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Points of View
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| By Mickey Castaño |
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| February 17, 2010 |
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Investments in the Philippine real estate industry have gone up during the year despite the country’s far-from-ideal political and economic climate. According to the National Statistical Coordination Board (NSCB), the industry grew from P75.1 million in the last quarter of 2005 to P161 million during the first quarter of the year—a surge that can be partly attributed to the incentives given to investors by various government agencies.
Among the government’s investment incentive laws are Executive Order No. 226 (also known as the 1987 Omnibus Investments Code) and Republic Act No. 7916 (the Special Economic Zone Act of 1995). The Board of Investments (BOI), an attached agency of the Department of Trade and Industry (DTI), and the Philippine Economic Zone Authority (PEZA) are the lead Philippine agencies tasked to implement these laws and offer competitive incentive packages to various investors.
Under Book I of the Omnibus Investments Code, to avail himself of benefits and incentives, an investor must go into an industry listed under the Philippine Investment Priorities Plan (IPP). Aside from the usual export activities, which have traditionally been favored areas of investment, the 2006 IPP includes infrastructure and covers the development of infrastructure (including infrastructure projects under the Build-Operate-Transfer Law), telecommunications, logistics, transport systems, and mass housing.
The 2006 IPP paves the way for real estate investors to avail themselves of the widest range of incentives under EO No. 226, consisting of both fiscal and non-fiscal incentives. Incentives that a BOI-registered enterprise is entitled to include:
FISCAL INCENTIVES
a. Income tax holiday (ITH). Six years for pioneer firms and generally four years for non-pioneer firms. If a non-pioneer firm is located in a less developed area, it shall generally be entitled to six years ITH. Firms locating within Metro Manila shall not be granted ITH unless they are:
• Within a government industrial estate
• Engaged in service-type projects with no manufacturing facilities
• Power generating plants
• Exporters with expansion projects
b. Tax credit on raw materials, supplies and semi-manufactured products;
c. Additional deduction from taxable income for labor expense (cannot be simultaneously enjoyed with the ITH incentive); and
d. Additional deduction from taxable income for necessary and major infrastructure works (cannot be simultaneously enjoyed with the ITH incentive).
NON-FISCAL INCENTIVES
a. Employment of foreign nationals. A registered enterprise may be allowed to employ foreign nationals in supervisory, technical or advisory positions for five years from the date of its registration. The position of president, general manager and treasurer of foreign-owned registered enterprises or their equivalent shall, however, not be subject to the foregoing limitations.
b. Simplification of customs procedures for the importation of equipment, spare parts, raw materials and supplies and exports of processed products.
c. Importation of consigned equipment for a period of 10 years from date of registration, subject to posting of a re-export bond.
d. The privilege to operate a bonded manufacturing/trading warehouse subject to Customs rules and regulations. On the other hand, projects involving manufacturing for export and the domestic market, free trade, tourism, utilities, facilities enterprises, including those engaged in warehousing and trading operations in the ecozones and development and operation of ecozones, qualify for registration under the PEZA.
In addition to the incentives mentioned above for BOI-registered enterprises, PEZA-registered exporters enjoy tax and duty exemption on importations of capital equipment, raw materials and other merchandise directly needed in its registered operations. In lieu of paying all local and national taxes, business enterprises within the ecozone whose incentives under EO No. 226 have lapsed, shall remit to the government a preferential rate of 5% of their gross income earned as final tax, pursuant to the provisions of RA No. 7916. There are currently 98 operating or proclaimed Special Economic Zones in the country.
ECOZONE INCENTIVES
a. ITH;
b. Incentives under the Build-Operate-Transfer Law, which include government support for accessing official development assistance (ODA) and other sources of financing;
c. Provision of vital off-site infrastructure facilities;
d. A special 5% tax rate based on gross income earned, which is in lieu of all national and local taxes except real property tax on lands owned by ecozone developers. This special 5% tax rate may be taken by the ecozone developer from Day 1 or after the income tax holiday will have expired;
e. Permanent resident status for foreign investors and immediate family members;
f. Employment of foreign nationals; and
g. Assistance in the promotion of economic zones to local and foreign locator enterprises.
Overall, the demand for real property is expected to remain strong, especially in the middle-income residential sector as developers continue to target the overseas Filipino worker (OFW) and expatriate markets. And with the numerous incentives provided by the government through the BOI and PEZA, the investment cycle is expected to remain on an uptrend. |
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