ChE 175: Investment Laws

Front: What is the title of Republic Act No. 5186?
Back: Investment Incentives Act

Front: When was Republic Act No. 5186 enacted?
Back: September 16, 1967

Front: What was the primary purpose of the Investment Incentives Act?
Back: It prescribed incentives and guarantees to investments in the Philippines, created a Board of Investments, and appropriated the necessary funds for these purposes.

Front: What significant action was taken regarding the Investment Incentives Act?
Back: The Act was repealed.

Front: What is the title of Executive Order No. 226?
Back: Omnibus Investments Code of 1987

Front: Who signed the Omnibus Investments Code of 1987?
Back: President Corazon C. Aquino

Front: When did the Omnibus Investments Code of 1987 take effect?
Back: August 13, 1987

Front: What is the purpose of the Omnibus Investments Code of 1987?
Back: It integrates the basic laws on investments, clarifying and harmonizing their provisions to encourage and guide domestic and foreign investors.

Front: Is the Omnibus Investments Code of 1987 still applicable?
Back: Yes, it is still applicable, although some parts have been repealed and amended.

Front: What sectors does the State encourage private domestic and foreign investments in according to Article 2?
Back: Industry, agriculture, mining, forestry, tourism, and other sectors of the economy.

Front: What is the first goal of the State in encouraging investments as stated in Article 2?
Back: To provide significant employment opportunities relative to the amount of capital invested.

Front: What is the second goal of the State in encouraging investments as stated in Article 2?
Back: To increase productivity of land, minerals, forestry, aquatic, and other resources of the country and improve utilization of products.

Front: What is the third goal of the State in encouraging investments as stated in Article 2?
Back: To improve the technical skills of people employed in enterprise.

Front: What is the fourth goal of the State in encouraging investments as stated in Article 2?
Back: To provide a foundation for the future development of the economy.

Front: What is the fifth goal of the State in encouraging investments as stated in Article 2?
Back: To meet tests of international competitiveness.

Front: What is the sixth goal of the State in encouraging investments as stated in Article 2?
Back: To accelerate the development of less developed regions of the country.

Front: What is the seventh goal of the State in encouraging investments as stated in Article 2?
Back: To result in increased volume and value of exports for the economy.

Front: What is the purpose of fiscal incentives as described in the Omnibus Investments Code?
Back: To compensate for market imperfections, reward performance contributing to economic development, and be cost-efficient and simple to administer.

Front: How long can fiscal incentives be extended for under the Omnibus Investments Code?
Back: Fiscal incentives can be extended for a period of not more than 10 years from registration or the start-up of operation unless a specific period is otherwise stated.

Front: What does the Board of Investments (BOI) implement according to Article 3?
Back: BOI shall implement the provisions of Books 1 to 5 of the Omnibus Investments Code.

Front: How many governors are there in the Board of Investments (BOI)?
Back: Seven governors.

Front: Who is the chairman of the Board of Investments (BOI)?
Back: The Secretary of Trade and Industry.

Front: Who are the other members of the BOI, apart from the Secretary of Trade and Industry?
Back: Three Undersecretaries of Trade and Industry chosen by the President and three representatives from other government agencies and the private sector.

Front: What are the qualifications for the governors of the BOI?
Back: They must be citizens of the Philippines, at least 30 years old, have good moral character, and recognized competence in fields like economics, finance, banking, commerce, industry, agriculture, engineering, law, management, or labor.

Front: What is one of the duties of the BOI as stated in Article 7?
Back: To prepare the annual Investment Priorities Plan.

Front: What does the BOI do in case of a controversy between registered enterprises and government agencies?
Back: The BOI decides the controversy within 30 days and allows the investor or registered enterprise to appeal the decision to the President within 30 days.

Front: What can the BOI recommend to the Commissioner of Immigration and Deportation?
Back: The BOI can recommend the entry of foreign nationals into the Philippines for employment.

Front: What does the BOI periodically check and verify in relation to registered enterprises?
Back: The proportion of the participation of Philippine nationals and the compliance of registered enterprises with the regulations.

Front: Under what conditions can the BOI cancel or suspend the registration of a registered enterprise?
Back: For failure to maintain qualifications or violations of the provisions of the Omnibus Investments Code, and they may also require a refund of incentives with penalties.

Front: What type of studies can the BOI prepare or contract for under its powers and duties?
Back: Feasibility and pre-investment studies for pioneer areas.

Front: What program can the BOI formulate for industries facing dislocation or inefficiency?
Back: Rationalization programs.

Front: What can the BOI do in the case of ASEAN projects or investments by ASEAN nationals?
Back: The BOI can suspend the nationality requirement or any other nationalization statute.

Front: What is one of the duties of the BOI in regulating foreign investments in the Philippines?
Back: To regulate the making of investments and the doing of business within the Philippines by foreigners.

Front: How does the BOI help prospective foreign investors?
Back: By providing information through Philippine Diplomatic Missions.

Front: What is the BOI’s responsibility regarding areas declared as preferred areas of investments?
Back: To collate, analyze, and compile information and studies concerning these areas.

Front: What is the definition of a registered enterprise according to Article 11?
Back: A registered enterprise is an individual, partnership, cooperative, corporation, or entity incorporated under Philippine laws and registered with the Investment Promotion Agency, excluding certain services like banks, retail, restaurants, and others.

Front: What is considered a foreign investment under Article 14?
Back: A foreign investment is an equity investment owned by a non-Philippine national in the form of foreign exchange or assets transferred to the Philippines, registered with the Central Bank and the Board of Investments.

Front: Who is considered a Philippine national according to Article 15?
Back: A Filipino citizen, a Filipino-owned corporation with at least 60% of the capital stock, or a trustee of funds with at least 60% of the benefits for Filipinos.

Front: What are preferred areas of investment as defined in Article 16?
Back: Economic activities declared by the Board as preferred investments, which can be either non-pioneer or pioneer.

Front: What defines a pioneer enterprise according to Article 17?
Back: A pioneer enterprise is one that manufactures, processes, or produces goods not commercially produced in the Philippines, uses new methods or systems, supports national food self-sufficiency, or produces non-conventional fuels or energy.

Front: What is a non-pioneer enterprise as defined in Article 18?
Back: A non-pioneer enterprise is any registered producer enterprise other than a pioneer enterprise.

Front: What does "expansion" mean according to Article 19?
Back: Expansion includes modernization, rehabilitation, increasing production volume, upgrading product quality, or utilizing idle equipment.

Front: What is meant by "measured capacity" as defined in Article 20?
Back: Measured capacity is the estimated additional volume of production or service determined by the Board to supply the economy's needs at reasonable prices.

Front: What is a tax credit as described in Article 21?
Back: A tax credit is an amount against taxes or duties paid or to be paid, issued by the Secretary of Finance or the Board, valid for ten years.

Front: What is considered "export sales" under Article 23?
Back: Export sales include the FOB value of products exported directly or sold to an export producer or trader, and certain sales to export processing zones, foreign military bases, or diplomatic missions.

Front: What other sales are considered "export sales" under Article 23?
Back: Commission income earned by export traders, and sales of locally manufactured goods to Filipinos abroad or non-residents, paid in convertible foreign currency.

Front: What does "production cost" include according to Article 24?
Back: Production cost includes the total cost of direct labor, raw materials, and manufacturing overhead incurred in the production or processing of registered enterprise products.

Front: What is the definition of "processing" under Article 25?
Back: Processing is converting raw materials into marketable products through various physical or chemical means, excluding mere packing or packaging.

Front: What did the Investment Priorities Plan (IPP) contain before it was repealed in Article 26?
Back: The IPP contained activities encouraged for investment, public utilities qualifying for incentives, activities utilizing indigenous non-petroleum energy, and other criteria for investment promotion.

Front: What replaced the Investment Priorities Plan (IPP) introduced in the Omnibus Investments Code of 1987?
Back: The Investment Priorities Plan (IPP) was replaced by the Strategic Investment Priorities Plan under RA 11534 (CREATE Act).

Front: Which articles were repealed with the introduction of the Strategic Investment Priorities Plan under the CREATE Act?
Back: Articles 27, 28, 29, 30, and 31 were repealed with the introduction of the Strategic Investment Priorities Plan.

Front: What is RA 11534 also known as?
Back: RA 11534 is also known as the "Corporate Recovery and Tax Incentives for Enterprises Act" or "CREATE."

Front: When was RA 11534 (CREATE Act) signed and made effective?
Back: RA 11534 (CREATE Act) was signed by President Rodrigo Roa Duterte and became effective on April 11, 2021.

Front: Where can the Strategic Investments Priorities Plan be found under RA 11534?
Back: The Strategic Investments Priorities Plan is found in Section 16 of RA 11534 as an amendment.

Front: What changes were made to the National Internal Revenue Code (NIRC) of 1997 under RA 11534?
Back: Section 16 introduced a new Title XIII to the NIRC, titled "Tax Incentives," and the existing Title XIII and XIV were re-sectioned accordingly.

Front: Where is the Strategic Investment Priorities Plan (SIPP) found in RA 11534?
Back: The Strategic Investment Priorities Plan is found in Section 16 of RA 11534 as an amendment.

Front: What is the new Title XIII introduced in the National Internal Revenue Code (NIRC) under RA 11534?
Back: The new Title XIII is "Tax Incentives," which introduces tax incentives for strategic investments.

Front: Who is responsible for formulating the Strategic Investment Priority Plan (SIPP)?
Back: The Board of Investments, in coordination with the Fiscal Incentives Board, Investment Promotion Agencies, other government agencies administering tax incentives, and the private sector, is responsible for formulating the SIPP.

Front: How long is the Strategic Investment Priority Plan (SIPP) valid?
Back: The SIPP is valid for a period of three years, subject to review and amendment every three years unless a supervening event requires its review.

Front: What are some of the criteria for projects or activities to be included in the Strategic Investment Priority Plan (SIPP)?
Back: The projects must:

Substantially invest and create employment.
Generate net exports.
Use modern technology.
Contribute to sustainable development goals.
Address gaps in the supply or value chain.
Promote competitiveness.

Front: What must all sectors or industries included in the SIPP undergo?
Back: All sectors or industries included in the SIPP must undergo an evaluation process to determine their suitability and potential for long-term growth and sustainable development.

Front: Can projects or activities that are not listed in the Strategic Investment Priority Plan (SIPP) be accepted by Investment Promotion Agencies?
Back: No, projects or activities not listed in the SIPP shall be automatically disapproved.

Front: What are some of the activities listed in Tier 1 of the 2022 SIPP?
Back:

Qualified manufacturing activities, including agro-processing
Agricultural, fishery, and forestry products
IC design
Creative industries and knowledge-based services
Maintenance, repair, and overhaul of aircraft
Charging/refueling stations for alternative energy vehicles
Industrial waste treatment
Telecommunications
Mass housing
Infrastructure and logistics

Front: What are Tier 2 activities in the 2022 SIPP focused on?
Back: Tier 2 activities focus on upgrading the Philippines' value chains, such as:

Green ecosystems (EV assembly, renewable energy, etc.)
Health-related activities (vaccine self-reliance, specialty hospitals)
Defense-related activities (endorsed by Department of National Defense)
Industrial value-chain gaps (steel, textiles, crude oil refining)
Food security-related activities (animal vaccines, hybrid seeds)

Front: What are the activities listed in Tier 3 of the 2022 SIPP?
Back:
Tier 3 activities are strategically important for the Philippine economy and include:

R&D and adopting advanced digital production technologies (AI, robotics, nanotechnology)
Highly technical manufacturing and production of innovative products (aerospace, medical devices, IoT devices)
Establishment of innovation support facilities (R&D hubs, tech startups, science parks)

Front: What are some examples of activities under Tier 3 related to advanced technologies?
Back:

Robotics
Artificial intelligence (AI)
Additive manufacturing
Data analytics
Nanotechnology
Biotechnology
Production and/or adoption of new hybrid seeds

Front: What is required for the application of enterprise registration under the Omnibus Investment Code?
Back: Applications must be filed with the Board, recorded in a registration book, and the date stamped on the application is considered the date of official acceptance.

Front: What are the criteria for evaluating enterprise applications under Article 35?
Back:

Ownership and control by Philippine citizens
Economic rates of return
Capacity of the enterprise (regularly reviewed)
Foreign exchange earned, used, or saved
Utilization of indigenous labor, materials, and resources
Application of technological advances to local conditions
Equity amount and diversification of ownership
Other criteria as determined by the Board

Front: What does the Certificate of Registration for a registered enterprise contain?
Back:

Name of the registered enterprise
Preferred area of investment
Nature of activity (pioneer or non-pioneer) and registered capacity
Terms and conditions to be observed by the registered enterprise

Front: Under Article 35, what is considered when evaluating the extent of ownership and control of an enterprise?
Back: The extent of ownership and control by Philippine citizens is considered as part of the evaluation.

Front: What is a criterion for evaluating the economic impact of an enterprise?
Back: The economic rates of return are one of the criteria used to evaluate enterprise applications.

Let me know if you'd like more flashcards or need further details!

You said:

BOOK I Investments with Incentives TITLE III Incentives to Registered Enterprises Title III in the Omnibus Investments Code of 1987 has been effectively repealed. Provisions on Incentives to Registered Enterprises can be found in Section 16 (amendments of NIRC of 1997) of RA 11534 (CREATE Act). Articles repealed: 39(A), (B), (C), (D), (H), (I), (J), (L) and (M); 40, 41, 42, 61, 62, 63, 64, 65, and 67

ChatGPT said:

Here are the key points from BOOK I - Investments with Incentives, TITLE III - Incentives to Registered Enterprises under RA 11534 (CREATE Act):

Front: What is the status of Title III under the Omnibus Investments Code of 1987?
Back: Title III of the Omnibus Investments Code of 1987, which provided incentives to registered enterprises, has been effectively repealed.

Front: Where can the provisions on incentives to registered enterprises be found after the repeal of Title III?
Back: Provisions on incentives to registered enterprises can be found in Section 16 (amendments of the NIRC of 1997) under RA 11534 (CREATE Act).

Front: Which articles were repealed under Title III of the Omnibus Investments Code of 1987?
Back: Articles repealed include:

39(A), (B), (C), (D), (H), (I), (J), (L), (M)
40, 41, 42, 61, 62, 63, 64, 65, and 67

Front: What income tax incentive is provided to qualifying enterprises under Sec. 294 of the CREATE Act?
Back: Enterprises may qualify for an Income Tax Holiday (ITH).

Front: What is the Special Corporate Income Tax (SCIT) Rate and who qualifies for it?
Back:

The SCIT rate is 5% of the gross income earned, in lieu of all national and local taxes.
Qualified enterprises include:
- Export enterprises
- Domestic market enterprises with a minimum investment capital of P500 million
- Domestic market enterprises under the Strategic Investment Priority Plan (SIPP) engaged in 'critical' activities.

Front: What are the national and local government shares under the SCIT rate for qualified enterprises?
Back:

The national government share is 3% of the gross income earned.
The local government unit share is 2% for businesses outside ecozones and freeports.

Front: What enhanced deductions are provided under Sec. 294 for qualifying enterprises?
Back: The following enhanced deductions are allowed:

Depreciation allowance for qualified capital expenditure (buildings: 10%, machinery/equipment: 20%).
50% additional deduction on labor expense.
100% additional deduction on research and development expense.
100% additional deduction on training expense.
50% additional deduction on domestic input and power expenses.

Front: What is the reinvestment allowance for manufacturing enterprises?
Back: Manufacturing enterprises that reinvest undistributed profits or surplus in projects under the SIPP can deduct up to 50% of the reinvested amount from their taxable income for the next 5 years.

Front: How does the Enhanced Net Operating Loss Carry-Over (NOLCO) work under Sec. 294?
Back: The net operating loss during the first 3 years of commercial operation, not previously deducted, may be carried over and deducted from gross income within the next 5 consecutive taxable years.

Front: What duty exemptions and VAT exemptions are available for qualifying enterprises?
Back:

Duty exemption on the importation of capital equipment, raw materials, spare parts, or accessories.
VAT exemption on importation and VAT zero-rating on local purchases.

Front: What is the purpose of the Foreign Investments Act of 1991 (RA 7042, as amended by RA 11647)?
Back: To promote foreign investments, prescribe the procedures for registering enterprises doing business in the Philippines, and for other purposes.

Front: When was the Foreign Investments Act of 1991 approved?
Back: June 13, 1991 (Amendments approved on March 2, 2022).

Front: What is the rule for foreign investments in domestic enterprises under Section 5?
Back: Non-Philippine nationals may invest up to 100% in a domestic enterprise upon registration with the SEC (corporations) or DTI (single proprietorships) unless restricted by law.

Front: What limitations can the SEC or DTI impose on foreign ownership in enterprises?
Back: They cannot impose limitations beyond those stated in the Foreign Investments Act.

Front: What must an enterprise do to avail of incentives under the Omnibus Investments Code of 1987?
Back: It must apply for registration with the Board of Investments (BOI).

Front: How much foreign ownership is allowed in export enterprises under Section 6?
Back: Up to 100% foreign ownership is allowed, provided the enterprise is not listed in Lists A or B of the Foreign Investment Negative List.

Front: What happens if an export enterprise fails to meet the export ratio requirement?
Back: The BOI will notify the SEC or BTRCP, which may order the enterprise to reduce domestic sales to 40% of total production or face penalties, including cancellation of registration.

Front: What is the rule for foreign ownership in domestic market enterprises under Section 7?
Back: Non-Philippine nationals may own up to 100% of domestic market enterprises unless restricted by existing laws or the Foreign Investment Negative List.

Front: How can a domestic market enterprise change its status to an export enterprise?
Back: If it consistently exports at least 60% of its output for three consecutive years.

Front: What is the Foreign Investment Negative List (FINL) under Section 8?
Back: A list of investment areas reserved for Philippine nationals, divided into List A, List B, and List C.

Front: What types of businesses are included in List A of the Foreign Investment Negative List?
Back: Businesses reserved for Philippine nationals by the Constitution and specific laws, such as:

Mass media
Cooperatives
Public utilities

Front: What types of businesses are included in List B of the Foreign Investment Negative List?
Back: Businesses restricted due to:

Defense-related activities (require DND clearance)
Public health and morals concerns
Small and medium domestic enterprises (less than $500,000 in paid-in equity, unless using advanced technology)
Export enterprises using raw materials that deplete natural resources (if capital is less than $500,000)

Front: What is included in List C of the Foreign Investment Negative List?
Back: Areas where existing enterprises already meet the economy's needs and do not require further foreign investment, determined by NEDA and approved by the President.

Front: What is Republic Act No. 11659?
Back: The Public Service Act, approved on March 21, 2022, which aims to expand private sector investment in public services while protecting national security.

Front: What is the Declaration of Policy under RA 11659?
Back: The State recognizes the private sector as a key driver of national growth and development and aims to encourage investment by ensuring:
(a) Effective regulation of public services
(b) Reasonable return rates for public services
(c) Clear foreign equity restrictions in public utilities
(d) Protection of national security

Front: What services are classified as Public Utilities under RA 11659?
Back:

Distribution of Electricity
Transmission of Electricity
Petroleum and Petroleum Products Pipeline Transmission Systems
Water Pipeline Distribution & Wastewater Systems
Seaports
Public Utility Vehicles

Front: What is the foreign ownership limitation for public utilities under Article XII, Section 11 of the Constitution?
Back: Public utilities must be at least 60% Filipino-owned, and foreign investors can only participate in proportion to their capital share.

Front: What is the maximum period for a public utility franchise or certificate?
Back: 50 years, and it cannot be exclusive in character.

Front: What is one major investment example driven by foreign investment policies in the Philippines?
Back: Texas Instruments plans to invest up to $1 billion in Clark and Baguio City for chip manufacturing.

Factors Driving Significant Foreign Investments in the Philippines:

Front: Based on various investment laws, what factors are driving foreign investments in the Philippines?
Back:

Liberalized foreign ownership laws in key industries (e.g., CREATE Act, Public Service Act).
Clearer investment regulations under RA 11647 (Foreign Investments Act) and the Omnibus Investments Code.
Special incentives (e.g., tax holidays, special tax rates, VAT exemptions).
Strategic Investment Priority Plan (SIPP), which promotes high-tech and critical industries.
Strong demand for industrial and tech sectors, attracting investments like Texas Instruments' $1B expansion.
Infrastructure & logistics improvements supporting manufacturing and exports.