specified withholding tax rates. The tax Management and technical consultancy fees to domestic 15% if the gross income for the current withheld is creditable against the income and resident foreign corporations year exceeds PhP720,000; otherwise, 10% tax liability of the recipient. Table 8 Professional fees, talent fees, and other services of taxable 15% if the income payment to the partner shows some income payments subject to juridical persons for the current year exceeds PhP720,000; CWT. otherwise, 10% Rentals of real property 5% Withholding tax on wages. This is the Rentals of personal property in excess of or reasonably 5% tax withheld from individuals receiving expected to exceed PhP10,000 per payment purely compensation income. Employers Rentals of poles, satellites, and transmission facilities 5% are required to withhold the tax due on Rentals on billboards and similar structures 5% salaries and wages paid to their employ- Fees to certain contractors, e.g., general engineering con- 2% ees. Subject to certain conditions, tractors; general building contractors; advertising agencies; employees may no longer be required to messengerial, janitorial, or security agencies; and persons file income tax returns at the end of the engaged in the sale of computer services taxable year. Commissions and fees of customs, insurance, stock, real 10% estate, immigration and commercial brokers, and fees of Final withholding tax (FWT). Under agents of professional entertainers the FWT system, the amount of income Gross selling price on the sale of real property by a person 1.5%, 3%, 5% depending on price tax withheld by the withholding agent is habitually engaged in real estate business constituted as a full and final payment of Gross selling price on the sale of real property by a person 6% not habitually engaged in real estate business the income tax due from the payee on the said income. Tables 4, 5, and 7 list some On half the amount of gross payments made by credit card 1% companies income payments subject to FWT. Commissions of independent and exclusive distributors, 10% medical/technical and sales representatives, and marketing Value-Added Tax (VAT) agents of multi level marketing companies Tolling fees paid to refineries 5% General Payments to local/resident suppliers of goods and services 1% for goods by top 10,000 private corporations 2% for services Pursuant to RA No. 9337 and upon the Payments for purchases of mineral and quarry products 1% recommendation of the Secretary of Finance, the President raised the VAT rate to 12% effective February 1, 2006.

Some transactions are exempt from VAT. The list of exempt transactions has recently been revised by RA No. 9337. (See Table 9).

a. Sale or importation of agricultural and g. Medical, dental, hospital, and veterinary aggregate capital and net surplus ratably marine food products in their original services except those rendered by pro- distributed among the members state, livestock and poultry of a kind fessionals generally used as, or yielding or producing o. Export sales by persons who are not VAT- foods for human consumption; and breed- h. Educational services rendered by private registered ing stock and genetic materials therefor educational institutions, duly accredited by the Department of Education (DepEd), p. Sale of real properties not primarily held b. Sale or importation of fertilizers; seeds, the Commission on Higher Education for sale to customers or held for lease seedlings and fingerlings; fish, prawn, (CHED), the Technical Education and in the ordinary course of business, or livestock and poultry feeds, including Skills Development Authority (TESDA), real property utilized for low-cost and ingredients, whether locally produced and those rendered by government edu- socialized housing as defined by RA No. or imported, used in the manufacture of cational institutions 7279, otherwise known as the Urban finished feeds (except specialty feeds for Development and Housing Act of 1992, race horses, fighting cocks, aquarium fish, i. Services rendered by individuals pursuant and other related laws, residential lot zoo animals, and other animals generally to an employer-employee relationship valued at PhP1,500,000 and below, house considered as pets) and lot, and other residential dwellings j. Services rendered by regional or valued at PhP2,500,000 and below c. Importation of personal and household area headquarters established in the effects belonging to the residents of the Philippines by multinational corporations q. Lease of a residential unit with a monthly Philippines returning from abroad and which act as supervisory, communica- rental not exceeding PhP10,000 nonresident citizens coming to resettle tions, and coordinating centers for their in the Philippines; provided that such affiliates, subsidiaries, or branches in the r. Sale, importation, printing, or publication goods are exempt from customs duties Asia Pacific Region and do not earn or of books and any newspaper, magazine, under the Tariff and Customs Code of the derive income from the Philippines review, or bulletin which appears at regu- Philippines lar intervals with fixed prices for subscrip- k. Transactions which are exempt under tion and sale and which is not devoted d. Importation of professional instru- international agreements to which the principally to the publication of paid ments and implements, wearing apparel, Philippines is a signatory or under special advertisements domestic animals and personal house- laws except those under PD No. 529 hold effects (except any vehicle, vessel, s. Sale, importation, or lease of passenger aircraft, machinery, other goods for use l. Sales by agricultural cooperatives or cargo vessels and aircraft, includ- in the manufacture, and merchandise of duly registered with the Cooperative ing engine, equipment, and spare parts any kind in commercial quantity) belong- Development Authority to their members thereof for domestic or international ing to persons coming to settle in the as well as sale of their produce, whether transport operations Philippines, for their own use and not for in its original state or processed form, to sale, barter or exchange, accompany- non-members; their importation of direct t. Importation of fuel, goods, and supplies ing such persons, or arriving within 90 farm inputs, machineries and equipment, by persons engaged in international ship- days before or after their arrival upon including spare parts thereof, to be used ping or air transport operations the production of evidence satisfactory directly and exclusively in the production to the Commissioner, that such persons and/or processing of their produce u. Services of banks, non-bank financial are actually coming to settle in the intermediaries performing quasi-banking Philippines and that the change of resi- m. Gross receipts from lending activities functions, and other non-bank financial dence is bona fide by credit or multi-purpose cooperatives intermediaries duly registered with the Cooperative e. Services subject to percentage tax Development Authority v. Sale or lease of goods or properties or the performance of services other f. Services by agricultural contract growers n. Sales by non-agricultural, non-electric than the transactions mentioned in the and milling for others of palay into rice, and non-credit cooperatives duly regis- preceding paragraphs, the gross annual corn into grits and sugar cane into raw tered with the Cooperative Development sales and/or receipts do not exceed the sugar Authority; provided that the share capital amount of PhP1,500,000. contribution of each member does not exceed PhP15,000 and regardless of the

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 51 On the other hand, several items are no Some transactions, commonly referred to VAT-Exempt vs. VAT Zero-Rated longer VAT-exempt, most notable of as zero-rated transactions, are subject to Transactions which are: the zero percent VAT rate. RA No. 9337 also amends the provisions pertaining to For both VAT-exempt and VAT zero-rated a. Sale of non-food agricultural products; zero-rated transactions (See Table 10). sales of goods and services, the sellers do not pass on VAT to their customers. How- marine and forest products in their ever, VAT-registered sellers may apply for the original state by the primary producer Excise Tax issuance of tax credit certificates or refund or the owner of the land where the of the input tax (i.e., the VAT passed on to same are produced Excise taxes are imposed on certain goods the sellers by their suppliers) attributable to b. Sale of cotton and cotton seeds in their (such as cigarettes, liquor, and motor the zero-rated sale of goods and services. original state, and copra vehicles) manufactured or produced in This benefit is not available for VAT-exempt c. Sale or importation of coal and natural the Philippines for domestic sale or con- sale of goods and services. Any VAT passed gas, in whatever form or state, and sumption or for any other disposition. on to the sellers by their suppliers, attributable to such VAT-exempt sale of goods and petroleum products (except lubricating Excise taxes are also imposed on certain services, forms part of the cost. oil, processed gas, grease, wax, and imported goods, in addition to the VAT petrolatum subject to excise tax) and customs duties. d. Sale or importation of raw materials to be used by the buyer or importer On August 29, 2003, RA No. 9224 was himself in the manufacture of petro- enacted. The Act, which rationalized the leum products (except lubricating oil, excise tax on automobiles, imposed an ad processed gas, grease, wax, and petro- valorem tax on automobiles based on the latum subject to excise tax) manufacturer’s or importer’s selling price, e. Services rendered by doctors of net of excise and value-added taxes, in medicine duly registered with the accordance with the following schedule: Philippine Regulatory Commission f. Services rendered by lawyers duly reg- Net Manufacturer’s Rate istered with the Integrated Bar of the Price/Importer’s Selling Price Philippines. Up to PhP600,000 2% Over PhP600,000 to PhP12,000 + 20% At the same time, RA No. 9337 expands PhP1.1 million of value in excess of the list of exemptions to include, among PhP600 thousand Over PhP1.1. million to PhP112,000 + 40% others: PhP2.1 million of value in excess of PhP1.1 million a. Gross receipts from lending activi- Over PhP2.1 million PhP512,000 + 60% of value in excess of ties by credit or multi-purpose coop- PhP2.1 million eratives duly registered with the Cooperative Development Authority b. Sale, importation, or lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts thereof for domestic or international transport operations c. Importation of fuel, goods, and supplies by persons engaged in international shipping or air transport operations.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 52 An indexation of sin taxes was likewise Table 10 Zero-Rated Sales undertaken and with the passage of Revenue Regulations (RR) No. 22-2003, Zero-Rated Sale of Goods new rates of excise tax on new brands of 1. Export Sales which are: cigarettes and variants that were introduced in the market after January 1, 1997 a. Sale and actual shipment of goods from the Philippines to a foreign country, irrespec- were prescribed. On the other hand, RR tive of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported, paid for in acceptable No. 23-2003 prescribed new rates of foreign currency or its equivalent in goods or services, and accounted for in accordance excise tax on new brands of alcohol prod- with the rules and regulations of the BSP ucts and variants that were introduced in b. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a the market after January 1, 1997. resident local export-oriented enterprise to be used in manufacturing, processing, packing, or repacking in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Percentage Tax BSP c. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production Persons or entities not subject to VAT, d. Sale of gold to the BSP including domestic common carriers of e. Those considered export sales under EO No. 226, otherwise known as the Omnibus passengers, international carriers, and Investments Code of 1987, and other special laws those in the amusement business, are sub- f. The sale of goods, supplies, equipment, and fuel to persons engaged in international shipping or international air transport operations ject to percentage tax on gross receipts or gross income (see examples on Table 11). 2. Foreign currency-denominated sales which are the sale to a nonresident of goods, except automobiles and non-essential goods, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency, and Stock Transaction Tax accounted for in accordance with the rules and regulations of the BSP

A stock transaction tax (STT) on the sale, 3. Sales to person or entities whose exemption under special laws or international agreements barter, exchange, or other disposition of to which the Philippines is a signatory effectively subjects such sales to zero rate. shares through the facilities of the PSE is Zero-Rated Sale of Services imposed at the rate of ½ of 1% of gross selling price. 1. Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and Initial Public Offering (IPO) Tax regulations of the BSP 2. Services other than those mentioned in the preceding paragraph rendered to a person A tax is also imposed on the sale, barter, engaged in business conducted outside the Philippines or to a nonresident person not exchange, or other disposition through engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in IPO of shares of stock in closely held cor- accordance with the rules and regulations of the BSP porations in accordance with the propor- 3. Services rendered to persons or entities whose exemption under special laws or tion of shares of stock sold through IPO. international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate A closely held corporation is any corpora- 4. Services rendered to persons engaged in international shipping or international air tion of which at least 50% in value of the transport operations, including leases of property for use thereof outstanding capital stock or at least 50% 5. Services performed by subcontractors and/or contractors in processing, converting, or of the total combined voting power of all manufacturing goods for an enterprise whose export sales exceed 70% of total annual production classes of stock entitled to vote is owned 6. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign directly or indirectly by or for not more country than 20 individuals. 7. Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 53 tax base shall be the gross selling price Table 11 Selected Percentage Tax Rates or gross value in money of the shares of Type of Business Percentage Tax Rate stock sold, bartered, exchanged, or other- Life insurance companies doing business in the 5% of the total premiums collected wise disposed of. Philippines Water and gas utilities 2% of gross receipts Documentary Stamp Tax

Radio and/or television broadcasting companies 3% of gross receipts The documentary stamp tax (DST) is whose annual gross receipts do not exceed PhP10 million an excise tax on documents, instru- Domestic common carriers of passengers 3% of gross receipts ments, loan agreements, and papers and Carriers and garage proprietors Various rates, depending on the place of opera- on acceptances, assignments, sales, and tion and on vehicles used. transfers of the obligation, right, or prop- Overseas dispatch, message, or conversation 10% on gross receipts erty incident thereto. This tax is imposed transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless, and other on the maker, signor, issuer, accepter, or communication equipment services transferor of the document. Banks and non-bank financial intermediaries a) on interest, commissions and discount from lending activities as well as income from In order to boost stock trading and the financial leasing – 5% on gross receipts for equity market, RA No. 9243 or the instruments with maturities not exceeding five years and 1% for those with maturities of Act Rationalizing the Provisions of the over five years Documentary Stamp Tax was passed on b) on dividends and equity shares and net February 17, 2004. The said act lists income of subsidiaries – 0% additional transactions exempt from DST, c) on royalties, rentals of real or personal property, profits from exchange and all other items provides lower DST rates for investments treated as gross income under Section 32 of in shares, and specifies the new DST base the Code – 7% for insurance policies, annuities, and pre- d) On net trading gains within the taxable year need plans and a uniform DST rate on on foreign currency, debt securities, deriva- debt instruments. tives, and other similar financial instruments – 7 %. 1 Sale of stocks listed and traded in the Stock 2 of 1% Table 12 shows some of the documents Exchange requiring payment of DST. Other non-VAT-registered businesses 3% of gross sales or gross receipts not exceeding PhP1,500,000 Documents and Papers Exempt from the DST The IPO tax shall be at the following rates, in accordance with the proportion of 1. Policies of insurance or annuities shares sold, bartered, or exchanged to the made or granted by a fraternal or ben- total outstanding shares of stock after the eficiary society, order, association, or listing in the local stock exchange: cooperative 2. Borrowing and lending of securi- Up to 25% 4% ties executed under the Securities Over 25% but not over 33.33% 2% Borrowing and Lending Program of a Over 33.33% 1% registered exchange 3. Loan agreements or promissory The IPO tax shall be paid by the issuing notes, the aggregate of which does corporation in a primary offering or by not exceed PhP250,000 executed by the seller in a secondary offering. The an individual for his or her purchase

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 54 on installment for his or her personal Table 12 Some Documents Requiring Documentary Stamps or family use, and not for business, resale, barter, or hire of a house, lot, Bank Checks PhP1.50 for each check regardless of amount Debt instruments (loans, debentures, deposit PhP1 for every PhP200 of the issue price motor vehicle, appliance, or furniture substitutes, bonds, promissory notes, etc.) 4. Sale, barter, or exchange of shares of Certificates of Stock PhP1 for every PhP200 of the par value on original stock listed and traded through the issue. In case of transfers, the tax is PhP0.75 for local stock exchange for a period of every PhP200 of the par value five years from March 20, 2004 Deeds of Sale and Conveyances of Real PhP15 on every PhP1,000 consideration or Fair Property Market Value (FMV), whichever is higher 5. Assignment or transfer of any mort- Life Insurance Policies PhP0.50 on every PhP200 of the amount of premium gage, lease, or policy of insurance collected or the renewal or continuance of any agreement, contract, charter, or any evidence of obligation or indebted- ness, if there is no change in the Customs Duty Importers and their brokers are required maturity date or remaining period to keep records of importations within of coverage from that of the original Goods imported into the Philippines are three years from the date of importation instrument generally subject to customs duty (aside of the goods. The Bureau of Customs has 6. Fixed income and other securities from 10% VAT and excise tax on certain the power to conduct post-entry audit on traded in the secondary market or goods). For customs purposes, the value the importers/brokers books within the through an exchange of imported goods are based on their same period to determine compliance with 7. Derivatives, repurchase agreements, transaction value, i.e., the price paid or customs rules and to assess any deficiency and reverse repurchase agreements payable for the goods when sold or export customs duty. 8. Interbranch or interdepartmental to the Philippines. The applicable duty advances within the same legal entity rate (most-favored nation [MFN] rate) Local Taxes 9. All forebearances arising from sales will depend on the appropriate classifi- or service contracts including credit cation of the goods under the Tariff and Under the Local Government Code, local card and trade receivables Customs Code of the Philippines (TCCP) government units (LGUs) are given the 10. Bank deposit accounts without a fixed which generally ranges from 0% to 30%. authority to tax certain activities and term or maturity Preferential rates under the Common business conducted within their jurisdic- 11. All contracts, deeds, documents and Effective Preferential Tariff of the tion unless otherwise expressly exempt transactions related to the conduct of ASEAN Free Trade Agreement (AFTA) by law. LGUs are also authorized to business of the BSP are generally lower than the MFN rates. levy an annual ad valorem tax on real 12. Transfer of property pursuant to tax- property such as land, building, machin- free exchange, mergers, or consoli- Certain importations are exempt from the ery, and other improvements, as well as dations under Sec. 40(C)(2) of the imposition of custom duty, such as condi- on the sale, donation, barter, or on any National Internal Revenue Code tionally free importations, items entered other mode of transfer of real property. 13. Interbank call loans with maturity of into a customs bonded warehouse, and However, the taxing powers of LGUs do not more than seven days to cover importations under special laws. not extend to the levy of income tax, cus- deficiency in reserves against deposit toms duties, DST, estate tax, and gift tax, liabilities, including those between or among others. among banks and quasi banks.

The laws on labor standards and employ- Night shift employees must be paid a dif- ment relations are consolidated in the ferential of not less than 10% of the regu- Labor Code of the Philippines, which lar wage for each hour of work performed is supplemented, from time to time, by between 10:00 p.m. and 6:00 a.m. legislative issuances. The salient points of employment conditions and employee Service Incentive Leave Pay benefits covered by Philippine labor laws are given below. Every employee who has rendered at least one year of service is entitled to a yearly Hours of Work service incentive leave of five days with pay. Eight hours per day or 48 hours per week is the maximum period an employee may Meal and Rest Periods be required to work at his regular rate of pay. Workers are entitled to a 24-con- Every employer is obliged to give his secutive hour rest period after every six employees not less than one hour time- consecutive normal work days. Some off for regular meals, except in the fol- exceptions are managerial employees, lowing cases when a meal period of not field personnel, those in the personal less than 20 minutes a day maybe given, services of another, and workers paid by provided that such shorter meal period is results. credited to the employee as compensable hours worked: (1) where the work is non- Work Day manual in nature and does not involve strenuous physical exertion; (2) where A day is the 24-hour period which begins the establishment regularly operates not from the time the employee regularly less than 16 hours a day; (3) in cases of starts to work. Thus, if an employee regu- actual or impending emergencies or where larly works from 8:00 a.m. to 4:00 p.m., there is urgent work to be performed on the work day of such employee is from machinery, equipment, or installations to 8:00 a.m. of a given day to 8:00 a.m. of avoid serious loss which the employer the following day. Any work in excess would otherwise suffer; or (4) where of eight hours within the 24 hour period the work is necessary to prevent serious is considered overtime work regardless loss of perishable goods. Rest periods of whether the work covers two calendar or coffee breaks running from five to 20 days. minutes shall be considered as compensable working time. Overtime Remuneration Minimum Wage Overtime (OT) premium is allotted for work exceeding the maximum prescribed The minimum wage rates for agricultural period. Table 13 presents the OT rates per and non-agricultural workers in every hour for overtime work rendered on the region are determined by the Regional specified days. Tripartite Wages and Productivity Board. Effective July 1990, RA No. 6727 ratio-

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 56 nalized the structuring of the minimum Table 13 Overtime (OT) Rates wage adjustments in order to address the regional and intraregional disparities in Category Computation the cost of living in different regions (see Table 14 for the minimum wage rates of 1. OT work on a regular day Daily rate x 1.25 2. OT work during rest day or special public holiday nonagricultural workers). First 8 hours Daily rate x 1.30 In excess of the first 8 hours Daily rate x 1.69 Salaries and wages must be paid at least 3. OT work on a special public holiday falling on employee's rest day once every two weeks and must be in First 8 hours Daily rate x 1.50 legal tender and not by means of vouch- In excess of the first 8 hours Daily rate x 1.95 ers, token, or the like. 4. OT work on a regular holiday First 8 hours Daily rate x 2.00 Employees’ Compensation Program In excess of the first 8 hours Daily rate x 2.60 5. OT work on a regular holiday falling on employee's rest day First 8 hours Daily rate x 2.60 Coverage under the Program is com- In excess of the first 8 hours Daily rate x 3.38 pulsory for every employer with one or more employees and for the National Government and only its political subdi- visions and instrumentalities, including government-owned and controlled corpo- and progressive contribution schedule Table 14 Minimum Wage Rates by rations (GOCCs). Private employees are to be determined by PHIC. Table 15 Region (Nonagricultural Jobs) covered under the Social Security System enumerates some of the personal health As of June 16, 2005 (SSS); government employees are covered services granted to members or their Regions Daily Minimum Wage under the Government Service Insurance dependents under RA No. 7875 (effective National Capital PhP325 System (GSIS). February 14, 1995). Region (NCR) Cordillera PhP219 For the private sector, monthly contribu- Emergency, Medical, and Dental Autonomous tions to the Program must be shouldered Services Region (CAR) Region I PhP121 to PhP212 solely by the employer at the rate of 1% Region II PhP165 to PhP208 of the employee’s total monthly salary Every employer is required to keep in his Region III PhP182 to PhP228.50 credits, but not exceeding PhP10.00 per establishment the first-aid medicine and Region IVA PhP210 to PhP277 month. All premiums, revenues, and equipment stipulated by the Department Region IVB PhP216 other collections constitute the State of Labor and Employment (DOLE). Region V PhP152 to PhP187 Insurance Fund, from which the compen- Region VI PhP155 to PhP205 sation and other benefits are paid to the If the work is hazardous, the part-time Region VII PhP190 to PhP223 Region VIII PhP157 to PhP188 employees or their heirs. physician or dentist must be on the Region IX PhP196 to PhP200 employer’s premises at least two hours a Region X PhP211 to PhP218 National Health Insurance day. If the number of employees requires Region XI PhP222 to PhP224 that a full time physician be in attendance, Region XII PhP213.50 All citizens of the Philippines are covered the physician must remain in the employ- Autonomous PhP180 by the National Health Insurance Program er’s premises for eight hours a day. If the Region in Muslim Mindanao (ARMM) (NHIP), which is administered by the work is non-hazardous, the physician and Region XIII – PhP200 Philippine Health Insurance Corporation the dentist may be kept on retainer. Surigao del Norte, (PHIC). All members of NHIP contribute Surigao del Sur, to the National Health Insurance Fund in Agusan del Norte accordance with a reasonable, equitable, & Agusan del Sur (CARAGA)

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 57 Woman and Child Labor Paternity Leave Table 15 Partial List of National Health Insurance Program Benefits A female employee is entitled to mater- Effective August 1996, every married nity benefits. If an employee is an SSS male employee both in the private and • Room and board member and has paid at least three public sectors shall be entitled to a pater- • Service of health care professionals monthly contributions in the 12-month nity leave of seven days with full pay for • Medical examination services period immediately preceding the semes- the first four deliveries of the legitimate • Prescription drugs and biologicals ter of her childbirth or miscarriage, she spouse.

Source: RA No. 7875 is entitled to maternity leave with pay for 60 days or 78 days in the case of cesarean Termination of Employment delivery, subject to certain conditions enumerated in the Social Security Act of The State guarantees the rights of all 1997, such as: workers to security of tenure and protects all workers to arbitrary deprivation of job. 1. The employee should have notified her An employer, therefore, may not termi- employer of her pregnancy and prob- nate the services of an employee except able date of childbirth, which notice for a just cause or when authorized by shall be transmitted to the SSS. the Labor Code. Just causes for termina- 2. The full payment shall be advanced by tion include serious misconduct or willful the employer within 30 days from the disobedience, gross and habitual neglect, filing of the maternity leave applica- fraud, commission of a crime or offense tion. by the employee against the person of 3. The maternity benefits shall be paid his or her employer, and other analogous only for the first four deliveries or causes. If the dismissal is based on any miscarriages. of these just causes, the employer must 4. The SSS shall immediately reimburse give the employee two written notices the employer the amount of the ben- and a hearing or opportunity to be heard if efits advanced to the employee. requested by the employee before termi- nating the employment. No child below 15 years of age may be employed unless directly supervised by Further, the employer may also terminate a parent or guardian in activities that are the employment of any employee due to nonhazardous and do not interfere with the installation of labor saving devices, the child’s schooling. Any minor between redundancy, retrenchment to prevent 15 and 18 years of age may be employed losses, or the closing or cessation of in nonhazardous undertakings if such operation of the establishment or under- activities comply with regulations issued taking. In these instances, the employer is by the DOLE. required by law to serve a written notice to the employee and the DOLE at least Under RA No. 7877, all forms of sexual one month prior to the intended date of harassment in the employment, education, termination. or training environment are unlawful. Employers shall promulgate appropriate rules and regulations to implement the law.

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 58 Failure to comply with the procedural The following visas may be granted Table 16 Key Features of BSP requirements of notice and hearing will to foreigners who will work or render Circular No. 5 make the employer liable for damages. service in the Philippines: (Agabon vs. NLRC, G.R. No. 158693, • Foreign exchange may be freely sold November 17, 2004) Treaty Trader's/Investor's Visa under and purchased outside the banking system Section 9(d) of the Philippine Unions Immigration Act • Foreign exchange receipts, acquisitions, or earnings may be sold for The right of workers to form labor unions This visa is granted to aliens entering pesos to unauthorized agent banks is recognized and respected by the gov- the country to carry on trade between or outside the banking system, retained, or deposited in foreign ernment. Workers may engage in con- the Philippines and the foreign state currency accounts, whether in the certed activities for collective bargaining of which they are nationals, under and Philippines or abroad, or may be used purposes or for their mutual benefit or pursuant to the provisions of a treaty of for any other purpose

protection. amity, commerce, and navigation. The Source: Bangko Sentral ng Pilipinas immigration office requires an initial investment of US$30,000 or annual trade Financial and Monetary Policies worth US$120,000. At present, the only countries with which the Philippines has national's AEP or the expiration of his Philippine monetary policy is enforced entered into a treaty of amity, commerce, or her employment contract, whichever by the BSP created under RA No. 7653. and navigation are the United States of comes first. The AEP is granted by the Prior to May 1993, this authority resided America, Germany, and Japan. DOLE only after the sponsoring company with the Central Bank of the Philippines. complies with the labor market test and Foreign exchange regulations have been Prearranged Employee's Visa submits an Understudy Training Program. relaxed with the issuance of BSP Circular under Section 9(g) of the Philippine The latter requires that the foreign No. 5, dated September 15, 1993. The Immigration Act national train at least two Filipinos under key features of this circular are shown in his or her supervision. Table 16. This is a regular work visa given to foreign nationals to undertake Special Nonimmigrant Visa under Sec. employment in the Philippines in a 47(a)(2) Other Business Regulations technical, managerial, or confidential capacity. However, it must be shown that This type of visa may be issued to Immigration and Employment there are no local Filipinos or residents foreign nationals employed by enterprises Regulations for Foreigners in the who are willing and competent to perform registered with PEZA and the BOI, Philippines the labor or service for which the foreign as well as those who are temporarily national is being hired and that the assigned to work in government projects. The government has liberalized latter's admission would be beneficial Although all of them enjoy multiple entry the visa requirements for certain to the public interest. This type of visa privileges, foreign employees of PEZA- categories of foreigners to encourage is subject to the approval of the Board registered enterprises are also exempt foreign participation in the economic of Commissioners of the Bureau of from fingerprinting and registration development of the country. Foreign Immigration (BI) meeting en banc. with the BI, paying fees, and securing stockholders, investors, representatives of clearances. However, foreign nationals investment houses, and land developers A requirement in processing this visa with this visa are still required to secure are among the categories granted this is the submission to the BI of the Alien an AEP from the DOLE. special incentive. Employment Permit (AEP). Normally, the validity date of this visa is co-terminus with the validity date of the foreign

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 59 Special Nonimmigrant Visa under EO While in the Philippines, aliens are Areas where a project impacts No. 226 allowed by the BI to convert their the environment immigration status from tourist/temporary This visa is granted to foreign personnel visitor to another visa category without 1. Natural environment — land, water, atmosphere, terrestrial life, aquatic assigned to BOI-registered regional having to leave the country. life, ecological balance or area headquarters of multinational companies in the Philippines. They are The foreign national must be in the 2. Socioeconomic conditions — entitled to multiple entry privileges and Philippines when his or her application demographic, lifestyles, amenities, are exempt from paying immigration fees, for conversion of immigration status cultural minorities, historical sites, fingerprinting, registration with BI, and is approved; otherwise, it will be health, economics securing an AEP from DOLE. invalidated. If this happens, there will be a need to file an application for revalidation. Special Nonimmigrant Visa under PD No. 1034 The spouse and dependent children Examples of negative impacts may likewise qualify for the same visa 1. Water and air pollution This visa is granted to foreign personnel category as that of the principal applicant. 2. Destruction of historical or of offshore banks duly licensed by the archaeological sites BSP to operate as an offshore banking While the expatriate's application for 3. Disruption of wildlife habitats unit. They are also entitled to multiple conversion of immigration status is being 4. Increase of urban congestion entry privileges and are exempt from processed by the BI, he or she should 5. Threats to health paying immigration fees, fingerprinting, apply for a Provisional Permit to Work. 6. Undesirable land use patterns registration with BI, and securing an AEP

Source: Implementing Rules and Regulations from DOLE. Philippine Environmental Laws for PD No. 1586 Special Subic Work Visa When an investment involves a proposed project or undertaking which may affect This visa is granted to foreign nationals the quality of the environment, the project employed as executives by Subic Bay proponent is subject to the implementing Freeport Zone enterprises and to other rules and regulations of PD No. 1586, foreign nationals possessing highly otherwise known as the Philippine technical skills. Environmental Impact Statement (EIS) System. PD No. 1586 requires a project Other Immigration Policies proponent to conduct an Environmental Impact Assessment (EIA) to ensure that Foreign nationals who wish to come to all possible environmental effects of the Philippines can either enter as a tourist the project are addressed, in line with without visa under EO No. 408, or secure the country's overall goal of sustainable a temporary visitor's visa under Section development. 9(a) before any Philippine consular post abroad. The Section 9(a) visa can either The EIA process results in the preparation be for business, pleasure, or health and of an EIS or an Initial Environmental normally entitles an alien to an initial stay Examination (IEE), depending on the of 59 days, extendible to a year. location and nature of the project. The

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 60 final report is submitted to the DENR, codified into a single law the different together with other required documents legal issuances governing IPR protection Functions of the Intellectual Property Office such as clearances from other government in the country. With the creation of the agencies and endorsements of the project Intellectual Property Code of 1997 (RA • Examine applications for grant of letters from local government officials. After No. 8293), the Philippines provides patent for inventions and register utility its review, the DENR decides on the an effective means of encouraging models and industrial designs issuance or denial of an Environmental innovation by local and foreign scientists, Examine applications for the Compliance Certificate (ECC), without investors, artists, and other gifted citizens • registration of marks, geographic which the project cannot be implemented through the protection of their intellectual indication, and integrated circuits legally (e.g., the proposed project site property rights and creations. Embodied cannot be altered in any way). in this Act is the establishment of the • Register technology transfer arrangements and settle disputes Intellectual Property Office. involving technology transfer payments, The ECC typically includes a number and develop and implement strategies of conditions which the proponent RA No. 8293 aims to develop domestic to promote and facilitate technology must follow during the construction creative activity, facilitate transfer of transfer and operational phases of the project. technology, attract foreign investments, Promote the use of patent information The ECC identifies all other applicable and ensure market access for our • as a tool for technology development environmental laws, regulations, or products. guidelines which the proponent must • Publish regularly in its own publication comply with to ensure the continuous Due to the extraterritorial nature of IPR the patents, marks, utility models, and industrial designs issued and implementation of the project. If an ECC protection, the Philippines has acceded to approved, and the technology transfer is denied, the proponent may submit a international conventions under the World arrangements registered new EIS corresponding to a new site or International Property Organization. change the facilities' design and operation. The Philippines is a signatory to the • Administratively arbitrate contested following conventions: Berne Convention proceedings affecting intellectual property rights Philippine Laws on Intellectual for the Protection of Literary and Property Rights Artistic Works (Brussels Act of 1948); • Coordinate with other government Rome Convention for the Protection of agencies and the private sector on the The Philippines provides foreign investors Performers, Producers of Phonograms, formulation and implementation of with ample protection of their intellectual and Broadcasting Organizations; and plans and policies to strengthen the protection of intellectual property rights property rights (IPR). In contrast to other Paris Convention for the Protection of in the country countries in the Asia-Pacific region where Industrial Property (Lisbon Revision). IPR protection is either lacking or only recently provided, the Philippines had in place the necessary legal infrastructure for IPR protection even before the country became independent in 1946. This infrastructure is basically patterned after US laws, regulations, and practices. In 1997, the Philippine government

Manpower (Annual Basic Pay)1 Utilities Occupation As of January 2005 Water – Residential6 Chief Executive Officer I PhP3,986,280 First 10 cu.m. PhP46.88 Head of Finance/Finance Director PhP2,596,110 Per excess cu.m. Starts at PhP5.72 Head of Human Resources & PhP2,184,950 Water – Industrial Administration/Director of Human First 10 cu.m. PhP230.52 Resources & Administration In excess Starts at PhP23.20 Head of Information Technology PhP2,451,870 Sewage treatment 60% of basic + CERA7 + Foreign Head of Manufacturing/Director of PhP2,881,010 Currency Differential Adjustment Manufacturing (FCDA)8 Head of Sales/Sales Director PhP2,371,450 Power Rates per kWh9 National Sales Manager II PhP1,613,440 Residential Around PhP6 Accountant PhP336,060 Commercial/Industrial Around PhP7 Systems Analyst PhP385,310 Production Supervisor PhP401,480 Senior Secretary PhP313,790 Telecommunications Secretary PhP238,680 Residential10 Office Driver PhP181,690 Installation PhP1,200 Monthly billing PhP780 Office Space2 Business Based on “Grade A” office developments Installation PhP1,500 Monthly billing PhP1,500 Selling 11 - Makati CBD PhP48,000/m2 Cellular Phone Kits - Ortigas CBD PhP30,000/m2 Prepaid (includes handset and SIM card) Rental Globe PhP3,490-26,090 - Makati CBD PhP375-425/m2 Smart PhP3,290-11,790 - Ortigas CBD PhP220-300/m2 Sun Cellular PhP2,990-35,390 Industry Land and Factory Building Postpaid (subscription has a 24-month contract, includes handset and first month subscription free) Monthly lease rate for industrial land US$0.15-1.20/m2 Globe PhP3,300-28,780 Selling rates of industrial lots US$35-70/m2 Smart PhP2,000-42,500 Monthly lease rate for standard factory building Sun Cellular PhP500-38,000 - Warehouse US$1.74-6.50/m2 Fax Unit12 PhP5,600-14,900 - Bare lot and build-to-suit development US$3.38-5.00/m2 International Calls - International long dis- US$0.40/minute tance direct dial (IDD) rate Accommodations to all countries Sales Residential condo unit – 2-bedroom - Makati PhP47,000/m2 - Ortigas PhP30,000/m2 Monthly Rental House - Makati PhP50,000-250,000 - Ortigas PhP40,000-170,000 - Alabang PhP80,000-200,000 Residential condo unit – 2-bedroom3 - Makati PhP325/m2 - Ortigas/San Juan PhP200/m2 Hotel Costs per Night4 3-star hotel US$35-60 4-star hotel US$60-100 5-star hotel US$100-180 Hotel Car Rental (AVIS)5 US$55-100

©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV 62 Internet Service Fees13 Dial-up rates Installation fee Free-PhP825 E-mail account Included in subscription Web account Included in subscription Monthly fee (depending PhP220-4,950 (VAT-inclusive) on number of hours) Cable/broadband rates Installation fee Free-PhP2,500

E-mail account Included in subscription 1 Web account Included in subscription Watson Wyatt Worldwide Subscription 2 Source: Leechiu & Associates, Inc. Research. Rates Personal account PhP1,500-3,000 (VAT-inclusive) and prices in US$ are as at end-August 2004 (US$1: Corporate account PhP4,000 (3 computers networked) PhP56.8342). PhP9,000 (8 computers networked) Prepared by the Consultancy Services Department PhP80,000 (40 or more computers of Leechiu & Associates Inc. (L&A), a member of networked) FPDSavills International, for information only. US$1,200 (dedicated bandwidth Whilst reasonable care has been exercised in prepar- with unlimited number of ing this, it is subject to change and L&A makes no computers) representation as to its truth, accuracy, or completeness, and accordingly cannot be held responsible for any liability whatsoever for any loss whosoever aris- Mailing Rates ing from or in reliance upon the whole or any part of International the contents. Airmail letters (20 g-1 kg) PhP17-805 3 Additional rate in excess of 1 kg PhP271-400 Monthly lease rates are exclusive of association dues Postcards PhP11 and utility charges. Printed matter (20 g-1 kg) PhP15-737 4 Prices are exclusive of 10% service charge and 10% Each additional 500 g or less PhP252-366 VAT. Domestic (first 20 g-2 kg) 5 Ordinary mail PhP6-120 For a minimum 10-hour charge. Prices are exclusive Priority mail PhP10-130 of gasoline (per consumption) charge, driver’s meal, Express PhP20-150 toll fees and parking charges. Registered mail PhP15-129+PhP5 for return 6 Manila Water receipt 7 PO Box rental per month PhP480-1,440 CERA: PhP1 surcharge for every cubic meter con- Postal ID fee PhP75 (for companies) sumed. PhP245 (for personal use) 8 FCDA: 2.76% of basic. 9 Meralco Others 10 Philippine Long Distance Telephone Co. Household help with free board & lodging14 11 Family driver US$125-140 Various cellular phone service centers in Metro Cook US$125 Manila. Prices of units depend on model, telecom Maid US$50-200 company’s prepaid phone kits and plans, and special Fastfoods and restaurants promos. Set meals in fast-food restaurants US$1-3 12 Various appliance centers in Metro Manila Executive lunch/buffet in restaurants US$5-10 13 Taxicab rates (air-conditioned) Various Internet service providers in Metro Manila Flagdown for first 500 m PhP30 14 Monthly salaries Every 250 m thereafter PhP2

Clark1 Subic Cebu2 Davao 1. Manpower Salary per Month Manufacturing Director PhP23,667 (Entry Level for a PhP20,000-50,000 (Manufac- PhP170,000-180,0003 PhP75,0004 Mfg. Head) turing Head) Sales Director - PhP50,000-60,000 PhP50,000-70,000 PhP50,000 Sales Manager - PhP20,000-30,000 PhP25,000-30,000 PhP18,000 Accountant PhP10,088 (Entry Level) PhP7,000-7,500 (Entry Level) PhP30,000-38,000 PhP35,000-40,000 Software Developer - PhP10,000-17,000 PhP10,000-18,000 PhP8,000 Field Services Engineer - PhP18,000-30,000 PhP40,000-70,000 - Production Supervisor PhP8,831 (Entry Level) PhP7,000-7,500 (Entry Level) PhP35,000-40,000 PhP10,000-15,000 Executive Secretary - PhP10,000-15,000 PhP15,000-18,000 - Secretary - PhP7,000 (Entry Level) PhP8,000-12,000 PhP6,070-8,000 Chauffeur PhP6,154 (Entry Level for PhP6,800 (Entry Level) PhP6,000-7,650 PhP5,070 Messenger-Driver) 2. Office Space 5 Selling N/A N/A PhP45,000/m2 PhP47,000-93,000/m2 Monthly lease rate US$5.50/m2 plus 5% service US$3.50-15/m2 PhP200-375/m2 PhP246-300/m2 charge (ready-to-occupy) Industrial Land & Factory Building Monthly lease rate for industrial US$0.30/m2 (land) US$0.12-4/m2 $0.40/P22.406 PhP150-500/m2 land US$1.50-4.00/m2 (structure) Selling rates for industrial lots N/A N/A PhP20,000/m2 along the PhP700-3,000/m2 highway7 3. Accommodations Sales Residential condo unit (2-bed- - N/A PhP4,000,000 (M) per unit8 N/A room) Monthly Rental House PhP16,500/mo. (2BR unit, PhP39,200-65,000 (2BR unit, PhP32,000-58,000 (execu- PhP15,000-60,000 unfurnished) furnished) tive house)9 PhP22,500/mo. (2BR unit, PhP44,800-67,000 (3BR unit, fully furnished) furnished) PhP50,400-67,000 (4BR unit, furnished) Residential condo unit (2-bed- - PhP30,000-40,000 N/A room) Hotel Costs Per Night 3-star PhP2,000-2,900 $35.71-53.5710 PhP1,100-2,90011 4-star US$125 (Standard) PhP3,200-3,800 PhP3,500 -5,000 PhP1,500-45,600 US$200 (Junior Suite) US$280 (Holiday Villa) US$25 (Extra Person/Bed) 5-star $178.57-1,660.71 Hotel car rental (per day) Within Ecozone limits : PhP1,200 first 3 hours PhP2,000-2,500 PhP350/hour (car w/ driver) PhP320 succeeding hr. PhP500/hour (van w/ driver) 4. Utilities Water – Residential 3 21 —1 13 First 10 m PhP82.50 Standing Charge : PhP363.80 PhP108.51 ( 2 inch meter) PhP32.00 3 3 —3 12 0-10m =PhP14.80/m PhP175.97 ( 4 inch meter) (per m3 ) 11-20m3 : PhP8.91 11-30m3 : PhP16.28/m3 11-20m3 : PhP11.97 11-20m3 : PhP8.40 21-30m3 : PhP9.41 31-60m3 =PhP22.20/m3 21-30m3 : PhP14.07 21-30m3 : PhP10.85 Above 31m3 : PhP9.90 61-100 =PhP25.90/m3 Over 30m3 : PhP38.61 31-40m3 : PhP14.40 over 100m3 =PhP29.59/m3 41 m3 -up: PhP21

Installation fee Installation Fees Internet Service 6. Installation Residential Telephone Rental Telecommunications 5. Power Rates per kWh First 10First Water – Industrial Cook Web account E-mail account billing Monthly Installation Business billing Monthly Thereafter 500m forFlagdown first Taxicab rates (aircon) restaurants in lunch/buffet Executive rants Set inmeals food fast restau Fastfoods and restaurants Maid Family driver help Household w/ free board and lodging 7. Others of plan and hours on type Subscription–depending (in excess)

Water District Cebu Metro from taken are industrial and residential water for All rates Cebu in hotels various from are Rates (CIPC) Center Promotion Investment Cebu from are Rates Inc. Holdings, Cebu from taken Rate Philippines the of Bank Union from taken Rate $1=P56 at converted MEZ, in located land of rate Ave monthly DCIPC and Park Business Pryce from are Rates (DCIPC) Center Promotion Investment City Davao from are rates Manpower branch the in services payroll various from taken are rates Monthly Cebu SGV Corporation Development Clark Rates are from various hotels in Davao, DCIPC Davao, in hotels various from are Rates m 3 - Waived PhP PhP tial : Residen Commercial, Industrial, PhP low As as low As as PhP PhP PhP PhP PhP165 $ $ PhP PhP Above 31 21-30 11-20 PhP PhP 1-3 5-10 1,089.97 1,089.97 charge) (installation 1,590 500 (telephone 500 unit) 50 (telephone unit) 3,000-5,000 8,000-10,000 628.65 6,000 2,335 (installation charge) (installation 2,335 2 25 PhP m m 4.706/kWh 3 3 : : PhP PhP m PhP PhP 3 : 4,000/mo. 8,000/mo. Clark 17.77 18.81 PhP 19.86

- PhP PhP kWh: succeeding 0-20 kWh : Res’l/Comm’l PhP PhP PhP over 100 61-100: 31-60 11-30 0-10 Charge: Standing To other destinations : ToPhP51-300 destinations other District: Business Within Central PhP PhP PhP PhP PhP PhP 45-120 500-waived 540 500 5,000 3,000 3,000 800 250-500 220-1,430 950 m m m 3 23 : m PhP 3 3 PhP PhP : : 3 PhP PhP PhP : PhP38.97 (comm’l) : PhP38.97 36.28/ 50 26.88/ Subic 22 29.57/ 33.59/ 137.64 24 : PhP PhP m m m 3 6.8819 m 363.80 3 3 3 24 23 22 21 20 19 18 17 16 15 14 13

Rates per kWh are taken from CIPC from taken are kWh per Rates Rates taken from various hotels in Cebu in hotels various from taken Rates Rates taken from Department of Trade and Industry and Trade of Department from taken Rates Rates are taken from actual household survey by DCIPC by survey household actual from taken are Rates DCIPC Davao, in ISPs various from are Rates PLDT from taken are rates Internet PLDT from are rates Telephone DCIPC Water District, City Davao from are Rates Rates are from Subic Enerzone Subic from are Rates Rates are from Subic Telecom Subic from are Rates Rates are from Infocomm Technologies Technologies Infocomm from are Rates Rates are from Subicwater Subicwater from are Rates Business: Business: Residential: PhP PhP PhP PhP Business PhP Household Residential: 1 e-mail: free, free, 1 e-mail: Residential: Over 30 21-30 11-20 PhP PhP (Every 300m) 300m) (Every PhP PhP PhP PhP PhP PhP PhP PhP PhP Business PhP PhP PhP Residential beyond: 1 Business: beyond: 1 Residential: each additional: free, 5 e-mails: Business: each additional: 1,500 1,200 14,500 14,500 (1MBps) 1,995 (384 kbps) 4,000 (5124,000 kbps) 5.20 550-750 5,000-7,000 344.60 (1344.60 inch meter) 3,500-5,000 3,000 (7863,000 (kbps) 8,000 (7868,000 kbps) 684-700 60-100 2,184.92 2,184.92 25 2,000-5,000 (5122,500 kbps) 900-1,000 20 m m 3 m PhP PhP 3 15 : : PhP 3 PhP PhP 14 PhP Cebu : 136 st 909 19 PhP PhP 10MB: free, 10MB: free, 5.46 (2 meter) inches 2,000 11.97 14.07 st PhP 10MB: free, 10MB: free, 38.61 2,000 PhP PhP

2 16 90 90 Waived PhP waived PhP waived Industrial: Commercial: Residential: 41 Free- 31-40 21-30 PhP charge Minimum of PhP PhP 11-20 (Every 300m) 300m) (Every PhP PhP PhP PhP PhP PhP m 1,200 (+10%1,200 VAT) 1,000-2,500 1,000-2,500 1,500-2,500 1,500-80,000 45-84 700 (+10% VAT) 375-39,000 32 25 200-552 3 PhP -up: -up: m m m 17 3 3 3 825 : Davao : : PhP PhP PhP PhP PhP PhP PhP 21 8.40 10.85 14.40 3.5783 PhP 3.2428 18 3.4027 2 ©2006 SGV & Co. All rights reserved. 66 The Philippines .ataGlance The Philippines *85.2 million(projected for 2005 ______PhP51.31 asof March 9,2006) Currency Unit Zone Time temperature of 32 Climate Zamboanga Cagayan deOro, Davao, General Santos, Legaspi, SubicBay, Tabaco, Cebu, Iloilo, Ports of Entry Islam (4.6%) Catholic (82.9%),Protestant (5.4%), Major Religion Malay, Spanish, American,andChinese Background Ethnic nese, andSpanish Languages Spoken Literacy Rate years, female (data asof 2005) Life Expectancy (official result of Census 2000) Density Population annual growth rate for 2003) Rate Growth Population Census 2000)* Population legislative, andjudiciary and three equalbranches: theexecutive, government with abicameral parliament provides for apresidential system of System Political Government Capital archipelago of 7,107islands Land Area : Manila (land area of 38.3km : Tropical with anormal year-round : 300,000km : GMT +8hours : 76.5million(official result of : Democratic : 92.6% : Manila, La Union,Aparri, : PhilippinePeso (US$1 = : Predominantly Roman : 67.8years, male; 73.1 : The1987Constitution 0 C (90 : Filipino, English, Chi : 255persons/sq. km. : Christian Malay, Muslim 2 (115,830m 0 : 2.36%(actual F); dry andwet dry F); ) 2 2 ); ) - The literacyrateinthePhilippinesis Education reflect aneclecticculturalheritage. Many aspectsofPhilippineculturetoday followed andlastedfornearly50years. for 333years. American colonialrule Visayas in1565.Spanishrulelasted established ontheislandofCebuin first Spanishsettlementinthecountrywas flourishing civilizationsintheregion. The already hadtradingrelationswiththe Philippines after King Philip II of Spain— the archipelago—eventuallynamed 1521 bytheexplorerFerdinandMagellan, dent. Longbeforeitwas“discovered”in Hindu, andChineseculturesarealsoevi Malay stock.StronginfluencesofIslamic, Majority ofthepopulationarefrom Origin and Culture The People The Philippines in schoolyear 2003-2004 andsecond Elementary schoolsnumbered 41,688 ber ofschoolsandstudentsin thecountry. This importancecanbeseen in thenum means ofmovingupthesocial ladder. the Filipino,andisusuallyregardedasa Education isculturallyveryimportantto Singapore. that ofMalaysia,Indonesia, Vietnam, and highest inSoutheast Asia, higherthan tute forStatistics. This rateisoneofthe listed at92.6%bytheUNESCOInsti - - - - skills, craftsmanship,anddesign artistry. their managementcapabilities, computer region. The peoplearealsorecognizedfor work insurveysofexecutivesthe Asian ers consistentlyratewellinqualityof products. Bothskilledandunskilledwork producing medium-tohigh-technology Filipinos arehighlytrainableandadeptat spoken byasmallminority. Spanish andChineselanguagesarealso tion inbusinessandhighereducation. The spoken andisthemediumofcommunica parts ofthecountry. Englishiswidely over 80dialectsarespokenindifferent Filipino isthenationallanguage,although universities, colleges,andinstitutionsof countries withanedgeinnumberof The Philippinesisoneofthe Asian level. level and6.2millioninthesecondary students wereenrolledintheelementary ary schools,8,091.Closeto13million Language and Skills 2.1 million. for school year 2002-2003 was recorded at 111. Total enrollmentinthetertiarylevel State collegesanduniversitiesnumbered 1,316 wereprivateand173public. satellite campuses,totaled1,735,ofwhich Education Institutions(HEI),including higher learning. As of March 2004, Higher - - ©2006 SGV & Co. All rights reserved. Pacific Ocean bounds itontheeast, southeastern coastofmainland Asia. The The Philippinearchipelagolies off the The Land number, 60.3%wereemployed. persons age15yearsoldandover. Ofthis estimated at52.3million,composedof As of2003,thesizelaborforcewas population. 36.8 million,around48.1%ofthetotal Urban populationwasplacedatroughly lation densityof255personspersq.km. kilometers (km With atotallandareaof 300,000square is estimatedtoreach85.2millionin2005. population hasreached76.5million,and national census,thecountry’s total Based onofficialresultsoftheyear2000 Population population. dhism, compriselessthan15%ofthe Church, togetherwithIslamandBud Kristo andthePhilippineIndependent Christian churches,namely, theIglesiani ists, andLutherans.Locallyestablished denominations includeBaptists,Method tian population.DominantProtestant comprising amajorportionoftheChris the country, withRomanCatholics Christianity isthepredominantreligionin Religion 67 2 ), thecountryhasapopu - - - - China Seaonthewestandnorth. Celebes Seaonthesouth,andSouth considered the country’s premierseaport there are60natural harbors.ManilaBay, coastline of18,411 kilometersonwhich lowlands, highmountainareas, anda Topography isvaried,consistingof and Mindanao. capital cityofManilaislocated, Visayas, Luzon, thebiggestislandgroupwhere are groupedintothreegeographicareas: est archipelagosintheworld. The islands lands andislets,makingitoneofthelarg The Philippinesismadeupof7,107 - - the timeofyear. ity variesfrom70%to85%,depending on ature rangesfrom29 pines isabout2,030millimeters. Temper The averageannualrainfallin thePhilip namely, themonsoonsandtradewinds. general airstreamsthatcrosstheislands, varied weatherconditionsbecauseofthe different partsofthecountryexperience the wetseason,fromJunetoOctober. The dry season,fromNovembertoMay, and The countryhastwodistinctseasons:the meters andacoastlineof192kilometers. facility, hasanareaof1,970squarekilo 0 to34 0 C andhumid - - - - ©2006 SGV & Co. All rights reserved. 68 land transportation. terminals andferryboatsother modesof using theroll-on, roll-off (RO-RO) system of Visayas, andMindanao by land andsea routes The 919-kmnautical highway Luzon, links worldwide. pearl-oysters. ThePhilippinepearlis known The numerous coral are beds hometo seas. and bigeye tuna found canbe inPhilippine the economicallyimportantyellowfin, skipeye, More thanof 2,000species fishincluding waters. mammals found canbe inthecountry's andatturtles, least of 23species marine of theworld, 6out of of the8species sea 488 out of the500known coral species within 100kmof theshoreline. in theworld where 100%of population its live of coastline, andis oneof thefew countries The Philippines is 88%water, with 36,000km the Philippines. The water buffalo (carabao) is indigenous to monkey-eating eagle. suchasthetarsier,species mousedeer, and and inAfrica but is hometo countless rare and strain of thosefound inmainland Asia The Philippines has nowild animals of thesize furniture. Philippine hardwood for used makingfine The Narra is aninternationally known plant species. km Despite atotal land area of amere 298,000 biologically diverse countries intheworld. The Philippines is oneof the10most Resource Base Fast Facts 2 , Philippineforests contain over 15,000 Southeast Asia. A goodpotentialforthe a large areaofdevelopedfishpondsin try’s brackishwaterfishpondsmakeup hectares ofPhilippinewaters. The coun can beharvestedfromthe167million An abundantsupplyofmarineproducts Marine Resources Palawan. mostly foundintheMindanaoareaand as timberland.Commercialhectarageis total landareaofthecountryisclassified dipterocarp varieties. Almost halfofthe rain-type andcontainpredominantly Most Philippineforestsareofthetropical Forests tropical fruitlikebananaandpineapple. coconut, sugarcane,tobacco,abaca,and ing variouscropsincludingrice,corn, Philippine landissuitableforgrow Crops Base The Resource - - include gypsum,salt,sandandgravel, mineral reservesofeconomicsignificance manganese, andmercury. Nonmetallic nickel, chromite,silver, iron,lead,zinc, commercial quantityincludecopper, gold, resources. Metallicmineralsavailablein metallic and29nonmetallicmineral The Philippineshasabout13known Minerals areas. that maystillbedevelopedintofishing there areinterislandwatersandswamps expansion ofinlandfishingremains,as outside thelocalbankingsystem. allowed tobefreelysoldandpurchased conversion intopesosand,ingeneral,are international currenciesareacceptedfor (PhP), dividedinto100centavos.Most The Philippinemonetaryunitisthepeso Currency pyrite. mite, carbide,rockphosphate,guano,and marble, limestone,clay, feldspar, dolo - ©2006 SGV & Co. All rights reserved. country’s leadingagriculturalexports. and banana.Bothcropsareamongthe agricultural yieldsexceptforthecoconut in Visayas andMindanao.Result:lower have reducedplantedareas,particularly dry spellinducedbyElNiño.Farmers high costsoffarminputsandtheextended program, thesectorwitheredfrom Fisheries Modernization Act (AFMA) Despite thegovernment’s Agriculture and ner performancein2004(seeChart2). 2.0% orlessthanhalfits4.9%ban In 2005,theagriculturesectorgrewby Agriculture dampen growthprospectsin2006. remain inthehorizonandarepoisedto (see Chart1). posted amoderate5.1%growthin2005 highest inthepastdecade,economy After acceleratingto6.0%in2004,its The Philippineeconomysloweddown. Economic Growth Economy 2005 in The Philippine * medical andhealth(6.5%), business (18.7%), domesticretailtrade (5.9%), storage andserviceincidental totransport posted above-averagegrowth rateswere a 14.8%growth.Othersubsectorsthat sustained itsrobustperformancewith particularly mobilecommunications, 15.4%. The communicationssubsector, non-banks, ledtheservicessectorwith 2004. Finance,whichincludesbanksand in 2005,ontopofthe7.1%growth of jobsin2005.Itposteda6.3%growth primary sourceofgrowthandprovider The servicessectorhasbecomethe Services 69 Economic dataare asofJanuary 2006 * Manyofthechallenges - Chart 1 Chart Chart 2 Chart 4.7 GNP GDP 2003 20042005 4.3 6.0 GDP Agriculture Industry Services GDP Industry Agriculture Growth of Output, % of Output, Growth 2002 200320042005 Growth ofby Output Growth Sector, 5.1 4.3 5.6 3.7 4.7 4.9 National EconomicandDevelopment Authority (NEDA) National StatisticalCoordination Board (NSCB), Sources: 2.0 6.2 3.8 2003 to 2005,% 5.2 6.0 5.3 5.7 5.8 Sources: NSCB,NEDA 7.1 5.1 6.3 ©2006 SGV & Co. All rights reserved. 70 Chart 3 Chart Growth, % 396 operations, Household Trans/commm, 374 10.0 12.0 14.0 16.0 18.0 20.0 22.0 2.0 4.0 6.0 8.0 Chart 4 Chart 0 Utilities, 185 Utilities, Household furnishings, 58 furnishings, Household 2002 200320042005 Consumer Spending, Spending, Consumer Miscellaneous, 857 Miscellaneous, CPI and Inflation Group, CPI Inflation by and Commodity All items Services Fuel, light & water Apparel, 86 Apparel, in PhP billion Clothing Housing Food andbeverage Sources: NSCB,NEDA and tobacco,and 1815 Food, beverage 2002-2005 11.8 18.0 3.5 4.5 6.4 7.6 Source: NSCB and electricity, gas,andwaterslowed also improvedto9.3%whileconstruction trical machinery, andchemicals.Mining manufacturing, petroleumandcoal,elec thanks toitsfourbiggestsubsectorsfood of industryoutput,improvedto5.6%, facturing, whichaccountsfortwo-thirds Industry growthimprovedto5.3%.Manu Industry outsourcing. cal transcription,andbusinessprocessing such asanimation,contactcenters,medi subsector includesIT-enabled services services (6.0%). The business services growth inOFW remittances. legislated minimumwagesandtherecord down despitethegovernment’s increasein by 10.2%.Consumerspendingslowed contrast, thepurchasesofcarsincreased appliances fellconsiderablyin2005.By sales ofmajorandevensmallhousehold and householdfurnishingsdeclined. The while purchasesoffuel,lightandwater, ated. Spendingonfoodsloweddown real terms,consumerspendingmoder increases wereduetohigherprices.In increased 16.7%.Butthedouble-digit rose 34.9%whilefuellight,andwater Transport &communicationssales budget, grewby12.2%(seeChart3). account forabouthalfofthehousehold proved to12.8%.Foodsales,which growth driverin2005.Pesosalesim Consumer spendingremainedthemain Consumer Spending down. - - - - - ©2006 SGV & Co. All rights reserved. Overseas Filipino Workers 10.3%. ment wasestimatedinOctober2005at for itsgrowinglaborforce.Unemploy economy hasnotgeneratedenoughjobs skilled labor. Unfortunately, thedomestic in termsofavailabilityandgrowth ranked thePhilippineamongleaders petitiveness Yearbook Report2005 lion inOctober2005.Inthe The country’s laborforcereached37mil Labor Force and Unemployment erode thehouseholds’ purchasingpower. of EVAT, inflationisexpectedtofurther the worldmarketandimplementation rose by11.8%. With thehighoilpricesin water soared18.0%,whilethatofservices inflation. Butthepricesoffuel,light,and food andbeverageswerelowerthan The priceincreasesofbasicgoodslike the 6.0%averagein2004(seeChart4). Inflation roseto7.6%in2005ontopof Inflation ties, andsavings ofhouseholds. household needs,microenterprise activi and Mexico. These remittances fundbasic overseas remittancesbehindIndia, China, pines hasbecomethelargest recipientof the 2004level(seeChart5). The Philip dollar remittancesfora25%growthover ber 2005,OFWssentUS$10.7billionin workers afterMexico.InJanuary-Decem is thesecondlargest sourceofmigrant ers, ordomestichelpers. The Philippines production orserviceworkers,labor Middle Eastasprofessionals,technicians, America, Asia, Australia, Europe,andthe About amillionOFWsaredeployedin vantage ofjobopportunitiesoverseas. Filipinos haveincreasinglytakenad 71 World Com , IMD ------10000 10500 11000 5000 5500 6000 6500 7000 7500 8000 8500 9000 9500 Chart 5 Chart 6,031 2001 2002200320042005 OFW Remittances, OFW Remittances, 6,886 in US 7,578 $ million Source: BangkoSentralngPilipinas(BSP) 8,550 10,689 ©2006 SGV & Co. All rights reserved. 72 Processed Food Other Industrial Petroleum pdts Coconut pdts Chart 7 Chart Electronics Machinery Garment Others Malaysia, 2.5 Singapore, 2.7 Singapore, s Chart 6 Chart 0 Key Export Markets, Markets, Key Export 0.7 0.7 0.8 0.8 HK, SAR,HK, 3.3 Others, 10.1 Others, 2.2 2.6 5 Key Export Products, Products, Key Export Netherlands, 4.0 Netherlands, 6.1 10 in US 15 $ billion in US China, PR,4.1 20 $ billion USA, 7.4 2530 Japan, 7.2 Source: DTI Source: DTI 27.3 Year-on-year growthofthesector, Yearbook 2005 ports inthe was givena#1ratingforhigh-techex 66.3% oftotalexports. The Philippines country’s topexport,accountingfor Electronic productscontinuedtobethe a negligible3.9%. US$39.7 billion. Year-on-year growthwas (see Chart6).In2004,exportstotaled Philippine merchandiseexportsin2005 The DTIreportedUS$41.2billionof Exports Singapore, andMalaysia. were China,theNetherlands,HongKong, comparable period.Othermarketsofnote exports toJapandeclinedby9.8%forthe increased by9.6%year-on-year, while 17.5% (seeChart7).ExportstotheUS exports ofUS$7.2billion,accountedfor accounted for18%whileJapan,with The US,withUS$7.4billioninexports, biggest marketsforPhilippineexports. The UnitedStatesandJapanwerethetwo 2004 figures. and increased by 8.0% in comparison with represented 6.3%oftotalexportsin2005 tures, andpetroleumproducts.Machinery processed foods, other industrial manufac equipment, garments,coconutproducts, ucts weremachineriesandtransport The country’s othermajorexportprod surging oilprices. curtailed spendingintheaftermathof electronics weakenedin2005aspeople however, wasonly2.1%. Demandfor IMD World Competitiveness . - - - ©2006 SGV & Co. All rights reserved. 2004. billion incomparisonwithimports US declinedby4.0%in2005toUS$8.2 and Japan(seeChart9).Importsfromthe The majorsuppliersin2005weretheUS 2005 fromUS$13.4billionin2004. dropped by15.6%toUS$11.3 billionin tations ofotherindustrialmanufactures tronic componentsandproducts.Impor for themanufactureorassemblyofelec worth ofelectronicpartsandaccessories products importedaboutUS$12.0billion producers. Manufacturersofelectronic for manufacturingexportersandother primarily ofrawmaterialsandinputs figures (seeChart8).Importsconsisted billion, higherbyonly1.8%over2004 2005, withimportstotalingUS$47.0 The totalvalueofimportswasflatin Imports and investment. help boostthecountry’s prospectsintrade economies andemerging marketswill Economic arrangementswithindustrial digit rates. to theseregionshavegrownatdouble- Middle East,andtheCaribbean.Exports oping economiesin Western Europe,the Exporters havediversifiedtootherdevel 73 - - - Other Industrial Processed food Chart 9 Chart manufactures Machineries/ Electronics Saudi Saudi Arabia, 2.2 Chemicals Petroleum transport products Others Others ,16.0 Others Metal Chart 8 Chart Key Import Suppliers, Suppliers, Key Import 0.0 S. Korea,2.3 China, PR,3.0 Key Import Products, Products, Key Import 1.5 2.0 1.8 2.6 4.0 6.08.010.012.0 3.8 Taiwan, 3.4 in US $ billion 6.2 in US Singapore, 3.7 Singapore, $ 7.7 billion USA, 8.2 Japan, 8.0 11.3 12.0 Source: DTI Source: DTI ©2006 SGV & Co. All rights reserved. 74 100 120 140 160 180 20 40 60 80 0 Chart 10 Chart 2002 200320041 46.0 Approved Foreign Investment, Direct 34.0 of approvedFDIs. Among theprojects lion. Manufacturingwasthetop recipient FDIs withpledgesofaboutPhP23.5 bil Japan wasthetopsourceofapproved PhP60 billion(seeChart10). total approvedFDIasofOctobercloseto of thirdquarters2005broughtupthe Expansions inapprovedFDIthesecond proved FDItotaledonlyPhP31.5billion. in Bataan.Inthefirstquarterof2005,ap Nauru fortheoperationofapowerplant approved applicationoftheRepublic PhP118.6 billionmainlybecauseofthe quarter of2004,approvedFDIsoaredto with thesameperiodin2004.Infirst of 2005contractedby56%incomparison FDI commitmentsforthethreequarters Approved FDI 155.5 in PhP billion st 59.4 -3 rd Q2005 Source: NSCB - - while, oilpriceshoveredatUS$60a Ratings andStandard&Poor's.Mean resulting inimprovedratingsfromFitch measures toaddressthechronicdeficit, Government hasimplementedreform does notaugurwellfortheeconomy. 5.3% target fortheyear. The slowdown The 5.1%growthin2005fellshortofthe Prospects for 2006 ments. to begeneratedbytheseapprovedinvest plants. A totalof75,874jobsareexpected chemical productsandoperationofpower approved werethemanufactureofpetro tive branch,thelegislative and divided intothreebranches:the execu The currentPhilippinegovernment is ing independencein1946. Japanese rulein1942beforeagainattain Manuel Quezon. The countryfellunder governing commonwealthunderPresident In 1935,thePhilippinesbecameaself- before beingcededtotheUnitedStates. der Spanishruleforoverthreecenturies during the16 The countrybecameaSpanishcolony Independence Day. in Asia andconsidersJune12,1898its The Philippinesisthefirstdemocracy System The Political growth ofabout5%. Private economistsanddonorsproject ects economicgrowthof6.3%to7.4%. to buildup.For2006,governmentproj remains soft.Politicaltensionscontinue barrel anddemandforelectronicexports th centuryandremainedun ------©2006 SGV & Co. All rights reserved. greater stabilityandeconomicprogress. The Ramosadministrationwasmarkedby of powertohersuccessor, FidelRamos. She presidedoverthepeacefultransfer authentic democraticrulewasrestored. Aquino wasinstalledasPresidentand other countries. nonviolent movementsfordemocracyin zon C. Aquino. PeoplePowerinspired revolt, abloodlessrevolutionledbyCora toppled in1986bythe“PeoplePower” and doledouttocronies. The systemwas remained liberalizedbutconsolidated in 1972.UndertheMarcosregime,trade nand Marcos,whodeclaredmartiallaw rupted duringthe21-yearruleofFerdi Philippine democratictraditionwasinter is theSupremeCourt. of asystemcourts,thehighestwhich sentatives. The judicialbranchismadeup of theSenateandHouseRepre branch isabicameralcongressconsisting ment—and thecabinet. The legislative the chiefofstateandheadgovern consists ofthePresident—whoisboth the judicialbranch. The executivebranch countryside. undertake economicactivitiesinthe empowering localgovernmentunitsto also passedtheLocalGovernmentCode, in economicandsocialdevelopment.It encouraging privatesectorparticipation tion inpreviouslyregulatedsectors,and scheme, allowingprivatesectorparticipa nomic reforms,implementingtheBOT The governmentcarriedoutkeyeco 75 ------entrepreneurs. velopment ofandsupportfortwomillion hectares ofagri-businessland,andthede two years,thedevelopmentofmillion from US$38billiontoUS$50in 28% intwoyears,theincreaseexports the investmentratefrom19%ofGDP to dence from34%to17%,theincreasein to 2010,thereductionofpovertyinci the increaseingrowthto7%ormoreup center in Asia. Specifictargets include best internationalserviceandlogistics development ofSubicandClarkintothe Luzon, Visayas, andMindanao;the centers forgovernmentandhousingin tion ofMetroManilabydevelopingnew water supplytoallbarangays;deconges also includestheprovisionofpowerand structure toconnecttheentirecountry. It development oftransportanddigitalinfra all, balancingthenationalbudget,and of sixto10millionjobs,educationfor agenda. This agendacoversthecreation Arroyo’s 10-pointnationaldevelopment Term DevelopmentPlanrevolvesaround The currentadministration’s Medium dent in2004. ceeded him.ShewasreelectedasPresi President, GloriaMacapagal-Arroyo,suc in hisousterJanuary2001.His Vice second PeoplePowerrevolt—resulting led towidespreaddemonstrations—a impeachment trialoncorruptioncharges term wascuttothreeyearsafterhis sectors ofsociety. However, hissix-year to addresstheplightofdisadvantaged in 1998.Hisadministration’s thrustwas Joseph EjercitoEstradasucceededRamos ------Vice President Gloria Macapagal-Arroyo as Jr. administered the oath of office to then government. Chief Justice Hilario Davide view of massresignations from his declared Joseph Estrada unable to rulein In January2001,theSupreme Court exile after a21-year rule. phenomenon forced Ferdinand Marcos into In February 1986,theinspiring PeoplePower 1898. DayIndependence from Spain is June12, The Philippines is thefirst democracy inAsia. Politics Fast Facts in per capitain per SMS usage. the Philippines is considered theworld leader the country’s telecommunications companies, (SMS) (otherwise known astext message) of extensive useofmessage theshort service Report according ot thelatest 2000 to 32.9millionasof theendof 2004 the Philippines increased from 6.4millionin ofThe number mobilephonesubscribers in 1985 and1998. performance rankings by 20ranks between together with China, moved uptheindustrial Development Scoreboard.The Philippines, among thebiggest winners intheIndustrial Organization (UNIDO)cited thePhilippines the United Nations Industrial Development Learning and throughInnovation Competing 2002/2003: Report Development In Industrial 2000. improved performance export from 1985- as oneof theworld’s winners export for its Development (UNCTAD) cited thePhilippines United Nations Conference onTrade and In the Economy/Business Estrada’s constitutional successor. World Investment Report 2002 Report World Investment of UNCTAD. With Filipinosmaking Information Economy , the , ©2006 SGV & Co. All rights reserved. 76 Vice Chairmanfor Assurance and Chairman andManagingPartner Roman FelipeS.Reyes Vice ChairmanforIndustries Advisory BusinessServices Deputy ManagingPartner David L.Balangue Luis Y. Benitez,Jr. Washington SyCip Amelia B.Cabal Vice Chairmanand * * * Vice Chairmanfor Financial Markets Cirilo P. Noel Founder organization canimplement abroad array of solutions to helpcompanies capture growth, improve With extensive businessknowledge experience, andhands-on industry theErnst &Young professional services,understands thebusinessissues that are importantto seniorexecutives. SGV &Co. is practice amember of Ernst &Young Global.Ernst &Young, a global leader in development. services moreadded to clientsbut, importantly, its intheir andtheregion’s toapartner become facilities,art andanenviable international network. TheFirmenvisions not only to give value- resources nearly inits 60years of operation—highly qualifiedandcompetent staff, state-of-the- SGV &Co.’s track record has remained unmatched intheregion. Ithas accumulated invaluable of SGV &Co. ISO-certified has been since1996. holding thehighest standards of quality, theAssurance andAdvisory BusinessServices division solutions that draw ondiverse competencies anddeep inassurance, andrisk tax, services.Up try. Itemploys over 1,800people.SGV professionals from various disciplines provide integrated SGV &Co. is thePhilippines’ largest professional services firm with nine offices across thecoun as emerging growth companies. today’s leading globalcorporations aswell services across allindustries to many of andtransactionaccounting, tax, advisory than 140countries, offering auditing, serve astrusted business advisors inmore anywhere in the world. 107,000 people Its financialperformance, and manage risk— - - ©2006 SGV & Co. All rights reserved. Tel :(632)894-8108/(0917)894-8108 [email protected] Head Luis Y. Benitez, Jr. • • • • • • • • • that are applicableto everyclient engagement. comprehensive standards andquality controls tools. Themethodology is supplemented by process management anddocumentation auditors with are ourglobalaudit equipped technology andknowledge enablers. Allour our global,risk-based audit methodology and We have invested substantially ininnovating Services and Business Advisory Assurance Services 77

Compilation andReview Services External Audit Due Diligence Work Accounting Advisory andConsultation Extended Audit Services Regulatory Compliance US Generally Accepted Accounting International Accounting Standards Accounting Consultations Services onDeal Structuring Principles (GAAP) Conversion Conversions andAdvisory Tel: (632)894-8144/(0917) 894-8144 [email protected] Head Cirilo P. Noel • • • • • • • • • • • • • individuals. prepare US 1040andPhilippinereturns for make usvaluable to We ourclients. also contractpricing; review; andestate planning financial productsandarrangements; transfer acquisitions, mergers, andconsolidations; transactions; corporate restructuring on and Industry. Ourtax advice oncross-border Commission, andtheDepartment of Trade Authority, theSecurities and Exchange Authority, thePhilippineEconomic Zone Authority, theBases Conversion Development agencies suchastheSubicBay Metropolitan of Finance, governments, local andother the Bureau of Customs, theDepartment before theBureau of Internal Revenue, services. We alsoprovide advocacy work advisory, taxand planning, outsourcing We offer afullrange of tax compliance, tax Tax Services

Litigation Services Support Tax Advocacy/Controversy Work Tax DueDiligence Review Tax Planning Engagement Tax Compliance Review Tax Seminars Estate/Family Wealth Planning Income Tax Return Preparation Contract Tax Services/Outsourcing Customs Services Transfer PricingServices General Advisory Services Investment Advisory Services • ongoing feedback through internal audits. your businessandindustry, andproviding our insights onthecritical issues affecting reviewing your company’s risk profile, sharing executing your businessstrategies by We helpyou manage risk effectively while and Risk Technology Services Tel: (632)894-8107/(0917)894-8107 [email protected] Head Medel T. Nera • • • most cost-effective manner. maximum andrisk security mitigation inthe businessstrategiessupport andprovide in theirefforts to ensure that IT investments and implementation. We helporganizations assurance to IT controls design andsecurity ranging from IT risk management and technology andsecurity-related services We offer comprehensive information • • •

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Cedric M.CaterioCedric O.Alicia Lu -Tax -Tax -Tax -Audit -Audit -Tax ©2006 SGV & Co. All rights reserved. 79 in this brochure, it cannot held responsible be for any errors oromissions therein. Whilethepublisher has taken everycare with regard to theaccuracy of theinformation subsequent purchaser. published andwithout asimilar condition includingthis onthe conditionimposed being otherwiseor be circulated inany form of bindingorcover other than that inwhich it is transmitted inany form orby any means without thepriorpermissionof thepublisher, Noof part this publication may reproduced, be stored inaretrieval system, or All rightsreserved Calabarzon ASEAN ARMM CITEM DepEd EPIRA AFMA GOCC DENR FCDU ECCP CSEZ BPRT DOLE FTAA AFTA CME CWT CNG GNP GDP GDP FWT FINL CDC BSP DOE AEP EDC EDC ECC EDA DOT EPZ DST BOT BOI BIR IAS FDI FDI EIS EIA DTI FIA ICT EO EP BI IE

Government-Owned and-Controlled Corporations Gross national product Gross domestic product Final withholding tax Financial orTechnical Assistance Agreement Foreign Investments Negative List Foreign Investments Act Foreign Direct Investment Foreign currency depositunits processingExport zone Electric Power Reform Industry Act Exploration Permit Executive Order Environmental Impact System Environmental Impact Assessment DevelopmentExport Council DevelopmentExport Act of 1994 European Chamberof Commerce of thePhilippines Environmental Compliance Certificate Department of Trade andIndustry stampDocumentary tax Department of Tourism Department of LaborandEmployment Department of Energy Department of Environment andNatural Resources Department of Education Creditable withholding tax Clark Economic Special Zone Compressed natural gas Coco methyl ester Center for International Trade Expositions andMissions Clark Development Corporation Southern Luzon Batangas, Rizal, andQuezon provinces in Multisectoral project complex inCavite, Laguna, Bangko Sentral ngPilipinas Branch profits remittance tax Build-Operate-Transfer Board of Investments Bureau of Internal Revenue Bureau of Immigration Association of South East Asian Nations Autonomous Region of MuslimMindanao ASEAN Free Trade Agreement Agricultural andFisheries Modernization Act Alien Employment Permit Industrial estate Information andCommunications Technology International Accounting Standards Glossary of Frequently Used Abbreviations Glossary and Terms SOCSKSARGEN North Quad North Napocor ROHQs TESDA SBMA PICPA RORO NSCB OFWs NEDA OECD SEIPI PEZA OBUs PECR RHQs NPAs MCIT NHIP LGUs PHIC NPLs MFN IFRS SME R&D NPC SSS SRC RWs SEC SPV SBF PSE IMF MW VAT IPO IPR TIN IPP ITH MA RA PD IT

Nonperforming loans National Power Corporation Nonperforming assets Sur, La Union,Pangasinan, Abra, andSouthern Benguet Northwestern Luzon Growth Quadrangle integrating Norte, Ilocos Ilocos National Health Insrurance Progran National Economic andDevelopment Authority National Power Corporation Megawatts Most-favored nation Minimum corporate incometax Mineral Agreement Local government units Income tax holiday Information technology Intellectual rights property Investment Priorities Plan Initial publicoffering International Monetary Fund International Financial Standards Reporting Value-added tax Taxpayer Identification Number Technical Education Development andSkills Authority SystemSocial Security Securities Regulation Code vehicle Special-purpose Sultan Kudarat, Sarangani, andGeneral Santos City Economic growth corridorinMindanao consisting of South Cotabato, Small enterprises andmedium Semiconductor andElectronics Industries inthePhilippines,Inc. Securities andExchange Commission Subic Bay Metropolitan Authority Subic Bay Freeport Economic andSpecial Zone Regional Warehouses Roll-0n, Roll-off Regional Operating Headquarters Regional orArea Headquarters Republic Act Research anddevelopment Philippine Stock Exchange Philippine Institute ofPublic Accountants Certified Philippine Health Insurance Corporation Philippine Economic Zone Authority Philippine Energy Contracting Round Presidential Decree Overseas Filipinoworkers Organization for Economic Co-operation andDevelopment Offshore units banking National Statistical Coordination Board Information inthis brochure is asof March 2006. Photo credits (page 68),EY Branding Zone (other photos) Inc. (page 11),MichelleMalasig (page 67),JingAntonio Productions andTheAnimation Council of thePhilippines, Carla Madarang (cover), WilliedeVera (page 9),NAVEL ©2006 SGV & Co. All rights reserved. 80 SyCip Gorres Velayo &Co www. sgv.com.ph All rightsreserved. © 2006SGV & Co.