SPECIAL TAX LAWS

SENIOR CITIZENS

Senior Citizens refers to any Filipino citizen who is a resident of the Philippines, and who is sixty (60) years old or above.

It may apply to senior citizens with dual citizenship status provided they prove their Filipino citizenship and have at least six (6) months residency in the
Philippines. (Sec. 2[a] of Revenue Regulations (RR) No. 7-2010)

RR No. 7-2010 implements the tax privileges provision of RA No. 9994 and prescribes the guidelines for the availment of such privileges. It is complemented
by Revenue Memorandum Circular (RMC) No. 38-2012.

SENIOR CITIZENS LAWS

On April 23, 1992, Republic Act (RA) No. 7432 was passed, otherwise known as, AN ACT TO MAXIMIZE THE CONTRIBUTION OF SENIOR CITIZENS
TO NATION BUILDING, GRANT BENEFITS AND SPECIAL PRIVILEGES AND FOR OTHER PURPOSES. The BIR then issued RR No. 2-94 to implement the
tax privileges of the senior citizens and taxpayers dealing with them.

Additional benefits were later on provided under RA No. 9257, enacted on dated July 22, 2003, otherwise known as the Expanded Senior Citizens Act of
2003.

RA No. 9257 was further amended by RA No. 9994 or the Expanded Senior Citizens Act of 2010, for which RR No. 7-2010 was issued by the BIR.

On March 9, 2015, RA No. 10645 was enacted granting mandatory Philhealth Coverage to all senior citizens the funding of which will come from RA No.
10351 or the Sin Tax Law.

INCOME TAX OF SENIOR CITIZENS

Even though Section 3 of RR No. 7-2010 mentions income tax, there is no real benefit/privilege provided to senior citizens. They are subject to income
tax on income earned from the practice of profession, for doing business and/or on their compensation income like everybody else.

They are likewise subject to the final taxes on passive income and capital gains tax provided under the Tax Code.

However still, they remain to be covered by the exemptions granted to other individuals. As such, a senior citizen will not be subject to income tax:

1. If he/she qualifies as a Minimum Wage Earner (MWE) exempt from income tax under the last paragraph of Section 24(A)(2) of the Tax Code.

As an MWE, the senior citizen will not be subject to income tax and is not required to file an income tax return. Likewise, his holiday pay, overtime
pay, night shift differential pay and hazard pay are covered by the exemption.

Being exempt from income tax, their compensation income is likewise not subject to the Withholding Tax on Compensation under Section
2.78.1(B)(13) and (14) of RR No. 2-98, as amended.

2. If the gross income earned by the Senior Citizen does not exceed his personal exemptions (basic and additional).

This is logical, because his/her taxable income would be zero or less. Note, however, that under the TRAIN (beginning Jan. 1, 2018), there no more
deductible personal and additional exemptions. But the first P250,000 of the taxable income is exempt from income tax.

The Senior Citizen then would not be required to file an income tax return.

No additional exemptions for benefactors: although a senior citizen may qualify as a dependent as defined under the law, the taxpayer-benefactor
will not be entitled to an additional exemption of P25,000 since the same is only available for dependent children and persons with disabilities. (Sec. 11
of RR No. 7-2010)

Additional Deduction from Gross Income of Private Establishments for Compensation Paid to Senior Citizens: an additional fifteen percent
(15%) of the total amount of compensation paid to senior citizens may be claimed by the employer, subject to the following conditions:
1. The employment shall have to continue for a period of at least six (6) months;
2. The annual taxable income of the Senior Citizen does not exceed the poverty level as may be determined by the NEDA thru the National Statistical
Coordination Board. For this purpose, the Senior Citizen shall submit to his employer a sworn certification that his annual taxable income does not
exceed the poverty level. (Section 12 of RR No. 7-2010)

VALUE-ADDED TAX (VAT)

A senior citizen is exempt from VAT on his purchases under Section 10 of RR No. 7-2010. In fact, the sellers are precluded from billing the VAT to the
senior citizen in order to ensure full entitlement to such exemption. The exemption applies even if the senior citizen avails of a promotional discount
offered by the establishment instead of the 20% senior citizen discount. (Q21/A21 of RMC No. 38-2012)

The input VAT attributable to sales made to senior citizens, exempt as such, are to be treated as deductible expenses and not as tax credits.

Note, however, that the VAT exemption is only for his/her purchases since a senior citizen may still be liable for VAT on his/her sales and/or receipts in
the conduct of business or in the practice of profession as provided under Section 9 of RR No. 7-2010.
Percentage taxes: the exemption does not cover percentage taxes. Thus, if sales are made to senior citizens by establishments who are not subject to
VAT because their sales do not exceed the threshold amount of P1,919,500, the sales are not exempt from percentage taxes. (Q23/A23 of RMC No. 38-
2012)

DISCOUNT PRIVILEGES

1. Under Section 4 of RR No. 7-2010, all establishments, supplying any of the following goods and services as specified under the Senior
Citizens Act, for their exclusive use and enjoyment or availment, shall give a discount of twenty percent (20%):

a. Medicines, including influenza and pneumococcal vaccines, and such other essential medical supplies, accessories and equipment to be
determined by the Department of Health (DOH).

For this purpose, the term "medicines" shall refer to both prescription and nonprescription medicines, and articles approved by the BFAD-DOH,
which are intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease in man; but do not include food and devices
or their components, parts, or accessories.

The 20% discount and VAT exemption shall also be granted to:
1. Purchase of vitamins and mineral supplements which are medically prescribed by an attending physician for prevention and treatment of
diseases, illness, or injury whose prescription is in the name of the Senior Citizen;
2. Purchase of eyeglasses, hearing aids, dentures, prosthetics, artificial bone replacements like steel, walkers, crutches, wheelchairs whether
manual or electric-powered, canes/quad canes, geriatric diapers, and other essential medical supplies, accessories and equipment by or
for senior citizens.

b. On the professional fees of attending physician/s in all private hospitals, medical facilities, outpatient clinics and home health care services,
where the discount shall be based on the compensation for services charged from the Senior Citizen.

c. On professional fees of licensed professional health workers providing home health care services as endorsed by private hospitals or
employed through home health care employment agencies, where the discount shall be based on the fees charged from the Senior Citizen.

d. On medical and dental services, diagnostic and laboratory fees in all private hospitals, medical facilities, outpatient clinics, and
home health care services, in accordance with the rules and regulations to be issued by the DOH, in coordination with the Philippine Health
Insurance Corporation (PhilHealth).

"Medical services" refers to hospital services, professional services of physicians and other health care professionals and diagnostic and
laboratory tests that are necessary for the diagnosis or treatment of an illness or injury.

"Dental services" refers to oral examination, cleaning, permanent and temporary filling extractions and gum treatments, restoration, replacement
or repositioning of teeth, or alteration of the alveolar or periodontium process of the maxilla and the mandible that are necessary for the
diagnosis or treatment of an illness or injury.

"Home health care service" refers to health or supportive care provided to the Senior Citizen patient at home by licensed health care professionals
to include but not limited to, physicians, nurses, midwives, physical therapists and caregivers.

e. In actual fare for land transportation travel in public utility buses (PUBs), public utility jeepneys (PUJs), taxis, Asian utility vehicles (AUVs),
shuttle services and public railways, including Light Rail Transit (LRT), Mass Rail Transit (MRT), and Philippine National Railways (PNR).

Toll Fees are not the same as “fares”. Hence, it is not subject to the 20% discount and VAT exemption. (Q18/A18 of RMC No. 38-2012)

Taxi Fares are subject to the 20% discount. (Q19/A19 of RMC No. 39-2012)

f. On actual transportation fare for domestic air transport services and sea shipping vessels and the like, based on the actual fare and
advanced booking.

g. On the utilization of services in hotels and similar lodging establishments, restaurants and recreation centers.

For hotels and similar lodging establishments, the discount shall be for room accommodation and other amenities offered by the establishment,
such as, but not limited to, massage parlor, sauna bath, food, drinks and other services offered.

For recreation centers, the discount shall be for the utilization of services in the form of fees, charges and rental facilities, such as, but not
limited to, sports facilities and equipment.

For restaurants, the discount shall be for the sale of food, drinks, dessert and other consumable items served by the establishments, including
value meals and promotional meals offered for the consumption of the general public, subject to the following rules:
1. For Dine-in services, the privilege must be personally availed of by the senior citizen and no proxies or authorization in favor of another
person who is not a senior citizen will be honored.

2. The phrase "exclusive use and enjoyment" of the senior citizen shall mean "for the senior citizen's personal consumption" only. As
such, the 20% senior citizen discount shall not apply to "children's meals" which are primarily prepared and intentionally marketed for
children. Similarly, the 20% senior citizen discount shall not apply to "pre-contracted" party packages or bulk orders.

ILLUSTRATIVE EXAMPLE: X, a senior citizen, together with his son Y and the latter’s wife and 2 children went to a restaurant to dine.
How much will be the senior citizen discount if (A) the orders are individualized, where each meal costs P200, exclusive of VAT; or (B)
the orders are NOT individualized, and the total bill is P1,120.
 A. P40 (P200 * 20%)

Since the meals are individualized, only the P200 pertaining to the consumption of the senior citizen will be subject to the discount.

B. P40 formula, as follows:

Total Bill Amount

senior citizen
(exclusive of VAT) x 20% =
discount
Number of customers

Total bill amount exclusive of VAT is P1,000 (P1,120/1.12), the number of customers is 5, so the portion of the bill pertaining to the
senior citizen is P200, applying the 20% rate, the discount is P40.

Note:
1. This formula will apply if no "individualized" food item can be ordered or if the transaction with the Senior Citizen is not processed
separately.
2. The total billing amount used in the computation of the 20% discount of the Senior Citizen is the amount exclusive of VAT.
3. It is recommended by the BIR that the purchases of the senior citizens be processed separately as independent transactions.
(Q1/A1 of RMC No. 38-2012)

Specific Items:
a. Cake – a purchase of a whole cake may be considered a group meal or meal for sharing if it is good for more than one person. As such,
only the value attributable to the senior citizen/s of the group will be subject to the discount. (Q12/A12 of RMC No. 38-2012)
b. Pizza – similar to a pizza purchased by a senior citizen, the classification will depend on whether the pizza is good for a group or for a
single serving. (Q13/A13 of RMC No. 38-2012)

3. Food, drinks and other consumable items purchased by the senior citizen shall be processed separately as an independent transaction from
his/her non-eligible companions to ensure that it is for his/her exclusive consumption and to enable computation of the 20% discount and
the exemption from VAT, which only the senior citizen is entitled to.

Other Consumable Items: include condiments and side products. (Q2/A2 of RMC No. 38-2012)

Beer, Wine and Other Liquors – Generally, alcoholic beverages are not subject to the 20% discount and VAT exemption especially if
purchased in bulk, buckets or cases. However, if served as a single drink, its purchase by a senior citizen is entitled to the 20% discount
and VAT exemption.

If purchased in a bar, club or cabaret not subject to VAT but subject to 18% amusement tax, the RMC provides that the senior citizen may
still avail of the discount on purchase of alcoholic drinks but only for a single serving. (Q14/A14 of RMC No. 38-2012)

Cigars and Cigarettes are not covered by the discount and exemption considering that they are not “food” or “essential items.” (Q15/A15
of RMC No. 38-2012)

4. However, if the group of diners is composed entirely of senior citizens, all of whom present valid senior citizens IDs, each shall be entitled
to a 20% discount and exemption from Value Added Tax.

5. The 20% discount shall apply to Take-Out/Take-Home/Drive-Thru orders (excluding bulk orders) as long as it is the senior citizen
himself/herself who is present and personally ordering, and he/she can show a valid senior citizen ID card.

This is true even if the senior citizen merely takes home an unfinished or unconsumed dine-in order. Provided, that the leftover is not part
of bulk orders. (Q5/A5 of RMC No. 38-2012)

6. For Delivery Orders (excluding bulk orders), the 20% discount shall likewise apply subject to certain conditions; i.e., senior citizen ID card
number must be given while making the order over the telephone; the senior citizen ID card must also be presented upon delivery to verify
the identity of the senior citizen entitled to the 20% discount. Delivery fee charged separately are not entitled to the discount and is subject
to tax.

“Bulk orders” are within the context of pre-contracted or pre-arranged group meals or packages, and hence, not entitled to 20% discount
and VAT exemption. (Q7/A7 of RMC No. 38-2012)

In case of group phoned-in or called-in orders, the food establishment must determine the number of senior citizens composing the group
and the 20% discount shall be computed based on the value of the food attributable to the qualified senior citizen. The Senior Citizen ID
card number/s must be given while making the order and the ID card/s must be presented upon delivery to verify the identity of the senior
citizen/s entitled to the 20% discount and VAT exemption. (Q11/A11 of RMC No. 38-2012)

Delivery fees/charges, if not billed separately, is subject to the 20% discount. Otherwise, it is not entitled to the 20% discount and VAT
exemption. (Q17/A17 of RMC No. 38-2012)

7. For the above-mentioned transactions, the Most Expensive Meal Combination (MEMC) shall apply to food purchases by senior citizens.
The MEMC is an amount corresponding to the combination of the most expensive and biggest single-serving meal with beverage served in
a quick service restaurant, is deemed flexible and is adjusted accordingly by food establishments to estimate a single food purchase for an
individual senior citizen.

Pasalubong items: which are single-serving/solo meal for the personal and exclusive consumption of the Senior Citizen are entitled to the 20%
discount, as well as the exemption from VAT. However, other "pasalubong" food items (e.g. box of biscocho, bottles or jars of ginamos, several
 packets of mango preserves, etc.) which are not for the personal and exclusive consumption of the Senior Citizen are NOT entitled to 20% discount
and VAT exemption. This limitation extends to "novelty items" or non-consumables sold in restaurants (Q10/A10 of RMC No. 38-2012)

h. On admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals, and other similar places of culture, leisure and
amusement, where the discount shall be on the admission fees charged by the said establishments;

i. On funeral and burial services for the death of Senior Citizens. The beneficiary or any person who shall shoulder the funeral and burial
expenses of the deceased Senior Citizen shall claim the discount, such as casket, embalment, cremation cost and other related services for the
Senior Citizen upon payment and presentation of his death certificate;

No limit as to the amount of discount: in no case shall the discount granted to senior citizens be less than 20%. There should be no fixed, maximum
amount or cap which will limit the discount below the rate of 20%. (Q3/A3 of RMC No. 38-2012)

Note, however, that there is a limit of 100kwh for the 5% discount on electricity and 30cubic meters for water consumption.

2. Likewise, The monthly utilization of water and electricity by the Senior Citizen supplied by public utilities will be subject to a five percent
(5%) discount upon concurrence of the following:
a. The individual meters for the said utilities are registered in the name of the Senior Citizen residing therein;
b. The monthly consumption does not exceed one hundred kilowatt hours (100kwh) of electricity and thirty cubic meters (30 m3) of water; and
c. The privilege is granted per household regardless of the number of Senior Citizens residing therein.

3. Senior citizens are likewise entitled to a 5% special discount on basic necessities and prime commodities.

Toiletries are not covered by any discount: toothpaste, bath soap, tissue papers are not entitled to the 5% special discount. Only items listed
under RA No. 7581 or the Price Act are identified as Prime Commodities and Basic Necessities entitled to the 5% special discount. However, powdered,
liquid, bar laundry and detergent soap are considered basic necessities subject to 5% special discount. (Section 2, Joint DTA-DA Administrative Order
10-02, Series of 2010)

Discount limit: The DTI and the DA issued joint DTI-DA Administrative Order No. 10-02, Series of 2010, after combining set limits under prime
commodities and basic necessities, setting the maximum limit to P1,300 per calendar week, without carryover of unused amount. (Sec. 3, Joint DTI-
DA Administrative Order No. 10-02, Series of 2010, Q34/A34 of RMC No. 38-2012)

No VAT Exemption: while the purchase of basic necessities and prime commodities are subject to a discount, the same are not covered by the
VAT exemption. (Q32/A32, RMC No. 38-12)

Basic necessities: are goods vital to the needs of consumers for their sustenance and existence such as, but not limited to, rice; corn; root crops;
bread; fresh, dried or canned fish and other marine products; fresh pork, beef and poultry meat; fresh eggs, potable water in bottles and containers;
fresh and processed milk; fresh vegetables and fruits; locally manufactured instant noodles; coffee; coffee creamer; sugar; cooking oil; salt; laundry
soap and detergents; firewood; charcoal; household liquefied petroleum gas (LPG) and kerosene; candles; drugs classified as essential by the
Department of Health and such other goods as may be classified by the Department of Trade and Industry and Department of Agriculture.

Prime Commodities are goods not considered as basic necessities but are essential to consumers such as, but not limited to flour; dried, processed
or canned pork, beef and poultry meat; dairy products not falling under basic necessities; onions; garlic; vinegar; patis; soy sauce; toilet soap;
fertilizer; pesticides and herbicides; poultry, livestock and fishery feeds and veterinary products; paper; school supplies; nipa shingles; sawali; cement;
clinker; GI sheets, hollow blocks; plywood; plyboard; construction nails; batteries; electrical supplies; lightbulbs; steel wire; all drugs not classified
as essential drugs by the Department of Health and other commodities that may be classified by the Department of Trade and Industry and the
Department of Agriculture.

Discount privilege of Senior Citizen Centers and Group Homes: For the consumption of water, electricity and telephone, there shall be granted by
public utilities a discount of at least fifty (50%) per cent on the consumption by a Senior Citizens Center and residential care/group homes
that are run by the Government or by a non-stock, non-profit domestic corporation organized and operated primarily for the purpose of promoting the
well-being of abandoned, neglected, unattached, or homeless Senior Citizens, subject to the guidelines formulated by the Department of Social Welfare
and Development (DSWD).

When other promotional discounts granted by establishments: if any of the foregoing goods or services is offered by the establishment at a
promotional discount, the discount that shall be granted to the Senior Citizen shall be the promotional discount or the 20%5% discount discussed above.
This means that, in no case shall the discount granted to Senior Citizens be less than 20%, or in the case of water and electricity supplied
by public utility companies, be less than 5%. The minimum discount shall not be treated as an addition to the promotional discount,
provided that, if the promotional discount is less than the minimum discount prescribed in the Act for Senior Citizens, the seller shall increase the discount
to meet the said minimum discount prescribed for Senior Citizens. (Section 5 of RR No. 7-2010)

Tax Treatment of Discounts granted to Senior Citizens:

Under the amended Section 4 of the Senior Citizens Act, the discounts can be claimed as tax deductions no longer as tax credits under the old law. This
means that the amount granted as discounts to senior citizens constitute operating expenses deductible from gross income in arriving at taxable income
of the taxpayer as likewise provided under Section 8 of RR No. 4-2006 issued by the BIR and Art. 8, Rule VI of the Implementing Rules and Regulations
issued by the DSWD.

ILLUSTRATION: The difference in treatment of a tax deduction and a tax credit:

Gross Sales xxx

Discounts and Returns (xxx)
Cost of Goods Sold (xxx)
Gross Income xxx
 Operating Expenses (xxx)
Tax Deduction for Senior Citizen Discounts (xxx)
Taxable Income xxx
Tax Rate %
Tax Due xxx
Tax Credit (xxx)
Tax Payable Xxx

This is likewise the rule provided under Section 5 of RR No. 7-2010.

The claim of deduction is subject to the following rules:

1. Only that portion of the gross sales exclusively used, consumed or enjoyed by the Senior Citizen shall be eligible for the deductible sales discount.
2. The gross selling price and the sales discount must be separately indicated in the official receipt or sales invoice issued by the establishment for the
sale of goods or services to the Senior Citizen.
3. Only the actual amount of the discount granted or a sales discount not less than the statutory rate (20%, 5% or 50% when applicable), whichever
is higher, based on the gross selling price can be deducted from the gross income, net of value added tax, if applicable, for income tax purposes,
and from gross sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax purposes.
4. The seller must record its sales inclusive of the discount granted.

Journal Entry: if for example, sales of P100, exclusive of VAT, is made to a senior citizen, for which a discount of P20 was given, the journal entry
would be:

Cash P80
Senior Citizen Discount Expense P20
Sales P100

5. The discount can only be allowed as a deduction from gross income for the same taxable year that the discount is granted.
6. The business establishment giving sales discounts to qualified Senior Citizens is required to keep a separate and accurate record of sales, which shall
include the name of the Senior Citizen, OSCA ID, gross sales/receipts, sales discount granted, dates of transactions and invoice numbers for every
sale transaction to Senior Citizen.
7. Only business establishments selling any of the qualified goods and services to Senior Citizens where an actual discount was granted may claim the
deduction.
8. The seller must not claim the Optional Standard Deduction during the taxable year.

Presentation in the Income Statement: the senior citizen discount must be presented in the income statement of the taxpayer as a deduction from
the gross income (sales less cost of sales) not as a reduction to arrive at net sales. The same being treated as ordinary and necessary expenses duly
deductible from gross income, provided the seller does not opt to avail of the OSD. (Q27/A27 of RMC No. 38-2012)

As such, it should not reduce the gross sales/receipts which is the basis of the Minimum Corporate Income Tax, Optional Standard Deduction, Gross
Income Tax of 15%, etc.

OTHER TAXES

The exemption provided above does not include other taxes not otherwise mentioned, such as Final Tax on passive income (e.g., interests, royalties,
dividends, etc.), Donor’s Tax, Estate Tax, Excise Tax and Documentary Stamp Taxes (DST).

PENALTIES FOR NON-COMPLIANCE

Aside from the penalties provided under the Tax Code, any person who violates the provisions of RR No. 7-2010 shall suffer:

1st violation Fine – P50,000 to P100,000;

Imprisonment – 2 to 6 years; or
both
Subsequent Fine – P100,000 to P200,000;
violation Imprisonment – 2 to 6 years; or
both

Any person who abuses the privileges granted under the said RR shall be punished by a Fine of P50,000 to P100,000 and imprisonment of not less than
6 months.

If the offender is an alien or a foreigner, he shall be deported immediately after service of sentence without further deportation proceedings.

If the offender is a corporation, organization or any similar entity, the official/s thereof directly involved shall be liable therefore.

Upon filing an appropriate complaint, and after due notice and hearing, the proper authorities may also cause the cancellation or revocation of the business
permit, permit to operate, franchise and other similar privileges granted to any business entity that fails to abide by the provisions of the Act and its IRR
and these Regulations. (Section 13 of RR No. 7-2010)

OTHER PRIVILEGES OF SENIOR CITIZENS

1. EXEMPTION FROM TRAINING FEES - The senior citizen shall be exempted from training fees for socio-economic programs conducted by private
and government agencies subject to the guidelines to be issued within thirty (30) days from effectivity of these Rules by the DTI, the Department of
Labor and Employment (DOLE), the DA, the Technical Education and Skills Development Authority (TESDA) and the Department of Science and
Technology - Technology Resource Center (DOST-TRC).
2. FREE MEDICAL AND DENTAL SERVICES IN GOVERNMENT FACILITIES - Medical and dental services, diagnostic and laboratory tests
requested by the physician such as but not limited to X-rays, computerized tomography scans, and blood tests availed of by senior citizens, including
professional fees of attending doctors in all government hospitals, medical facilities, outpatient clinics, and home health care services, shall be
provided free of charge to senior citizens. These shall be in accordance with the rules and regulation to be issued by the DOH, in coordination with
the PHILHEALTH.

3. FREE VACCINATION FOR INDIGENT SENIOR CITIZENS - The DOH shall, subject to technical and operational guidelines which it shall issue
not later than thirty (30) days from effectivity of these Rules, administer free vaccinations against the influenza virus and pneumococcal disease for
indigent senior citizen patients. Neglected, abandoned, unattached or homeless senior citizens in government-run residential homes, centers and
facilities shall likewise be entitled to free vaccinations under these Rules.

The DOH shall enjoin all government and private hospitals, as well as other health facilities to post, publish or print out a schedule of health benefits
and privileges i.e., laboratory and diagnostic test fees, which should be regularly updated. These postings and publications shall be clearly identified
in the guidelines.

4. EDUCATIONAL PRIVILEGES - Educational assistance shall be granted to senior citizens to pursue post secondary, post tertiary, as well as
vocational or technical education in both public and private schools through provision of scholarships, grants, financial aid, subsidies and other
incentives to qualified senior citizens, including support for books, learning materials, and uniform allowance, to the extent feasible: Provided, that
senior citizens shall meet minimum admission requirements.

5. BENEFITS AND PRIVILEGES FOR RETIREES - To the extent practicable and feasible, the senior citizen shall be granted the continuance of the
same benefits and privileges given by the Government Service Insurance System (GSIS), Social Security System (SSS) and PAG-IBIG, as the case
may be, as are enjoyed by those in active service.

Retirement benefits of retirees from both the government and the private sector shall be regularly reviewed every year to ensure their continuing
responsiveness and sustainability, and to the extent practicable and feasible, shall be upgraded to be at par with the current scale enjoyed by those
in actual service based on National Economic and Development Authority (NEDA) poverty threshold per region as determined by the National
Statistical Coordination Board (NSCB).

6. PRIVILEGES ON GRANTING SPECIAL DISCOUNTS IN SPECIAL PROGRAMS - To the extent possible, the government may grant special
discounts in special programs for senior citizens on purchase of basic necessities and prime commodities, subject to the guidelines to be issued for
the purpose by the DTI and the DA within (30) days from effectivity of these Rules. Provided, That such special programs and their guidelines shall
be developed by the concerned department within the concerned department's jurisdiction.

7. EXPRESS LANES PRIVILEGES - Accessible express lanes for senior citizens shall be provided in all private, banking, commercial, and government
establishments; in the absence thereof, priority shall be given to them.

PERSONS WITH DISABILITIES

Persons with Disabilities (PWD) are those who have long term have long-term physical, mental, intellectual or sensory impairments which in interaction
with various barriers may hinder their full and effective participation in society on an equal basis with others. (Sec. 5.1 of the Implementing Rules and
Regulations [IRR] of RA No. 10754)

Previously, they are referred to as “Disabled Persons” under RA No. 7277 and such term was defined as referring to “those suffering from restriction of
different abilities, as a result of a mental, physical or sensory impairment, to perform an activity in the manner or within the range considered normal for
a human being.” (Sec. 4(a) of RA No. 7277)

LAWS RELATIVE TO PERSONS WITH DISABILITIES

On February 25, 1983 then President Ferdinand Marcos signed into law Batas Pambansa Blg. 344 which required certain buildings, institutions,
establishments and public utilities to install facilities and other devices to enhance the mobility of disabled persons.

On March 24, 1992, then President Corazon Aquino signed into law RA No. 7277, entitled AN ACT PROVIDING FOR THE REHABILITATION, SELF-
DEVELOPMENT AND SELF-RELIANCE OF DISABLED PERSON AND THEIR INTEGRATION INTO THE MAINSTREAM OF SOCIETY AND FOR OTHER
PURPOSES, otherwise known as the Magna Carta for Persons with Disability.

This law was later amended by RA No. 9442 which provided for the discount privileges and additional deduction for employing PWDs and RA No. 10754
providing for the VAT exemption.

The BIR issued RR No. 5-2017, to implement the tax provisions of RA No. 10754, and RMC No. 48-2017 circularized the IRR of RA No. 10754.

INCOME TAX

Similar to PWDs, no income tax exemption is provided for PWDs. Their income from the practice of profession, business and/or employment are still
subject to the same rules as that of any other individuals subject to the same rules on capital gains tax and final tax on passive income.

Additional Exemption for benefactors: Those caring for and living with PWDs, up to the fourth degree of affinity or consanguinity, shall be granted
an additional exemption similar to that of a dependent child under Section 35(b) of the Tax Code.

The treatment of a person with disability as a dependent however should not be construed to mean an increase in the maximum number of dependents,
which is currently limited to four (4) dependents, for which additional personal exemption may be claimed. (Sec. 14 of the IRR of RA No. 10754)

Under RR No. 5-17, the following are the requisites for a PWD to qualify as a qualified dependent, the PWD must:
a. Be a filipino citizen;
b. Within the fourth (4th) civil degree of consanguinity or affinity to the taxpayer/benefactor;
c. Not be gainfully employed; and
d. Chiefly dependent upon and living with the taxpayer/benefactor.

TRAIN Amendment: note that under the TRAIN, beginning Jan. 1, 2018, there are no more additional exemptions including that for a qualified PWD.

Additional Deduction from Gross Income of Private Establishments for Compensation Paid to PWDs:

1. For Employers:

Under the IRR of RA No. 10524, private corporations with more than 100 employees are encouraged to reserve at least one percent (1%) of all positions
for PWDs.

Section 10 of Rule VI of the IRR provides for additional deductions that may be claimed against gross income by private entities that employ PWDs
either as regular employee, apprentice or learner equivalent to twenty-five percent (25%) of the total amount paid as salaries and wages to
PWDs, subject to the following conditions:
a. Such entities present proof as certified by the Department of Labor and Employment that such PWD are under their employ; and
b. That the PWD is accredited with the Department of Labor and Employment and Department of Health as to his disability, skills, and qualifications.

2. For construction of physical facilities:

Moreover, Section 15.1.b of the same rule grants an additional deduction to private entities that improve or modify their physical facilities in order to
provide reasonable accommodation for PWDs, equivalent to fifty percent (50%) of direct cost of the improvements or modifications. EXCEPT:
those improvements or modifications required under BP Blg. 344.

Under BP Blg 344: establishments are required to provide architectural facilities or structural features as shall reasonably enhance the mobility of disabled
persons such as sidewalks, ramps, railings and the like.

In the case of the parking place, the owner or operator shall reserve sufficient and suitable space for the use of disabled persons.

In case of public conveyance, devices such as the prominent display of posters or stickers shall be used to generate public awareness of the rights of the
disabled and foster understanding of their special needs. Special bus stops shall be designed for disabled persons. Discriminating against disabled persons
in the carriage or transportation of passengers is hereby declared unlawful.

VALUE ADDED TAX AND DISCOUNT PRIVILEGES

Similar to senior citizens, PWDs are entitled to a 20% discount and VAT exemption on the purchase of certain goods and services from all establishments
for their exclusive use, enjoyment or availment.

The VAT exemption and discount shall apply to:

1. Lodging establishments: room accommodation and other amenities offered by the establishment such as but not limited to massage parlor, sauna
bath, food, drinks and other services offered. The said discount and exemption will only apply to persons with disability. (Section 6.1, Rule IV of the
IRR of RA No. 10754)
2. Restaurants: purchase of food, drinks, beverages, dessert and other consumable items served by the establishments including value meals and
other similar food counters, fast food, cooked food and short orders including take outs. To safeguard the establishments from abuse of this privilege,
the orders should be limited only to the consumption of the concerned person with disability. (Section 6.2, Rule IV of the IRR of RA No. 10754)
3. Recreation Centers: admission fees of persons with disability charged by theaters, cinema houses, concert halls, circuses, carnivals and other
places of culture and leisure. The said discount and exemption shall also apply to charges in the utilization of services including rentals of facilities
and equipment and other accessories and gadgets to be used, enjoyed or availed by persons with disability in these centers. (Section 6.3, Rule IV of
the IRR of RA No. 10754)
4. Purchase of Medicines and Foods for Special Medicinal Purposes: purchase of prescribed generic and branded drugs/medicines as well as
foods for special medical purposes in all drugstores for the exclusive use or availment of persons with disability. (Section 6.4, Rule IV of the IRR of
RA No. 10754)
5. Medical and Dental Services, Diagnostic and Laboratory Fees and Professional Fees for Attending Doctors: availment of medical and
dental services including diagnostic and laboratory fees by persons with disability in government facilities or private hospitals and medical facilities.
The said discount and exemption shall also apply to the professional fees of attending doctors in such facilities. (Section 6.5, Rule IV of the IRR of
RA No. 10754)
6. Domestic Air and Sea Travel: actual fare for domestic air and sea travel. (Section 6.6, Rule IV of the IRR of RA No. 10754)
7. Land Transportation Travel: actual fare for land transportation travel such as, but not limited to, public utility buses or jeepneys, taxis, Asian
Utility Vehicles (AUVs), shuttle services, public railways including Light Rail Transit, Metro Rail Transit and Philippine National Railways and
Transportation Network Vehicle Services (TNVS) such as Grab, Uber and the like. (Section 6.7, Rule IV of the IRR of RA No. 10754)
8. Funeral and Burial Services for the Death of a PWD: The beneficiary or any person who shall shoulder the funeral and burial expenses of the
deceased person with disability, shall claim the discount for the deceased person with disability upon presentation of the death certificate and person
with disability identification card (ID) or in its absence, the original or certified true copy of the proof of registration from the issuing local government
unit. Such expenses shall cover the purchase of casket, urn, embalming, hospital morgue, transport of the body to intended burial site in the place
of origin, but shall exclude obituary publication and the cost of the memorial lot. (Section 6.8, Rule IV of the IRR of RA No. 10754)

Treatment of Discounts granted to PWDs: The establishment may claim the discounts provided herein as tax deductions based on the net cost of
the goods sold or services rendered, subject to the following conditions:
1. The cost of the discount shall be allowed as deduction from the gross income for the same taxable year that the discount is granted;
2. The total amount of the claimed tax deduction net of VAT, if applicable, shall be included in their gross sales receipts for tax purposes;
3. The same should be subject to proper documentation, i.e., the discount must be separately indicated in the receipt or invoice.
4. The records of sales of the establishments claiming tax deductions must contain the name of the person with disability, his/her PWD identification
card number and if applicable, his/her Tax Identification Number (TIN).

Failure on the part of such establishments to include such details in their records of sales would result in the disallowance of the 20% sales discount
claimed as deduction and the input tax attributable to VAT exempt sale claimed as cost or expense. (Sec. 13, Rule IV of the IRR of RA No. 10754)

No deduction if availing of OSD: note that the discounts provided to PWDs are treated as ordinary and necessary expenses, which are part of the
itemized deductions. As such, if a taxpayer is availing of the Optional Standard Deduction, then he is no longer entitled to the deduction of the discount,
OSD being in lieu of all itemized deductions.

Computation of the discount: in computing for the discount, distinction must be made between a VAT and a non-VAT taxpayer.

ILLUSTRATION: A PWD dined in a restaurant and incurred a P1,120 worth of services. How much is the discount?

VAT taxpayer: the VAT amount should be excluded in computing for the discount, as follows:

Amount of sales (with VAT) P 1,120

Less: 12% VAT 120
Discount base 1,000
Discount rate 20%
Discount P 200
VAT due: P0

In the above, the amount of sales that must be reported is P1,000 and not the amount of sales after the discount and the entry to record the transaction
would be:

Cash 800
PWD Discount 200
Sales 1,000

Non-VAT taxpayer: the discount is computed before imposing the 3% percentage tax, as follows:

Amount of sales P 1,120

Less: 20% discount 224
Amount Payable 896
Percentage Tax Rate 3%
Percentage tax due P 26.88

The entry for the above transaction:

Cash 896
PWD Discount 224
Sales 1,120

Percentage Tax 26.88

Tax Payable 26.88

Input VAT attributable to sales made to PWDs: The input VAT attributable to sales made to PWDs, exempt as such, are to be treated as deductible
expenses and not as tax credits, similar to senior citizens.

No Double Discounts: In the purchase of goods and services which are on promotional discount, persons with disability can avail of the establishment's
offered discount or the 20% discount provided herein, whichever is higher and more favorable. In cases where the person with disability is also a senior
citizen entitled to a 20% discount under his/her valid senior citizen identification card (ID), the person with disability shall use either his/her PWD ID Card
or Senior Citizen ID card to avail of the 20% discount. (Section 12, Rule IV of the IRR of RA No. 10754)

PENALTIES FOR NON-COMPLIANCE

Non-compliance with the discount and VAT exemption privileges and any other requirements under RA No. 10754 shall suffer the following penalties:

First violation Fine – P50,000 to P100,000,

Imprisonment – 6 months – 2
years, or both
Subsequent violations Fine – P100,000 to P200,000,
Imprisonment – 2 years to 6
years, or both

Any person who ABUSES the privileges granted by law shall be punished with imprisonment of not less than 6 months or a fine of P5,000 to P50,000 or
both.

If the violator is a corporation, organization or any similar entity, the officials thereof directly involved shall be liable therefor.

If the violator is an alien or a foreigner, he shall be deported immediately after service of sentence without further deportation proceedings.
 OMNIBUS INVESTMENT CODE

Executive Order (EO) No. 226, otherwise known as the Omnibus Investment Code (“Code” as used in this section), was signed into law on July 16,
1987 by then President Corazon Aquino.

The EO includes the Philippines’ basic laws on investments, providing for incentives for local and foreign entities engaged in activities considered as
priorities for national development and is administered by the Board of Investments.

Art. 2 of the said law provides for the Declaration of Investment Policies:

ART. 2. Declaration of Investment Policies. - To accelerate the sound development of the national economy in consonance with the principles
and objectives of economic nationalism and in pursuance of a planned economically feasible and practical dispersal of industries and the promotion of
small and medium scale industries, under conditions which will encourage competition and discourage monopolies, the following are declared policies
of the State:

1. The State shall encourage private Filipino and foreign investments in industry, agriculture, forestry, mining, tourism and other sectors of the economy
which shall: provide significant employment opportunities relative to the amount of the capital being invested; increase productivity of the land,
minerals, forestry, aquatic and other resources of the country, and improve utilization of the products thereof improve technical skills of the people
employed in the enterprise; provide a foundation for the future development of the economy; meet the tests of international competitiveness;
accelerate development of less developed regions of the country; and result in increased volume and value of exports for the economy.

2. The State shall ensure holistic development by safeguarding the well-being of the social, cultural and ecological life of the people. For this purpose,
consultation with affected communities will be conducted whenever necessary.

3. The State shall extend to projects which will significantly contribute to the attainment of these objectives, fiscal incentives without which said
projects may not be established in the locales, number and/or pace required for optimum national economic development. Fiscal incentive systems
shall be devised to compensate for market imperfections, to reward performance contributing to economic development, be cost-efficient and be
simple to administer.

4. The State considers the private sector as the prime mover for economic growth. In this regard, private initiative is to be encouraged, with deregulation
and self-regulation of business activities to be generally adopted where dictated by urgent social concerns.

5. The State shall principally play a supportive role, rather than a competitive one, providing the framework, the climate and the incentives within
which business activity is to take place.

6. The State recognizes that there are appropriate roles for local and foreign capital to play in the development of the Philippine economy and that it
is the responsibility of Government to define these roles and provide the climate for their entry and growth.

7. The State recognizes that industrial peace is an essential element of economic growth and that it is a principal responsibility of the State to ensure
that such a condition prevails.

8. Fiscal incentives shall be extended to stimulate the establishment and assist initial operations of the enterprise, and shall terminate after a period
of not more than 10 years from registration or start-up of operation unless a specific period is otherwise stated.

The foregoing declaration of investment policies shall apply to all investment incentive schemes.

BOARD OF INVESTMENTS

The Board of Investments (BOI) (the “Board”) was created by virtue of EO No. 226. It is an attached agency to the Department of Trade and Industry
which serves as the lead government agency responsible for the promotion of investments in the Philippines.
(http://investphilippines.gov.ph/incentives/board-of-investments/)

Composition of the Board of Investments:

The BOI shall be composed of 7 governors:

1. The Secretary of Trade and Industry - The Secretary of Trade and Industry shall be concurrently Chairman of the Board.
2. 3 Undersecretaries of the Trade and Industry chosen by the President – one of which shall be concurrently the Vice-Chairman and its Managing
Head.
3. 3 representatives from other government agencies and the private sector – who shall be appointed by the President for a term of 4 years.

Provided, That upon the expiration of his term, a governor shall serve as such until his successor shall have been appointed and qualified: Provided,
further, That no vacancy shall be filled except for the unexpired portion of any term, and that no one may be designated to be a governor of the
Board in an acting capacity but all appointments shall be ad interim or permanent. (Art. 4, EO 226)

Qualifications of the Governors:

1. Citizens of the Philippines;
2. At least 30 years old;
3. Of good moral character; and
4. Of recognized competence in the fields of economics, finance, banking, commerce, industry, agriculture, engineering, law, management or labor.
(Art. 5, EO 226)

Powers and Duties of the Board

(1) Prepare annually the Investment Priorities Plan;
(2) Promulgate such rules and regulations as may be necessary to implement the intent and provisions of the Code;
(3) Process and approve applications for registration with the Board, imposing such terms and conditions as it may deem necessary to promote the
objectives of the Code;
(4) After due hearing, decide controversies concerning the implementation of the relevant books of this Code that may arise between registered enterprises
or investors therein and government agencies, within thirty (30) days after the controversy has been submitted for decision: Provided, That the investor
or the registered enterprise may appeal the decision of the Board within thirty (30) days from receipt thereof to the President;
(5) Recommend to the Commissioner of Immigration and Deportation the entry into the Philippines for employment of foreign nationals under this Code;
(6) Periodically check and verify, either by inspection of the books or by requiring regular reports, the proportion of the participation of Philippine nationals
in a registered enterprise to ascertain compliance with its qualification to retain registration under this Code;
(7) Periodically check and verify the compliance by registered enterprises with the relevant provisions of this Code, with the rules and regulations
promulgated under this Code and with the terms and conditions of registration;
(8) After due notice, cancel the registration or suspend the enjoyment of incentives benefits of any registered enterprise and/or require refund of incentives
enjoyed by such enterprise including interests and monetary penalties, for:
(a) failure to maintain the qualifications required by this Code for registration with the Board or
(b) for violation of any provisions of this Code, of the rules and regulations issued under this Code, of the terms and conditions of registration, or of
laws for the protection of labor or of the consuming public: Provided, That the registration of an enterprise whose project timetable, as set by the
Board is delayed by one year, shall be considered automatically cancelled unless otherwise reinstated as a registered enterprise by the Board;
(9) Determine the organizational structure; appoint, discipline and remove its personnel consistent with the provisions of the Civil Service Law and Rules;
(10) Prepare or contract for the preparation of feasibility and other pre-investment studies for pioneer areas either upon its own initiative; or upon the
request of Philippine nationals who commit themselves to invest therein and show the capability of doing so: Provided, That if the venture is implemented,
then the amount advanced by the Board shall be repaid within five (5) years from the date the commercial operation of said enterprise starts;
(11) When feasible and considered desirable by the Board, require registered enterprises to list their shares of stock in any accredited stock exchange or
directly offer a portion of their capital stock to the public and/or their employees;
(12) Formulate and implement rationalization programs for certain industries whose operation may result in dislocation, overcrowding or inefficient use of
resources, thus impeding economic growth. For this purpose, the Board may formulate guidelines for progressive manufacturing programs, local content
programs, mandatory sourcing requirements and dispersal of industries. In appropriate cases and upon approval of the President, the Board may restrict,
either totally or partially, the importation of any equipment or raw materials or finished products involved in the rationalization program;
(13) In appropriate cases, and subject to the conditions which the Board deems necessary, suspend the nationality requirement provided for in this Code
or any other nationalization statute in cases of ASEAN projects or investments by ASEAN nationals in preferred projects, and with the approval of the
President, extend said suspension to other international complementation arrangements for the manufacture of a particular product on a regional basis
to take advantage of economies of scale;
(14) Extend the period of availment of incentives by any registered enterprise; Provided, That the total period of availment shall not exceed ten (10)
years, subject to any of the following criteria:
(a) The registered enterprise has suffered operational force majeure that has impaired its viability;
(b) The registered enterprise has not fully enjoyed the incentives granted to it for reasons beyond its control;
(c) The project of the registered enterprise has a gestation period which goes beyond the period of availment of needed incentives; and
(d) The operation of the registered enterprise has been subjected to unforeseen changes in government policies, particularly, protectionism policies
of importing countries, and such other supervening factors which would affect the competitiveness of the registered firm;
(15) Regulate the making of investments and the doing of business within the Philippines by foreigners or business organizations owned in whole or in
part by foreigners;
(16) Prepare or contract for the preparation of industry and sectoral development programs and gather and compile statistical, technical, marketing,
financial and other data required for the effective implementation of this Code;
(17) Within four (4) months after the close of the fiscal year, submit annual reports to the President which shall cover its activities in the administration
of this Code, including recommendations on investment policies;
(18) Provide, directly or through Philippine diplomatic missions, such information as may be of interest to prospective foreign investors:
(19) Collate, analyze and compile pertinent information and studies concerning areas that have been or may be declared preferred areas of investments;
and
(20) Enter into agreements with other agencies of government for the simplification and facilitation of systems and procedures involved in the promotion
of investments, operation of registered enterprises and other activities necessary for the effective implementation of this Code;
(21) Generally, exercise all the powers necessary or incidental to attain the purposes of this Code and other laws vesting additional functions on the Board.

PREFERRED AREAS OF INVESTMENT

Preferred areas of investment shall mean the activities that the Board shall have declared as such which shall be either pioneer or non-pioneer, based on
long-run comparative advantage, taking into account the value of social objectives and employing economic criteria along with market, technical; and
financial analyses.

The Board shall take into account the following:

(a) Primarily, the economic soundness of the specific activity as shown by its economic internal rate of return;
(b) The extent of contribution of an activity to a specific development goal;
(c) Other indicators of comparative advantage;
(d) Measured capacity as defined in Article 20; and
(e) The market and technical aspects and considerations of the activity proposed to be included.

Pioneer enterprise shall mean a registered enterprise:

1. Engaged in the manufacture, processing or production, and not merely in the assembly or packaging of goods, products, commodities or raw materials
that have not been or are not being produced in the Philippines on a commercial scale;
2. Which uses a design, formula, scheme, method, process or system of production or transformation of any element, substance or raw materials into
another raw material or finished goods which is new and untried in the Philippines or
3. Engaged in the pursuit of agricultural, forestry and mining activities and/or services including the industrial aspects of food processing whenever
appropriate, pre-determined by the Board, in consultation with the appropriate Department, to be feasible and highly essential to the attainment of
the national goal in relation to a declared specific national food and agricultural program for self sufficiency and other social benefits of the project
or
4. Which produces non-conventional fuels or manufactures equipment which utilize non-conventional sources of energy or uses or converts to coal or
other non-conventional fuels or sources of energy in its production, manufacturing or processing operations.
Provided, That the final product in any of the foregoing instances, involves or will involve substantial use and processing of domestic raw materials,
whenever available; taking into account the risks and magnitude of investment; Provided, further, That the foregoing definitions shall not in any way limit
the rights and incentives granted to less-developed-area enterprises.

Non-pioneer enterprise shall include all registered producer enterprises other than pioneer enterprises.

INVESTMENT PRIORITIES PLAN (IPP)

ART. 26. Investment Priorities Plan shall mean the overall plan prepared by the Board which includes and contains:

(a) The specific activities and generic categories of economic activity wherein investments are to be encouraged and the corresponding products and
commodities to be grown, processed or manufactured pursuant thereto for the domestic or export market;

(b) Specific public utilities which can qualify for incentives under this Code and which shall be supported by studies of existing and prospective regional
demands for the services of such public utilities in the light of the level and structure of income, production, trade, prices and relevant economic and
technical factors of the regions as well as the existing facilities to produce such services;

(c) Specific activities where the potential for utilization of indigenous non-petroleum based fuels or sources of energy can be best promoted; and

(d) Such other information, analyses, data, guidelines or criteria as the Board may deem appropriate.

The specific and generic activities to be included in the Investment Priorities Plan with their status as pioneer or non-pioneer shall be determined by
the Board in accordance with the criteria set forth above.

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

Approval: The President shall proclaim the whole or part of such plan as in effect; or alternatively return the whole or part of the plan to the Board of
Investments for revision.

Upon the effectivity of the plan or portions thereof, the President shall issue all necessary directives to all departments, bureaus, agencies or
instrumentalities of the government to ensure the implementation of the plan by the agencies concerned in a synchronized and integrated manner. No
government body shall adopt any policy or take any course of action contrary to or inconsistent with the plan.

The 2017 IPP: The 2017 IPP was approved by the President on 28 February 2017. The 2017 IPP is a rolling three-year plan to ensure continuity and
consistency in policies, but will be reviewed annually over the three-year period.

The 2017 IPP contains the following priority investment areas:

1. Preferred Activities: All qualified manufacturing including agri-processing; Agriculture; Fishery and Forestry; Strategic Services; Infrastructure and
Logistics including LGU-PPPs; Health Care Services including drug rehabilitations; Mass Housing; Inclusive Business Models; Environment and Climate-
change; Innovation Drivers; and Energy;
2. Export Activities including the production and manufacture of export products, services exports and activities in support of exporters;
3. Activities based on Special Laws granting incentives, which includes:
a. Industrial Tree Plantation (PD No. 705) – covers extensive plantation of forest land of tree crops (except fruit trees) for commercial and industrial
purposes;
b. Exploration, Mining, Quarrying and Processing of Minerals (RA No. 7942, limited to capital equipment incentive) – covers the exploration and
development of mineral resources, mining/quarrying and processing of metallic and non-metallic minerals;
c. Publication or Printing of Books/Text books (RA No. 8047) – covers content development intended for books and publication of books in print
or digital format;
d. Refining, Storage, Marketing, and Distribution of Petroleum Products (RA No. 8479);
e. Rehabilitation, Self-Development and Self-Reliance of Persons With Disability (RA No. 7277);
f. Renewable Energy (RA No. 9513) – covers developers of renewable energy facilities, including hybrid systems. This also covers manufacturers,
fabricators and suppliers of locally-produced RE equipment and components; and
g. Tourism (RA No. 9593) – covers tourism enterprises that are outside the tourism enterprise zones.

4. ARMM List – covers priority activities that have been identified by the Regional BOI of the ARMM

Amendment: the Board of Investments may, at any time, add additional areas in the plan, alter any of the terms of the declaration of an investment
area or the designation of measured capacities, or terminate the status of preference.

In no case, however, shall any amendment of the plan impair whatever rights may have already been legally vested in qualified enterprises which shall
continue to enjoy such rights to the full extent allowed under this Code. The Board shall not accept applications in an area of investment prior to the
approval of the same as a preferred area nor after approval of its deletion as a preferred area of investment.

Publication requirement: Upon approval of the plan, in whole or in part or upon approval of an amendment thereof, the plan or the amendment,
specifying and declaring the preferred areas of investment and their corresponding measured capacity shall be published in at least one (1) newspaper of
general circulation and all such areas shall be open for application until publication of an amendment or deletion thereof, or until the Board approves
registration of enterprises which fill the measured capacity.

REGISTRATION OF ENTERPRISES
Qualifications of a Registered Enterprise: To be entitled to registration under the Investment Priorities Plan, an applicant must satisfy the Board
that:

1. He is a citizen of the Philippines, in case the applicant is a natural person, or

In case of a partnership or any other association, it is (1) organized under Philippine laws and (2) that at least sixty percent (60%) of
its capital is owned and controlled by citizens of the Philippines; or

In case of a corporation or a cooperative, it is (1) organized under Philippine laws and (2) that at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by Philippine nationals, and (3) at least sixty percent (60%) of the
members of the Board of Directors are citizens of the Philippines.

If it does not possess the required degree of ownership as mentioned above by Philippine nationals, the following circumstances must be
satisfactorily established:

a. That it proposes to engage in a pioneer project as defined in Article 17 of this Code, which, considering the nature and extent of capital
requirements, processes, technical skills and relative business risks involved, is in the opinion of the Board of such a nature that the available
measured capacity thereof cannot be readily and adequately filled by Philippine nationals; or, if the applicant is exporting at least seventy
percent (70%) of its total production, the export requirement herein provided may be reduced in meritorious cases under such conditions and/or
limited incentives as the Board may determine;
b. That it obligates itself to attain the status of a Philippine national, as defined in Article 15, within thirty (30) years from the date of registration
or within such longer period as the Board may require taking into account the export potential of the project: Provided, That a registered
enterprise which exports one hundred percent (100%) of its total production need not comply with this requirement;
c. That the pioneer area it will engage in is one that is not within the activities reserved by the Constitution or other laws of the Philippines to
Philippine citizens or corporations owned and controlled by Philippine citizens;

2. The applicant is proposing to engage in a preferred project listed or authorized in the current Investment Priorities Plan within a reasonable time
to be fixed by the Board or, if not so listed, at least fifty percent (50%) of its total production is for export or it is an existing producer which will
export part of production under such conditions and/or limited incentives as the Board may determine; or that the enterprise is engaged or proposing
to engage in the sale abroad of export products bought by it from one or more export producers; or the enterprise is engaged or proposing to engage
in rendering technical, professional or other services or in exporting television and motion pictures and musical recordings made or produced in the
Philippines, either directly or through a registered trader.
3. The applicant is capable of operating on a sound and efficient basis and of contributing to the national development of the preferred
area in particular and of the national economy in general; and
4. If the applicant is engaged or proposes to engage in under takings or activities other than preferred projects, it has installed or undertakes to
install an accounting system adequate to identify the investments, revenues, costs, and profits or losses of each preferred project undertaken
by the enterprise separately from the aggregate investment, revenues, costs and profits or losses of the whole enterprise or to establish a separate
corporation for each preferred project if the Board should so require to facilitate proper implementation of this Code.

Application: Applications shall be filed with the Board, recorded in a registration book and the date appearing therein and stamped on the application
shall be considered the date of official acceptance.

Whenever necessary, the Board, through the People's Economic Councils, shall consult the communities affected on the acceptability of locating the
registered enterprise within their community.

The BOI has 20 working days to approve or deny the application. Applications filed shall be considered automatically approved if not acted upon by the
Board within said 20 working days from official acceptance thereof.

Approval and Registration Proceedings: The Board is authorized to adopt rules and regulations to facilitate action on applications filed with it,
prescribe criteria for the evaluation of several applications filed in one preferred area; devise standard forms for use of applicants and delegate to the
regional offices of the Department of Trade and Industry the authority to receive and process applications for enterprises to be located in their respective
regions.

Criteria for Evaluation of Applications:

1. The extent of ownership and control by Philippine citizens of the enterprises;
2. The economic rates of return;
3. The measured capacity: Provided, That estimates of measured capacities shall be regularly reviewed and updated to reflect changes in market supply
and demand conditions: Provided, further, That measured capacity shall not result in a monopoly in any preferred area of investment which would
unduly restrict trade and fair competition nor shall it be used to deny the entry of any enterprise in any field of endeavor or activity;
4. The amount of foreign exchange earned, used or saved in their operations;
5. The extent to which labor, materials and other resources obtained from indigenous sources are utilized;
6. The extent to which technological advances are applied and adopted to local conditions;
7. The amount of equity and degree to which the ownership of such equity is spread out and diversified; and
8. Such other criteria as the Board may determine.

Appeal from Board’s Decision: any order or decision of the Board shall be final and executory after thirty (30) days from its promulgation. Within the
said period of thirty (30) days, said order or decision may be appealed. to the Office of the President. Where an appeal has been filed, said order or
decision shall be final and executory ninety (90) days after the perfection of the appeal, unless reversed.

Certificate of Registration: A registered enterprise under this Code shall be issued a certificate of registration under the seal of the Board of Investments
and the signature of its Chairman and/or such other officer or employee of the Board as it may empower and designate for the purpose. The certificate
shall be in such form and style as the Board may determine and shall state, among other matters:
(a) The name of the registered enterprise;
(b) The preferred area of investment in which the registered enterprise is proposing to engage;
(c) The nature of the activity it is undertaking or proposing to undertake, whether pioneer or non-pioneer, and the registered capacity of the enterprise;
and
(d) The other terms and conditions to be observed by the registered enterprise by virtue of the registration.

BASIC RIGHTS AND GUARANTEES

ART. 38. Protection of Investment. - All investors and registered enterprises are entitled to the basic rights and guarantees provided in the Constitution.
Among other rights recognized by the Government of the Philippines are the following:
(a) Repatriation of Investments. - In the case of foreign investments, the right to repatriate the entire proceeds of the liquidation of the investment
in the currency in which the investment was originally made and at the exchange rate prevailing at the time of repatriation, subject to the provisions
of Section 74 of Republic Act No. 265, as amended. For investments made pursuant to Executive Order No. 32 and its implementing rules and
regulations, remittability shall be as provided therein.
(b) Remittance of Earnings. - In the case of foreign investments, the right to remit earnings from the investment in the currency in which the investment
was originally made and at the exchange rate prevailing at the time of remittance, subject to the provisions of Section 74 of Republic Act No.265 as
amended;
(c) Foreign Loans and Contracts. - The right to remit at the exchange rate prevailing at the time of remittance such sums as may be necessary to
meet the payments of interest and principal on foreign loans and foreign obligations arising from technological assistance contracts, subject to the
provisions of Section 74 of Republic Act. No. 265 as amended;
(d) Freedom from Expropriation. - There shall be no expropriation by the government of the property represented by investments or of the property
of the enterprise except for public use or in the interest of national welfare or defense and upon payment of just compensation. In such cases, foreign
investors or enterprises shall have the right to remit sums received as compensation for the expropriated property in the currency in which the
investment was originally made and at the exchange rate at the time of remittance, subject to the provisions of Section 74 of Republic Act. No. 265
as amended;
(e) Requisition of Investment. - There shall be no requisition of the property represented by the investment or of the property of enterprises, except
in the event of war or national emergency and only for the duration thereof. Just compensation shall be determined and paid either at the time of
requisition or immediately after cessation of the state of war or national emergency. Payments received as compensation for the requisitioned property
may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance, subject
to the provisions of Section 74 of Republic Act No. 265, as amended.

FISCAL INCENTIVES

BOI-registered enterprises are entitled to the following fiscal incentives provided under the Omnibus Investment Code:

Tax Exemptions
1. Income Tax Holiday (ITH) – during the period of the ITH, a registered enterprise/activity is exempt from income tax.

Activity Period of ITH

New projects with a pioneer status 6 years
New projects with a non-pioneer 4 years
status
Expansion projects or modernization 3 years, as a general rule, exception is limited
projects to incremental sales revenue/volume
New or expansion projects in less 6 years, regardless of status
developed areas (LDAs)

“Start of Commercial Operations” for purposes of the income tax holiday shall be the date specified in the Registration Agreement or the date
when the particular BOI-registered enterprise/ECOZONE export enterprise actually begins production of the registered product for commercial
purposes, whichever comes first, irrespective of phases or modules or schedule of development.

Bonus year of ITH: the income tax exemption will be extended for another year in each of the following cases:
a. the project does not exceed the prescribed ratio of capital equipment to number of workers set by the Board, currently at US$28,000 to one
direct employee (from previous US$10,000 to one employee) (BOI Memorandum Circular No. 2017-004 dated June 14, 2017);
b. utilization of indigenous raw materials at rates set by the Board, currently at 50% of total raw materials preceding the year of extension;
c. the net foreign exchange savings or earnings amount to at least US$500,000.00 annually during the first three (3) years of operation.

However, no registered pioneer firm may avail of ITH for a period exceeding 8 years.

ITH of Expansion Projects: for purposes of computing the ITH entitlement of expansion or modernization projects, the following must be determined:
1. Base rate – which is the highest sales volume/value in the last three years prior to the start of commercial operations; and
2. Rate of exemption – which is the ratio of the incremental sales to the total sales.

ILLUSTRATIVE EXAMPLE: For the year ended 2016, ABC Company, registered with the BOI its expansion projects after which it had the following:

Net Income P10M

Total Sales P50M
Base Figure P10M
Rate of Income Tax 30%

A. How much is the ITH entitlement of ABC Company?

Answer: P2.4M

• Incremental sales would be P40M (Total Sales of P50M less Base Figure of P10M)
• Ratio therefore would be 80% (Incremental Sales of P40M over Total Sales of P50M)
 • Income Tax is P3M (P10M Net Income * 30% Income Tax Rate)
• Entitlement to ITH would then be P2.4M (Income Tax of P3M * 80% ratio)

B. How much is the income tax payable of ABC?

Answer: P600,000 (Income Tax of P3M less ITH entitlement of P2.4M)1

Coverage: the ITH will apply only to registered activities. If the entity has other activities which are not registered with the BOI, the ITH shall not
extend to such.

Less Developed Areas: are those included in such list prepared by the BOI after consultation with the NEDA and other appropriate government
agencies, taking into consideration the following criteria:
a. low per capita gross domestic product;
b. low level of investments;
c. high rate of unemployment and/or underemployment; and
d. low level of infrastructure development including its accessibility to developed urban centers.

Exemption from Withholding Tax: since the BOI-registered entities are enjoying ITH and thus not subject to income tax, income payments
received by them are likewise not subject to expanded withholding tax under Sec. 2.57.5(B)(2) of RR No. 2-98, as amended by RR No. 6-2001.

Low-cost housing developers: who register with the BOI their low-cost mass housing project is exempt from withholding tax on income payments
received by them during the period of the ITH.

However, the exemption covers only income directly attributable to revenue generated from its registered activity and not revenues from projects
which are not BOI-registered.

In the computation of income covered by the ITH, interest income from in-house financing shall not be considered as revenues generated from the
registered activity.

Compliance with terms and conditions: the entitlement of BOI-registered enterprises to the ITH is not automatic, the entity has to comply with
the specific terms and conditions of its BOI registration.

In the event the registered enterprise fails to implement the project as represented in its project application, the BOI may reduce the project’s ITH
entitlement proportionate to the actual performance of the enterprise.

Other taxes: ITH entitlement do not cover other taxes, such as the VAT and DST. So unless the transaction is likewise exempt from the same, the
transaction will be subject to such taxes. In the case of a developer, if the sale of residential lots or house and lots is more than P1,919,500 or
P3,199,200, respectively, the same shall be subject to VAT.

Withholding taxes on income payment to suppliers and employees: the ITH entitlement of an entity does not mean that it will not withhold
the required Withholding Taxes on Compensation, Fringe Benefits Tax or Expanded Withholding Tax on its payments to employees and suppliers
subject to the same. Note that the withholding taxes are advance payment of the income tax of the payee and not that of the BOI-registered
enterprise. The BOI-registered enterprise is constituted as a withholding agent of the government as an employer and as an income payor to
suppliers.

Net Operating Loss Carry-Over (NOLCO): An enterprise registered with the BOI with respect to its BOI-registered activity enjoying ITH incentive
shall not be entitled to claim a deduction for NOLCO. Its accumulated net operating losses incurred or sustained during the period of such Income
Tax Holiday shall not qualify for purposes of the NOLCO. (Sec. 4.2, RR No. 14-2001)

In case, however, that the entity has unregistered activities which sustained losses, the deduction for NOLCO can be claimed but only against the
income of such unregistered activities, not against the registered activity’s income. (Sec. 6.3, RR No. 14-2001)

2. Exemption from wharfage dues and export tax, duty, impost and fees for exports of non-traditional export products. The registered
enterprise is given a 10-year period to avail of the exemption.

3. Exemption of Breeding Stocks and Genetic Materials: For agricultural producers, 10-years exemption from the payment of all taxes
and duties on their importation of breeding stocks and genetic materials, provided:
a. not locally available and/or obtainable locally in comparable quality and at reasonable prices;
b. reasonably needed in the registered activity; and
c. approved by the Board.

4. The registered enterprise shall be exempt from the payment of contractor’s tax, whether national or local.

5. Exemption of importation of capital equipment

Importations of machinery and equipment and accompanying spare parts of new and expanding registered enterprises shall be exempt of the customs
duties and national internal revenue tax payable thereon, subject to the following conditions:
a. They are not manufactured domestically in sufficient quantity, of comparable quality and at reasonable prices;
b. They are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval
of the Board is secured for the part-time utilization of said equipment in a non-registered activity to maximize usage thereof or the proportionate
taxes and duties are paid on the specific equipment and machinery being permanently used for non-registered activities; and
c. The approval of the Board was obtained by the registered enterprise for the importation of such machinery, equipment and spare parts.

1
Source: http://www.philconstruct.com/docs/downloads/DTI%20DOCS/BOI_IncentiveAndApplicationGuidelines.pdf
 In granting the approval of the importations under this paragraph, the Board may require international canvassing but if the total cost of the capital
equipment or industrial plant exceeds US$5,000,000, the Board shall apply or adopt the provisions of Presidential Decree Numbered 1764 on
International Competitive Bidding.

Disposal of the imported capital equipment: If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts
without prior approval of the Board within five (5) years from date of acquisition, the registered enterprise and the vendee, transferee, or
assignee shall be solidarily liable to pay twice the amount of the tax exemption given it.

The Board shall allow and approve the sale, transfer or disposition of the said items within the said period of five (5) years if made:
a. to another registered enterprise or registered domestic producer enjoying similar incentives;
b. for reasons of proven technical obsolescence; or
c. for purposes of replacement to improve and/or expand the operations of the registered enterprise.

6. Exemption from Taxes and Duties on Imported Supplies or Spare Parts: A registered enterprise with a bonded manufacturing warehouse
shall be exempt from customs duties and national internal revenue taxes on its importation of required supplies/spare parts for consigned
equipment or those imported with incentives.

Provided that:
a. At least seventy percent (70%) of production is exported;
b. Such spare parts and supplies are not locally available at reasonable prices, sufficient quantity and comparable quality;
c. All such spare parts and supplies shall be used only in the bonded manufacturing warehouse of the registered enterprise under such requirements
as the Bureau of Customs may impose.

In no case shall the availment period exceed 10 years.

Tax Credits

Tax Credits are provided for domestic purchases where the importation of which would have been exempt from taxes, the amount of which is the taxes
which could have been waived had they been imported.

1. Domestic Breeding Stocks and Genetic Materials: 10-years tax credit equivalent to one hundred percent (100%) of the value of national
internal revenue taxes and customs duties that would have been waived had these items been imported, provided:
a. That said breeding stocks and genetic materials would have qualified for tax and duty free importation under the preceding paragraph;
b. That the breeding stocks and genetic materials are reasonably needed in the registered activity;
c. That approval of the Board has been obtained by the registered enterprise; and
d. That the purchase is made within ten (10) years from date of registration or commercial operation of the registered enterprise.

2. Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials, supplies and semi-manufacture of export
products and forming part thereof.

Provided that, the taxes on the supplies, raw materials and semi-manufactured products domestically purchased are indicated as a separate item
in the sales invoice.

3. Tax Credit on Domestic Capital Equipment: A tax credit equivalent to one hundred percent (100%) of the value of the national internal
revenue taxes and customs duties that would have been waived on the machinery, equipment and spare parts, had these items been
imported shall be given to the new and expanding registered enterprise which purchases machinery, equipment and spare parts from a domestic
manufacturer: Provided,
a. That the said equipment, machinery and spare parts are reasonably needed and will be used exclusively by the registered enterprise in the
manufacture of its products, unless prior approval of the Board is secured for the part-time utilization of said equipment in a non-registered
activity to maximize usage thereof;
b. That the equipment would have qualified for tax and duty-free importation;
c. That the approval of the Board was obtained by the registered enterprise; and
d. That the purchase is made within five (5) years from the date of effectivity of the Code.

If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts, the rule on imported capital equipment so
disposed shall apply.

Additional Deductions form Taxable Income

1. Labor Expense - 5-years additional deduction for labor expense, equivalent of fifty percent (50%) of the wages of additional skilled
and unskilled workers in the direct labor force.

This incentive shall be granted only if the enterprise meets a prescribed capital to labor ratio and shall not be availed simultaneously with ITH.

2. Necessary and Major Infrastructure Work - Registered enterprises located in LDAs or in areas deficient in infrastructure, public utilities and
other facilities may deduct from taxable income an amount equivalent to the expenses incurred in the development of necessary and major
infrastructure works, provided:
a. That the title to all such infrastructure works shall upon completion, be transferred to the Philippine Government; and
b. That any amount not deducted for a particular year may be carried over for deduction for subsequent years not exceeding ten (10) years from
commercial operation.

This privilege is not granted to mining and forestry-related projects.

Value-Added Tax
The following are VAT zero-rated sales and thus no VAT is passed by the seller to the BOI-registered enterprise who is the buyer of the same:
1. Purchase of raw materials and supplies used in the manufacture, and which form part of, the registered export product; and
2. Purchase of goods, services or properties of firms exporting 100% of their product.

EXPORT SALES UNDER THE OMNIBUS INVESTMENT CODE CONSIDERED ZERO-RATED/VAT-EXEMPT: Export sales shall mean the Philippine
port F.O. B. value, determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of:
1. Export products exported directly by a registered export producer;
2. The net selling price of export products sold by a registered export producer to another export producer or an export trader that
subsequently exports the same. It is required that sales of export products to another producer or to an export trader shall only be deemed export
sales when actually exported by the latter, as evidenced by landing certificates or similar commercial document.

Sales of an export trader may include commission income.

3. Constructive Exports:
a. Sales to bonded manufacturing warehouses of export-oriented manufacturers;
b. Sales to export processing zones;
c. Sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products
d. Sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency or not.

4. Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the
Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency
inwardly remitted through the Philippine banking systems shall also be considered export sales.

The above sales are considered “export” sales and as such are treated as:
1. VAT zero-rated – when made by a VAT-registered seller;
2. VAT-exempt – when made by a NON-VAT-registered seller.

Non-fiscal Incentives
1. Employment of foreign nationals in supervisory, technical or advisory positions for five (5) years form date of 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.
2. Simplification of customs producers for the importation of equipment, spare parts, raw materials and supplies and export of processed products.
3. Importation of consigned equipment for a period of 10 years from date of registration, subject to posting of a re-export bond.
4. Registered export oriented enterprises shall have access to the utilization of the bonded warehousing system in all areas required by the project.
 SPECIAL ECONOMIC ZONE ACT

Republic Act No. 7916, otherwise known as the Special Economic Zone Act (“Act”), became effective on February 21, 1995, with the following purposes,
intents and objectives:

(a) To establish the legal framework and mechanisms for the integration, coordination, planning and monitoring of special economic zones, industrial
estates / parks, export processing zones and other economic zones;
(b) To transform selected areas in the country into highly developed agro-industrial, industrial, commercial, tourist, banking, investment, and financial
centers, where highly trained workers and efficient services will be available to commercial enterprises;
(c) To promote the flow of investors, both foreign and local, into special economic zones which would generate employment opportunities and establish
backward and forward linkages among industries in and around the economic zones;
(d) To stimulate the repatriation of Filipino capital by providing attractive climate and incentives for business activity;
(e) To promote financial and industrial cooperation between the Philippines and industrialized countries through technology-intensive industries that will
modernize the country’s industrial sector and improve productivity levels by utilizing new technological and managerial know-how; and
(f) To vest the special economic zones on certain areas thereof with the status of a separate customs territory within the framework of the Constitution
and the national sovereignty and territorial integrity of the Philippines.

Section 2 of the said law provides the declaration of policy, as follows:

SEC. 2. Declaration of Policy. – It is the declared policy of the government to translate into practical realities the following State policies and mandates
in the 1987 Constitution, namely:

(a) The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments."
(Sec. 20, Art II)

(b) The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods and adopt measures that help make
them competitive." (Sec. 12, Art XII)

In pursuance of these policies, the government shall actively encourage, promote, induce and accelerate a sound and balanced industrial, economic and
social development of the country in order to provide jobs to the people specially those in the rural areas, increase their productivity and their individual
and family income, and thereby improve the level and quality of their living condition through the establishment, among others, of special economic
zones in suitable and strategic locations in the country and through measures that shall effectively attract legitimate and productive foreign investments.

PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA)

The PEZA, an attached agency to the Department of Trade and Industry, is the Philippine government agency tasked to promote investments, extend
assistance, register, grant incentives to and facilitate the business operations of investors in export-oriented manufacturing and service facilities inside
selected areas throughout the country proclaimed by the President as Special Economic Zones.

It oversees and administers incentives to developers/operators of and locators in Special Economic Zones.

Composition: the PEZA is governed by a 13-man Board, chaired by the Secretary of the Department of Trade and Industry, the Director General; three
Deputy Directors General and eight board members.

Powers and Functions:

1. Safeguard all the lands, buildings, records, monies, credits and other properties and rights of the ECOZONES;
2. Ensure that all revenues of the ECOZONE are collected and applied in accordance with its budget;
3. Ensure that the investors/firms and employees of the ECOZONES are properly discharging their respective duties
4. Give such information and recommend such measures to the Board, as he shall deem advantageous to the ECOZONE
5. Submit to the Board, the ongoing and proposed projects, work and financial program, annual budget of receipts, and expenditures of the ECOZONE
6. Represent the ECOZONE in all its business matters and sign on its behalf after approval of the Board
7. Acquire jurisdiction, as he may deem proper, over the protests, complaints, and claims of the residents and enterprises in the ECOZONE concerning
administrative matters
8. Recommend to the Board the grant, approval, refusal, amendment or termination of the ECOZONE franchises, licenses, permits, contracts, and
agreements in accordance with the policies set by the Board
9. To require owners of houses, buildings or other structures constructed without the necessary permit whether constructed on public or private lands,
to remove or demolish such houses, buildings, structures within sixty (60) days after notice and upon failure of such owner to remove or demolish
such house, building or structure within said period, the director general or his authorized representative may summarily cause its removal or
demolition at the expense of the owner, any existing law, decree, executive order and other issuances or part thereof to the contrary notwithstanding
10. Take such emergency measures as may be necessary to avoid fires, floods and mitigate the effects of storms and other natural or public calamities
11. Prepare and make out plans for the physical and economic development of the ECOZONE, including zoning and land subdivision, and issue such rules
and regulations which shall be submitted to the Board for its approval
12. Perform such other duties and exercise such powers as may be prescribed by the Board, and to implement the policies, rules and regulations set by
the PEZA.

Building permits are issued by the PEZA and not the LGU: By specific provision of law, it is PEZA, through its building officials, which has authority
to issue building permits for the construction of structures within the areas owned or administered by it, whether on public or private lands.

Corollary to this, PEZA, through its director general may require owners of structures built without said permit to remove such structures within sixty (60)
days. Otherwise, PEZA may summarily remove them at the expense of the owner of the houses, buildings or structures. (PEZA vs. Joseph Jude Carantes,
et. al, GR No. 181274, June 23, 2010)

DEFINITION OF TERMS
"Special Economic Zones (SEZ)" – hereinafter referred to as the ECOZONES, are selected areas with highly developed or which have the potential to
be developed into agro-industrial, Industrial tourist/recreational, commercial, banking, investment and financial centers. An ECOZONE may contain any or
all of the following: Industrial Estates (IEs), Export Processing Zones (EPZs), Free Trade Zones, and Tourist/Recreational Centers.

"Industrial Estate (IE)" – refers to a tract of land subdivided and developed according to a comprehensive plan under a unified continuous management
and with provisions for basic infrastructure and utilities, with or without pre-built standard factory buildings and community facilities for the use of the
community of industries.

"Export Processing Zone (EPZ)" – a specialized industrial estate located physically and/or administratively outside customs territory, predominantly
oriented to export production. Enterprises located in export processing zones are allowed to import capital equipment and raw materials free from duties,
taxes and other import restrictions.

"Free Trade Zone" - an isolated policed area adjacent to a port of entry (as a seaport) and/or airport where imported goods may be unloaded for
immediate transshipment or stored, repacked, sorted, mixed, or otherwise manipulated without being subject to import duties. However, movement of
these imported goods from the free-trade area to a non-free-trade area in the country shall be subject to import duties.

“Tourist/Recreational Center” refers to an area within the ECOZONE where tourist accommodation facilities such as hotels, apartelles, tourist inns,
pension houses, resorts, sports and / or recreational facilities are provided to render tourism services for both local and foreign tourists, travellers and
investors in accordance with the guidelines issued by the PEZA.

“Customs Territory” shall mean the national territory of the Philippines outside of the proclaimed boundaries of the ECOZONES except those areas
specifically declared by other laws and/or presidential proclamations to have the status of special economic zones and / or free ports.

BASIC RIGHTS AND GUARANTEES

Under Section 1, Rule II of the Act’s Implementing Rules and Regulations (IRR), investors and registered enterprises are entitled to basic rights and
guarantees similar to that of a BOI-registered enterprise under Article No. 38 of the Omnibus Investment Code. (See Basic Rights and Guarantees under
Omnibus Investment Code above)

Protection of Labor: Consistent with Section 2 of the Act, all workers within the ECOZONES shall be assured of their basic rights under the Constitution,
including the right to security of tenure and humane conditions of work and right to self-organization.

APPLICATION AND REGISTRATION

Nationality: unlike for BOI-registration which requires that the individual to be a citizen or a firm to be 60% Filipino owned, for PEZA-registration, any
person, firm, association, partnership, corporation, or any other form of business organization, regardless of nationality, control and/or ownership of the
working capital thereof may apply for registration as an Export or Free Trade Enterprise within the ECOZONE in any sector of industry, international trade
and commerce.

Except:
1. Duty-free retailing and wholesale trading of imported finished products for purposes of serving the domestic market.
2. If the area of investments of the said enterprises falls within Lists A and B of the Foreign Investments Act of 1991.
3. ECOZONE Developer / Operator
4. Domestic Market Enterprise
5. Utilities Enterprise
6. Facilities Enterprise
7. Tourism Enterprise
8. Service Enterprises

In nos. (1) and (2) above, the applicable nationality, ownership or control requirements of the said law shall be observed. For nos. (3) to (8), in addition,
they must likewise comply with the ownership requirements of the working capital thereof in accordance with the pertinent provisions of the Philippine
Constitution, Foreign Investments Act of 1991 and other existing laws and regulations.

However, applicants for Domestic Enterprise shall be limited to new or expanding business entities subject to the guidelines that shall be promulgated by
the Board in addition to the nationality requirements under existing laws and regulations.

Foreign Investment Negative List: PEZA-registered entities, as a rule, can be 100% foreign-owned except those included under List A and B of the
Foreign Investment Negative List. (see Foreign Investment Act)

Form: the application form prescribed by PEZA shall be accomplished in 3 copies.

Supporting Documents: The applicant for an ECOZONE Enterprise shall submit the following documents:
a. Copies of articles of incorporation and by-laws;
b. Resolution of the applicant's board of directors authorizing the filing of the application; list of its directors, principal officers, and major stockholders,
including their bio-data;
c. List of machinery and equipment to be used by the applicant with a statement of their capacity, ownership and/or mode of procurement;
d. Company brochures and/or photographs of product(s); and
e. Other supporting documents/papers/clearances as may be required by the PEZA depending upon the nature of the business and the type of business
organization of the applicant.

The list used to include a “project feasibility study”, but this document is no longer required by PEZA.

Board Action: the application shall be filed with the PEZA upon payment of the corresponding filing fee.
Approval of the application shall be by resolution of the Board. The action taken thereon shall be communicated in writing to the applicant.

Certificate of Registration: “Certificate of Registration” shall mean the certificate issued by the PEZA to an ECOZONE Enterprise upon its registration
and shall be issued only upon the execution of the Registration Agreement, which shall refer to the final agreement executed by the PEZA and the
ECOZONE Enterprise setting forth the terms and conditions for the latter's operation of business or engaged of economic activity within the ECOZONE,
and whenever it can be shown that the applicant has:
a. Complied with all the pre-registration requirements;
b. Submitted within twenty (20) calendar days from receipt of the notice of approval of the application, a formal acceptance of the proposed terms and
conditions of registration. For good cause shown, said period may be extended if the request therefore is filed before the expiration of the period
sought to be extended; and
c. Paid the registration fee.

However, in appropriate cases as may be determined by the Board, the ECOZONE management or the duly authorized offices of the PEZA shall be
empowered to issue business permits and/or licenses to ECOZONE Enterprises in lieu of the Certificate of Registration after the proper evaluation of their
application in accordance with the set of criteria duly approved by the Board and upon payment of the corresponding fees.

“Date of Registration” shall refer to the date appearing in the certificate of registration.

One Stop Shop Center: there shall be established in the ECOZONE a one stop-shop center to facilitate the registration, licensing and issuance of permits
to ECOZONE Enterprises. All government agencies involved shall assign their respective representatives in the ECOZONE for this purpose.

ELIGIBLE ACTIVITIES UNDER PEZA

1. Export Manufacturing - manufacturing, assembly or processing activity resulting in the exportation of at least 70% of production. (“Manufacturing
/ Processing” shall mean the process by which raw materials or semi-finished materials are converted into a new product through a change in their
physical, mechanical or electro-magnetic characteristics and/or chemical properties. “Assembly” shall mean the process by which semi-finished parts
or materials are put together or combined to form a distinct product without substantially changing its physical or mechanical characteristics or electro-
magnetic and/or chemical properties.) Eligible firms shall qualify for registration as “Economic Zone Export Manufacturing Enterprise.”

2. IT (Information Technology) Service Export - IT service activities, of which 70% of total revenues is derived from clients abroad. (“IT Service
Activities” are activities which involve the use of any IT software and/or system for value addition). Among the IT Service activities eligible for
incentives are: IT-enabled services such as business process outsourcing, call centers, data encoding, transcribing and processing, etc.; software
development and application, including programming and adaptation of system softwares and middlewares; for business, media, e-commerce,
education, entertainment, etc.; content development for multi-media or internet purposes; and others. Eligible firms shall qualify for registration as
“IT Enterprise.”

3. Tourism – establishment and operation within PEZA Tourism Special Economic Zones of sports and recreation centers, accommodation, convention,
and cultural facilities and their special interest attraction activities / establishments, with foreign tourists as primary clientele. Eligible firms shall qualify
for registration as “Tourism Economic Zone Locator Enterprise.”

4. Medical Tourism – medical health services, endorsed by the Department of Health, with foreign patients as primary clientele. Eligible firms shall
qualify for registration as “Medical Tourism Enterprise” in a Medical Tourism Special Economic Zone Park or Center.

5. Agro-industrial Export Manufacturing – processing and or manufacturing of agricultural products resulting in the exportation of its production.
(“Processing” shall mean the conversion of any agricultural and marine products from its raw state into intermediate or final product which undergo
physical and/or chemical change through mechanical and/or chemical process.) Eligible firms shall qualify for registration as “Agro-Industrial Economic
Zone Export Enterprise.”

6. Agro-industrial Bio-Fuel Manufacturing – specialized manufacturing of agricultural crops and eventual commercial processing which shall result
in the production of clean energy such as bio-fuels and the like. Eligible firms shall qualify for registration as “Agro-Industrial Economic Zone
Enterprise.”

7. Logistics and Warehousing Services - (a) operation of a warehouse facility for the storage, deposit, safekeeping of goods for PEZA-registered
Economic Zone Export Manufacturing Enterprises, and or (b) importation or local sourcing of raw materials, semi-finished goods for resale to - or for
packing / covering (including marking / labeling) cutting or altering to customers’ specification, mounting and/ or packaging into kits or marketable
lots for subsequent sale to - PEZA-registered Export Manufacturing Enterprises for use in their export manufacturing activities, or for direct export, or
for consignment to PEZA-registered Export Manufacturing Enterprises and eventual export. Eligible firms shall qualify for registration as “Economic
Zone Logistics Services Enterprise.”

8. Economic Zone Development and Operation:

a. Manufacturing Economic Zone Development/ Operation - development, operation and maintenance of an economic zone for export
manufacturing enterprises, inclusive of the required infrastructure, facilities and utilities such as light and power system, water supply and
distribution system, sewerage and drainage system, pollution control devices, communication facilities, paved road network, administration
building. Eligible firms shall qualify for registration as “Manufacturing Economic Zone Developer / Operator.”

b. IT Park Development / Operation – development, operation and maintenance of an area as a complex capable of providing infrastructures
and other support facilities required by IT Enterprises, as well as amenities required by professionals and workers involved in IT Enterprise, or
easy access to such amenities. Eligible firms shall qualify for registration as “IT Park Developer / Operator.”

c. Tourism Economic Zone Development/Operation – development, operation and maintenance of an integrated resort complex, with
prescribed carrying capacities of tourist facilities and activities, such as but not limited to, sports and recreation centers, accommodations,
convention and cultural facilities, food and beverage outlets, commercial establishments and other special interest and attraction activities /
establishments, and provided with roads, water supply facilities, power distribution facilities, drainage and sewage systems and other necessary
infrastructure and public utilities. Eligible firms shall qualify for registration as “Tourism Economic Zone Developer / Operator.”
 d. Medical Tourism Economic Zone Development/ Operation – development, operation and maintenance of a Medical Tourism Park or Medical
Tourism Center which are planned and designed in accordance with the standards of the Department of Health and the Department of Tourism
to have support facilities and services required for health and wellness, and provided with required infrastructure facilities and utilities. Eligible
firms shall qualify for registration as “Medical Tourism Economic Zone Developer / Operator.”

e. Agro-Industrial Economic Zone Development/ Operation – development operation and maintenance of an agro-industrial economic zone
planned and designed to have support facilities and services required for processing and agro-based manufacturing facilities, and provided with
the required infrastructure facilities and utilities. Eligible firms shall qualify for registration as “Agro-Industrial Economic Zone Developer /
Operator.”

f. Retirement Economic Zone Development/Operation – development. operation and maintenance of a Retirement Economic Zone Park or
Center, planned and designed in accordance with the accreditation standards of the Philippine Retirement Authority, and provided with the required
infrastructure facilities and utilities. Eligible firms shall qualify for registration as “Retirement Economic Zone Developer / Operator.”

9. Facilities Providers:
a. Facilities for Manufacturing Enterprises - construction as owner /operator of factory buildings inside a PEZA Special Economic Zone for lease
to PEZA-registered Export Manufacturing Enterprises. Eligible firms shall qualify for registration as “Economic Zone Facilities Enterprise.”
b. Facilities for IT Enterprises – construction as owner/operator of buildings and other facilities inside IT Parks which are leased to PEZA-
registered IT Enterprises. Eligible firms shall qualify for registration as “IT Park Facilities Enterprise.”
c. Retirement Facilities – establishment, operation and management of retirement facilities and other related activities, with foreign retirees as
primary clientele, duly endorsed by the Philippine Retirement Authority, and located in a Retirement Economic Zone. Eligible firms shall qualify
for registration as “Retirement Economic Zone Facilities Enterprise.”

10. Utilities – establishment, operation and maintenance of light and power systems, water supply and distribution systems inside Special Economic
Zones. Eligible firms shall qualify for registration as “Economic Zone Utilities Enterprise.”

FISCAL INCENTIVES

Incentives under EO 226: business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Book
VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987.

1. INCOME TAX HOLIDAY (ITH)

A PEZA-registered enterprises also enjoy Income Tax Holiday of 3 to 6 years depending on the registered activity similar to that of a BOI-registered
enterprise, with available extension subject to compliance with the same criteria.

“Expansion” shall mean installation of additional facilities and/or equipment that will result in the increase of production capacity. It may include
modernization and rehabilitation. As a rule, the ITH is good for 3 years only and limited to the incremental sales, similar to that of a BOI-registered
enterprise.

Modernization or rehabilitation to be registrable may or may not result in increase in capacity but the following conditions should be met:
1. The area must be listed in the Investment Priorities Plan specifically for modernization or rehabilitation;
2. Phases / stages of production sought to be modernize / rehabilitated must be identified; and must result in any of the following:
a. substantial reduction of production cost; or
b. significant increase in productive efficiency including debottlenecking; or
c. meaningful upgrading of product quality; or
d. keeping abreast with the state of the art in the production of registered product.

2. 5% PREFERENTIAL GROSS INCOME TAX

The 5% tax is imposed on "gross income earned" hence, income tax in nature and a national internal revenue law in character. (Sec. 3, RR No. 1-2000)

After the expiration of the ITH, PEZA-registered enterprises enjoy the 5% preferential gross income tax rate of 5% which shall be in lieu of all national
and local taxes and such 5% tax shall be paid and remitted as follows:
1. Three percent (3%) to the National Government;
2. Two percent (2%) which shall be directly remitted by the business establishments to the treasurer’s office of the municipality or city where the
enterprise is located.

Note however that the above exemption does not cover real property tax. (Section 24 of R.A. No. 7916, as amended by R.A. No. 8748, as likewise
provided under Sec. 2 of RR No 1-2000)

Tax Base: the tax base shall be “Gross Income”, which, for purposes of computing the 5% preferential income tax refers to gross sales or gross
revenues derived from business activity within the ECOZONE, net of sales discounts, sales return and allowances and minus costs of sales or direct costs
but before any deduction is made for administrative expenses or incidental losses during a given taxable period.

See gross income/allowable deductions.

Rule on Apportionment: in case an ECOZONE or an ECOZONE registered enterprise is situated within the territorial jurisdiction of more than one
municipality, the following payment shall be made:
a. By ECOZONE Developer/Operator - The ECOZONE Developer/Operator shall directly pay and remit to the Treasurer's Office of each municipality its
share of the 2% tax on gross income based on the ratio of the area of the municipality included in the ECOZONE to the total area owned and/or
operated by the ECOZONE Developer/Operator.
b. By other ECOZONE Registered Enterprises - The ECOZONE business establishment shall directly pay and remit to the Treasurer's Office of each
municipality its share of the 2% tax on gross income based on the ratio of the area of the municipality included in the lot occupied by the
ECOZONE registered enterprise to the total area occupied by the establishment.
c. PEZA shall determine the exact boundaries and percentage allocation of the ECOZONE and ECOZONE registered enterprise.

PEZA Endorsement: All ECOZONE registered enterprises shall secure from PEZA at least thirty (30) days prior to the filing of their annual income tax
returns an endorsement letter to BIR containing, among others, the following information:
1. That the establishment is a bona fide PEZA registered establishment entitled to the 5% special tax on gross income and
2. Whenever applicable, the percentage allocation of the 2% share in case of overlapping municipalities/cities.
3. A copy of the Final Income Tax Return filed by the ECOZONE registered enterprise, supported
a. Schedule of Other Income
b. Schedule of Financing Charges
c. Schedule of Cost of Goods Sold / Manufactured
d. Summary of Direct Labor and
e. Other Pertinent Supporting Documents as may be necessary, shall be submitted to PEZA within (15) calendar days from filling thereof for review
and confirmation by PEZA and subsequent endorsement to the BIR and the local government unit concerned.

Gross Income/Allowable Deductions for purposes of the 5% Gross Income Tax

Gross income earned shall be subject to the following allowable deductions for specific types of enterprises:

1. For ECOZONE Export Enterprises, Free Trade Enterprises and Domestic Market Enterprises.
a. Direct salaries, wages or labor expenses
b. Production supervision salaries
c. Raw materials used in the manufacture of products
d. Goods in process (intermediate goods)
e. Finished goods
f. Supplies and fuels used in production
g. Depreciation of machinery and equipment used in production and buildings owned or constructed by an ECOZONE Enterprise
h. Rent and utility charges associated with building, equipment and warehouses, or handling of goods
i. Financing charges associated with fixed assets
2. For ECOZONE Developer / Operator, Facilities, Utilities and Tourism Enterprises.
a. Direct salaries, wages or labor expenses
b. Service supervision salaries
c. Direct materials, supplies used or resold to another ECOZONE Enterprise
d. Depreciation of machinery, equipment and buildings owned and/or constructed
e. Financing charges associated with fixed assets
f. Rent and utility charges for buildings and capital equipment

“Direct Labor Wage” shall refer to compensation for labor directly used in the production or manufacturing process up to and including the services of
the production foreman, but shall exclude labor for maintenance of production, machinery and equipment.

Compensation shall cover salaries and wages, including other payments such as bonuses and cost of living allowances which form part of the laborer's or
employee's taxable earnings.

List of Direct Costs NOT EXCLUSIVE: the BIR has likewise adopted the above list in RR No. 11-2005. In BIR Ruling No. 14-2012 (dated January 4,
2012), the BIR held that royalty expense incurred by the taxpayer, not being included in the list, is not an allowable deduction since the enumeration is
exclusive. However, the Court of Tax Appeals has ruled that when RR No. 11-05 amended RR No. 02-05, the words “consists only” were deleted and the
pertinent phrase restated to “the following directs costs are included in the allowable deductions.” Thus, “it is clear that the amendment made under RR
No. 11-05 is not meant to be all-inclusive but merely enumerates the expenses that can be considered as direct costs. PEZA-registered
enterprises may be allowed to deduct expenses which are in the nature of direct costs even though the same are not included in the
list.

The criteria in determining whether the time of cost or expense should be part of direct cost is the direct relation of such item in the rendition of
the PEZA-registered services. If the item or cost or expense can be directly attributed in providing the PEZA-registered services, then it should be
treated as direct cost. (East Asia Utilities Corporation vs. Commissioner of Internal Revenue, CTA Case NO. 8179 dated May 21, 2014, as affirmed in CTA
EB No. 1207 dated February 3, 2016)

Sale of Fixed Assets subject to RCIT and not the 5% preferential income tax: the sale of fixed asset by and between PEZA-registered enterprise
is subject to normal corporate income tax of 30% since this is not part of the seller’s registered activities.

Withholding Taxes: the income received by PEZA-registered enterprise shall not be subject to any withholding tax in either case that they are subject
to ITH or the 5% preferential gross income tax.

In the former, since the withholding tax is an advance collection of income tax, it is no longer necessary since the income is not subject to income tax.

In the latter, the 5% preferential gross income tax is in lieu of all national and local taxes and the 3% thereof is remitted to the National Government.
Accordingly, there is likewise no need to subject the same to the withholding tax.

Note, however, that if a PEZA-registered enterprise has income from UNREGISTERED activities, the same is subject to the regular income tax and
consequently to the withholding tax.

Moreover, the exemption is applicable if the PEZA-registered enterprise is the payee. If it is the one making the income payment (payor), it still is liable
to withhold Expanded Withholding Tax and Withholding Tax on Compensation, whenever applicable, as a withholding agent of the government.
Additional Deductions for Training Expenses

A PEZA-registered enterprise is entitled to an additional deduction of one-half (1/2) of the value of training expenses, incurred in developing skilled
or unskilled labor or for managerial or other management development programs incurred, from the 5% final tax due but not to exceed the national
governments share of three percent (3%).

“Training Expense” refers to the direct, ordinary and necessary expenses incurred by an ECOZONE Service Enterprise (except by an ECOZONE Service
Enterprise as defined under paragraph (p), Section 2, Rule I of these Rules) in training program or activity designed to develop skilled or unskilled labor
or for managerial or other management development program within the purview of Section 42 of the Act. These shall include, among others, the following
expenses or any combination of them:
1. Training materials, books and supplies;
2. Cost of raw materials and non-depreciable tools actually consumed and used during the training;
3. Honoraria for resource speakers and training coordinators and other fees;
4. Travelling expenses of resource speakers and training coordinators while away from home on account of the training program;
5. Salaries of trainees and training staff for the duration of training;
6. Travelling expenses of trainees and training staff while away from home on account of the training program;
7. Tuition, registration or similar fees paid for sponsored trainees;
8. Cost of repairs of training equipment facilities and other fixed assets used in the training program, if breakdown occurs as a result of training;
9. Others (not to exceed 5% of the total training cost)
a. foods
b. rental of venue (if held outside of the ECOZONE enterprise's factory / office building)
c. rental of equipment
d. work clothes for trainees and instructors
e. certificates of training
f. group insurance of trainees

“Unskilled Labor” shall refer to any person, employed or unemployed by the ECOZONE enterprise lacking the skill, training or experience required by
or necessary for a particular production process in any industrial or manufacturing activity.

Authority to assess any deficiency 5% tax is with the BIR: Pursuant to Section 6 of the Tax Code, in relation to R.A. No. 7916, as amended by
R.A. No. 8748, the power to audit and assess the herein 5% special income tax shall be under the exclusive jurisdiction of the Commissioner of Internal
Revenue or his duly authorized representative. (Sec. 6[a], RR No. 1-2000)

Distribution: Three-fifth (3/5th) or sixty percent (60%) of the 5% special income tax assessed, inclusive of increments, representing the share of the
National Government, shall be collected by the Commissioner or his duly authorized representative. Two-fifth (2/5th) or forty percent (40%) thereof shall
be collected by the concerned city/municipality, representing its share from the 5% special income tax on ECOZONE enterprises. (Sec. 6[b], RR No. 1-
2000)

Refund: the refund of erroneously paid 5% tax will be filed with the respective tax authorities as to their share, i.e., 3% with the National Government
and 2% to the Local Government.

3. VALUE-ADDED TAX

The grant of exemption to PEZA-registered enterprise within a special economic zone is broad and express, as it covers both direct and indirect taxes,
including the value-added tax (VAT). (Commissioner of Internal Revenue vs. Seagate Technologies (Philippines), GR No. 15386, February 11, 2005)

Sale by a Supplier from the Customs Territory to a PEZA-registered enterprise: Section 8 of Republic Act No. 7916 mandates that PEZA shall
manage and operate the ECOZONE as a separate customs territory. The provision thereby establishes the fiction that an ECOZONE is a foreign territory
separate and distinct from the customs territory. Accordingly, the sales made by suppliers from a customs territory to a purchaser located within an
ECOZONE will be considered as exportations.

Following the Philippine VAT system's adherence to the Cross Border Doctrine and Destination Principle, the VAT implications are that "no VAT shall be
imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. (Sec. 2, RMC No. 74-99)

Thus, the tax treatment for VAT purposes of such sales would depend on the VAT-registration of said supplier, as follows:

a. Supplier is VAT-registered: sale is considered zero-rated, regardless whether the PEZA-registered buyer is subject to 5% GIT or ITH;
b. Supplier is not VAT-registered: sale is considered VAT-exempt, regardless whether the PEZA-registered buyer is subject to 5% GIT or ITH;

Sale of service by a VAT-registered supplier from the Customs Territory to be zero-rated must be rendered within the Ecozone: the
room accommodation and food and beverage services rendered by the supplier-hotel outside the ecozone is subject to 12% VAT and not zero-rated.

For the said sale by a VAT-registered supplier of service to be zero-rated, all the following must be present:
a. The services must be rendered within the ECOZONE;
b. The services are rendered in connection with the registered activity of the PEZA-registered enterprise.

Sale by a PEZA-registered enterprise to a buyer who is from the Customs Territory (domestic sales):
a. Sale of goods: the sale shall be treated as a technical importation made by the buyer. Such buyer shall be treated as an importer thereof and
shall be imposed the corresponding import tax/es (i.e., VAT or VAT plus excise tax, as the case may be).

For income tax purposes, the sale shall be subject to:

1. 5% GIT: if such domestic sales do not exceed the threshold of 30% of production;
2. Regular Income Tax: if such domestic sales exceed the said threshold – but only as to the excess.
 In computing the income tax due on such sales, the net income from such sales shall be determined in accordance with the general method of
apportionment based on the ratio that the excess sales bear to the total sales, as follows:

Excess sales Net Income Net Income from

x =
Total sales from Total Sales Excess Sales

BOI-registered enterprise: a Filipino-owned BOI-registered enterprise is allowed 50% domestic sales, while a foreign-owned BOI-registered
enterprise is allowed 30% domestic sales.

b. Sale of service: not covered by the 5% GIT and will be subject to 12% VAT/Percentage tax and to the normal income tax. Since to be covered by
the 5% GIT and VAT exemption, the services must be performed within the ECOZONE.

Sale by a PEZA-registered enterprise to another PEZA-registered enterprise (Intra ECOZONE Sales):

a. Sale of goods – VAT-exempt. This is following the cross-border principle and taking into account that the ECOZONE is a separate customs territory
outside the jurisdiction of the Philippines to tax for VAT purposes.
b. Sale of services:
(1) If seller is subject to 5% GIT – VAT-exempt;
(2) If seller is subject to ITH – zero-rated sale.

No requirement of prior BIR Ruling for VAT exemption or zero-rating: The BIR regulations additionally requiring an approved prior application
for effective zero rating cannot prevail over the clear VAT nature of the PEZA-registered entity’s transactions. The scope of such regulations is not within
the statutory authority x x x granted by the legislature:
1. A mere administrative issuance by the BIR cannot amend the law;
2. The registration of a PEZA-registered enterprise carries with it the presumption that, in the absence of contradictory evidence, an application for
effective zero rating was also filed and approval thereof given. Besides, it is also presumed that the law has been obeyed by both the administrative
officials and the applicant;
3. Even though such an application was not made, all the special laws we have tackled exempt respondent not only from internal revenue laws but also
from the regulations issued pursuant thereto. Leniency in the implementation of the VAT in ecozones is an imperative, precisely to spur economic
growth in the country and attain global competitiveness as envisioned in those laws.

A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero rating of the transactions of a taxpayer.
The nature of its business and transactions can easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied
documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise, their VAT
exemption would be determined, not by their nature, but by the taxpayers negligence -- a result not at all contemplated. Administrative convenience
cannot thwart legislative mandate. (CIR vs. Seagate Technology (Philippines), GR No. 153866, Feb. 11, 2005)

4. TAX CREDITS

For exporters using local materials as inputs shall enjoy the same benefits provided for in the Export Development Act of 1994. This is also similar to those
granted to BOI-registered enterprises.

As such, for raw materials and capital equipment which are locally purchased, the PEZA registered enterprise is entitled to a tax credit on the duties and
taxes it would have otherwise saved had the inputs been imported.

5. WHARFAGE AND CUSTOMS DUTIES:

Similar to BOI-registered enterprises, PEZA-registered enterprise likewise enjoy exemption on the importation of its raw materials, supplies and capital
equipment and spare parts thereof.

6. IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)

Under Section 4(g) of RR No. 2-2001, PEZA-registered entities are among those who are not subject to the IAET.

7. BRANCH PROFIT REMITTANCE TAX

Under Section 28(A)(5) of the Tax Code, the 15% tax on profits applied or earmarked for remittance by a branch to its head office is NOT applicable to a
PEZA-registered enterprise.

Tax Treatment of Merchandise in the restricted areas of the ECOZONES:

1. Exemptions - Merchandise brought to the restricted areas in the ECOZONES by registered Export or Free Trade Enterprises, except prohibited
merchandise, shall not be subject to all customs and internal revenue laws and regulations of the Philippines nor to local tax
ordinances: Provided, that they are to be sold, stored, broken-up, replaced, assembled, manipulated, manufactured and/or mixed with foreign or
domestic merchandise within the restricted areas in the ECOZONES.

“Prohibited Merchandise” shall refer to goods, wares, merchandise, equipment or machineries the importation of which are prohibited by law as
enumerated in Section 102, Book 1 of the Republic Act No. 1937, otherwise known as the Tariff Customs Code of the Philippines, as amended by
Presidential Decree No. 34, and such other goods or merchandise which may be prohibited by special laws or by the PEZA.

2. Domestic Merchandise - shall mean those articles which are the growth, origin or manufacture of the Philippines.
 Domestic Merchandise sent from the restricted areas of the ECOZONES by registered Export or Free Trade Enterprises to the custom territory shall,
whether or not combined with or made part of other articles likewise the growth, product or manufacture of the Philippines while in the ECOZONE
subject to the internal revenue laws of the Philippines as domestic goods sold, transferred or disposed of for local consumption.

3. Foreign Merchandise – shall mean those articles imported into the Philippines, except those previously exported therefrom and returned having
been advanced in value or improved in condition by any process of manufacture or other similarly artificial means or processes and upon which no
drawback or bounty has been allowed.

Merchandise of foreign origin brought to the restricted areas in the ECOZONES by registered Export or Free Trade Enterprises which has not
undergone any processing, manufacturing or manipulation while in the said areas of the ECOZONES, shall, when sent therefrom to the customs
territory, be subject to the laws and regulations governing imported merchandise: Provided, That where said foreign merchandise is combined with
or made part of any domestic article, the duties and taxes to be assessed on the final product shall be based on the value of such imported
merchandise (except when the final product is exempt) and internal revenue taxes on the value added: Provided, further, That foreign merchandise
included in the negative list shall not be sent from the restricted areas of the ECOZONE to the customs territory.

4. Transfer of Merchandise - Domestic merchandise on which all internal revenue taxes have been paid if subject thereto, and foreign merchandise
on which duty or tax has been paid, or which have been admitted free of duty and tax, may be taken into restricted areas of the ECOZONES from
the customs territory of the Philippines and brought back thereto free of quota, duty or tax: Provided, however, That said merchandise shall be
preserved its identity at the time of transfer from the ECOZONE to the customs territory. A merchandise shall be deemed to have lost its identity
when, at the time of transfer, there has been a change in the physical or mechanical characteristics and / or electro-magnetic or chemical properties
of such merchandise.

5. Domestic Sale - Finished products of registered Export of Free Trade Enterprises not included in the negative list shall be made available for
domestic sale in the customs territory or retail stores/shopping malls within the commercial/tourist or other authorized areas of the ECOZONES,
subject to all applicable rules and regulations including the payment of customs duties and internal revenue taxes, to the applicable provisions of the
Retail Trade Nationalization Law, as amended, and to such other regulations or limitations as may be adopted by the Board.

6. Identity - When the identity of an article taken to the restricted areas of the ECOZONES defined in Section 4 above has been lost, such article shall,
when taken from the ECOZONE to the customs territory or to the non-restricted areas of the ECOZONE, be treated as foreign merchandise entering
the country for the first time.

7. Subsequent Importation - Goods or merchandise produced or manufactured in the restricted areas of the ECOZONE and exported therefrom
shall, on subsequent importation into the customs territory, be subject to the import laws applicable to like articles manufactured in a foreign country.

8. Rejects, Seconds and Recoverable Wastes - shall mean finished or semi-finished products or raw materials which are defective or inferior in
quality, such that any further processing or manipulation thereof is not technically or economically feasible for the purpose for which they are
originally intended.

Rejects, seconds and recoverable wastes shall, when taken from the restricted areas of the ECOZONES to the customs territory, or to the non-
restricted areas of the ECOZONE, be taxed in accordance with the applicable provisions of the customs and internal revenue laws and regulations of
the Philippines.

“Semi-Finished Product” shall mean an article, which is unfinished or incomplete but possesses the essential character of a finished product in
relation to another and intended to be used as a direct input to the latter.

9. Abandonment - any article or merchandise found in the restricted areas of the ECOZONE, the ownership of which cannot be known despite diligent
efforts, shall be declared as abandoned in favor of the PEZA.

“Negative List” shall refer to the list of industries drawn up and regularly updated by the PEZA under which ECOZONE Enterprises engaged in any
industry listed therein shall not be allowed to sell their products or any portion thereof in the custom territory.

This is in order to protect the domestic industry. Enterprises engaged in the industries included in the negative list shall not be allowed to sell their products
locally. See Foreign Investments Act

IN THE EVENT THE PEZA REGISTERED ENTERPRISE PAID FOR TAX ERRONEOUSLY PASSED-ON BY A SELLER/SUPPLIER FROM THE
CUSTOMS TERRITORY TO WHICH IT IS NOT LIABLE, WHO IS THE PROPER PARTY TO CLAIM THE REFUND?

General Rule: if the exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim.
Hence, the seller.

Exception: If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic
burden of the applicable tax. (Philippine Airlines, Inc. vs. Commissioner of Internal Revenue, GR No. 198759, July 1, 2003) Hence, the buyer (PEZA-
registered enterprise) may properly file for a VAT refund.

This ruling was applied in the case of Commissioner of Internal Revenue vs. Philippine Associated Smelting and Refining Corporation (PASAR) (GR No.
186223, October 1, 2014), where PASAR filed for a refund of the excise taxes it paid which was erroneously passed-on by PETRON. After establishing that
being a PEZA-registered enterprise exempt from the payment of excise taxes, the SC held that PASAR is a proper party to file the claim for refund since
it is exempt therefor and the tax subject of the refund is an indirect tax.

VAT zero-rated sale; Exception above does not apply; proper party to file a claim for refund is the VAT-registered supplier/seller not
the PEZA-registered buyer: The petitioner (Coral Bay Nickel Corp.), a PEZA-registered enterprise, had paid input VAT and filed for a refund for the
amount erroneously passed-on to it by . The CTA dismissed the petition holding that Coral Bay is not the proper party to claim the refund.
The SC held that the CTA was correct in holding that the petitioner’s proper recourse was not against the Government but against the seller who had
shifted to it the output VAT following RMC NO. 42-03 which provides:

“In case the supplier alleges that it reported such sale as a taxable sale, the substantiation of remittance of the output taxes of the seller (input taxes
of the exporter-buyer) can only be established upon the thorough audit of the suppliers’ VAT returns and corresponding books and records. It is,
therefore, imperative, that the processing office recommends to the concerned BIR Office the audit of the records of the seller.

In the meantime, the claim for input tax credit by the exporter-buyer should be denied without prejudice to the claimant’s right to seek reimbursement
of the VAT paid, if any, from its supplier.”

We should take into consideration the nature of VAT as an indirect tax. Although the seller is statutorily liable for the payment of the VAT, the amount of
tax is allowed to be shifted or passed on to the buyer. However, reporting and remittance of the VAT paid to the BIR remained to be the seller/supplier’s
obligation. Hence, the proper party to seek the tax refund or credit should be the supplier’s, not the petitioner. (Coral Bay Nickel Corp. vs. Commissioner
of Internal Revenue, GR No. 190506, June 13, 2016)

Note: the exception above-discussed, where the buyer would be allowed to file a claim for refund, was not applied in the case of Coral Bay because the
transaction involved therein is a zero-rated sale and NOT AN EXEMPT SALE. It must be emphasized that the exception applies only if the transaction is
EXEMPT from both direct and indirect taxes.

It is worth stressing that a zero-rated sale is subject to VAT, only the rate is 0%, and not an exempt transaction to apply the ruling in PASAR and allow
the PEZA-registered buyer to claim a refund.

LOCAL BUSINESS TAX (LBT)

The liability of a PEZA-registered enterprise for LBT will depend on the applicable tax regime/privilege it is availing, as follows:
1. Income Tax Holiday (ITH)
a. General Rule: no exemption from LBT since the coverage of the ITH is only the income tax and not all other taxes;
b. Exception: if there is a memorandum of agreement between PEZA and the local government which exempts PEZA-registered entities from local
taxes during the ITH regime.
2. 5% Gross Income Tax (GIT)
The PEZA-registered entity is exempt from local business tax since the 5% GIT is in lieu of all taxes, national or local. In this case, the local government
unit will receive 2% of the 5% GIT.

REAL PROPERTY TAX (RPT)

General Rule: PEZA-registered entities are still subject to the Real Property Tax whether it is availing of the 5% GIT or the ITH.

Exception: machineries installed and operated in the ECOZONE for manufacturing processing or for industrial purposes are exempt from RPT for the
first three years of operation of such machineries. Production equipment not attached to real estate is exempt from RPT.

REQUIREMENT OF SEPARATE BOOKS OF ACCOUNTS

Under Sec. 4 of Rule XXI of the IRR, an ECOZONE enterprise is required to maintain distinct and separate for its operations inside the ECOZONE and shall
submit financial and other reports/documents to the PEZA.

DIFFERENCE BETWEEN BOI AND PEZA REGISTRATION

PEZA BOI
Enabling Law Republic Act No. 7916 Executive Order No. 226

Location Within the ECOZONE No specific location as long as the business activity is
registered with the BOI

Business Activities 1. Export Manufacturing 1. Preferred activities in the Investments Priority Plan
2. Information Technology Service Support (IPP)
3. Tourism 2. Mandatory List in the IPP
4. Medical Tourism 3. Export activities
5. Agro-industrial export manufacturing 4. ARMM List
6. Agro-industrial bio-fuel manufacturing
7. Logistics and warehousing services An enterprise may still be entitled to incentives if the
8. Economic Zone development and operation activity is not listed in the IPP as long as:
9. Facilities provider • at least 50% of its production is for export – if
10. Utilities Filipino owned enterprise
• at least 70% of its production is for export – if
majority foreign-owned (more than 40% foreign
equity)

Income Tax Incentives 4 or 6 years income tax holiday (ITH), extendible to 8 4 or 6 years ITH, extendible to 8 years maximum;
years maximum; thereafter, 5% preferential tax rate on thereafter, normal corporate income tax under the Tax
gross income earned Code

Other Fiscal Incentives 1. Tax and duty-free importation of raw materials, 1. Exemption from tax and duties on imported spare
capital equipment, machineries and spare parts parts
 2. Exemption from wharfage dues and export tax, 2. Exemption from wharfage dues and export tax,
import or fees duty, impost or fees
3. VAT zero-rating of local purchases subject to 3. Tax credit on raw materials and supplies
compliance with BIR and PEZA requirements 4. Additional deduction for labor expense
4. Exemption from expanded withholding tax (during 5. Exemption from expanded withholding tax (during
the ITH and 5% tax rate regime) ITH regime)
5. Additional ½ of the value of the training expenses
incurred in developing skilled or unskilled labor or for
managerial or other management development
programs can be deducted from the national
government’s share of 3%.

Local Government Taxes During ITH regime No exemption on local government taxes
1. The PEZA-registered enterprise is not exempt from
local taxes unless there is a memorandum of
agreement between PEZA and the local government
unit which exempts the PEZA-registered enterprise
from local taxes
2. There is no exemption from real estate tax, but
machineries installed and operated in the ECOZONE
for manufacturing processing or for industrial
purposes are exempt from real estate tax for the
first 3 years of operation of such machineries.
Production equipment is not attached to real estate
is exempt from real property tax

During the 5% preferential tax rate regime, the PEZA-

registered enterprise is exempt from local taxes.

FOREIGN INVESTMENTS ACT

Republic Act 7042 as amended by RA 8179, also known as the Foreign Investments Act of 1991, is the basic law that governs foreign investments in
the Philippines. It is considered a landmark legislation because it liberalized the entry of foreign investments into the country.

Under this law, foreign investors are allowed to invest 100% equity in companies engaged in almost all types of business activities subject to certain
restrictions as prescribed in the Foreign Investments Negative List.2

Foreign Investments Negative List (FILN): is a shortlist of investment areas or activities which may be opened to foreign investors and/or reserved
to Filipino nationals.

They are categorized into List A and List B, as follows:

LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS

List A consists of areas of activities reserved to Philippine nationals where foreign equity participation in any domestic or export enterprise engaged in any
activity listed therein shall be limited to a maximum of forty percent (40%) as prescribed by the Constitution and other specific laws.

A. No Foreign Equity
1. Mass media except recording (Art. XVI, Sec.11 of the Constitution; Presidential Memorandum dated 05 May 1994)
2. Practice of Professions (Art. XII, Sec. 14 of the Constitution, sec. 1 of RA 5181, Sec. 7.j of RA 8981)
a. Pharmacy (RA 5921)
b. Radiologic and x-ray technology (RA 7431)
c. Criminology (RA 6506)
d. Forestry (RA 6239)
e. Law (Art. VIII, Section 5 of the Constitution; Rule 138, sec. 2 of the Rules of Court of the Philippines)
3. Retail trade enterprises with paid-up capital of less than US$ 2,500,00 (Sec. 5 of RA 8762)
4. Cooperatives (Ch. III, Art. 26 of RA 6938)
5. Private Security Agencies (Sec. 4 of RA 5487)
6. Small-scale Mining (Sec. 3 of RA 7076)
7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive economic zone as well as small-scale utilization of natural resources
in rivers, lakes, bays, and lagoons (Art. XII, Sec 2. Of the Constitution)
8. Ownership, operation, and management of cockpits (Sec. 5 of PD 449)
9. Manufacture, repair, stockpiling, and/or distribution of nuclear weapons (Art. II, Sec. 8 of the Constitution)
10. Manufacture, repair, stockpiling, and/or distribution of biological, chemical and radiological weapons, and anti-personal mines (various treaties to
which the Philippines is a signatory and conventions supported by the Philippines)
11. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of RA 7183)

B. Up to Twenty Percent (20%) Foreign Equity

Private radio communication network (RA 3846)

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C. Up to Twenty-Five Percent (25%) Foreign Equity

1. Private recruitment, whether for local or overseas employment (Art. 27 of PD 442)

2. Contracts for the construction and repair of locally-funded public works (Sec. 1 of Commonwealth Act. No. 541, Letter of Instruction No. 630) except:
a. Infrastructure/development projects covered in RA 7718; and
b. Projects which are foreign-funded or assisted and required to undergo international competitive bidding of contracts for construction of defense-
related structure.

D. Up to Thirty Percent (30%) Foreign Equity

Advertising (Art. XVI, Sec. 11 of the Constitution)

E. Up to Forty Percent (40%) Foreign Equity

1. Exploration, development, and utilization of natural resources (Art. XII, Sec. 2 of the Constitution)
2. Ownership of Private Lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA 141; Sec. 4 of RA 9182)
3. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)
4. Educational institutions other than those established by religious groups and mission boards (Art. XIV, sec. 4 of the Constitution)
5. Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and
the by-products thereof (Sec. 5 of PD 194)
6. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal
corporation (Sec. 1 of RA 5183)
7. Facility operator of an infrastructure or a development facility requiring a public utility franchise (Art. XII, Sec. 11 of the Constitution; Sec. 2 (a) of
RA 7718)
8. Operation of deep sea commercial fishing vessels (Sec. 27 of RA 8550)
9. Adjustment companies (Sec. 332 of RA 10607 amending PD 612)
10. Ownership of condominium units (sec. 5 of RA 4726)

LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH, AND MORALS AND PROTECTION
OF SMALL AND MEDIUM-SCALE ENTERPRISES

List B consists of areas of activities where foreign ownership is limited pursuant to law such as defense or law enforcement-related activities, which have
negative implications on public health and morals, and small and medium-scale enterprises.

Up to Forty Percent (40%) Foreign Equity

1. Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:
a. Firearms (handguns to shotguns), parts of firearms and ammunition therefore, instruments or implements used or intended to be used in the
manufacture of firearms
b. Gunpowder
c. Dynamite
d. Blasting supplies
e. Ingredients used in making explosives
▪ Chlorates of potassium and sodium
▪ Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium and cuprite
▪ Nitric acid
▪ Nitrocellulose
▪ Perchlorates of ammonium, potassium and sodium
▪ Dinitrocellulose
▪ Glycerol
▪ Amorphous phosphorus
▪ Hydrogen peroxide
▪ Strontium nitrate powder
▪ Toluene
f. Telescopic sights, sniper scope and other similar devices

However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a substantial
percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be
specified in the said authority/clearance (RA 7042 as amended by RA 8179)

2. Manufacture, repair, storage, and/or distribution of products requiring Department of National Defense (DND) clearance;
a. Guns and ammunition for warfare
b. Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles)
c. Gunnery, bombing, and fire control systems and components
d. Guided missiles/missile systems and components
e. Tactical aircraft (fixed and rotary-winged), parts and components thereof
f. Space vehicles and component systems
g. Combat vessels (air, land, and naval) and auxiliaries
h. Weapons repair and maintenance equipment
i. Military communications equipment
j. Night vision equipment
k. Stimulated coherent radiation devices, components, and accessories
l. Armament training devices
m. Others as may be determined by the Secretary of the DND
 However, the manufacture or repair of these items may be authorized by the Secretary of National Defence to non-Philippine nationals; provided
that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership
allowed shall be specified in the said authority/clearance. (RA 7042 as amended by RA 8179)

3. Manufacture and distribution of dangerous drugs (RA 7042 as amended by RA 8179)

4. Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals (RA 7042
as amended by RA 8179)

5. All forms of gambling (RA 7042 as amended by RA 8179) except those covered by investment agreements with PAGCOR (PD 1869 as amended by
RA 9487)

6. Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000 (RA 7042 as amended by RA 8179)

7. Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees with paid-in equity capital of less than
the equivalent of US$100,000 (RA 7042 as amended by RA 8179)

The above-list is in accordance with Executive Order No. 184 dated May 29, 2015.

CAPTITAL REQUIREMENTS: The FIA clearly states that if the activity to be engaged in: is not included in the FINL, is more than 40% foreign-owned,
and will cater to the domestic market, the capital required is at least two hundred thousand dollars (US$200,000.00). The capital may be lowered to one
hundred thousand dollars (US$100,000.00), if activity involves advance technology, or the company employs at least 50 direct employees.

If the foreign company will export at least 60% of its output, or a trader that purchases products domestically will export at least 60% of its purchases,
the required capital is only Php5,000.00.

If the company is at least 60% Filipino-40% foreign-owned and will cater to the domestic market, paid-in capital of the corporation can be less than
US$200,000.00.3

FORMER NATURAL BORN CITIZENS

While most areas of businesses have limits for foreign investors, Section 9 of the FIA lists the following types of businesses where former natural-born
Filipinos can enjoy the same investment rights as a Philippine citizen.

1. Cooperatives
2. Rural banks
3. Thrift banks and private development banks
4. Financing companies

Former natural born Filipinos can also engage in activities under List B of the FINL. This means that their investments shall be treated as Filipino or will
be considered as forming part of Filipino investments in activities closed or limited to foreign participation.

The equal investment rights of former Filipino nationals do not extend to activities under List A of FINL which are reserved for Filipino citizens under the
Constitution.

Former natural born Filipinos have also been given the right to be transferees of private land up to a maximum of 5,000 square meters in the case of
urban land or three (3) hectares in the case of rural land to be used for business or other purposes.

BARANGAY MICRO-BUSINESS ENTERPRISE

The Barangay Micro-Business Enterprise (BMBE) Act (RA No. 9178) was signed into law by then President Gloria Macapagal-Arroyo on November 13,
2002. The law encourages the formation and growth of barangay micro business enterprises by granting them incentives and other benefits.4

It promotes creation and expansion of small businesses by providing benefits and incentives that will help BMBE enterprises to grow and succeed.

The objective of the BMBE Act is for economic development by promoting entrepreneurial mindset to Filipinos. Also it aims to create more quality life to
Filipinos since BMBE Act will create jobs and livelihood.5

The law is implemented by Department of Finance (DOF) Department Order (DO) No. 17-2004 as circularized by the BIR in RMC No. 40-2004.

DECLARATION OF POLICY

Section 2. Declaration of Policy – It is hereby declared to be the policy of the State to hasten the country's economic development by encouraging
the formation and growth of barangay micro business enterprises which effectively serve as seedbeds of Filipino entrepreneurial talents, and
intergranting those in the informal sector with the mainstream economy, through the rationalization of bureaucratic restrictions, the active granting of
incentives and benefits to generate much-needed employment and alleviate poverty.

WHAT IS A BARANGAY MICRO-BUSINESS ENTERPRISE?

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A Barangay Micro-Business Enterprise (BMBE) refers to any business entity or enterprise engaged in the production, processing or manufacturing of
products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of the land
on which the particular business entity's office, plant and equipment are situated, shall not be more than Three Million Pesos (P3,000,000.00).
(Sec. 3(a), RA 9178)

For the purpose of registering as a BMBE, the assets must be owned and used for the conduct of its business as such BMBE. (Sec. 1(b), Rule 2, DOF DOx
No. 17-2004)

Not included: "services" shall exclude those rendered by

1. Natural persons who are duly licensed by the government after having passed a government licensure examination in connection with the exercise
of one's profession, and
2. Juridical persons such as partnerships or corporations engaged in consultancy, advisory and similar services where the performance of such services
are essentially carried out through licensed professionals. (Sec. 1(a), Rule 2, DOF DO No. 17-04)
3. Those rendered by an entity who is a branch, subsidiary or division of a large scale enterprise. (Sec. 4, RA No. 6977, as amended by RA No. 9501)

Valuation of Assets:
1. Cash consisting of Philippine currency shall be valued at actual currency value; if in foreign currency, it shall be valued at the official exchange rate
as prescribed by the Bangko Sentral ng Pilipinas.
2. Other assets shall be generally valued at acquisition or historical cost, net of a reasonable amount for depreciation as determined under GAAP if
the asset is depreciable, or book value, whichever is higher.
3. Real property shall be valued at acquisition cost, net of depreciation; however, if no sufficient proof is submitted as to its acquisition cost, the same
shall be valued at current zonal value as established by the BIR. (Sec. 2, Rule 2, DOF DO No. 17-04)

Determination of the Value of Assets of the BMBE for Income Tax Exemption Purposes. — For the purpose of exemption from income tax, the total assets
of the BMBE, which shall not exceed Three Million Pesos (P3,000,000.00), shall include all kinds of properties, both personal properties and real properties
(but excluding land on which the particular business entity's office, plant and equipment are situated) that are owned and used/to be used, or even if not
owned but used/to be used, by the BMBE and/or its affiliates for the conduct of its/their business/es.

The term "affiliate" shall refer to any person or business enterprise/entity that, directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the BMBE concerned. The rules provided in Sec. 36 (B) of the National Internal Revenue Code shall be
used in determining whether such affiliation exists, and the rules prescribed in Sec. 127 (B) of the same Code for stock attribution shall be used in
determining beneficial ownership of an incorporated enterprise. (Sec. 2, Rule 3, DOF DO No. 17-04)

REGISTRATION

The following must be submitted to the Office of the City or Municipal Treasurer together with a duly filled-up Application for Registration or BMBE Form
No. 01:

1. For a new applicant:

a. Registration as a business entity or enterprise from the appropriate government agency (e.g., Securities and Exchange Commission (SEC)
registration in the case of corporation, partnership or association; Cooperatives Development Authority (CDA) registration in the case of
cooperative; Department of Trade and Industry, (DTI) business name registration in the case of sole proprietorship);
b. Taxpayer Identification Number (TIN)
c. Certificate of Registration from the Bureau of Internal Revenue (BIR);
d. Mayor's Permit or City/Municipal Business Permit;
e. Sworn affidavit executed by the sole proprietor or the President of the enterprise, as the case may be, that the enterprise is barangay-based
and micro-business in nature and scope;

The format of which is provided under RMC No. 52-04.

f. Sworn Statement of Assets and Liabilities showing the values of assets owned and to be used in the conduct of business, which shall be
supported by pertinent information such as the date of acquisition, acquisition cost and depreciated value. In case of asset acquired during the
year of registration, it shall be supported by any of the following:
i. Invoice
ii. Official receipt
iii. Contract document or deed
g. Pictures of the place of business and its assets, other than cash, receivables and intangibles;
h. Copy of Loan Contract/s, if any, and Duly-Notarized Certification of Amortization Payments on the Loan; and
i. Income Tax Return (ITR) with proof that it has been duly filed with the BIR, including attachments, if any, (for an existing business only).

2. For renewal of registration

a. Documents listed above (a) to (h), inclusive; an
b. Annual Information Return (for the year immediately preceding the renewal of registration) duly filed with the BIR, together with its attachments.

The application for registration shall not be processed by the Office of the Treasurer until all documentary requirements as above set forth have been
submitted. (Sec. 3, Rule 2, DOF DO No. 17-04)

Issuance of Certificate of Authority

After determining the eligibility of the business entity or enterprise, the Office of the City or Municipal Treasurer shall register the business entity or
enterprise as a BMBE and issue a Certificate of Authority using BMBE Form 02.
The Certificate of Authority shall be effective for a period of two (2) years, subject, however, to Sec. 8 of DOF DO No. 17-04 (Cancellation of Registration),
and renewable for a period of two (2) years for every renewal. The Treasurer shall indicate in the Certificate the date when the registration of the BMBE
commences.

The Office of the Treasurer shall issue the Certificate promptly and free of charge, unless a fee therefore, not exceeding One Thousand Pesos (P1,000.00),
is imposed by the LGU concerned through a properly enacted ordinance.

Cancellation of Registration
The Office of the City or Municipal Treasurer shall cancel the registration of a BMBE for cause, such as:
▪ When the BMBE transfers its place of business to another locality;
▪ When the value of its total assets exceeds Three Million Pesos (P3,000,000.00);
▪ When the BMBE voluntarily surrenders its Certificate of Authority to the Office of the City or Municipal Treasurer;
▪ In case of death of the registered individual owner of the BMBE, if it is a sole proprietorship;
▪ In case of violation or non-compliance with the provisions of R.A. 9178, the Implementing Rules and DOF DO No. 17-04;
▪ In case of merger or consolidation with an entity which is not eligible to be a BMBE;
▪ In case of sale or transfer of the BMBE, if it is a sole proprietorship, without prejudice to the transferee applying for registration should it be qualified
under the terms of DOF DO No. 17-04;
▪ Submission of fake or false or falsified documents;
▪ In case of retirement from business, or cessation/suspension of operations for one year; and
▪ Making false or omitting required declarations or statements.
In cases of (a) violation or non-compliance with the provisions of RA 9178, (b) submission of fake or falsified documents, and/or (c) making false or
omitting required declarations or statements, the City or Municipal Treasurer should initiate the filing of appropriate criminal complaints before the Office
of the Public Prosecutor.

In a cancellation of registration, the BMBE shall surrender its Certificate of Authority to the Treasurer.

The Treasurer shall immediately notify the BIR of any cancellation of registration of BMBE. (Sec. 8, Rule 2, DOF DO No. 17-04)

INCENTIVES

Income Tax: The BMBE is exempt from income tax on its income derived from operations.

Availment of the Tax Incentive: For purposes of availing of the tax incentives, the BMBE shall register as such BMBE with the BIR RDO where the principal
office or place of business of the BMBE is located. Its application for registration shall be supported by the following documents:
a. Copy of the BMBE's Certificate of Authority duly authenticated by the Office of the City or Municipal Treasurer;
b. Sworn Statement of the values of assets owned and/or used/to be used by the BMBE and/or its affiliates reflecting the current values thereof. The
Sworn Statement shall be supported by pertinent information and documents such as:
1. Acquisition cost, date of acquisition and depreciated value for existing assets
2. Invoices and/or official receipts for newly-acquired assets not yet depreciated;
3. Duly-notarized copy of Contract of Lease for assets used in the conduct of business covered by lease agreement; and
4. Copy of Loan Contracts, if any, and Duly-Notarized Certification of Amortization Payments on the Loan
c. Certified list of branches, sales outlets, places of production, warehouse and storage places, or such other facility owned and/or operated by the
BMBE indicating their respective addresses, whether located in the same municipality or city where the principal place of business is located, or
elsewhere.
d. Certified list of affiliates, indicating addresses, line, of business and responsible officers thereof;
e. Latest Audited Financial Statement, or Account Information Form or its equivalent containing data lifted from audited financial statements.

If the BMBE is currently registered with the BIR under or pursuant to existing registration rules and regulations, its registration as a BMBE shall be duly
recorded by the BIR in the pertinent registration file of the BMBE, and its registration certificate be accordingly amended to reflect its registration likewise
as a BMBE. If the BMBE has not been registered under or pursuant to existing registration, the BMBE shall register for each type of internal revenue tax,
except income tax, but including withholding taxes for which it is liable.

Not Covered: This exemption, however, does not cover the following:

1. Final Tax/Income tax due on the following income:

a. Interest, including those from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds
and similar arrangements;
b. Royalties;
c. Prizes and other winnings;
d. Cash and/or property dividends;
e. Capital gains from the sale of shares of stock not traded through the stock exchange;
f. Capital gains from the sale or other disposition of real property;
g. The share of an individual in the net income after tax of an association, a joint account, or a joint venture or consortium;
h. The share of an individual in the distributable net income after tax of a taxable partnership of which he is a partner;
i. Income from the practice of profession received directly from the clients or from the professional partnership of which the individual is a partner;
j. Compensation; and
k. All other forms of passive income and income from revenues not effectively connected with or arising from operations of the BMBEs as such.
(Sec. 1, Rule 3, DOF DO No. 17-04)

2. Business Taxes – while the BMBEs are exempt from income tax, they are, however, still subject to the applicable business taxes, i.e., percentage
tax/VAT/excise tax.
3. Annual Registration Fee - An annual registration fee in the amount of Five Hundred Pesos (P500.00) shall be paid by a BMBE upon its registration as
such, and every year thereafter on or before the last day of January: Provided, however, That a BMBE which is in the form of a cooperative or a
marginal income earner as defined in Revenue Regulations No. 11-2000 shall be exempt from payment of this registration fee.

4. Withholding Tax – while income of the BMBEs are exempt from income tax and consequently the withholding tax, they are still considered withholding
tax agents for their income payments and are liable to withhold and remit the applicable withholding taxes on the same.

For purposes of exemption from the creditable withholding tax on income payments, the BMBE shall furnish its customers with a certified true copy
of its amended BIR registration certificate.

Exemptions other than under BMBE Act: If a BMBE is also entitled to exemption from income tax under any law other than the Act, it shall so state
this fact in its registration form and indicate whether it shall avail itself thereof or the privilege under the Act. The choice so made shall bind the BMBE for
the entire period of validity of its registration with the BIR. No BMBE shall be allowed double or multiple availment of income tax exemption privileges.

Minimum Wage Law: The BMBEs shall be exempt from the coverage of the Minimum Wage Law. However, all employees covered shall be entitled to
the same benefits given to any regular employee such as social security and healthcare benefits. (Sec. 8, RA No. 9178)

Credit Delivery: a special credit window shall be set-up, that will service the financing needs of the BMBEs, by the following entities:
1. Land Bank of the Philippines (LBP);
2. Development Bank of the Philippines (DBP)
3. Small Business Guarantee and Finance Corporation (SBGFC)
4. People's Credit and Finance Corporation (PCFC)
5. Government Service Insurance System (GSIS) and
6. Social Security System (SSS).

All loans from whatever sources granted to BMBEs under RA No. 9178 shall be considered as part of alternative compliance to Presidential Decree no,
717, otherwise known as the Agri-Agra Law, or to Republic Act. No. 6977, known as the Magna Carta for Small and Medium Enterprises, as amended. For
purposes of compliance with presidential Decree no. 717 and Republic Act No. 6977, as amended, loans granted to BMBEs under RA No. 9178 shall be
computed at twice the amount of the face value of the loans.

To minimize the risks in lending to the BMBEs, the SBGFC and the Quedan and Rural Credit Guarantee Corporation (QUEDANCOR) under the Department
of Agriculture, in case of agribusiness activities, shall set up a special guarantee window to provide the necessary credit guarantee to BMBEs under their
respective guarantee programs. (Sec. 9, RA No. 9178)

Exemption from Gross Receipts Tax: Interests, commissions and discounts derived from the loans granted by the LBP, DBP, PCFC and SBGFC to duly-
registered BMBEs, as well as loans extended by the GSIS and SSS to their respective member-employees for the purpose of establishing BMBEs, shall be
exempt from gross receipts tax (GRT). (Sec. 1, Rule 4, DOF DO No. 17-04)

To avail of the exemption, certified copy of the BMBE's registration with the BIR as such BMBE shall be submitted to the lending institution concerned.
(Sec. 3, Rule 4, DOF DO No. 17-04)

Technology Transfer, Production and Marketing Assistance: A BMBE Development Fund shall be set up with an endowment of Three Hundred
Million pesos (P300,000,000.00) from the Philippine Amusement and Gaming Corporation (PAGCOR) and shall be administered by the SMED Council.

The Department of Trade and Industry (DTI), the Department of Science and Technology (DOST), the university of the Philippines Institute for Small
Scale Industries (UP ISSI), Cooperative Development Authority (CDA), Technical Education and Skills Development Authority (TESDA), and Technology
and Livelihood Resource Center (TLRC) may avail of the said Fund for technology transfer, production and management training and marketing assistance
to BMBEs.

The DTI, in coordination with the private sector and non-government organization (NGOs), shall explore the possibilities of linking or matching-up BMBEs
with small, medium and large enterprises and likewise establish incentives therefor.

The DTI, in behalf of the DOST, UP ISSI, CDA. TESDA and TLRC shall be required to furnish the appropriate Committees of both Houses of Congress a
yearly report on the development and accomplishments of their projects and programs in relation to technology transfer, production and management
training and marketing assistance extended to BMBEs. (Sec. 10, RA No. 9178)

FILING OF ANNUAL INFORMATION RETURN

While a BMBE is exempt from Income Tax, it is nevertheless required to file an Annual Information Return, together with an Account Information Form,
or its equivalent, containing data lifted from audited financial statements and a sworn statement of assets owned and/or used in business.

The same shall be filed with the RDO, or Revenue Collection Officer or duly authorized Treasurer of the city or municipality in which the BMBE has its
principal place of business.

The deadline for filing the same is the 15th day of the fourth month following the close of the taxable year, similar to an Annual Income Tax Return. (Sec.
4, Rule 3, DOF DO No. 17-04)

DOUBLE TAX AGREEMENTS

Double taxation, otherwise described as “direct duplicate taxation”, happens when two taxes are imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character
(City of Manila v. Coca Cola Bottlers Philippines, G.R. No. 181845, 04 August 2009)
Double Taxation in broad sense is the opposite of direct double taxation and is not legally objectionable. The absence of one or more of the foregoing
requisites of obnoxious direct tax makes it indirect.

Thus, sales of an entity which are subjected to VAT and likewise subjected to local business tax is not double taxation in its strict sense, since the VAT is
a national tax imposed by the national government and the local business tax is imposed by the local government unit – hence, there are different taxing
authorities.

Domestic and International Double Taxation: Domestically, double taxation arises when the same taxes are imposed by the local and national
government within the same State.

In the international arena, it takes place when a person is a resident of a contracting state and derives income from, or owns capital in, the other
contracting state, and both states impose tax on that income or capital (also known as international double taxation).

Modes of eliminating double taxation

1. Tax Deduction – an amount subtracted from the gross income to arrive at taxable income.
2. Tax Credit - an amount subtracted from an individual’s or entity’s tax liability (tax due) to arrive at the tax liability still due.

▪ A deduction differs from a tax credit, in that a deduction reduces taxable income while a credit reduces tax liability.
▪ Under the Expanded Seniors Citizens Act of 2003, the 20% discount shall be considered as a tax deduction not as a tax credit.

3. Treaties with other states: a tax treaty sets out the respective rights to tax of the state of source (situs) and the state of residence with regard
to certain cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items of income or capital, both states
are given the right to tax, although the amount of tax that may be imposed by the state of source is limited.

It applies whenever the state of source is given full or limited right to tax. The treaty makes it incumbent upon the state of residence to allow relief
in order to avoid double taxation.

TREATY

A treaty is an agreement under international law entered into by actors in international law, namely sovereign states and international organizations. A
treaty may also be known as an (international) agreement, protocol, covenant, convention, pact, or exchange of letters, among other terms. Regardless
of terminology, all of these forms of agreements are, under international law, equally considered treaties and the rules are the same.

A treaty may either be bilateral (between two states) or multilateral (between more than two states).

Our Constitution provides for adherence to the general principles of international law as part of the law of the land. The time-honored international
principle of pacta sunt servanda (agreements must be kept) demands the performance in good faith of treaty obligations on the part of the states that
enter into the agreement. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. More
importantly, treaties have the force and effect of law in this jurisdiction (Deutsche Bank AG v. Commissioner of Internal Revenue, G.R. No. 188550,
[August 19,

DOUBLE TAXATION AGREEMENTS

A Tax Treaty (also called double tax agreement, or DTA) is an agreement made by two countries to resolve issues involving double taxation of passive
and active income. Tax treaties generally determine the amount of tax that a country can apply to a taxpayer's income and wealth.

In the Philippines, all DTAs are bilateral. At present, there are a total of 41 countries with which the Philippines has an existing DTA.
2013], 716 PHIL 676-693).

Tax conventions such as the RP-US Tax Treaty are drafted with a view towards the elimination of international juridical double taxation.

Tax treaties are entered into to reconcile the national fiscal legislations of the contracting parties and, in turn, help the taxpayer avoid simultaneous
taxations in two different jurisdictions.

The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology
and persons between countries, conditions deemed vital in creating robust and dynamic economies. Foreign investments will only thrive in a fairly
predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate." Simply put,
tax treaties are entered into to minimize, if not eliminate the harshness of international juridical double taxation, which is why they are also known as
double tax treaty or double tax agreements (Deutsche Bank AG v. Commissioner of Internal Revenue).

Income items normally covered by tax treaties: Generally, tax treaties cover relief from double taxation on the following types of income:
1. Business Profits;
2. Profits from Shipping and Air Transport;
3. Dividend Income;
4. Interest Income;
5. Royalty Income;
6. Capital Gains;
7. Income from Services; and
8. Other Income Earnings.

ILLUSTRATION: X MY is a company organized and existing under the laws of, and a resident of, Malaysia. X PH, a corporation organized and existing
under the laws of the Philippines secured a loan from X MY.
 Under the Tax Code, interests on foreign loans are subject to 20% Final Tax. However, under Art. 11 of the RP-Malaysia Tax Treaty, the applicable rate
is 15%.

ILLUSTRATION 2: Y SK is a company organized and existing under the laws of South Korea, holds 40% of Y PH’s outstanding stocks. Y PH pays
dividends quarterly and accordingly Y JP receives 40% of the declared dividends.

Under the Tax Code, dividends earned by a non-resident foreign corporation like Y SK is subject to 30% Final Tax, except if the tax sparing rule applies
and the same may be reduced to 15%. However, under Art. 10 the RP-Korea Tax Treaty, the applicable rates are:
a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per
cent of the capital of the company paying the dividends; and
b) 25 per cent of the gross amount of the dividends in all other cases.

Based on the above provision, the applicable rate on the dividends received by Y SK from Y PH would be 10% since it owns 40% of Y PH’s outstanding
stocks.

MOST FAVORED NATION CLAUSE: The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than
that which has been or may be granted to the most favored among other countries. The most favored nation clause is intended to establish the principle
of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party
to those of the most favored nation. The essence of the principle is to allow the taxpayer in one state to avail of more liberal provisions granted in another
tax treaty to which the country of residence of such taxpayer is also a party provided that the subject matter of taxation, in this case royalty income, is
the same as that in the tax treaty under which the taxpayer is liable. (Commissioner of Internal Revenue vs. SC Johnson and Son, Inc, GR No. 127105,
June 25, 1999)

Availment of Tax Treaty Relief Benefits: The BIR originally issued Revenue Memorandum Order No. 1-2000 which provided for the guidelines in the
availment of tax treaty benefits throught the filing of a Tax Treaty Relief Application (TTRA) with the BIR International Tax Affairs Division (ITAD) at least
15 days before the transaction i.e. payment of dividends, royalties, etc., with all the supporting documents justifying the relief sought.

Eventually, RMO No. 72-2010 was issued which removed the 15-day period but still required that the filing of the Application for Relief from Double
Taxation before the occurrence of the first taxable event.

The BIR has been consistent in denying tax treaty relief to taxpayers who fail to observe the above periods. This was later on upheld by the Court of Tax
Appeals in the case of Mirant. However, the Supreme Court in Deutsche Bank AG Manila Branch vs. CIR (GR No. 188550 dated August 19, 2013), held
that failure to comply with the said periods whould not prove fatal to the availment of tax treaty benefits.

Tax treaties are entered into to minimize, if not eliminate the harshness of international juridical double taxation, which is why they are also known as
double tax treaty or double tax agreements.

Laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional
requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the Tax Treaty does not provide
for any pre-requisite for the availment of the benefits under said agreement.

The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has
negative implications on international relations, and unduly discourages foreign investors. While the consequences sought to be prevented by RMO No.
1-2000 involve an administrative procedure, these may be remedied through other system management processes, e.g., the imposition of a fine or penalty.
But we cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior
application for tax treaty relief. (Deutsche Bank AG Manila Branch vs. CIR, GR No. 188550 dated August 19, 2013)

RMO No. 8-2017

Note that the SC did not declare RMO No. 1-2000 as unconstitutional or invalid (and did not even touch on RMO No. 72-2010). However still, the BIR
recently issued RMO No. 8-2017 to facilitate the availment of tax treaty benefits, which is applicable to INTERESTS, DIVIDENDS and ROYALTIES, for all
other types of income, RMO No. 72-2010 remains to be applicable, thus there would still be a need to file a TTRA and secure a confirmatory ruling to
avoid, at the very least, administrative penalties.

Under RMO No. 8-2017, instead of an application for Tax Treaty Relief, a taxpayer availing of any tax treaty benefits will file a Certificate of Residence
(for Tax Treaty Relief) Form, otherwise known as the CORTT Form.

It seeks the full disclosure of income derived by non-residents by filing accurately and timely BIR Forms No. 1601-F and 1604-F; compliance check on the
availment of tax treaty benefits; and post reporting validation of final withholding tax payments on income of non-residents deriving dividends, interest
and royalty income in the Philippines.

Procedure:
1. The CORTT Form shall be accomplished by the non-resident, or an authorized representative (with the proper Special Power of Attorney with
consularized certification), by filling-up Sections A, B and C of Part I.
2. Section D may be accomplished by the proper authority of the country where the non-resident income earner is a resident, or the same need not be
filled-up if there is a proper Certificate of Residency (with consularized certification) issued by the same authority.
3. For Dividend Income, the CORTT Form (PART I) shall be valid for 2 years, or the duration of the Certificate of Residency, whichever is shorter.
4. For Interest and Royalty purposes, the CORTT Form shall be valid per contract.
5. The payor-withholding agent can apply the reduced rates as provided in the Tax Treaty and indicated in the CORTT Form, as well as the duly filed
BIR Form No. 1601-F (*this is in contrast with RMO No. 72-2010 which generally prescribes a confirmatory ruling first, although the prior filing
requirement has already been declared unconstitutional by the Supreme Court)
6. Failure to submit the CORTT Form shall be deemed non-availment of the tax treaty benefits.
7. The duly-accomplished CORTT Form shall be submitted to the International Tax Affairs Division, and a “received” copy thereof shall be provided to
RDO 39.
8. 8. Subsequently, the taxpayer shall file only part II to the ITAD and RDO 39 for each subsequent payments subjected to the preferential tax rate
together with the duly filed BIR Form No. 1601-F and 1604-F.
9. The deadline for submission of the CORTT Form Part I, and the subsequent submissions of Part II, shall be 30 days after the payment of withholding
taxes due on dividend, interest and royalty income of the non-resident.

Non-submission of the CORTT Form to the withholding agent/income payor would mean that the nonresident is not claiming any tax treaty relief and
therefore such income be subject to the normal rate provided under the National Internal Revenue Code of 1997, as amended (Tax Code).