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Presidential Decree No. 1789

P.D. No. 1789 : PHILIPPINE LAWS, STATUTES and CODES : CHAN ROBLES VIRTUAL LAW LIBRARY

PRESIDENTIAL DECREES




(Repealed by Batas Pamabansa Blg.391)

PRESIDENTIAL DECREE NO. 1789

A DECREE TO REVISE, AMEND AND CODIFY THE INVESTMENT, AGRICULTURAL AND EXPORT INCENTIVES ACTS TO BE KNOWN AS THE OMNIBUS INVESTMENTS CODE

WHEREAS, Republic Act Numbered 5186, as amended, otherwise known as Investment Incentives Act, Republic Act Numbered 6135, as amended, otherwise known as Export Incentives Act, and Presidential Decree Numbered 1159, otherwise known as Agricultural Investments Incentives Decree, grant substantially the same incentives to investors and enterprises registered with the Board of Investments;

WHEREAS, Republic Act Numbered 5455, otherwise known as Foreign Business Regulation Act, regulates the entry of foreign investments into the country and as such complements the aforementioned investment incentives laws;

WHEREAS, there are in the aforementioned laws provisions which require clarification, revision or simplification as a result of various presidential decrees, letters of instructions and executive orders on the same subject;

WHEREAS, it is imperative to adopt a consolidated investments code to integrate the said amendments and to clarify and harmonize their provisions not only for the proper guidance of domestic and foreign investors, but also for the efficient and effective implementation of the said laws;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the Philippines by virtue of the powers in me vested by the Constitution, do hereby order and decree as follows:

Section 1. Codification of investment, agricultural and export incentives laws. All acts, presidential decrees, letters of instructions and executive orders which govern investments and the grant of incentives in connection therewith which are administered by the Board of Investments and all laws regulating the making of investments and the doing of business by foreigners in the Philippines are hereby revised, consolidated and codified into a single code to be known as the Omnibus Investments Code which shall form an integral part of this Decree.

Sec. 2. Effectivity. The provisions of the Omnibus Investments Code shall take effect immediately.

DONE in the City of Manila, this 16th day of January, in the year of Our Lord, nineteen hundred and eighty-one.

THE OMNIBUS INVESTMENTS CODE

PRELIMINARY TITLE

Chapter I
Title and Declaration of Policy

Article 1. Short Title. This Decree shall be known as the "Omnibus Investments Code."

Article 2. Declaration of Policy. 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 practicable dispersal or industries, under conditions which will encourage competition and discourage monopolies, it is hereby declared to be the policy of the State: a) to encourage Filipino and foreign investments, as hereinafter set out, in projects to develop agricultural, mining and manufacturing industries which increase national income most at the least cost, bring about greater economic stability, provide more opportunities for employment, raise the standards of living of the people, and provide for an equitable distribution of wealth; b) to welcome and encourage foreign capital to establish pioneer enterprises that are capital intensive and would utilize a substantial amount of domestic raw materials, in joint venture with substantial Filipino capital, whenever available; c) to actively encourage, promote and diversify exports of services and manufacturer utilizing domestic raw materials to the fullest extent possible, and to develop new markets for Philippine products, in order to attain a rising level of production and employment, increase foreign exchange earnings, hasten the economic development of the nation, and assure that the benefits of development accrue to the Filipino people; d) to achieve promptly self-reliance in the basic requirements of food and raw materials and in the implementations thereof, to accelerate the development of the agricultural sector by diffusing productive employment and income opportunities to the countryside and thus attain self-sufficiency in basic food and raw materials, as well as increased production of export crops and other products; and e) to make investments and the doing of business within the Philippines by foreigners and business organizations owned in whole or in part by foreigners contribute to the sound and balanced development of the national economy on a self-sustaining basis.

Article 3. "Board" shall mean the Board of Investment created under this Code.

Chapter II
Board of Investments

Article 4. The Board of Investments. The Board of Investments shall be composed of five full-time governors to be appointed by the President of the Philippines. The Minister of industry shall be concurrently Chairman of the Board. The Vice-Chairman of the Board who shall be appointed by the President shall concurrently be its Managing Head. The tenure of office of the governors of the Board, except the Chairman, shall be six (6) 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: Provided, finally, That a governor of the Board may serve as director or in any capacity in government-owned or controlled corporations.

Article 5. Qualification of Governors of the Board. The governors of the Board shall be citizens of the Philippines, at least thirty years old, of good moral character and of recognized competence in the field of economics, finance, banking, commerce, industry, agriculture, engineering, law, management or labor.

Article 6. Compensation of the Governors of the Board and its Personnel. For the purpose of determining the compensation and allowances of the governors of the Board and its personnel, the Board shall be considered in the same category as a government financial institution.

Article 7. Powers and Duties of the Board. The Board shall be responsible for the regulation and promotion of investments in the Philippines. It shall meet as often as may be necessary but not less than once a week on such day as it may fix. Notice of regular and special meetings shall be given all members of the Board. The presence of three (3) governors shall continue a quorum, and the affirmative vote of three (3) governors in a meeting validly held shall be necessary to exercise its powers and perform its duties, which shall be as follows:

1. Prepare annually the Investments Priorities Plan as defined in Article 28, which shall contain a listing of specific activities that can qualify for incentives under this Code, duly supported by the studies of existing and prospective demands for such products and services 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 existing facilities;

2. Promulgate such rules and regulations as may be necessary to implement the intent and provisions of this Code;

3. Process and approve applications for registration under this Code, imposing such terms and conditions as it may deem necessary to promote the objectives of this Code, including refund of incentives when appropriate, restricting availment of certain incentives not needed by the project in the determination of the Board, requiring performance bonds and other guarantees, and payment of application, registration, publication and other necessary fees;

4. After due hearing, decide controversies concerning the implementation 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 in the Philippine 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 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 employment 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 or (b) for violation of any provisions of this Code, of the rules and regulations issued under this Code, or 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 canceled unless otherwise reinstated as a registered enterprise by the Board;

9. Determine the organizational structure taking into account Article 6 of this Code, 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 impending 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 for a period not exceeding five (5) years and/or increase the rate of tax exemption of registered enterprises to not more than 50% of the tax exemption enjoyed prior to the increase, subject to any of the following criteria:

(a) The registered enterprise has suffered heavy financial loses and is in a distressed condition;

(b) The registered enterprise has suffered operational force majeure that has impaired its viability;

(c) The registered enterprise has not fully enjoyed the incentives granted to it for reasons beyond its control;

(d) The project of the registered enterprise has a gestation period which goes beyond the period of availment of needed incentives; and

(e) 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. To regulate the making of investments and the doing of business within the Philippines by the foreigners or business organizations owned in whole or in part by foreigners;

16. Gather and compile statistical 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, through Philippine diplomatic mission, 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. Generally, exercise all the powers necessary or incidental to attain the purposes of this Code and other laws vesting additional functions on the Board.

Article 8. Powers and Duties of the Chairman. The Chairman shall have the following powers and duties:

1. To preside over the meetings of the Board;

2. To render annual reports to the President and such special reports as may be requested;

3. To act as liaison between investors seeking joint venture arrangements in particular areas of investment;

4. Recommend to the Board such policies and measures he may deem necessary to carry out the objectives of this Code; and

5. Generally, to exercise such other powers and perform such other duties as may be directed by the Board of Governors from time to time.

Article 9. Powers and Duties of the Vice-Chairman. The Vice-Chairman shall have the following powers and duties:

1. To act as Managing Head of the Board;

2. To preside over the meetings of the Board in the absence of the Chairman;

3. Prepare the Agenda for the meetings of the Board and submit for its consideration and approval the policies and measures which the Chairman deems necessary and proper to carry out the provisions of this Code;

4. Assist registered enterprises and prospective investors to have their papers processed with dispatch by all government offices, agencies, instrumentalities and financial institutions; and

5. Perform the other duties of the Chairman in the absence of the latter, and such other duties as may be assigned to him by the Board of Governors.

BOOK ONE
INVESTMENTS WITH INCENTIVES

Chapter I
Definition of Terms

Article 10. "Registered enterprise"shall mean any individual, partnership cooperative, corporation or other entity incorporated and/or organized and existing under Philippine laws, and registered with the Board in accordance with this Book: Provided, however, That the term registered enterprise shall not include commercial banks, savings and mortgage banks, rural banks, savings and loan associations, building and loan associations, development banks, trust companies, investment banks, finance companies, brokers and dealers in securities, consumers cooperatives and credit unions, and other business organizations whose principal purpose or principal source of income is to receive deposits, lend or borrow money, buy and sell or otherwise deal, trade or invest in common or preferred stocks, debentures, bond or other marketable instruments generally recognized as securities, or discharge other similar intermediary, trust or fiduciary functions.

Article 11. "Technologies assistance contracts"shall mean contracts for: (1) the transfer, by license or otherwise, of patents, processes, formulae or other technological rights of foreign origin; and/or (2) foreign assistance concerning technical and factory management, design, planning, construction and similar matters.

Article 12. "Foreign loan"shall mean any credit facility of financial assistance other than equity investment obtained by a registered enterprise from a source outside the Philippines and brought into the Philippines either in foreign exchange or in other assets, and registered with the Central Bank and the Board, which shall assess and appraise the assets other than foreign exchange representing the proceeds of the loan.

Article 13. "Foreign investments"shall mean equity investments owned by a non-Philippine national made in the form of foreign exchange or other assets actually transferred to the Philippines and registered with the Central Bank and the Board, which shall assess and appraise the value of such assets other than foreign exchange.

Article 14. "Philippine national"shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine national.

Article 15. "Preferred areas of investments"shall mean the economic activities that the Board shall have declared as such in accordance with Article 30 which shall be either non-pioneer or pioneer.

Article 16. "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 or (2) which uses a design, formula, scheme, method, process, or system of production or transformation of any element, substance or raw material into another raw material or finished goods which is new and untried in the Philippines or (3) engaged in the pursuit of agricultural activities and/or services including the industrial aspects of food processing whenever appropriate, predetermined by the Board, in consultation with the appropriate Ministry, to be feasible and highly essential to the attainment of the national goal taking into account the risks, magnitude of investment, 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 other non-conventional fuels or sources of energy its production, manufacturing or processing operations: Provided, That the final products in any of the foregoing instances, involves or will involve substantial use and processing of domestic raw materials, whenever available: Provided, however, That the foregoing definitions shall not in any way limit the rights and incentives granted to less developed areas enterprises provided under Sec. 5 of Batas Pambansa Blg. 44.

Article 17. "Non-pioneer enterprise"shall include all registered producer enterprises other than pioneer enterprises.

Article 18. "Registered export producer"shall mean an enterprise (1) engaged or proposing to engage in an industrial or agricultural activity for the production, manufacture or processing of export products as hereinbelow defined (2) directly exporting its export products, selling them (a) to an export trader that subsequently exports the said products, or (b) to other export producers who utilize said products as direct inputs in products subsequently manufactured or processed and thereafter exported; and (3) duly registered as such by the Board.

Article 19. "Registered export trader"shall mean an enterprise engaged or proposing to engage in the sale abroad of export products bought by it from one or more export producers, and duly registered as such by the Board.

Article 20. "Registered service exporter"shall mean an enterprise engaged or proposing to engage (a) in rendering technical, professional or other services which are paid for in foreign currency, including, but not limited to, the fields of law, medicine, accounting, management, valuation and appraisals, engineering, geodetic, surveying, teaching, pharmacy, nursing, cultural presentations or promotions, works of arts, and entertainments or (b) in exporting television and motion pictures and musical recordings made or produced in the Philippines, either directly or through a registered export trader and duly registered as such by the Board.

Article 21. "Measured capacity"shall mean the estimated additional volume of production or service which the Board determines to be desirable in each preferred area of investment in order to supply the needs of the economy at reasonable prices, taking into account the export potential of the product, including the economies of scale which would render such product competitive in the world market. Measured capacity shall not be less than the amount by which the measurable market demand exceeds the existing productive capacity in said preferred areas nor shall measured capacity be so much in excess of measurable market demand as to foster or encourage overcrowding in any such area. For export market industries, the Board shall base measured capacity on the availability of domestic raw materials after deducting the needs of the domestic market therefor. In no case, however, shall measured capacity be construed so as to result in a monopoly in any preferred area of investment which would unduly restrict trade and fair competition.

Article 22. "Tax credit"shall mean any of the credits against taxes and/or duties extended to a registered enterprise by this Code, to evidence which a tax credit certificate shall be issued by the Minister of Finance or his representative. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the national government and may be transferable under such conditions as may be determined by the Ministry of Finance and the Board.

Article 23. "Export products"shall mean manufactured or processed products the total F.O.B. Philippine port value of the exports of which did not exceed five million dollars in the United States currency in the calendar year 1968 and which meet the local content requirement if any, set by the Board, and standards of quality set by the Bureau of Standards, or, in default of such standards, by the Board or by such public or private organization, chamber, group or body as the Board may designate. The above definition notwithstanding the Investment Priorities Plan may include other products for exports subject to such conditions and limited incentives as may be determined by the Board.

Article 24. "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 export products exported directly by a registered export producer or registered export trader or the net selling price of export product sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same: Provided, 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 documents: Provided, however, That without actual exportation the following shall be considered constructively exported for purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers (2) sales to export processing zones (3) sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and Bureau of Customs: Provided, That export sales of registered export trader shall include commission income: and Provided, finally, That exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee.

Article 25. "Export fees"shall mean the total foreign exchange which is charged or received by a registered service exporter of furnishing or performing services, or permitting the showing or playing, outside of the Philippines, of television or motion pictures or musical recordings.

Article 26. "Production cost"shall mean the total of the cost of direct labor, raw materials, and manufacturing overhead, determined in accordance with generally accepted accounting principles, which are incurred in manufacturing or processing the products of a registered enterprise.

Article 27. "Processing"shall mean converting of raw materials into marketable form through physical, mechanical, chemical, electrical, biochemical, biological or other means or by a special treatment or a series of actions, such as slaughtering, milling, pasteurizing, drying or desiccating, quick freezing, that results in a change of the nature or state of the products. Merely packing or packaging shall not constitute processing.

Article 28. "Investment Priorities Plan"shall mean the over-all plan prepared by the Board and approved by the president which include the contain:

(a) The analysis, synthesis and projections of data collected by the Board from public and private sources, and which measures and indicates:

1. The existing and prospective demand for specific products and commodities, final and intermediate, in the light of the level and structure of income, production, trade, prices and relevant economic and technical factors;

2. The existing capacities for producing specific products and commodities;

3. The gaps between prospective demand and existing supply for specific products and commodities, and the additional production capacities that must be induced where such gaps exist;

4. The specific products and commodities, manufactured out of or with the use of domestic raw materials, the export of which should be encouraged;

5. The specific areas of economic activity to be declared preferred areas of investment and the corresponding measured capacities thereof;

6. The capital investments necessary to bring such additional capacities into existence;

7. The raw material input requirements of the additional production capacities needed, and the sources thereof, whether domestic or imported;

8. The manpower requirements of existing and new industries;

9. The region where such additional capacities can be located considering the presence of natural resources, labor, transport facilities, power, water and the like;

10. The respective roles and responsibilities of the private sector and the government in bringing such additional capacities into existence;

11. The specific public works project that need to be undertaken by the government and the capital investment required therefor, to make private investments in preferred areas feasible;

12. The prospective impact of the projected investments on prices, the exchange rate and the balance or payments;

13. The changes in tariffs that would be required for the protection of industry during its infant state;

14. The minimum requirements for maintaining conditions of competition in any industry; and

15. Other similar or relevant factors which the Board considers desirable to include;

(b) The list of the export products or services that should be encouraged with priority, considering;

1. the comparative advantages they enjoy or could be made to enjoy;

2. their potential for earning foreign exchange; and

3. their profitability to the national economy;

(c) Additional volume of agricultural production and related services necessary to supply the needs of the economy including the export market, which can qualify for incentives under this Code;

(d) 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 such services 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; and

(e) Specific activities where the potential for utilization of coal and non-conventional sources of energy can be best promoted.

Chapter II
Investment Priorities Plan

Article 29. Investment Priorities Plan. Not later than the end of March of every year, the Board of Investments, after consultation with the appropriate government agencies, as it may deem necessary, shall submit to the President an Investment Priorities Plan: Provided, however, That the deadline for such submission, may be extended by the President.

Article 30. Criteria for Preferred Areas. In determining the preferred areas of investment and their corresponding measured capacities, the Board shall determine which areas of investment best accomplish the policy declared in this Code, including those which will economically produce goods for domestic use in substitution of goods being imported in large quantities, and especially those which will process further and thereby increase the value of agricultural, mining and timber products already being produced for export or which will make products at costs low enough to be sold competitively in export markets.

The Board shall take into account all the following criteria:

(a) The gaps between prospective demand and existing supply for specific products, commodities and services and the additional production capacities that must be induced where such gaps exist;

(b) The potential of such areas of investments for creating new markets, both domestic and foreign, for domestic suppliers of raw materials and/or intermediate goods, or new sources of supply for domestic consumers of the products;

(c) The potential of such areas of investment for creating productive employment, considering the necessity for the dispersal of industries in the country on a planned and balanced basis to the extent that is economically feasible and practicable;

(d) Their potential for earning foreign exchange;

(e) The extent to which investment in such areas will integrate existing production facilities;

(f) The amounts of import substitution or of new exports such areas of investment will promote;

(g) The amount of capital normally needed thereby;

(h) The nature of the risks, commercial or otherwise, which may be entailed;

(i) The proportion of the required capital, raw materials and labor inputs of indigenous origin;

(j) The rate of profitability;

(k) The rate of return to the national economy;

(l) The maintenance of competition;

(m) The comparative advantage they enjoy or could be made to enjoy; and

(n) Such other criteria as the Board may adopt.

Considering the amount of investment capital which the Board may estimate to be available during any given year, the Board shall give priority to projects with the highest rates of return to the national economy. No project shall be included in the priorities plan nor declared a preferred area of investment, unless it is shown to be economically, technically, and financially sound after thorough investigation and analysis by the Board. In any of the areas declared preferred areas of investment, the Board may designate as pioneer areas the specific products and commodities that meet the requirements of Article 16.

Article 31. Approval of the Investment Priorities Plan. 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 Bureau of Investments for revision. Portions not returned to the Board of Investments shall be proclaimed in effect.

Upon the effectivity of the plan or portions thereof, the President shall issue all necessary directives to all ministries, bureaus, agencies and 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.

Article 32. Amendments. The Board of Investments may, after due notice, amend the whole or any part of 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: Provided, That in all such cases the procedures outlined in Articles 29 to 31 observed to the extent that they are applicable. 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 by the President nor after approval of its deletion as a preferred area of investment.

Article 33. Publication. 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.

Chapter III
Registration Of Enterprises

Article 34. Qualifications of Producer under Investment Priorities Plan. 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 organized under Philippine laws and that at least sixty per cent (60%) of its capital is owned and controlled by citizens of the Philippines: or in case of a corporation or a cooperative, it is organized under Philippine laws and that at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by Philippine nationals as defined under Article 14 of this Code, and at least sixty per cent (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 16 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 seventy per cent (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 14, 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 export producer which exports one hundred per cent (100%) of its total production need not comply with the 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 Filipino citizens or corporations owned and controlled by Filipino citizens;

2. The applicant is proposing to engage in a preferred project 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 per cent (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;

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;

4. If the applicant is engaged or proposes to engage in undertakings of activities other than preferred projects, it has installed or undertakes to install an accounting system adequate to identify the investments, revenue, 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.

Article 35. Qualifications for Export Trader. To be registered as export trader, the applicant must be a citizen of the Philippines, in case of natural person, or in case of partnership or any other entity, it is organized under Philippine laws and that at least sixty per cent (60%) of its capital is owned and controlled by citizens of the Philippines; or in case of a corporation or a cooperative, it is organized under Philippine laws and that at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by Philippine nationals as defined under Article 14 of this Code, and at least sixty per cent (60%) of the members of the Board of Directors are citizens of the Philippines: Provided, That a citizen of the Philippines or a corporation, partnership or other organized and existing under Philippine laws at least seventy per cent (70%) of the capital stock of which is owned and controlled by citizens of the Philippines shall also be entitled to registration as export trader and to enjoy the benefits and incentives for registered export traders under this Code, except exemption from export tax, if it is engaged or proposes to engage in the exportation of export products the total F.O.B. port value of the exports of which exceeded five million dollars in United States currency in the calendar year 1968 and if the business of exportation of the said product at the time the application is filed, is substantially in the hands of non-Philippine nationals: Provided, further, That notwithstanding the above nationality requirement, the Board, may, in meritorious cases, allow registration of export trader not possessing the required percentage of Philippine ownership and control under such conditions and/or limited incentives as the Board may determine.

Article 36. Qualifications for Service Exporter. To qualify for registration as service exporter, the applicant must (a) be engaged or proposes to engage in the activities mentioned in Article 20 or other export services which may be declared by the Board; and (b) comply with the nationality requirement set forth in the preceding Article excluding the first proviso but including the second proviso thereof.

Article 37. Liberalized Preferred Areas. Notwithstanding the provisions of No. 1 of Article 34, if the measured capacity of any preferred non-pioneer area is not filled within three (3) years from the date of its declaration as a preferred non-pioneer area, the Board may allow non-Philippine nationals otherwise qualified, to be registered in such areas, under the conditions prescribed above for pioneer areas: Provided, however, That such non-Philippine nationals may engage, without incentives, in the manufacture of finished products primarily for export, during the said period aforestated.

Article 38. Application. Applications shall be recorded in a registration book and the date appearing therein and stamped on the application shall be considered the date of filing.

The Board shall cease to register any applicant in a preferred area of investment when the measured capacity therein has been filled; but all applicants registered within the measured capacity shall enjoy the status under which they were registered: Provided, however, That the Board may register subsequent applicants as non-pioneer registered enterprises in an area previously declared as pioneer, when a number of enterprises have already been registered and are in commercial operation for the same activity.

Article 39. Several Applicants for a Preferred Area. Where several applicants are qualified for registration with the Board but the total of their proposed combined production capacities exceeds the available measured capacity of the preferred area of investment in which they are proposing to engage, the Board shall approve and register only those that can be accommodated within the available measured capacity and are better suited to achieve the objectives of this Code. The Board shall base its choice on the following criteria:

(a) The extent of ownership and control by Philippine nationals of the enterprises;

(b) The manner in which the enterprises are integrated, and the length of their experience in the preferred area of investment or in areas closely related to it;

(c) The cost factors and the economies of scale and competitiveness in the world market involved in their processes;

(d) The amount of foreign exchange earned, used, or saved in their operations;

(e) The extent to which they employ labor, materials and other resources obtained from indigenous sources;

(f) The amount of their equity, and the degree to which the ownership of such equity is spread out and diversified;

(g) The extent to which they shall insure the maintenance of a compensation within the industry;

(h) The extent of public participation in each applicant; and

(i) Such other criteria as the Board may determine.

In making a choice between two or more applicants for registration and proposing to produce identical or substantially identical products or commodities, both possessing the required degree of Filipino ownership and control, the Board shall give preference to projects that constitute an expansion of, or addition to or integration of existing facilities whenever these enjoy the advantages of lower costs and economies of scale over projects undertaken in isolation from technically related facilities; and other things being equal, the Board shall give preference to applicants where the degree of ownership and control by Philippine nationals is greater.

Article 40. Appeal from Board's Decision. Any order or decision of the Board under the preceding article may be appealed within thirty (30) days from receipt of said order or decision to the President. Upon failure on the part of the President to act within a period of ninety (90) days, the decision of the Board shall be deem upheld.

Article 41. 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.

Title II
Basic Rights and Guarantees

Article 42. Proclamation of Investments. 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 Investment. In the case of the foreign investments, the rights 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 Sec. 74 of Republic Act No. 265;

(b) Remittance of Earnings. In 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 Sec. 74 of Republic Act No. 265;

(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 Sec. 74 of Republic Act No. 265;

(d) Freedom from Expropriation. There shall be no expropriation by the government of the property represented by investments or of the property of enterprises except for public use or in the interest of national welfare and defense and upon payment of just compensation. In such cases, foreign investors or enterprises shall have to 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 Sec. 74 of Republic Act No. 265;

(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 rational 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 Sec. 74 of Republic Act No. 265.

Title III
Incentives

Chapter I
Incentives to Investors

Article 43. Incentives to Investors in a Registered Producer Enterprise. An investor, with respect to his investment in a registered enterprise, other than an export trader or service exporter, shall be granted the following incentive benefits:

1. Protection of Patents and Other Proprietary Rights. The right to be protected from infringement of patents, trademarks, copyright, trade names and other proprietary rights, where such patents, trademarks, copyright, trade names, and other proprietary rights have been registered with the appropriate agencies of the Government of the Philippines;

2. Capital Gains Tax Exemption. Exemption from income tax on that portion of the gains realized from the sale, disposition, or transfer of capital assets, as defined in Section thirty-four of the National Internal Revenue Code, that corresponds to the portion of the proceeds of the sale that is invested in new issues of capital stock of a registered enterprise within six (6) months from the date the gains were realized: Provided, (1) That the said sale, disposition or transfer and the investment of the proceeds thereof have been registered with the Board and the Bureau of Internal Revenue; and (2) That the shares of stock representing the investment are not disposed of, transferred, assigned, or conveyed for a period of five (5) years from the date the investment was made. If such shares of stock are disposed of within the said period of five (5) years, all taxes due on the gains realized from the original transfer, sale or disposition of the capital assets shall immediately become due and payable. The incentives herein may be extended to non-corporate registered enterprises if the Board deems it desirable and administratively feasible.

Chapter II
Additional Incentives to Philippine Nationals in Pioneer Areas

Article 44. Incentives to Philippine Nationals Investing in Pioneer Areas. In addition to the incentives provided in the preceding Article, Philippine nationals investing in a pioneer enterprise shall be granted the following incentives benefits:

(a) Tax Allowance for Investments. An Investment allowance to the extent of his actual investment, paid in cash or property, shall be allowed as a deduction from his taxable income but not to exceed twenty per cent (20%) in case of registered enterprises engaged in pioneer agricultural ventures and related services, and ten per cent (10%) in case of registered enterprises in other pioneer projects: Provided, (1) That the investment is made in a subscription of shares in the original and/or increased capital stock of a pioneer enterprise within seven (7) years from the date of registration; (2) That the shares are held for a period of not less than three (3) years; (3) That the investment is registered with the Board. If the shares are disposed of within the said three (3) year period, the taxpayer shall lose the benefit of this deduction, his income tax liability shall be recomputed, and he shall pay whatever additional sum be due plus interest thereon, within thirty (30) days from the date of disposition. The incentives herein may be extended to non-corporate registered enterprises if the Board deems it desirable and administratively feasible.

(b) Capital Gains Tax Exemption. Exemption from income tax on the portion of the gains realized from the sale, disposition or transfer of capital assets, as defined in Section thirty-four of the National Internal Revenue Code, that corresponds to the portion of the proceeds of the sale that is invested in new issues of capital stock of, or in the purchase of stock owned by foreigners in, pioneer enterprises, within (6) months from the date the gains were realized: Provided, (1) That such sale disposition or transfer and the investment of the proceeds thereof are registered with the Board and the Bureau of Internal Revenue; and (2) That the shares of stock representing the investment are not disposed of, transferred, assigned or conveyed for a period of three (3) years from the date of investment was made. If said business or shares of stock are disposed of within the said period of three (3) years, all taxes due on the gains realized from the original transfer, sale or disposition of the capital assets shall immediately become due and payable. The last sentence of the preceding paragraph should likewise apply herein.

(c) Tax Exemption on Sale of Stock Dividends. Exemption from income tax or all gains realized from the sale, disposition, or transfer of stock dividends received from a pioneer enterprise: Provided, That the sale, disposition or transfer occurs within seven (7) years from the date of registration of the enterprise.

Title IV
Incentives to Registered Producer Enterprises

Chapter I
Registered Producer Enterprises

Article 45. Incentives to a Registered Enterprise. All registered enterprises, except export traders and service exporters, shall be granted the following incentives to the extent engaged in a preferred area of investment:

(a) Deduction of Organization and Pre-Operating Expenses. All capitalized organizational and pre-operating expenses attributable to the establishment of a registered enterprise may be deducted from its taxable income over a period of not more than ten (10) years beginning with the month the enterprise begins operations, provided the taxpayer indicates the desired amortization period at the time of the filing of income tax returns for the first taxable year. For the purpose of this provision, organizational and pre-operating expenses shall include expenses for pre-investment studies, start-up costs, costs of initial recruitment and training and similar expenses;

(b) Accelerated Depreciation. At the option of the taxpayer and in accordance with the procedure established by the Bureau of Internal Revenue, fixed assets may be (1) depreciated to the extent of not more than twice as fast as normal rate of depreciation or depreciated at normal rate of depreciation if expected life is ten (10) years or less; or (2) depreciated over any number of years between five (5) years and expected life if the latter is more than ten (10) years; and the depreciation thereon allowed as a deduction from taxable income: Provided, That the taxpayer notifies the Bureau of Internal Revenue at the beginning of the depreciation period which depreciation rate allowed by this article will be used by it;

(c) Net Operating Loss Carry-Over. At net operating loss of the registered operations incurred in any of the first ten (10) years of operations may be carried over as a deduction from taxable income for the six (6) years immediately following the year of such loss. The entire amount of the loss shall be carried over to the first of the six (6) taxable years following the loss, and any portion of such loss which exceeds the taxable income of such first year shall be deducted in like manner from the taxable income of the next remaining five (5) years.

(d) Tax Exemption on Imported Capital Equipment. Within seven (7) years from the date of registration of the non-pioneer registered enterprise, importations of machinery and equipment, and accompanying spare parts shall be exempt to the extent of fifty per cent (50%) of the tariff duties and compensating tax payable thereon, but shall comply with the following conditions:

1. They are not manufactured domestically in reasonable quantity and quality at reasonable prices;

2. 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 non-registered operations to maximize usage thereof or the proportionate taxes and duties paid on the specific equipment and machinery being permanently used for non-registered operations;

3. Are covered by shipping documents in the name of the registered enterprise to whom the shipment will be delivered directly by customs authorities; and

4. The approval of the Board was obtained by the registered enterprise for the importation of such machinery, equipment and spare parts.

In granting approval of importations under this paragraph, the Board shall require international bidding to be conducted by the end-user in Manila under its supervision; however, the Board may, in its discretion, dispense with this requirement if:

(1) there is, to the knowledge of the Board, only one (1) manufacturer of the machinery, equipment and spare parts to be imported, or

(2) the importation is made for the expansion of the registered enterprise and such imports shall be acquired from the same manufacturer who supplied the machinery, equipment, and spare parts being used by the registered enterprise, or

(3) the total cost of importation is less than one million dollars ($1,000,000.00), or

(4) the Board has other means of determining the reasonableness of the procurement costs.

If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts without the prior approval of the Board within five (5) years from date of acquisition, the registered enterprise shall pay twice the amount of the tax exemption given it. However, 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:

(1) to another registered enterprise;

(2) for reasons of proven technical obsolescence; or

(3) for purposes of replacement to improve and/or expand the operations of the enterprise.

In such cases, the transferee shall not be subject to the taxes and duties waived on the said equipment, if any, if it will undertake an economic project substantially carrying out the objectives for which such equipment has been imported, as determined by the Board.

In cases of replacement of existing facilities, the Board may allow mere deferment of taxes and duties, in lieu of reduction of taxes, taking into account the financial condition of the enterprise.

(a) Tax Credit on Domestic Capital Equipment. A tax credit equivalent to one hundred per cent (100%) of the value of the compensating tax and customs duties that would have been paid on the machinery, equipment and spare parts had these items been imported shall be given to the registered enterprise which purchases machinery, equipment and spare parts from a domestic manufacturer, and another tax credit equivalent to fifty per cent (50%) thereof shall be given to the manufacturer: Provided, (1) 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 non-registered operations to maximize usage thereof; (2) That the approval of the Board was obtained by the local manufacturer concerned; and (3) That the sale is made within seven (7) years from the date of registration of the registered enterprise. If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts, the provisions in the preceding paragraph for such disposition shall apply.

(b) Tax Credit for Withholding Tax on Interest. A tax credit for taxes withheld on interest payments on foreign loans shall be given a registered enterprise when (1) no such credit is available to lender-remittee in his country; and (2) the registered enterprise has assumed the liability for payment of the tax due from the lender-remittee.

(c) Incentives for Necessary and Major Infrastructure and Public Facilities. Registered enterprise establishing their production, processing or manufacturing plants in an area that the Board designates as necessary for the proper dispersal of industry or in an area which the Board finds deficient in infrastructure, public utilities, and other facilities, such as irrigation, drainage and other similar waterworks infrastructure, may apply in payment of taxes due from it to the government an amount equivalent to one hundred per cent (100%) of necessary and major infrastructure works it may have undertaken with the prior approval of the Board in consultation with other government agencies concerned: Provided, That the title to all such infrastructure works shall upon completion, be transferred to the Philippine Government: Provided, further, That should the registered enterprise undertake necessary and major maintenance work on such infrastructure works with the prior approval of the Board, a similar incentive shall be given to it in an amount equivalent to the cost of such necessary maintenance;

(d) Employment of Foreign Nationals. Subject to the provisions of Section twenty-nine of Commonwealth Act Numbered Six Hundred Thirteen, as amended, an enterprise may employ foreign nationals in supervisory, technical or advisory positions for a period not exceeding five years from its registration, extendible for limited periods at the discretion of the Board.

Foreign nationals under employment contract within the purview of this Code, their spouses and unmarried children under twenty-one years of age, who are not excluded by Section twenty-nine of Commonwealth Act Numbered Six Hundred Thirteen, shall be permitted to enter and reside in the Philippines during the period of employment of such foreign nationals.

A registered enterprise shall train Filipinos as understudies of foreign nationals in administrative, supervisory and technical skills and shall submit annual reports on such training to the Board of Investments;

(e) Deduction from Expansion Reinvestment. When a registered enterprise reinvests its undistributed profit or surplus, whether from registered operations or not, by actual transfer thereof to its capital for procurement of machinery, equipment and spare parts previously approved by the Board under paragraphs (d) and (e) of Article 45 or for the expansion of machinery and equipment used in production or for the construction of the buildings, improvements or other facilities for the installation of the said machinery and equipment, the amount so reinvested, to the extent of 25%, 37 1/2, 50%, the appropriate percentage to be determined by the Board for each industry taking into account the relative risk, technology transfer and fall-out, export potential, incremental labor, use of locally manufactured machinery and equipment and domestic raw materials, shall be allowed as a deduction from its taxable income in the year in which such reinvestment was made: Provided, (1) That prior approval of the Board of such reinvestment was obtained by the registered enterprise planning such reinvestment, and (2) That the registered enterprise does not reduce its capital stock represented by the reinvestment within seven (7) years from the date such reinvestment was made. In the event the registered enterprise does not order the machinery and equipment within two (2) years from the date the reinvestment was made or reduces its capital stock represented by the reinvestment within a period of seven (7) years from the date of reinvestment, a recomputation of the income tax liability therefore shall be made for the period when the deduction was made, and the proper taxes shall be assessed and paid with interest.

(f) Anti-Dumping Protection. Upon recommendation of the Board, made after notice and hearing, the President shall issue a directive banning for a limited period the importation of goods or commodities which, as provided in Section three hundred one (a) of the Tariff and Customs Code of the Philippines, unfairly or unnecessarily compete with those produced by registered enterprises: Provided, (1) That the Board certifies to the satisfactory quality of the goods or commodities produced or manufactured by the registered enterprises; and (2) That the enterprises agree not to increase the price of these goods, or commodities during this period, unless for good cause, the Board allows such an increase;

(g) Protection from Government Competition. No agency or instrumentality of the government shall import or allow the importation tax and duty-free of products or items that are being produced or manufactured by registered enterprises, except when the President determines that the national interest so requires or when international commitments require international competitive bidding;

(h) Deduction of Labor Training Expenses. An additional deduction from taxable income of one-half of the value of labor training expenses incurred for upgrading the productivity and efficiency of unskilled labor and of apprentices shall be granted to a registered enterprise: Provided, That such training program is duly approved by the appropriate government agency or in the absence thereof by the Board: Provided, further, That such deduction shall not exceed ten per cent (10%) of direct labor wage: and, Provided, finally, That the enterprise who wishes to avail of this incentives shall pay his apprentices the minimum wage;

(i) Protection of Patents and Other Proprietary Rights. The right to be protected from infringement of patents, trademarks, copyright, trade names, and other proprietary rights, where such patents, trademarks, copyright, trade names, and other proprietary rights have been registered with the appropriate agencies of the Government of the Philippines.

Chapter II
Additional Incentives to Pioneer Enterprises

Article 46. In addition to the incentives granted to registered enterprises, pioneer enterprises shall be entitled to the following incentives:

(a) Tax Exemption. Exemption from all taxes under the National Internal Revenue Code, except income tax, from the date the area of investment is included in the Investment Priorities Plan, to the following extent:

1. One hundred per cent (100%) for the first five years;

2. Seventy-five per cent (75%) for the sixth through the eighth years;

3. Fifty per cent (50%) for the ninth and tenth years;

4. Twenty per cent (20%) for the eleventh and twelfth years; and

5. Ten per cent (10%) for the thirteenth through the fifteenth year.

Provided, however, That the above schedule shall not affect the duration and the percentage of tax exemption enjoyed by registered enterprises at the time of the effectivity of this Code;

(a) Tax Exemption on Imported Capital Equipment. Within seven (7) years from the date of registration of the pioneer enterprise, importation of machinery, equipment, and spare parts shall be fully exempt from tariff duties and compensating tax thereon under the same conditions provided for in Article 45 (d) of this Code;

(b) Deduction for Expansion Reinvestment. When a registered pioneer enterprise reinvests its undistributed profit or surplus, whether from registered operations or not, by actual transfer thereof to the capital stock of the corporation for procurement of machinery, equipment and spare parts previously approved by the Board under subsections "d" and "e" of Article 45 or for the expansion of machinery and equipment used in production or for the construction of the buildings, improvements or other facilities for the installation of the said machinery and equipment, the amount so reinvested, to the extent of 50%, 75%, 100%, the appropriate percentage to be determined by the Board for each industry taking into account the relative risk, technology transfer and fall-out, export potential, incremental labor, use of locally manufactured machinery and equipment and domestic raw materials, shall be allowed as a deduction from its taxable income in the year in which such reinvestment was made: Provided, (1) That prior approval of the Board of such reinvestment was obtained by the registered enterprise planning such reinvestment, and (2) That the registered enterprise does not reduce its capital stock represented by the reinvestment within seven (7) years from the date such reinvestment was made. In the event the registered enterprise does not order the machinery and equipment within two (2) years from the date the reinvestment was made or reduces its capital stock represented by the reinvestment within a period of seven (7) years from the date of reinvestment, a recomputation of the income tax liability therefore shall be made for the period when the deduction was made, and the proper taxes shall be assessed and paid with interest.

(c) Post-Operative Tariff Protection. Upon recommendation of the Board, the President, with or without the recommendation of the Tariff Commission or the National Economic and Development Authority, shall issue a certification that a pioneer industry shall be entitled to post-operative tariff protection to an extent not exceeding fifty per cent (50%) of the dutiable value of imported items similar to those being manufactured or produced by a pioneer enterprise, unless a higher rate or amount is provided for in the Tariff Code or pertinent laws. Said tariff shall take effect automatically upon certification by the Board that the pioneer enterprise is operating on a commercial scale: Provided, That said tariff, once operative, may be modified in accordance with Section four hundred one of the Tariff and Customs Code.

(d) Employment of Foreign Nationals. Subject to the provisions of Section twenty-nine of Commonwealth Act Numbered Six Hundred Thirteen, as amended, a pioneer enterprise may employ foreign nationals in any category for a period of five (5) years from operations, extendible for such limited periods at the discretion of the Board. When the majority of the capital stock of a pioneer enterprise is owned by foreign investors, the position of president, treasurer and general manager or their equivalents, may be retained by foreign nationals.

Chapter III
Additional Incentives to Agricultural Producers

Article 47. Incentives to Agricultural Producers. All registered enterprises, whether pioneer or non-pioneer, engaged in agricultural production and related services and registered for such activities shall be granted the following incentives in addition to those provided for registered enterprises:

(a) Tax Exemption on Breeding Stocks and Genetic Materials. The importation of breeding stocks and genetic materials within seven (7) years from the date of registration of the enterprise shall be exempt from all taxes and duties: Provided, That such breeding stocks and genetic materials are (1) not locally available strains/breeding stocks at reasonable prices; and (2) shall be used exclusively by the registered enterprise in the improvement of the strains/breeding stocks of its livestock, poultry, fish and/or plants and must have been acquired with approval of the Board: Provided, further, That breeding stocks and genetic materials shall not be disposed of, transferred or sold for whatever reason within the periods specified in the rules and regulations except for enterprise as determined and approved by the Board. Sale, transfer and disposition made within the specified period without prior approval shall render the registered enterprise liable to pay twice the amount of tax that should have been paid;

(b) Deduction of Research and Development Programs. And additional deduction from taxable income of not exceeding twenty-five per cent (25%) of the research and development expenses and twenty-five per cent (25%) of the management training expenses of Philippine nationals within a period of seven (7) years from date of registration shall be granted: Provided, That such deduction on both programs shall not exceed ten per cent (10%) of taxable income;

(c) Deduction of Freight and Transportation Expenses. An additional deduction from taxable income not exceeding thirty per cent (30%) of freight and transportation expenses incurred within a period of five (5) years from date of registration or commercial operation shall likewise be granted: Provided, That the enterprise is established in a geographical area that the Board designated as a preferred location for agricultural development and that the Board finds deficient in transport facilities: and Provided, further, That such freight and transport expenses are incurred in the course of transporting registered products from the enterprises' project area to the nearest economic marketing center as determined by the Board.

(d) Compliance with Mandatory Rice and Corn Production. Companies required to produce rice and corn for their employees, subject to the rules and regulations to be promulgated by the Ministry of Agriculture in consultation with the Nationals Grains Authority and appropriate government agencies, may register in any area of investment for agricultural production and related activities and such registration shall be deemed to be in compliance with said requirement.

Chapter IV
Incentives to Export Producers

Article 48. Incentives to Registered Export Producers. Registered export producers, whether pioneer or non-pioneer, shall be entitled to additional incentives enumerated hereunder:

(a) Tax Credit. Every registered export producer shall enjoy a tax credit equivalent to the sales, compensating and specific taxes and duties on the supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and constituting as substantial portion of the cost of production or forming part of the export product, whether exported directly by the registered export producer or sold to another export producer, which uses such sold products as a direct input in export products manufactured or processed by it and subsequently exported, or to an export trader: Provided, That the tax credit shall accrue to the registered export producer only after the other export producer or export trader has actually or constructively exported said products.

(b) Reduced Income Tax: Every registered export producer shall be entitled for the first five (5) years from its registration or commercial operation, to deduct from its taxable income from domestic and export sales and from all registered operations, in addition to the normal deduction allowed by the National Internal Revenue Code, and amount equivalent to the direct labor cost of the product and the local raw materials of non-traditional export products utilized in the manufacture of its export products: Provided, however, That an additional amount equivalent to the direct labor cost shall be deductible by an export producer located in an area that the Board designated as necessary for the proper dispersal of industry or in an area which the Board finds deficient in infrastructure, public utilities and other facilities: Provided, further, That such deduction shall in no case exceed twenty-five per centum (25%) of its total export revenue;

(c) Exemption from Sales Tax Every registered export producer shall be exempted from the percentage tax on sales under the National Internal Revenue Code, as amended, for articles sold to another export producer or export trader, provided the products are exported within one (1) year from date of purchase and, under such guidelines the Board may formulate in consultation with the Bureau of Internal Revenue;

(d) Exemption from Export Tax, Impost and Fees. The provisions of law to the contrary notwithstanding, exports by a registered export producer of its non-traditional registered export products shall be exempted from any export tax, impost or fee;

(e) New Brand Name. Whenever a registered export producer shall use a new brand name for an export product that distinguishes it from products manufactured or processed outside the Philippines, the Board shall grant the registered export producer directly exporting its product an additional deduction from taxable income equivalent to one per cent (1%) of the increment of its export sales during the year in which the incentive is claimed to the export sales of the preceding year;

(f) Tax-Free Importation of Capital Equipment. Within seven (7) years from registration of the export producer, importation of machinery and equipment shall be fully exempt from tariff duties and compensating tax thereon under the same conditions provided for in Article 45 (d) of this Code.

If the registered export producer does not bring into the country, the proceeds of export sales equivalent to at least the costs of the imported machinery, equipment and spare parts within five (5) years after delivery of the same to it, the registered export producer shall pay twice the amount of exemption given it, together with the penalty and interest thereon, computed from the date of acquisition, fixed by the Tariff and Customs Code and the National Internal Revenue Code for delinquency in the payment of said duties and taxes.

Title V
Incentives to Export Traders and Service Exporters

Chapter I
Incentives to Export Traders

Article 49. Incentives to Registered Export Traders. A registered export trader shall be entitled to:

(a) Exemption from any export tax, fee or impost; for registered export products bought by it from registered export producer qualified to avail of such exemption from export tax, fee or impost;

(b) Exemption from specific and sales tax on products exported by it under such guidelines as the Board may formulate in consultation with the Bureau of Internal Revenue;

(c) A tax credit equivalent to the amount of specific and sales taxes on the registered export products bought by it from export producers and subsequently exported;

(d) For the first five (5) years from registration or commercial operation, to deduct from its taxable income from the domestic and export sales as well as income from other registered operations, in addition to the normal deduction allowed by the National Internal Revenue Code, an amount equivalent to twenty per cent (20%) of its total export sales: Provided, That the Board upon application of the registered export trader may grant to registered export producer exporting products through the registered export trader not more than 10% of this deduction irrespective of whether the registered export producer has been registered or in commercial operation for five (5) years: Provided, further, That the deduction of the registered export producer shall be applicable to its registered operations only;

(e) For a period of five (5) years after registration or commercial operation, an additional deduction of one per cent (1%) of its total export sales shall be allowed a registered export trader which extends financial assistance to export producers in an amount equivalent to not less than twenty per cent (20%) of the total export sales of such trader during the year in which the incentive is claimed;

(f) For a period of five (5) years from registration or commercial operation, to deduct from taxable income from domestic and export sales and from other registered operations, expenses for establishing and maintaining offices abroad; and

(g) An additional deduction from taxable income equivalent to one per cent (1%) of the increment of its export sales during the year in which the incentive is claimed to the export sales of the preceding year, whenever a registered export trader shall use a new brand name for an export product that distinguishes it from products manufactured or processed outside the Philippines.

Chapter II
Incentive to Service Exporters

Article 50. Incentives to Registered Service Exporters. Every registered service exporter shall, for the first five (5) years from registration or commercial operation, be entitled to deduct from its taxable income an amount equivalent to fifty per cent (50%) of its total export fees during the year in which the incentive is claimed: Provided, That to be entitled to this deduction, the registered service exporter must have actually or constructively remitted or repatriated to the Philippines in acceptable foreign currencies its total export fees earned during the year in which the incentive is claimed, less reasonable costs and expenses incurred or payable in foreign currencies, under such rules and regulations as the Monetary Board may prescribe.

In addition, a registered service exporter which produces television or motion pictures, or musical recordings, in the Philippines, and exports the picture or recording directly or through a registered export trader shall also be entitled:

(a) To a tax credit equivalent to the amount of specific, compensating and sales taxes and duties paid by it on the raw materials and supplies used in producing the picture or recording that is exported; and

(b) For a period of seven (7) years from registration, to a full exemption from payment of customs duties and compensating taxes on importations of equipment, machinery or spare parts shipped with such machinery and equipment subject to the conditions set forth in Article 45 (d) for tax free importation of equipment: Provided, That if the registered service exporter does not bring into the Philippines export fees equivalent to at least the cost of the imported machinery, equipment and spare parts within five (5) years after delivery of the same to it, it shall pay twice the amount of the exemption given it, together with the penalty and interest thereon, computed from the date of delivery, fixed by the Tariff and Customs Code and the National Internal Revenue Code for delinquency in the payment of duties and taxes.

Title VI
Special Assistance to Registered Enterprises

Chapter I
Financial Assistance

Article 51. Preference in Grant of Government Loans. Government financial institutions such as the Development Bank of the Philippines, Philippine National Bank, Government Service Insurance System, Social Security System, Land Bank, and such other government institutions as are now engaged or may hereafter engage in financing or investment operations shall, in accordance with and to the extent allowed by the enabling provisions of their respective charters or applicable laws, accord high priority to applications for financial assistance submitted by registered enterprises, whether such financial assistance be in the form of equity participation in preferred, common or preferred convertible shares of stock, or in loans and guarantees, and shall facilitate the processing thereof and the release of the funds therefor. However, no financial assistance shall be extended under this Article to any investor or enterprise that is not a Philippine national.

The above-mentioned financial institutions, to the extent allowed by their respective charters or applicable laws, shall contribute to the capital of a registered enterprise whenever the said contribution would enable the formation of a registered enterprise with at least sixty per cent (60%) control by Philippine nationals: Provided, That the shares representing the contribution of the said financial institutions shall be offered for public sale to Philippine nationals through all the members of a registered Philippine stock exchange within a reasonable period after such acquisition.

To facilitate the implementation of this Article, all the said financial institutions shall coordinate their financial assistance programs with each other, exchange relevant information about applicants and applications, and submit a monthly report to the Board showing the amounts of funds available for financial assistance to registered enterprises. The Board shall recommend to the Board of Directors of each such financial institutions what order of priority shall be given the applications of registered enterprises, or of applicants that propose to seek registration as such.

Article 52. Private Financial Assistance. Any provision of existing laws to the contrary notwithstanding, the Insurance Commissioner is hereby authorized to allow insurance companies, under such rules and regulations as he may issue, to invest in new issues of stock of registered enterprises, notwithstanding that said enterprises may not have paid regular dividends, to the extent set out in the Insurance Act: Provided, That said investments are diversified.

Notwithstanding the provisions of Section one of Presidential Decree No. 717, registered enterprises engaged in agricultural ventures and related services, may be included as beneficiaries of the ten per cent (10%) of a banking institution's loanable funds set aside for agrarian reform credit: Provided, That such registered enterprises secure the prior endorsement of the Ministry of Agrarian Reform stating that land reform beneficiaries shall benefit from the agricultural enterprises' projects.

Article 53. Loans for Investment. The Government Service Insurance System and Social Security System shall extend to their respective members five-year loans at a rate of interest not to exceed six per cent (6%) per annum for the purchase of shares of stock in any registered enterprise: Provided, That (1) the shares so purchased shall be deposited in escrow with the lending institution for the full five-year term of the loan; partial release of the shares shall, however, be allowed to the extent of the payment of amortization made therefor; (2) such loans shall be amortized in sixty (60) equal monthly salary of the employee concerned and remitted to the lending institutions by the employer; but any and all dividends earned by the shares of stock while they are held in escrow shall be delivered to the employee; and (3) the maximum loan available per centum of the employee's annual gross income: Provided, further, That the total investment of the government financial institution concerned, consisting of its direct investment in the registered enterprise and the loans it has extended to its respective members which have been invested by the members in a registered enterprise, shall not be more than forty-nine per cent (49%) of the total capitalization of the registered enterprise in which the investments have been made.

Chapter II
Exporters Assistance

Article 54. Special Assistance to Exporters. There is hereby created an Institute of Export Development to provide assistance to exporters in the following areas of activities:

1. Diversification of export products and export markets;

2. Improving existing methods of production so as to reduce cost of export products;

3. Promoting effective marketing of export products abroad;

4. Developing of export packaging and design;

5. Conducting seminars and training courses on functional aspects of exports; and

6. Promoting investments in export-oriented enterprises.

Article 55. Simplified Export Procedure. All registered enterprises may avail of the simplified export procedure implemented for BOI registered exporting enterprise under Executive Order No. 286, whereby they are exempt from the requirements of securing BIR tax clearance and commodity clearance and filing of Report of Foreign Sales prior to each exportation. The commodity clearances for exportable products shall be done semestrally or annually by the proper agency. In lieu of the existing export declaration, the registered enterprise shall apply for an export permit with the authorized agent bank of the Central Bank.

Chapter III
Assistance to Individual Applicants

Article 56. Special Assistance to Individual Applicants. To facilitate the implementation of the provisions of this Code, and to expedite action on any application, particularly to individual applicants, or such related matters in pursuit of the registered activity, the other government agencies concerned are hereby directed to extend and provide the necessary assistance, and for this purpose, the Board shall train and deputize personnel assigned therefor.

Title VII
General Provisions

Article 57. Power of the President to Rationalize Incentives. The President may, upon recommendation of the Board, rationalize the incentives scheme herein provided; grant new or additional incentives or modify existing ones; extend the period of availment of incentives or increase rates of tax exemption of any project in the interest of national development, whose viability or profitability require such modification.

Article 58. Refund and Penalties. In case of cancellation of the certificate granted under this Code, the Board may, in appropriate cases, require the refund of incentives availed and impose corresponding penalties.

Article 59. Marketing Affiliate. Philippine nationals who are stockholders in a registered enterprise in which non-Philippine nationals hold stock may establish a marketing corporation to handle and distribute exclusively the product of the registered enterprise in its preferred area of investment: Provided, (1) That the said marketing company is wholly owned by, with entire beneficial ownership and control vested in, Philippine citizens; (2) That the stock of said marketing company is available for acquisition by other citizens of the Philippines who may desire to invest therein; (3) That Philippine nationals hold at least twenty-one per cent of the voting stock of the registered enterprise; and (4) That the Board approves the creation for the marketing corporation for reasons of economy and practicability.

Article 60. Applicability to Existing Enterprises. An enterprise which satisfies the definition of a Philippine national engaged in a preferred area of investment at the time of its declaration as such, shall be entitled to registration as to its existing capacity, as well as to such an expansion or enlargement thereof requiring new or additional machinery and equipment or breeding stocks and genetic materials as shall be within the unfilled measured capacity of the area; so also an investor in such an existing enterprise, shall be entitled to benefits incentives to the extent of his present as well as new or additional investment therein: Provided, That the application is filed while the area is still in the Investment Priorities Plan: Provided, however, That the incentives of this Code, so far as may be applicable to such existing enterprises and investors in such existing enterprises, shall be given prospective effect only from the date of registration.

Article 61. Benefits of Multiple Area Enterprises. When a registered enterprise engages in activities or endeavors that have not been declared preferred areas of investment, the benefits and incentives accruing under this Code to registered enterprises and investors therein shall be limited to the portion of the activities of such registered enterprise as is preferred area of investment.

Article 62. Other Incentives Acts. A registered enterprise under this Code which is entitled to benefits and incentives under other laws shall be entitled, to the extent of its registered capacity, to such of the benefits and incentives granted under this Code as are not granted by said other laws and to such benefits and incentives granted under the latter as are not granted under the former.

Article 63. Interpretation. All doubts concerning the benefits and incentives granted enterprises and investors by this Code shall be resolved in favor of investors and registered enterprises.

Article 64. Transitory Provisions. Any enterprise registered either under Republic Act Numbered Fifty-One Hundred Eighty-Six, Republic Act Numbered Sixty-One hundred Thirty-Five, Presidential Decree Numbered Eleven Hundred Fifty-Nine, shall continue to be governed by the provisions of the law under which it is registered.

BOOK TWO
FOREIGN INVESTMENTS WITHOUTINCENTIVES

Title I

Chapter I
Definitions and Scope of This Book

Article 65. Definition of Terms. As used in this Book, the term "investment" shall mean equity participation in any enterprise formed, organized or existing under the laws of the Philippines; and the phrase "doing business" shall include soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representative or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Article 66. Non-Applicability to Banking Institutions. This Book shall not apply to banking institutions which are governed and regulated by the General Banking Act and other laws.

Chapter II
Investments

Article 67. Permitted Investments.

1. Without need of prior authority, anyone not a Philippine national as that term is defined in Article 14 of this Code, and not otherwise disqualified by law, may invest:

(a) In any enterprise registered under Book One hereof, to the extent that the total investment of non-Philippine nationals therein would not affect its status as a registered enterprise under the law;

(b) In an enterprise not registered under Book One hereof, to the extent that the total investment of non-Philippine nationals herein shall not exceed thirty per cent (30%) of the outstanding capital of that enterprise, unless existing law forbids any non-Philippine ownership in the enterprise or limits ownership by non-Philippine nationals to a percentage smaller than thirty per cent.

2. Within thirty days after notice of the investment is received by it, the enterprise in which any investment is made by a non-Philippine national shall register the same with the Board of Investments for purposes of record. Investments made in the form of foreign exchange or other assets actually transferred to the Philippines shall also be registered with the Central Bank. The Board shall assess and appraise the value of such assets other than foreign exchange.

Article 68. Permissible Investments. If an investment by a non-Philippine nationals in an enterprise not registered under Book One hereof is such that the total participation by non-Philippine nationals in the outstanding capital thereof shall exceed thirty (30%) per cent, the enterprise must obtain prior authority from the Board of Investments, which authority shall be granted unless the proposed investment

(a) Would conflict with existing constitutional provisions and laws regulating the degree of required ownership by Philippine nationals in the enterprise; or

(b) Would pose a clear and present danger of promoting monopolies or combinations in restraint of trade; or

(c) Would be made in an enterprise engaged in an area adequately being exploited by Philippine nationals; or

(d) Would conflict or be inconsistent with the Investments Priorities Plan in force at the time the investment is sought to be made; or

(e) Would not contribute to the sound and balanced development of the national on a self-sustaining basis.

Investments made in the form of foreign exchange or other assets actually transferred to the Philippines shall also be registered with the Central Bank. The Board shall assess and appraise the value of such assets other than foreign exchange.

Chapter III
License to do Business

Article 69. Authority to Do Business. No alien, and no firm, association, partnership, corporation or any other form of business organization formed, organized, chartered or existing under any laws other than those of the Philippines, or which is not a Philippine national, or more than thirty (30%) per cent of the outstanding capital of which is owned or controlled by aliens shall do business or engage in any economic activity in the Philippines, or be registered, licensed, or permitted by the Securities and Exchange Commission or by any other bureau, office, agency, political subdivision or instrumentality of the government, to do business, or engage in any economic activity in the Philippines, without first securing a written certificate from the Board of Investments to the effect:

(a) That the operation or activity of such alien, firm, association, partnership, corporation or other form of business organization is not inconsistent with the Investments Priorities Plan;

(b) That such business or economic activity will contribute to the sound and balanced development of the national economy on a self-sustaining basis;

(c) That such business or economic activity by the applicant would not conflict with the Constitution or laws of the Philippines;

(d) That the field of business or economic activity is not one that is being adequately exploited by Philippine nationals; and

(e) That the entry of applicant therein will not pose a clear and present danger of promoting monopolies or combinations in restraint of trade.

Article 70. Requirements to be Imposed by the Board. Upon granting said certificate, the Board shall impose the following requirements on the alien or the firm, association, partnership, corporation or other form of business organization that is not organized or existing under the laws of the Philippines.

1. To appoint a citizen of the Philippines, of legal age, good moral character and reputation, and sound financial standing, as resident agent, who shall be authorized to accept summons and other legal process in behalf of the applicant;

2. To establish an office in the Philippines and to notify the Securities and Exchange Commission in writing of the applicant's exact address and of every contemplated transfer thereof or of the opening of new offices, at least fifteen (15) days before the same are to be effected; and once effected, not later than ten (10) days afterwards:

3. To bring assets into the Philippines to constitute the capital of the office or offices, of such kind and value as the Board may deem necessary to protect those who may deal with the applicant, and to maintain that capital unimpaired during the period it does business in the Philippines;

4. To present prior proof that citizens of the Philippines and corporations or other business organizations organized or existing under the laws of the Philippines are allowed to do business in the country or individual state within a federal country of which applicant is a citizen or in which it is domiciled: Provided, however, That if the state or country of domicile of the applicant imposes on, or requires of, Philippine nationals other conditions, requirements or restrictions besides those set forth in this Code, the Board of Investments shall impose the said other conditions, requirements or restrictions on the applicant, if, in its judgment, the imposition thereof shall foster the sound and balanced development of the national economy on a self-sustaining basis;

5. To submit to the Securities and Exchange Commission certified copies of applicant's charter and by-laws and all amendments thereto, if any, with their translation into an official language within twenty (20) days after their adoption or after the grant of the prescribed certificate by the Board of Investments; and annually, of applicant's financial statements showing all assets, liabilities, and networth and results of operations, setting out separately those pertaining to the branch office;

6. To keep a complete set of accounting records with the resident agent, which shall fully and faithfully reflect all transactions within the Philippines, and to permit inspection thereof by the Securities and Exchange Commission, the Bureau of Internal Revenue and the Board of Investments;

7. To give priority to resident creditors as against non-resident creditors and owners or stockholders in the distribution of assets within the Philippines upon insolvency, dissolution of revocation of the license;

8. To give the Securities and Exchange Commission at least six (6) months advance notice in writing of applicant's intention to stop doing business within the Philippines; and to give such public notice thereof as the Securities and Exchange Commission may require for the protection of resident creditors and other dealing with the applicant; and

9. Not to terminate any franchise, licensing or other agreement that applicant may have with a resident of the Philippines, authorizing the latter to assemble, manufacture or sell within the Philippines the products of the applicant, except for violation thereof or other just cause and upon payment of compensation and reimbursement of investment and other expenses incurred by the licensee in developing a market for the said products: Provided, however, That in case of disagreement, the amount of compensation or reimbursement shall be determined by the court where the licensee is domiciled or has its principal office who shall require the applicant to file a bond in such amount as, in its opinion, is sufficient for this purpose.

The above requirements shall be in addition to those set forth in the Corporation Code of the Philippines for authorizing foreign corporations to transact business in the Philippines.

Article 71. Cause for Cancellation of Certificate of Authority. A violation of any of the requirements set forth in Article 70 or of the terms and conditions which the Board may impose shall be sufficient cause to cancel the certificate of authority issued pursuant to this Book: Provided, however, That aliens or foreign firms, associations, partnerships, corporations or other forms of business organization not organized or existing under the laws of the Philippines which may have been lawfully licensed to do business in the Philippines prior to the effectivity of R.A. 5455, shall, with respect to the activities for which they were licensed and actually engaged in prior to the effectivity of said Act, not be subject to the provisions of Articles 69 and 70 but shall be subject to the reporting requirements prescribed by the Board: Provided, further, That where the issuance of said license has been irregular or contrary to law, any person adversely affected thereby may file an action with the Court of First Instance where said alien or foreign business organization resides or has its principal office to cancel the said license. In such cases, no injunction shall issue without notice and hearing; and appeals and other proceedings for review shall be filed directly with the Supreme Court.

Title II
General Provisions

Article 72. Mergers and Consolidations. The provisions of this Book Two shall apply to any merger, consolidation, syndicate or any other combination of firms, associations, partnerships or other forms of business organization that will result in ownership or control by persons or entities that are not Philippine nationals or have foreign equity participation, of more than thirty (30%) per cent of the outstanding capital of whatever organization results from the merger, consolidation, syndicate or other combination.

Article 73. Local Government Action. No agency instrumentality or political subdivision of the Government shall take any action in conflict with or which will nullify the provisions of Book Two of this Code, or any certificate of authority granted hereunder.

Article 74. Publication and Posting of Notices. Immediately after the application has been given due course by the Board, the Secretary of the Board or any official designated by the Board shall publish the notice of the action of the Board thereon at the expense of the applicant once in one (1) newspaper of general circulation in the province or city where the applicant has its principal office, and post copies of said notice in conspicuous places, in the office of the Board or in the building where said office is located, setting forth in such copies the name of the applicant, the business in which it is engaged or proposes to engage or invest, and such other data and information as may be required by the Board. No approval or certificate shall be valid without the publication and posting of notices as herein provided.

Article 75. Limited Authority to do Business. When appropriate, the Board may grant permissible investments or authority to do business under Book Two of this Code for a limited period where the need to prove economic viability of such activity warrants the issuance of a temporary authorization.

Article 76. Periodic Reports. The Board shall periodically check and verify compliance with these provisions, either by inspection of the books or by requiring regular reports from aliens or foreign firms, domestic enterprises with foreign investments and new entities licensed to do business under Article 69 of this Code.

A summary of said reports shall be periodically submitted by the Board to the President. For this purpose, the Board may require other government agencies licensing and/or regulating foreign enterprises or domestic firms with foreign equity, to furnish the Board with reports on such foreign investments.

FINAL PROVISIONS

Article 77. Confidentiality of Applications. All applications filed under Book One and Book Two of this Code shall be considered as absolutely confidential and may not be subject to subpoena duces tecum by the Courts, or inquired, looked into, or examined by any government agency or instrumentality, or by the National Assembly or its Committees.

Article 78. Judicial Relief. All orders or decisions of the Board in cases involving the provisions of this Code shall immediately be executory. No appeal from the order or decision of the Board by the party adversely affected shall stay such order or decision: Provided, That all appeals shall be filed directly with the Supreme Court within thirty (30) days from receipt of the order or decision.

Article 79. Effectivity of Implementing Rules and Regulations. The rules and regulations issued by the Board pursuant to this Code shall take effect thirty (30) days after their publication in two (2) newspapers of general circulation in the Philippines.

Article 80. Penal Clause. (1) A violation of any provision of this Code, or of the terms and conditions of registration, or of the rules and regulations promulgated pursuant thereto, or the act of abetting or aiding in any manner any such violation, shall be punished by a fine not to exceed fifty thousand (P50,000.00) pesos or imprisonment for not more than ten (10) years, at the discretion of the Court.

(2) No official or employee of the government, its subdivisions or instrumentalities shall appear as counsel for or act as agent or representative of, or in any manner intervene or intercede, directly or indirectly, in behalf of any party in any transaction with the Board regarding the availment of incentives under this Code. The penalty for violation of this prohibition is the same as that provided for in the preceding paragraph. If the offender is an appointive official or employee, the maximum of the penalty herein prescribed shall be imposed, and the offender shall suffer the additional penalty of perpetual disqualification from public office, without prejudice to any administrative action against him.

(3) If the offense is committed by the juridical entity, its president and/or other officials responsible therefor shall be subject to the penalty prescribed above. If the offender or the precedent/official, in cases where the offense was committed by a juridical entity, is an alien, he shall be deported without further proceedings on the part of the Deportation Board in addition to the penalty herein prescribed and shall, if naturalized, be automatically denaturalized from the date his sentence becomes final.

(4) Payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of this Code.

Article 81. Separability Clause. The provisions of this Code are hereby declared to be separable, and in the event one or more of such provisions are declared unconstitutional, the validity of other provisions shall not be affected.

Article 82. Repealing Clause. Without prejudice to the right of any registered enterprise under P.D. 535 and to the rights of any person or enterprise which, at the time of the effectivity of this Code, has been registered with the Board of Investments under R.A. 5186, R.A. 6135, P.D. 1159 and R.A. 5455, or any other rights acquired prior to the effectivity of this Code, all the said laws are hereby repealed and all other laws, executive orders, administrative orders, rules and regulations, or parts thereof inconsistent with the provisions of this Code are hereby likewise repealed or modified accordingly; Provided, however, That the provisions of Batas Pambansa Bilang 44 are not in any way affected, amended, modified or repealed by any provision of this Code: Provided, further, That when appropriate, any reference in other laws to enterprise registered under Republic Act Numbered 5186, Republic Act Numbered 6135 and Presidential Decree Numbered 1159 shall henceforth be understood to refer to those registered under this Code.

Article 83. Effectivity. This Code shall take effect immediately.




RULES AND REGULATIONS TO IMPLEMENT PRESIDENTIAL DECREE NO. 1789,
OTHERWISE KNOWN AS THE OMNIBUS INVESTMENTS CODE.

Pursuant to paragraph 2 of Article 7 of Presidential Decree No. 1789, otherwise known as the Omnibus Investments Code, the following rules and regulations are hereby promulgated to implement the intent and provisions of the said Code.

PART I
General Provisions

RULE 1
Definitions and Basic Guideline

Section 1. For purposes of these rules and regulations

(a) "Code" shall mean the Omnibus Investments Code.

(b) "Board" refers to the Board of Investments.

(c) "Foreign loan" and "foreign investment" shall be understood as defined in Article 12 and 13 of the Code, respectively. Foreign investment may be in the form of cash, patents, processes, formulae or other technological rights given definite monetary value.

(d) "Domestic enterprise" shall mean any enterprise formed, organized or existing under the laws of the Philippines.

(e) "Foreign enterprise" shall mean any firm, association, partnership, corporation or any other form of business organization formed, organized, chartered or existing under any law other than those of the Philippines.

(f) "Investment" shall mean equity participation in a domestic enterprise. It includes both original and additional investments, whether made directly, as in stock subscription, or indirectly through the transfer of equity from one investor to another, as in stock purchase. The receipt of stock dividends by all the stockholders of a corporation on pro rata basis shall not be deemed new or additional investment. Ownership of bonds (including income bonds), debentures, notes or other evidences of indebtedness is not investment.

The purchase of stock options or stock warrants is not investment until the holder thereof exercises his option and actually acquires stock from the corporation.

(g) "Doing Business" shall be any act or combination of acts enumerated in Article 65 of the Code. In particular "doing business" includes:

(1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm or by an agent of such foreign firm, not acting independently of the foreign firm, amounting to negotiations or fixing of the terms and conditions of sales or service contracts, regardless of where the contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. The arrangements agreed upon as to manner, time and terms of delivery of the goods or the transfer of title thereto is immaterial. A foreign firm which does business through middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

(2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account a principal. Thus, where a foreign firm is represented in the Philippines by a person or local company which does not act in its name but in the name of the foreign firm, the latter is doing business in the Philippines.

(3) Appointing as representative or distributor an alien who entered the Philippines as a non-immigrant solely or principally to act as representative or distributor staying in the Philippines continuously for 180 days or more, or for a total period of 180 days or more in any calendar year although the stay is not continuous. To be deemed doing business, in the Philippines, said representative or distributor need not maintain a stock of goods produced by the enterprise whom he represents.

(4) Opening offices, whether called "liaison" offices, agencies or branches unless proved otherwise.

(5) Establishing a factory, workshop or processing plant.

(6) Undertaking building construction or erection project.

(7) Opening a store, whether wholesale or retail without prejudice to the provisions of the Retail Trade Act.

(8) Maintaining or operating a warehouse for business purposes, including the storage, display or delivery of its own products.

(9) Participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines. This includes an individual or entity which acts as manager of a domestic enterprise pursuant to a management contract. An individual serving as director or officer of a domestic enterprise by virtue of occupying such position shall not be deemed doing business in the Philippines.

Mere investment in a domestic enterprise which has a distinct legal personality and duly licensed to transact business in the Philippines and/or the exercise of the rights as such investor, shall not constitute doing business therein.

(10) Any other act or acts which imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of, commercial gain of the purpose and object of the business or organization.

The following acts by themselves shall not be deemed doing business in the Philippines:

1. The publication of general advertisement through newspapers, brochures, or other publication media or through radio or television.

2. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines.

3. Collecting information in the Philippines. Thus, sending a roving correspondent to gather news in the Philippines does not of itself constitute doing business therein.

4. Performing services auxiliary to an existing isolated contract of sale, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.

(h) The term "Philippine national" under Article 14 of the Code shall not include a corporation organized and existing under the laws of any other country even if wholly owned by Philippine citizens.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of subscribed capital stock whether fully paid or not. But only such stocks as are generally entitled to vote are considered for availment of incentives, excluding stocks which are entitled to vote only under exceptional circumstances as well as delinquent stocks which by law are denied the right to vote.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights, is essential. Thus, stocks the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.

In the case of corporation, "outstanding capital" refers to the subscribed capital stock, whether fully paid or not, voting or non-voting; in the case of partnership, "outstanding capital" refers to the total agreed capitalization.

(i) "Licensed to do business" for purposes of Articles 69 and 71 of the Code shall mean that the enterprise not only has been registered with the Securities and Exchange Commission or with any other government agency but also that it has obtained the necessary permits and licenses from national and local authorities to enable it to pursue its business activities.

(j) "Registered export trader" under Article 19 of the Code may be required a minimum net worth in view of the intensive promotion of Philippine exports to be undertaken by the export trader as envisioned in the Code, such as developing new markets and diversification of exports, and in consonance with the objective of the Code of encouraging financing of export producers by export traders based on the nature of volume of its transactions: Provided, That each export product must be approved by the Board: and Provided, further, That except as may be authorized under Article 35, incentives shall be limited to export trading of manufactured or processed products the total F.O.B. Philippine port value of the exports of which did not exceed US$5 million in 1968.

(k) "Registered service exporter" shall be as defined in Article 20 of the Code: Provided, That the remittance or repatriation of export fees to the Philippines by a registered service exporter, as required under Article 50 of the Code shall mean an inward remittance from a foreign country of foreign currency, the proceeds of which are converted in accordance with Central Bank regulations or a constructive remittance approved by the Central Bank of the project.

In declaring any service area included in the service export list, the Board shall take into account:

1. The potential foreign exchange earnings to be generated by the particular service area;

2. The availability and capability of domestic firms and/or professionals to render the particular service in accordance with international standards;

3. The amount of foreign exchange outflow that will be incurred in rendering the particular service abroad;

4. The projected rate of return of investment in comparison to the rate of return of investment on a similar service rendered in the Philippines payable in Philippine currency; and

5. Such other criteria as the Board may adopt.

(l) "Export products" under Article 23 of the Code shall apply to those listed in the investment Priorities Plan; or if not so listed, it is non-traditional export product (a) at least fifty (50%) per cent of the total production of the applicant is for export or (b) the applicant is an existing producer which will export part of its production under such conditions as the Board may impose (c) the product is approved by the Board for export by an export trader. For purposes of Article 48(a), Article 49(c) and Article 50(a) of the Code, packaging materials and supplies necessary to put the product into exportable form shall constitute part of such export product.

(m) "Export sales" shall be defined in Article 24 of the Code. It shall include sales paid for in acceptable foreign currencies made to embassies, international organizations and foreign bases as official entitles, subject to government regulations.

(n) "Packaging" refers to the process by which semi-finished products, whether locally produced or not are placed without substantial alteration in a container or receptacle or are wrapped in preparation for the market. It may include weighing and/or reduction of products to standard measurements and specifications, and other similar packaging processes.

(o) "Assembly" refers to the activity by which semi-finished or finished parts or materials, whether locally produced or not are parts together or combined to form a distinct product for sale of consumption, without substantially changing the physical, mechanical or electro-magnetic characteristic and/or chemical properties of such parts and materials.

(p) To constitute a "new and untried process or system of production" the process or system must not only be entirely novel in the Philippines technologically, but also substantially better than the existing process from the standpoint of improving productivity, viability of the enterprise and utilization of domestic raw materials.

(q) The availability or unavailability of domestic raw materials shall be determined by the Board after due inquiry. The Board may require from the applicant for registration who has represented that the domestic raw materials needed for the manufacture of its products are not available, a certificate to that effect and a written commitment that, if and when they become available, it will make substantial use thereof in the manufacture of its products.

(r) Whether or not production is on a "commercial scale" shall be decided by the Board after considering relevant factors such as profitability or viability, the degree of utilization of productive capacity, and the extent of supply and demand for the product in question.

(s) "Date of registration" shall mean the date when the certificate of registration is issued after the completion of the Board's evaluation of the project, unless an earlier date is indicated as the effective registration date, for purposes of incentive availment in cases of amendments or reclassification.

(t) "Start of operations" shall mean the date when a particular enterprise begins production of the registered product for commercial purposes. Subject to verification, such date shall be reported in writing by the registered enterprise to the Board within ten (10) calendar days from the start of operations.

(u) "Spare parts" shall mean the usual components of machinery and/or equipment which are subject to wear and tear arising from normal use, utilization and operation.

(v) "Direct labor wage cost" shall refer to compensation for labor directly used in the production process up to and including the services of the production foreman, but shall exclude labor for maintenance of production machinery and equipment. Compensation shall mean salaries and wages, including payments such as bonuses and cost-of-living allowances for such labor, which are identifiable as forming part of the laborer's or employee's taxable earnings.

(w) "Traditional export products" are export products the total F.O.B. Philippine port value of the exports of which exceeded million dollars in United States currency in the calendar year 1968.

(x) "Local raw materials" for purposes of computing reduced income tax shall mean indigenous raw materials and semi-finished products directly and actually used as inputs in the manufacture or processing of the registered export product which is completely finished and forming part thereof, including packaging and containers necessary to put the products in exportable form: Provided, That the semi-finished product has a local content equal to or greater than fifty (50%) percent of manufacturing cost.

(y) "Financial assistance" as used in Article 49(e) of the Code, shall be limited to direct loans or any other form of credit facility approved by the Board and extended by a registered export trader to registered export producers. The total amount of such financial assistance outstanding throughout the year shall be at least twenty (20%) per cent of the lender-export trader's total export sales for the taxable year involved.

Sec. 2. Whenever any of the foregoing term is used in the Code or these Rules, it shall be deemed to have the same meaning as above defined unless in any specific provision, the context in which the term is found indicates that it is meant to convey a different meaning.

RULE II
Qualifications for Applicants

Section 1. Qualifications. Every applicant for registration must possess all the qualifications and none of the disqualifications prescribed in the Code.

Sec. 2. Specific Requirements. Additionally, the applicant must show:

(a) If the area of investment in which it is engaged or proposes to engage is nationalized by the Constitution or by law, the ownership requirement of the Constitution and/or such law has been compiled.

(b) If there is a law requiring a minimum percentage of its directors to the Philippine citizens, the same has been compiled. To determine compliance with the citizenship requirement for members of the Board of directors, the basis shall be the positions actually filled, exclusive of vacancies, unless there is a specific rule to the contrary.

(c) That the area of investment in which applicant is engaged is within its corporate powers and is not otherwise prohibited by law.

Sec. 3. Burden of Proof. In every case, the applicant will have the burden of proving that it is qualified for registration.

PART II
Investments with Incentives

RULE III
Application for Registration

Section 1. Filing of Application. Applications for registration may be filed any time. However, for producer enterprises primarily for the domestic market or for traditional export products, applications will only be received if the activity is listed in the current investment Priorities Plan, unless the applicant is already a registered enterprise under a previous plan and is applying for expansion in the same activity.

Applicant qualified to register under P.D. 1469 may now register under this Code.

Sec. 2. Form. All applications shall be made upon forms prescribed by the Board, accomplished in two (2) copies and sworn to before a notary public.

Sec. 3. Supporting Documents. The documents to be submitted by the applicant in support of this application are:

(A) Enterprise engaged or proposing to engage in the production and/or manufacture of products primarily geared for domestic market:

1. Two (2) copies of the complete project study showing that the project covered by the application is economically, technically and financially sound;

2. In the case of a corporation, partnership or other entity, a certified true copy of its articles of incorporation and by-laws, or articles of partnership or association, and amendments thereof, duly registered with the Securities and Exchange Commission or other licensing or registering government agency;

3. Resolution of the Board of Directors of the corporation or other entity authorizing the filing of the application and nominating its representative(s) to the Board;

4. List of all directors and other principal officers, with their respective nationalities. If any director is a naturalized Philippine citizen, such fact should be stated and accompanied by a copy of his certificate of citizenship;

5. List of all its major stockholders, principal owners, major partners or controlling members, then as appearing in its books, their nationalities, the quantity and par value of their participation or stocks, and the type thereof (voting or non-voting) with an indication of the absolute total value of the outstanding voting stocks or capital and its ratio to the total value of the capital and accompanied by proof of their financial capacity, such as sworn statements of assets and liabilities and income tax returns;

6. Audited Financial Statements of the application, viz., profit and loss statements and balance sheets for the three preceding years, if applicant has been operating for more than three years; otherwise, only such financial statements during the period it has been operating;

7. Copies of income tax returns for the three preceding years, if applicant has been operating for more than three years; otherwise, only the income tax returns, if any, during the period it has been operating;

8. If the applicant is a proposed corporation or partnership, in lieu of the documents required in (5), (6), (7) hereinabove, proof of financial capacity of the proposed major stockholders entitled to vote or partners or members should be submitted such as their sworn statements of assets and liabilities, their income tax returns for the next preceding year, and/or financial statements in case of a juridical person;

9. Copies of licensing patents, trademarks and technological assistance agreements, if any, existing or proposed relative to the project sought to be registered;

10. Such other papers as may be required by the Board. The foregoing documents shall be the originals or certified true copies thereof.

(B) Export Producer:

1. Two (2) copies of the complete project study showing that the export project covered by the application is economically, technically, and financially sound and that it does not affect the viability of the other preferred areas of investments; if the project will not involve additional investment in capital equipment, in lieu thereof, the applicant's five-year projection, with and without BOI incentives, of its export operations showing (a) expected revenues and (b) production, selling and administrative costs;

2. The documents above-specified in subparagraphs (2) to (10) of paragraph A thereof; and

3. A standard formula for computation of tax credit on raw materials and supplies, which shall set the maximum tax credit allowance for each product without prejudice to the reduction thereof by the Board or by the Bureau of Internal Revenue, in accordance with their rules and policies.

(C) Export Trader:

1. A five-year projection, with and without BOI incentives, of its export operations indicating (a) the products or potential products for exportation, (b) expected revenues and (c) selling and administrative costs;

2. The documents above-specified in subparagraphs (2) to (10) of paragraph A hereof; and

3. A sworn statement specifying the names of export producers from which the export trader purchased or intends to purchase its export sales requirement.

(D) Service Exporter:

1. The documents above required of an export producer; a project study will not be required in areas other than motion pictures, television, and musical recording projects, and only if such service exporter requires imported capital equipment; and

2. Contracts of service of employment, if any.

Sec. 4. Incomplete Papers. Within three (3) days from receipt of application, the Board shall notify the applicant of all pertinent requirements not complied with and the applicant shall have fifteen (15) days from receipt of such notice to comply with said requirements. In such case, the date of compliance shall be deemed the date of official acceptance which shall be duly recorded in the Application Entry Book. Only then will a corresponding application number be assigned and the application duly recorded in the Application Entry Book.

Failure of the applicant to comply within the said period shall be construed as an abandonment of the application, unless for good cause shown and upon written request, the Board extends the period.

Sec. 5. Publication of Applicant. Within one (1) week after the application has been officially accepted, notice thereof shall be published once in a newspaper of general circulation or in any manner that the Board may require, at applicant's expense, in a format indicating the name of the applicant, the area of investment, the capacity applied for and the plant site, if any.

RULE IV
Board Action

Section 1. Plant visit. Every existing operating enterprise applying for registration shall be subject to project site facilities inspection by the Board thru its duly authorized representative.

Sec. 2. Board decision, notice to applicant. The Board shall render its decision within sixty (60) days after submission of all requirements and documents pertinent to the application. The decision of the Board on every application for registration as well as the terms and conditions of registration shall be communicated in writing to the applicant. From date of receipt of said notice, the applicant shall have thirty (30) calendar days within which to submit its acceptance and comply with the pre-registration requirements, if any. Failure to accept or comply with the requirements, within said period may be construed as a rejection of the proposed registration or abandonment of the project and Board approval will be accordingly withdrawn. Not right to any incentive is vested in an enterprise unless the certificate of registration is finally issued.

RULE V
Certificate of Registration

Section 1. Conditions Precedent for Issuance of Certificate. Before the issuance of the certificate of registration, the following requirements shall be submitted and/or complied with:

1. Payment of registration fee;

2. Letter, or if a corporation, resolution of the applicant's board of directors formally accepting the proposed terms and conditions of registration;

3. Sworn statement authorized by the Board of directors/partners or by the individual adopting and/or affirming all representations and commitments made by the applicant to the Board, and stating that with the exception of those which the Board has been duly advised in writing, all information and data heretofore submitted by it to the Board are still correct;

4. Certificate under oath, that applicant is not in arrears in payments of its outstanding obligations, including loans to the government or any government financial institutions; and

5. All pre-registration requirements, if any, imposed by the Board.

Sec. 2. Issuance of Certificate. Upon fulfillment of the foregoing conditions precedent, the certificate of registration shall be issued.

Sec. 3. Notice of Certain Government Agencies. The Central Bank, Bureau of Internal Revenue, Bureau of Customs, and other government agencies involved in the operations of registered enterprises shall, within ten (10) calendar days from the date of registration of every enterprise, be given written notice thereof.

RULE VI
Incentives to Investors in a Registered Producer Enterprise

Section 1. Subject to such limitations as the Board may impose, the incentives under Article 43 of the Code are available to all investors in registered producer enterprises, pioneer or non-pioneer, whether said investors be registered enterprises or not, Philippine nationals or not, natural or juridical persons, domestic or foreign. However, incentives can be availed of for investments made only after the date of registration.

Sec. 2. Capital Gains Tax Exemption. For purposes of the capital gains tax exemption under Article 43(2) of the Code;

(a) Capital gains shall be deemed realized upon receipt of payment;

(b) The five-year ownership and holding period prescribed in Article 43(2) shall be counted from the date of actual payment to the corporation, for new issues of capital stock whether voting or non-voting. The holding period shall end on the date of actual sale or disposition regardless of the date of entry in the book of the enterprise. The corresponding certificates of stocks or other evidences of investments shall be distinctly identified and their transfers shall be separately recorded in the books of the registered enterprise;

(c) It is not necessary that at the time of the disposition of the capital assets or the realization of gains, the enterprise in which investment is made was already a registered enterprise. However, it is necessary that at the time of the investment of the capital gains, the enterprise must have already been registered with the Board;

(d) The disposition of capital assets shall be registered with the Board and the Bureau of Internal Revenue within thirty (30) calendar days from the date of every such disposition or payment; and the investment of the proceeds thereof in a registered enterprise, within thirty (30) calendar days from date of actual payment for stock subscription;

(e) In the event the stocks are transferred within the prescribed five-year ownership period, notice thereof shall be given to the Board and the Bureau of Internal Revenue by the transfer or within thirty (30) calendar days from the date of transfer, and by the corporate secretary of the registered enterprise within the same period from the date of entry of the transfer in corporate books;

(f) For purposes of enforcing the five (5) year holding period, the Board may inspect the books of the enterprise or require the same to submit a certified report on the transfer of its stocks for the whole period of five (5) years from the date the enterprise actually received the payment for new issues;

(g) If tax on the capital gains becomes due and payable before the lapse of the six-month period for investment, the same shall be paid, without prejudice to the subsequent refund thereof;

(h) This incentive may also apply to single proprietorships, partnerships cooperatives or other entities if the Board deems it desirable and administratively feasible. For this purpose, the Board shall consult the Bureau of Internal Revenue in the formulation of necessary guidelines.

RULE VII
Additional Incentives to Philippine Nationals Investing in a Pioneer Enterprise

Section 1. The incentives under Article 44 of the Code are available to Philippine nationals (whether natural persons or judicial entities, registered enterprises or not), investing in a pioneer enterprise, whether the latter be controlled by Philippine nationals or not.

Sec. 2. For purpose of the tax allowance granted under Article 44 of the Code

(a) Not tax allowance shall be granted if the investment is made in an enterprise before its registration as pioneer or after seven years from its registration as such;

(b) The investment shall be in new issues whether voting or non-voting shares of one or more pioneer enterprises;

(c) The investment shall be registered with the Board and the Bureau of Internal Revenue within thirty (30) calendar days from date thereof; and

(d) In the event the stocks are transferred within the prescribed three-year ownership period, notice thereof shall be given to the Board and the Bureau of Internal Revenue by the transferor within thirty (30) calendar days from date of transfer, and by the corporate secretary of the registered enterprise within the same period from the date of entry of the transfer in the corporate books.

Sec. 3. The rules prescribed in Sec. 2. Rule VI hereof shall, so far as applicable, be observed in respect of capital gains tax exemption under Article 44(b) of the Code, except as to holding period.

Sec. 4. For purposes of the income tax exemption on the sale of stock dividends under Article 44(c) of the Code, notice of transfer of the stocks shall be given to the Board and the Bureau of Internal Revenue by the transferor within thirty (30) days from the date of transfer, and by the corporate secretary of the registered enterprise within the same period from the date of entry of the transfer in the corporate books.

RULE VIII
Incentives to Registered Producer Enterprises

Section 1. Incentives to Registered Producer Enterprise. A registered enterprise other than a service exporter and export trader, whether pioneer or non-pioneer, shall enjoy the incentives, under the law, subject to the following conditions:

(a) Organizational and pre-operating expenses. For purposes of income tax deduction for organizational and pre-operating expenses under Article 45(a) of the Code, the expenses must be necessary, reasonable and directly attributable to the establishment of the registered enterprise;

(b) Accelerated depreciation. The accelerated depreciation authorized under Article 45(b) of the Code may be availed of for fixed assets acquired before the date of registration of an enterprise with the Board, but such acceleration shall refer only to the undepreciated cost of such fixed assets. "Fixed assets" refer to assets subject to depreciation under the National Internal Revenue Code;

(c) Net operating loss carry-over. Under Article 45(c) of the Code, only such losses as have been incurred after registration and approved by the Board may be carried over. But the ten-year period prescribed therein shall be counted from the date the enterprise actually commenced commercial operation in the registered activity, irrespective of date of registration.

Sec. 2. Availment of Incentives. A registered enterprise must satisfy the conditions for the availment of a particular incentive and, as a general rule each incentive must be separately applied for with the Board.

RULE IX
Importation of Capital Equipment

Section 1. Exemption. In accordance with Article 45(d) of the Code and the provisions and these Rules, a non-pioneer registered enterprise may be authorized by the Board to import at fifty (50%) per cent tax and tariff exemption, reasonably needed machinery and equipment and spare parts qualified under Sec. 3 of this Rule, to implement a new project or a registered expansion. An expansion may be achieved by debottlenecking of existing facilities and if expansion is registered on such basis, reasonably needed machinery and equipment and spare parts to implement such debottlenecking, including those for replacement or modernization purposes shall be eligible for incentives under this Rule.

"Modernization" herein shall refer to any replacement or installation of machinery or the alteration of production processes, methods or techniques through the use of technological advances resulting in substantial improvement in efficiency and/or quality, with or without any change in the rated capacity: Provided, That the Board reserves the right to deny importation for modernization equipment if undue displacement of labor shall thereby result.

Sec. 2. Machinery and Equipment. Subject to the provisions of Sec. 4 hereof, "machinery and equipment" shall be limited to capital equipment reasonably needed in the manufacture of the registered product; major components, as a general rule, the life of which by design is equal to the life of the capital equipment of which they are a part; non-perishable tools, machines and other mechanical, chemical and/or electrical apparatus, whether fixed or movable; but shall not include civil works.

Sec. 3. Spare Parts. The importation of "spare parts" shall be restricted to spare parts for the specific machinery and/or equipment, authorized to be imported and shall be cover no more than one set thereof duly certified by the foreign supplier or its representative as normally accompanying the original shipment and highly essential to the functioning of the machinery and/or equipment during its first year of operation only: Provided, That as a general rule the cost of such spare parts shall not exceed ten (10%) per cent of the cost of the machinery or equipment where they will be used. Spare parts imported in excess of the said quantity or purchased separately from the machinery and/or equipment shall not be entitled to tax exemption under Article 45(d) of the Code.

Sec. 4. Conditions for Importation. Tax-free importation of capital equipment shall be authorized under the following conditions:

(a) Reasonable Needed. The capital equipment is reasonably needed and will be used by the registered enterprise in the production or manufacture of its products in the preferred area.

(b) Capacity. Subject to reasonable allowance, the rated capacity of the capital equipment to be imported is within the registered capacity of the registered enterprise:

(c) Local Unavailability. The machinery, equipment and/or spare parts are not manufactured domestically in reasonable quantity and quality at reasonable prices;

(d) Prior Board Approval. Prior approval of the Board must have been obtained by the registered enterprise before the purchase order was made or before the opening of the corresponding letters of credit;

(e) Exclusive Use Or Partial Utilization. Except as otherwise determined by the Board, the capital equipment imported or to be imported under Article 45(d) shall be exclusively used for the registered operations of the enterprise. However, the Board may authorize the use of an equipment for other purposes if the registered activity does not utilize the equipment fully and its use for other purposes does not become the principal mode of utilization of said equipment on a continuing basis;

(f) International Bidding. In order to ensure a fair and reasonable price of the imported capital equipment, the Board may require international bidding except in the following cases:

1. If the total cost of the importation is less than US$1,000,000.00; or

2. If there is only one known manufacturer of the machinery or equipment; or

3. If the importation is caused by the expansion of the registered enterprise and such will be acquired from the same manufacturer of the existing equipment; or

4. Where the Board has other means of determining the reasonableness of the procurement cost.

(g) Local Content Requirement. In granting the authority for the partially or fully exempt importation of capital equipment under Articles 45(d), 46(b), 48(f) and 50(b) of the Code, the Board shall take necessary steps to assure that such authorization shall not render nugatory any local content requirement set by the Board for domestic fabrication of capital equipment.

Sec. 5. Advance Authority. Advance authority to open letters of credit for the importation of capital equipment may be allowed in the discretion of the Board taking into account the financial capacity of the applicant.

Sec. 6. Deferment of Taxes and Duties in Lieu of Reduction. The Board, taking into account the financial condition of the registered enterprise, may allow mere deferment of the payment of taxes and duties in lieu of reduction thereof, on capital equipment imported for purposes of replacement or modernization of existing facilities of non-pioneer enterprises with twenty (20%) per cent or greater return on equity and or such other criteria as the Board may set. Replacement machinery for pioneer projects and export producers shall be fully exempt from taxes and duties.

Sec. 7. Validity of Authority to Import. The certificate of authority to import issued under Article 45(d) of the Code shall be valid for a period of one (1) year from the date of issuance. Extension of validity may be granted if more than fifty (50%) per cent of the items authorized in terms of costs have been imported and the request for such extension had been filed before the expiration of the period sought to be extended.

Sec. 8. Publication. The Board may require publication of a notice to purchase machinery and equipment which may be domestically manufactured in a newspaper of general circulation together with a list of capital equipment proposed to be imported, for the information of all domestic companies concerned. Domestic manufacturers of machinery, equipment and spare parts shall be advised to submit to the Board within fifteen (15) days from the last date of publication, their respective firm names, addresses, locations of their plants, the names of their general managers, and chief engineers, telephone numbers and the machinery, equipment and/or spare parts proposed to be imported which they manufacture or could manufacture to adequately meet and needs of the applicant, the prices thereof and the quantity and quality of their products.

Sec. 9. Reasonableness of Prices. In determining reasonableness of the prices quoted by the domestic manufacturers, the Board may be guided by the acquisition cost of similar machinery, equipment and/or spare parts imported to the Philippines, if all applicable taxes and duties were paid thereon, plus fifteen (15%) per cent mark up.

Section 10. Post Approval Conditions. If the Board is satisfied that the applicant is qualified and all other requirements have been complied with, it shall approve the application and issue a certificate of authority to import subject to the following conditions:

(a) The importation shall be covered by shipping documents in the name of the applicant as consignee to whom the shipment will be delivered directly by Customs authorities:

(b) Subject to post-audit by the Board, on or before the arrival of the capital equipment in the Philippines, the applicant shall submit to the Ministry of Finance official import documents indicating the description, quantity and price of the capital equipment imported, the names of the supplier and carrying vessel, and its anticipated or actual date of arrival, together with the certificate mentioned in Sec. 5 thereof. On the basis of said documents, the Ministry of Finance shall issue a certificate of release from customs custody;

(c) The capital equipment shall be installed and/or used in the site indicated by the applicant and shall be used or transferred elsewhere without the prior approval of the Board;

(d) If installation is necessary, it shall be installed within one hundred twenty (120) calendar days from its withdrawal from Customs, unless said period is extended by the Board for good cause shown.

Section 11. Notice of Board Action. The action of the Board on the application, whether it be approval or disapproval, shall be communicated in writing to the applicant. If the active be that of approval, notice thereof shall also be sent to the Ministry of Finance, Bureau of Customs, Bureau of Internal Revenue, and the Central Bank.

Section 12. Advice of Withdrawal; Periodic Inspection of Equipment. After the equipment has been withdrawn from the Customs premises, the registered enterprise shall give written advice thereof to the Board indicating the precise place to which the equipment has been taken and the starting date of installation, where installation is required. Such equipment shall at any reasonable time be subject to inspection by the Board for the purpose of verifying whether it has actually been installed and is being used by the registered enterprise in the production of manufacture of its products in the preferred area.

Section 13. Prior Approval of Sale or Disposition of Equipment. Any sale, transfer or disposition of the capital equipment purchased under Article 45(d) of the Code within five (5) years from date of acquisition thereof: (1) to another registered enterprise; (2) for reasons of proven technical obsolescence; or (3) for purposes of replacement to improve and/or expand the operation of the registered enterprise, shall require prior Board approval in order to exempt the transferor from payment of twice the amount of taxes and duties which were originally waived in its favor. The transferee shall be liable for taxes and duties due on said equipment which shall constitute a lien on the equipment itself superior to all other charges or liens, unless the transferee is also a registered enterprise or otherwise qualified to import capital equipment tax and duty-free or it will undertake an economic activity substantially carrying out the objective for which the equipment has been imported as determined by the Board.

RULE X
Purchase of Domestic Capital Equipment

Section 1. For purposes of the tax credit for the purchase of domestic capital equipment under Article 45(e) of the Code:

(a) A "domestic manufacturer" is one whose product carriers a "value added" and "local content" at least equal to be percentage of the manufacturing costs as may be prescribed by the Board;

(b) Value added for the equipment and spare parts shall be at least twenty (20%) per cent of manufacturing cost. "Value added" herein means the difference between manufacturing cost (which includes raw materials, labor, depreciation and factory overhead) and the value of raw materials purchases;

(c) For equipment and spare parts the tariff duties of which are 20% and below, local content shall be at least 20% of manufacturing cost. "Local content" herein means the difference between the manufacturing cost (which includes raw materials, labor, factory overhead, excluding depreciation) and the cost of raw material importations. For equipment and spare parts the tariff duties of which are higher than 20%, a higher local content shall be prescribed by the Board;

(d) The above minimum percentage of value added and local content shall be progressively increased by the Board as may be warranted by technological advances and other factors;

(e) For purposes of computing the "local content" of a domestic capital equipment, a component part shall be considered locally manufactured even if manufactured from imported raw materials provided the "local content" thereof is equal to or greater than (50%) of manufacturing cost.

RULE XI
Tax Credit of Withholding Tax on Interest

Section 1. Requirements for Availment. All applications for availment of the incentive of tax credit for taxes withheld on interest payments on foreign loans under Article 45(f) of the Code shall be filed with the Board of investments. The BOI shall recommend to the Ministry of Finance the issuance of the corresponding tax credit certificate upon proof that the registered enterprise has assumed the liability for payment of the tax due from the lender-remittee and that no such credit is available in the country of the lender-remittee. For the purpose of submission of proof that no such tax credit is available in the country of the lender-remittee, the lender-remittee shall present a certification of such fact by the local Embassy or Consulate in the lender-remittee's country or by the appropriate government authority in the lender-remittee's country duly authenticated by the nearest Philippine Embassy of consulate.

RULE XII
Employment of Foreign Nationals

Section 1. Application and Accompanying Documents. A registered enterprise, pioneer or non-pioneer, may avail of the incentive to employ foreign nationals under Article 45(h) and Article 46(e) of the Code by filing a sworn application thereof with the Board.

The application shall be accompanied by the following documents:

(a) Certified copy of any written contract or agreement entered into by the registered enterprise for the services of the foreign national, indicating, among others, the willingness to train at least two (2) Filipino understudies to whom the alien will impart his skills required by the enterprise in as short a time as possible and not longer than his authorized stay;

(b) Copy of the latest organizational chart of the registered enterprise, including or accompanied by a listing of the nationalities, positions and wages, as well as other forms of compensation, of all the personnel employed in the same category as the foreign national, if the same has not yet been submitted;

(c) Statements under oath of the requisite number of Filipino understudies stating their qualifications and manifesting their willingness to train as understudies of the foreign national; and

(d) Curriculum vitae of the foreign national with supporting documents duly authenticated by a Philippine consular officer.

Sec. 2. Length of Employment.

1. Under Article 45(h) of the Code. Every foreign national employed by authority of the Board under Article 45(h) of the Code shall be granted an initial period of not exceeding five (5) years and extendible from year to year depending upon the necessity of the registered enterprise: Provided, That no extension of stay herein shall be recommended by the Board to the Commissioner of Immigration unless the training program required under the last paragraph of Article 45(h) of the Code has been complied with satisfactorily: And provided, further, That the request for extension shall be filed with the Board at least thirty (30) days before the expiry date of the authorized stay.

2. Under Article 46(e) of the Code. Regardless of the foregoing length of employment authorized by the Board, when the majority of the capital stock of the pioneer enterprise is owned by foreign investors, the positions of president, treasurer and general manager, or their equivalents, may be retained by foreign nationals.

The equivalents of president, treasurer and general manager shall be limited to persons actually performing the duties and responsibilities of president, treasurer and general manager, as the case may be, as shown in the organizational chart.

Sec. 3. Training Program, Annual Reports. A registered enterprise employing foreign nationals with supervisory, technical or advisory functions shall provide a training program for Filipinos to be conducted by said foreign nationals each in his own specialized line: Provided, That every foreign nationals shall have at least two (2) Filipino understudies, and such training shall be done regularly during regular office hours: Provided, further, That the registered enterprise shall submit its program for training Filipinos in the functions of the foreign national within thirty (30) calendar days from arrival or from the day he reports for duty or from the date of registration in case the foreign national was employed before registration: And provided, finally, That it shall submit an annual progress report to the Board on such training program within the month of June every year containing the following data:

(a) Name of foreign national and his field of specialization as prescribed in the program;

(b) Names and addresses of Filipino understudies under him;

(c) Number of hours of actual training for each understudy and specific subject(s) covered; and

(d) Reasons why Filipino understudies cannot yet take over the work of the foreign national, if such be the case.

Sec. 4. Spouse and Unmarried Minor Children. The spouses and unmarried children under twenty-one (21) years of age of the foreign national employed under the provisions of the Code, shall be permitted to enter as dependents of the foreign national employee and reside in the Philippines during the period of employment of such foreign national in the registered enterprise.

For this purpose, an application for their entry as dependents of the foreign national must be filed with the Board, accompanied by a copy of the marriage certificate and the birth certificate of each of the children desiring to enter and reside in the Philippine.

Sec. 5. Registration with the Board. Every foreign national employed under the provisions of the Code shall register with the Board within sixty (60) days from his arrival in the country or within thirty (30) days after commencement of employment. For this purpose, the foreign national shall present his passport and other travel documents; his alien certificate of registration and certificate of residence issued by the Commission on Immigration and Deportation; and submit two (2) copies of his recent photograph.

RULE XIII
Expansion Reinvestment Allowance

Section 1. Prior Board Approval. For purposes of the tax deduction for expansion reinvestment under Article 45(i) of the Code, prior Board approval of both the expansion project and the act of reinvestment shall be secured. The approval and registration of a project shall not constitute an implied Board approval of any representation for expansion made in the project study.

Sec. 2. Expansion, Defined and Limited. Expansion may include procurement of machinery, equipment, and spare parts under Articles 45(d) or (e) of the Code, or for expansion of existing production equipment or construction of buildings and other civil works for the installation of said machinery and equipment or improvements thereof. Such expansion must result in an increase in production capacity or any forward or backward integration approved by the Board.

Mere "modernization" as defined in Sec. 1, Rule IX hereof shall not be deemed an expansion for purposes of reinvestment allowance.

Sec. 3. Expansion When Deemed Effected. The benefit of reinvestment allowance shall not be granted for expansion that has already been effected. In general, expansion is deemed effected on the date the letter of credit for the importation of capital equipment, machinery and spare parts is opened; or if there are not letters of credit, on the date the letter of guarantee or instrument of payment is executed; however, for equipment previously authorized by the Board under article 45(d) or 45(e) of the Code or for civil works, expansion is deemed effected upon actual installation of the capital equipment or completion of said civil works.

Sec. 4. Date of Reinvestment. Reinvestment of undistributed profits or earned surplus, whether from registered operations or not, shall be effected through the issuance of stock dividends. Thus, the date of reinvestment shall be:

(a) The date of approval by the stockholders of the declaration of stock dividends, if no future date of issue has been specified; or

(b) If the stock dividends have been declared to be due at some future date, such future date; unless an irrevocable transfer of a fixed amount of undistributed profit or earned surplus to the capital account has been duly recorded in the books of the registered enterprise prior to the actual issue, in which case the date of reinvestment shall be such date of irrevocable book transfer; or

(c) Where the stock dividends have been declared subject to the approval of a pending increase in authorized capital stock, the date of reinvestment shall be that of the date of effectivity of approval by the Securities and Exchange Commission of such increase.

Sec. 5. Reduction of Capital. Reduction of capital takes place not only when there is a formal decrease of the subscribed capital stock in accordance with the provisions of Sec. 38 of the Corporation Code of the Philippines; it may also take place when the registered enterprise does any other act producing said effect, such as the purchase of its outstanding stocks or the grant of excessive advances to officers and/or stockholders of the enterprise.

Sec. 6. Contents of Application. The application for authority to reinvest undistributed profits or surplus shall contain a statement of the applicant's total accumulated surplus, indicating whether from registered or non-registered operations, and specifying the amount proposed to be reinvested, the purpose of the reinvestment, the total cost of the project including the proposed expansion and other relevant information such as the capital risk involved, the availability or non-availability of technology, domestic capital equipment and indigenous raw materials, the export potential, incremental labor involved, and the cost of anti-pollution measures as required by the National Pollution Control Commission.

Sec. 7. Notice to the Bureau of Internal Revenue and the Board. Notice shall be given to the Board and the Bureau of Internal Revenue of the order for equipment and/or machinery within ten (10) days from the date of such order. Within thirty (30) calendar days after completion of the expansion project for which reinvestment allowance in claimed, the direct cost of the project shall be reported to the Board. Finally, any reduction of the capital stock within seven (7) years from the date reinvestment shall be reported to the Board within ten (10) days from said reduction.

RULE XIV
Deduction for Labor Training

Section 1. Submission of Labor Training Program. For purposes of deduction for labor training expenses under Article 45(i) of the Code, the registered enterprise shall, at the beginning of taxable year, submit to the Board its labor training program duly approved by an appropriate government agency previously determined by the Board; however, in the absence of an appropriate approving agency, the Board shall itself approve said training program.

Sec. 2. Prior Approval Necessary. No deduction may be availed of for labor training expenses without prior approval of the Labor Training Program as provided under Section 1 of this Rule.

Sec. 3. Progress Report. The enterprise shall make a quarterly or semi-annual progress report of the training program to the Board furnishing copies thereof to the other approving agency, if any.

RULE XV
Additional Incentives to Pioneer Enterprises

Section 1. The additional incentives granted in Article 46 of the Code shall be available to all registered pioneer enterprises, whether or not controlled by Philippine nationals, but only to the extent in which they are engaged in registered operations.

Sec. 2. For purposes of Article 46(a) of the Code the occurrence date of the taxable act or transaction shall determine the applicable rate of tax exemption.

Sec. 3. Importations under Article 46(a). The importation of supplies, spare parts, raw materials and component parts of registered products which are reasonably needed by a registered pioneer enterprise in its registered operations shall be exempt to the extent of the percentage set in Article 46(a) from the payment of either compensating or advance sales tax, as the case may be, subject to the following conditions;

(a) For supplies, spare parts, component parts of registered products and raw materials, the purchase order may be made or letters of credit opened after the filing of application for importation with the Board.

(b) Such supplies, spare parts, component parts of registered products and raw materials are not manufactured domestically in reasonable quantity and at reasonable prices; and

(c) Such supplies, spare parts, component parts of registered products and raw materials are reasonably and actually needed and will be used exclusively by the registered enterprise in its registered operation and storage of export products.

Sec. 4. Importation under Article 46(b). The rules prescribed for availment of incentives by non-pioneer enterprises under Rule IX shall apply to pioneer enterprises, except that pioneer enterprises shall be entitled to full exemption from payment of tariff duties and compensating tax.

Sec. 5. Non-free importation of equipment. The incentive of tax and duty free importation of capital equipment shall not be availed of for (1) equipment and machinery used in marketing and distributing the export products; (2) on-the-road transport equipment, unless shown to be part of the production process and industry practice shows that they are part of the production operation within the approved capacity and will be used within the production area; (3) maintenance equipment; (4) quality control equipment, unless shown to be on-line equipment forming part of the production process; and (5) equipment for civil works.

Sec. 6. Indirect tax liability excluded. The exemption privilege of pioneer enterprises from all national internal revenue taxes shall cover only such direct tax liabilities as may be imposed in connection with the operation of the registered pioneer project and shall exclude such taxes as may be transferred or passed on to the registered enterprise either by business practice or mere contractual arrangement.

RULE XVI
Incentives to Agricultural Producers

Section 1. Breeding Stocks and Genetic Materials. The exemption from payment of tariff duties and compensating/advance sales tax on importation of breeding stocks and genetic materials under article 47(a) of the Code shall be available to registered agricultural enterprises, pioneer or non-pioneer, and such importation shall cover breeding stocks and genetic materials necessary for expansion or improvement or for replacement of proven unproductive breeding stock or genetic materials.

Sec. 2. Conditions on Importation of Breeding Stocks and Genetic Materials. Tax free importation of breeding stocks and genetic materials shall be authorized under the following conditions:

(a) That the strains/breeding stocks to be imported are not domestically available at reasonable prices;

(b) That they shall be used exclusively by the registered agricultural producer for the improvement of the strains/breeding stocks of its livestock, poultry, fish and/or plants; and

(c) The prior approval of the Board must have been obtained by the registered agricultural producer before the purchase order was made or before the opening of the corresponding letters of credit.

Sec. 3. Prior approval of sale of disposition of breeding stocks and genetic materials. Any sale, transfer or disposition of the breeding stocks and genetic materials purchased under Article 47(a) of the Code within: (a) Four (4) years from date of acquisition in cases of large cattle as the term is understood in agriculture or (b) two (2) years from date of acquisition in cases of poultry as the terms is understood in agriculture, shall require prior Board approval.

Sec. 4. Deduction of Research and Development Program and Agricultural Management Training Expenses. For purposes of the deduction provided under Article 47(b) of the Code:

(a) at the beginning of the taxable year the registered agricultural producer shall submit, for approval by the Board, its research and development and management training program;

(b) no deduction under this Section may be availed of without prior Board approval;

(c) the enterprise shall make a quarterly or semi-annual progress report thereon to the Board.

Sec. 5. Deduction of Freight and Transportation Expenses. For purposes of the deduction of freight and transportation expenses provided for in Article 47(c) the "nearest marketing economic center" is that which shall give the registered agricultural enterprise the most advantageous price taking into account the distance, availability of transport facilities and other similar factors.

Sec. 6. Companies Required to Produce or Supply Rice or Corn to their Employees. Companies required by existing laws to produce or supply rice or corn to their employees may, subject to certain rules and regulations, apply for registration in any area of investment for agricultural production and such registration shall be deemed compliance with said requirement.

RULE XVII
Additional Incentives to Registered Export Producers

Section 1. Tax Credit. The tax credit that may be enjoyed by a registered export producer under Article 48(a) of the Code refers to the sales, compensating and specific taxes and duties actually paid by it on the supplies, raw materials, and semi-manufactured products used in the manufacture, processing or production of its registered export products and forming part thereof: Provided, That where the cost of certain supplies or raw materials constitutes at least forty (40%) per cent of the cost of production of the registered export product, tax credit on the sales, compensating and specific taxes and duties paid thereon may also be granted even if they do not form part of the registered product. A tax certificate shall be issued by the Minister of Finance or his representative upon recommendation of the Board, based on the documents and receipts submitted to it. Said certificate shall be used for the payment of taxes, duties, charges and fees due to the national government incurred in its operations for as long as it enjoys incentives under the Code, subject to such guidelines which the Board and the Bureau of Internal Revenue may set, and tax credit certificates may be transferred to another registered enterprise or may be used as collateral.

The tax credit application shall be filed within one (1) year from the actual exportation of the final export products in cases of direct exportation and two (2) years in cases of indirect exportation. Raw materials and semi-manufactured products covered by the tax credit must have been purchased for not more than two (2) years from date of exportation. In meritorious cases, the Board may extend said period after consultation with the Bureau of Internal Revenue.

Sec. 2. Reduced Income Tax. The reduced income tax provided for in Article 48(b) of the Code shall be available to registered export producers for the first five (5) years from registration or commercial operation. This deduction from taxable income derived from sales of registered export product locally and abroad, shall be the sum of the "direct labor cost" and "local raw materials" as defined in these Rules: Provided, That whenever an export producer's project is located in an area designated by the Board as necessary for the proper dispersal of industry or such area is deficient in infrastructure, public utilities and other facilities, an amount equivalent to double the direct labor cost shall be used in the grant of this incentive: Provided, further, That a registered export producer of traditional products can only doubly deduct the labor component and not the local raw materials: And provided, finally, That the Board shall withhold this incentive in case of an export producer registered in a non-pioneer area who is a non-Philippine national.

Sec. 3. Sales Tax Exemption. Articles sold by a registered export producer to another export producers or export trader shall be exempt from percentage tax on sales under the National Internal Revenue Code, as amended, subject to such guidelines the Board may formulate in consultation with the Bureau of Internal Revenue to assure that the article sold shall be finally exported whether in its original form or in its further processed form.

Sec. 4. Exemption from Export Tax, Impost and Fees. The exemption provided in Article 48(d) of the Code shall include exemption from wharfage dues on export products provided in the Tariff and Customs Code.

Sec. 5. Newness of Brand Name. For purposes of the additional incentive in article 48(e) of the Code, a brand name shall be considered new if it identifies a particular export product as a Philippine product and that said product is sold for the first time abroad under the brand name.

Sec. 6. Tax Exemption on Imported Capital Equipment. The benefit of full duty and tax exemption on imported capital equipment provided for in Article 48(f) shall be authorized under the same rules, guidelines and conditions set forth in Rule IX, and subject to the following conditions:

(a) The machinery, equipment, and immediate component spare parts are not manufactured domestically in commercial quantity and quality or sold at reasonable prices; or not locally available at acceptable quality and price as determined by the Board;

(b) An existing entity registered under the investment Priorities Plan, shall be entitled to this incentive only with respect to its registered expansion at least fifty (50%) per cent of which must be for export. An enterprise registered only for its existing capacity under the IPP shall not be entitled to this incentive except for equipment required in order to bring product quality up to export standards; capacities of such equipment shall not exceed the evaluated export capability of the enterprise.

(c) For equipment used for both the export and domestic market, replacement may be allowed upon showing that at least fifty (50%) per cent of production of such equipment had been exported during the last taxable year.

(d) The registered export producer shall execute a commitment under oath that it will bring into the country the proceeds of export sales, equivalent to at least the cost of the imported machinery, equipment and spare parts within five (5) years after delivery of the same, and that it shall pay twice the amount of exemption given it, together with the penalty and interest thereon, computed from the date of acquisition thereof in the event of failure to bring into the country the required proceeds of export sales.

(e) The Board may take such measures as may be necessary to insure effectively the repayment to the government of taxes, duties and penalties for failure to comply with the foregoing commitments as provided for in Article 48(f) of the Code. Thus, in appropriate cases, the registered export producer may be required to secure a guaranty from a recognized financial institution to answer for the non-performance of its commitment above, or to file a bond issued by a bonding company acceptable to the Board, or to deposit in escrow treasury bills or other government securities, in an amount equivalent to two hundred (200%) per cent of the exemption given it to secure the performance of the above commitment.

Sec. 7. Existing Producers. Registered export producers who are exporting or have firm marketing contracts to export non-traditional export products may avail themselves of the following incentives:

(a) Tax credit Article 48(a);

(b) Reduced income tax Article 48(b);

(c) Exemption from sales tax for articles sold to another export producer or trader Article 48(c);

(d) Exemption from export tax, impost and fees Article 48(d);

(e) New brand name Article 48(e); and

(f) Capital equipment required to bring product quality up to export standards.

However, existing firms exporting at least 50% of their total production from existing capacity, or is proposing to export at least fifty (50%) per cent out of proposed expansion capacity, shall be entitled to all incentives available to registered export producers, provided the following conditions are met:

(a) The applicant firm has already made commercial exportation of its registered exportable products;

(b) It is currently utilizing close to one hundred (100%) per cent of its total existing capacity; and

(c) It can prove to the satisfaction of the Board that the expansion capacity being applied for will be used substantially (at least 50%), if not entirely, for export.

The Board may require a higher percentage of exports out of expansion capacity if existing domestic producers would be prejudiced by the registered firm's local sales.

Sec. 8. Firms Registered Primarily for the Domestic Market. Firms registered primarily for the domestic market but which nevertheless export their products shall be considered registered export producers only for the purpose of availing of reduced income tax and tax credit incentives for such exports.

Sec. 9. Registered Enterprises for Traditional Export Products. Registered enterprises exporting products whose 1968 exportation exceeded $5 million shall also be considered registered export producer only for the purpose of availing of reduced income tax and tax credit for such exports.

Section 10. Foreign Nationals in Non-Pioneer Areas. Foreign nationals in non-pioneer areas exporting less than seventy (70%) per cent of its production may be registered with the Board but the incentives shall be limited to tax credits and sales tax exemptions and the registered enterprise will not be subject to the Filipinization requirement.

Section 11. Other Incentives. The incentives provided for in the preceding rules in Part II, except to the extent modified in this Rule shall also apply to a registered export producer. Said other incentives shall not apply to registered existing export producer (without expansion) under Sec. 7 of this Rule.

RULE XVIII
Incentives to Registered Export Traders

Section 1. Export Tax Exemption. A registered export trader shall be entitled to exemption from export tax, impost or fee other exportation of registered export products bought from a registered export producer qualified to avail itself of exemption from said tax, if it were to export such product directly or through another export producer. This exemption includes exemption from the payment of wharfage dues as provided in the Tariff and Customs Code.

Sec. 2. Exemption from Specific and Sales Taxes. The tax exemption granted in Article 49(b) of the Code shall be granted only upon recommendation by the Board to the Bureau of Internal Revenue based upon satisfactory proof of actual exportation of the products.

Sec. 3. Tax Credit. A registered export trader shall be entitled to tax credit equivalent to the amount of specific and sales taxes actually paid by it on the registered export products bought from export producers and subsequently exported by it. The tax credit certificate shall be transferable and shall be applied for, issued and used in accordance with Section 1 of Rule XVII thereof.

Sec. 4. Reduced Income Tax. For the first five (5) years of registration or of commercial operation as the Board may determine, a registered export trader shall be entitled to deduct from its taxable income an amount equivalent to twenty (20%) per cent of total export sales. However, the registered export trader may pass on to a registered export producer ten (10%) percent from its allowance deduction: Provided, That the deduction shall be based on the letters registered operations.

The above deduction shall be applied to the taxable income derived from the domestic and export sales of the registered products as well as from other registered operations.

For purposes of the additional incentive granted to a registered export producer exporting products through a registered export trader, the marketing agreement or contract between them must be submitted to and approved by the Board and the actual exportation proven by the authenticated copies of the appropriate documents.

Sec. 5. Financial Assistance to Export Producer. To be entitled to the incentive provided in Article 49(e) of the Code, the registered export trader extending financial assistance to a registered export producer must register the documents evidencing the loan with the Board within thirty (30) calendar days from the grant of the loan.

The period of availment shall be counted in the manner provided in the first sentence of Sec. 2, Rule XVII hereof.

Sec. 6. Additional Incentives to Export Trading Companies. A registered export trader authorized by the Board to establish its own office abroad shall be entitled to additional incentives as follows:

(a) Deduction of expenses in establishing and maintaining overseas office. A registered export trader with its own office abroad, i.e., branch, subsidiary, representative office, agency may additionally deduct from its taxable income an amount equivalent to its expenses in establishing and maintaining for the first five (5) years such overseas office. However, in cases where such office is owned jointly with others, the deduction shall refer only to the share of the registered export trader.

For purposes of expenses in establishing offices abroad which may be capitalized, double deduction thereof shall mean doubly deducting the amortization due each year for the first five (5) years. Reasonable expenses of such export trader for advertising and promotions which are spent or contracted with consultancy firms abroad, may be included in the expenses for maintenance of an office.

The Central Bank shall provide the necessary foreign exchange required to maintain such overseas office.

For purposes of income tax deduction for expenses of establishing and maintaining offices abroad under Article 49(f) of the Code, the expenses must be necessary, reasonable and directly attributable to the establishment and maintenance of the said offices. Such expenses shall be limited to the following:

(1) Cost of establishing an overseas trade office:

(a) Preliminary expenses in opening an office including permits, licenses, etc.;

(b) Furniture and fixtures;

(c) Office equipment;

(d) Motor vehicle for office use;

(e) Moving expenses of office staff and assets enroute to the overseas trade office locality (traveling costs of employee enroute to the overseas trade office locality traveling costs of employee enroute to new locality and actual cost of moving the employee's personal effect and office assets).

(2) Cost of maintaining an overseas trade office:

(a) Office rentals;

(b) Salaries and wages of staff;

(c) Supplies;

(d) Light and water;

(e) Depreciation of fixed assets;

(f) Other ordinary and necessary expenses for the maintenance of an overseas trade office such as, advertising and promotions expenses which are spent or contracted with consultancy firms abroad by the export trader.

(b) Operation of bonded manufacturing warehouses. A registered export trading company may operate bonded manufacturing or trading warehouses under such guidelines as may be prescribed by the Bureau of Customs and the Board of Investments.

(c) Preference to loans and financing assistance.

(a) The Central Bank under such terms and conditions as may be prescribed by the Monetary Board shall provide;

(1) Access to rediscounting facilities through availment of more favorable loan value, rediscount rate, interest charges and maturities.

(2) More liberal export payment terms and preferential export credit financing facilities from internal and manufactured export products.

(b) The Development Bank of the Philippines, the Philippine Export and Foreign Loan Guarantee Corporation and other banking and financial institutions shall give preferential treatment to loan and/or guarantee applications of a registered export trading company for medium and long term export financing.

(d) Trade with Socialist Countries. A registered export trading company may trade directly or indirectly with Socialist and other centrally planned economy countries.

(e) Sales by export producer to registered export trading company. Export sales of a registered export trading company of export products manufactured by export producers operating under bonded manufacturing warehouses or importing raw materials under bond shall be considered by the Bureau of Customs, under such regulations as the latter may prescribe, as valid liquidating of raw material imports. The sale between such export producer and registered export trading company shall not be considered as domestic sales by the Bureau of Internal Revenue and the Bureau of Customs.

Sec. 7. Use of New Brand Name. For purposes of the incentive in Article 49(g) of the Code, the definition of new brand name in Sec. 5 of Rule XVII shall be applied.

RULE XIX
Incentives to Registered Service Exporters

Section 1. Reduced Income Tax. For the first five (5) years of registration or commercial operation, a registered service exporter shall be entitled to a deduction equivalent to fifty (50%) per cent of its total export fees during the year in which the incentive is claimed.

Sec. 2. Reasonable Costs and Expenses. For purposes of Article 50 of the Code, reasonable cost and expenses shall include ordinary and necessary expenses incurred in carrying on the registered service exporter's business in the foreign country.

Sec. 3. Tax Credit. A service exporter of television or motion pictures or musical recordings which exports them either directly or through a registered export trader shall be entitled to a tax credit equivalent to the amount of specific, compensating and sales taxes and duties actually paid by it on the raw materials and supplies directly used in producing the picture or recording and forming part thereof. The tax credit certificate shall be applied for, issued and used in accordance with Article 22 of the Code.

Sec. 4. Tax Exemption on Capital Equipment. A service exporter of television or motion pictures or musical recordings shall, for the first seven (7) years of registration, be entitled to tax and duty exemption of capital equipment, machinery or spare parts shipped with such machinery or equipment subject to the applicable provisions of Sec. 6, Rule XVII hereof.

RULE XX
Conditions for Availment of Incentives in General

Section 1. Compliance with Obligations. The enterprise shall observe and abide by the provisions of the Code and its implementing rules and regulations, and take adequate measures to ensure that its obligations thereunder as well as those of its officers, employees, and stockholders are faithfully discharged.

Sec. 2. Compliance with Directives. The enterprise shall comply with the directives and instructions which the Board may issue from time to time in pursuance of its authority under the law.

Sec. 3. Visitorial Powers. The enterprise shall allow the duly authorized representatives of the Board to inspect and examine its books of accounts and other pertinent records and documents to ascertain compliance with the Code and its implementing rules and regulations, and the terms and conditions of its registration.

Sec. 4. Taxes and Duties Waive. Registered enterprises shall submit to the Board of Investments certified true copies or Xerox copies of all papers or documents evidencing their availment of incentives such as taxes, duties, charges, fees or dues as determined and computed by the Bureau of Internal Revenue, Bureau of Customs, or government agency concerned, of which said enterprises are exempt from payment thereof under the Code. Said papers or documents should be submitted within fifteen (15) days after official action thereon by the government agency concerned has been completed.

Sec. 5. Delinquent Enterprises. No availment if incentives may be allowed an enterprise delinquent in compliance with any of the terms and conditions for registration, including such reports and statistical data which may be required by the Board.

RULE XXI
Public Participation Requirement

Section 1. General Rule. A registered enterprise, unless otherwise exempt under the following section, shall at anytime, within ten (10) years from date of registration, be required by the Board to offer for sale to the public ten (10%) per cent or more of its total subscribed capital stock, voting and non-voting, and any increase thereof. The term "Public" shall include alien investors; however, the first three (3) months of the public offering shall be limited to Filipinos: Provided, That the period of public offering shall be at least six (6) months from date of publication.

Sec. 2. Deferments. On a case-to-case basis, the Board may defer compliance by the following registered enterprises:

(a) Pioneer registered enterprises;

(b) Such other enterprises which by reason of their peculiar circumstances are not deemed ready for public participation.

Sec. 3. Substantial Compliance. For purposes of this Rule, the following registered enterprises shall be deemed to have substantially complied with the objectives of public participation:

(a) Those that are publicly-held such as those listed in any of the duly accredited stock exchanges and are actively traded therein;

(b) Those that are wholly-owned or at least seventy (70%) per cent owned and controlled by publicly-held corporations;

(c) Those exporting one hundred (100%) per cent of their production;

(d) Registered enterprises the stocks of which are held by a substantial number of rank-and-file employees who are not related within the third civil degree of consanguinity or affinity with the majority stockholders;

(e) Registered enterprises the stocks of which are held by employees trust funds or retirement or pension funds: Provided, That the trustee is a "Philippine national" as defined in Article 14 of the Code and sixty (60%) per cent of the trust fund must accrue to the benefit of Philippine nationals: Provided, further, That both the retirement plan and the trust fund shall first be approved by the Board.

In the last two foregoing cases, the Board may still require a public offering if the stock purchases do not fully constitute the required minimum public participation.

Sec. 4. Shares to be Offered. For purposes of this Rule, the shares to be offered must be common or voting or, if preferred or non-voting, they must be convertible to voting shares within five (5) years at the option of the stockholders.

The shares need not be new or original issued: Provided, That in the case of secondary offering or sale of treasury stocks, the purchaser will not be entitled to capital gains tax exemption under Article 43 or tax allowance under Article 44(a) of the Code.

The shares shall be offered on a non-callable basis: Provided, That they may be redeemable by the corporation not earlier than five (5) years from date of issue.

Sec. 5. Price and Terms for Public Offering. The price and terms and public offering shall be submitted to the Board who shall determine the fair and reasonable price considering the historical and future earnings of the corporation, and the amount and frequency of stock or cash dividend: Provided, That for preferred shares the Board reserves the right to set minimum dividend returns in no case less than twelve (12%) per cent per annum and/or require that such shares be participating.

If a minimum amount of subscription is required of each individual purchaser, the same shall be within the reach of small investors as determined by the Board and the total subscription price may be payable in installments.

Sec. 6. Procedural Requirements. One (1) month before the date of the registered enterprise is required by the Board, within ten (10) years from date of registration, to comply with the ten (10%) per cent public participation requirement either by virtue of original registration or approval of increase in its capital stock, the registered enterprise shall submit for Board approval its prospectus for public offering indicating, among others the following:

(a) pertinent data about the registered enterprise;

(b) description of shares to be issued, whether voting or non-voting, with or without par value, and other features;

(c) terms of offering and mode of payment;

(d) highlights of operations and financial position for the past five (5) years;

(e) management profile of the registered enterprise;

(f) current ratio and other financial relationships;

(g) earnings per share including total dividends paid, cash or property;

(h) debt-equity ratio, present and projected;

(i) statement of BOI incentives available to the registered enterprise and its stockholders;

(j) statement of SEC registration or exemption from the sale of securities.

Upon approval of the prospectus, the same shall be published once in a newspaper of general circulation and announcement of the public offering shall be posted in the GSIS, SSS and banks with investible trust funds: Provided, That if the SEC required publication of the sale or offering of securities, the publication herein prescribed need not be complied with.

If the offering is limited to trust funds or rank-and-file employees of the corporation, in lieu of a prospectus, the registered enterprise may submit the terms of said offering for BOI approval. Sufficient notices in the office and factory premises of the company shall be posted if the offering is made direct to employees.

RULE XXII
Preferred Non-Pioneer Areas Without Incentives

Section 1. Under Article 37 of the Code, non-Philippine nationals may enter into and engage, without incentives, in preferred non-pioneer areas of investment whose measured capacity has not been filled within three (3) years from declaration as such, provided that said non-Philippine nationals shall engage in the manufacture of finished products primarily for export. To be deemed engaged in manufacture primarily for export, a non-Philippine national must export no less than seventy (70%) per cent of its total production.

Sec. 2. Subject to constitutional and statutory limitations, enterprises, including those owned and controlled by aliens, which are already engaged in an area of investment on the date such area is declared preferred, shall be allowed to continue therein.

RULE XXIII
Non-Registered Activities

An enterprise engaged or proposing to engage in non-registered activities shall install an adequate accounting system segregating the investments, revenues, sales, receipts, purchases, payrolls, costs, expenses, and profits and losses of its registered operation from those of its non-registered domestic and export operations; or the Board may, in appropriate cases, require the establishment of a separate entity for the registered activity in order to facilitate the proper implementation of this Code.

RULE XXIV
Basis of Allowance Deduction

When a registered enterprise is also engaged in non-preferred activities, the tax deduction granted under the Code shall be deductible only from income derived from that particular registered operation. However, in case of reduced income tax export traders and producers as well as deduction of expenses incurred in establishing and maintaining overseas trade offices duly approved by the Board, the tax deductions granted under the Code shall be deductible from income derived from all registered operations without regard to any specific registered activity, project, product or service.

RULE XXV
Duration of Incentives

All incentives in favor of registered enterprises and investors therein, as long as they remain so and commit no violation of the Code, these rules and regulations, or the terms and condition of their certificates of registration, shall continue indefinitely, unless otherwise provided for in said Code, rules and regulations, and/or certificate of registration.

RULE XXVI
Withdrawal from Business of Suspension of Operations, Effects Thereof

Section 1. Whenever a registered enterprise decides to withdraw from business or suspend its operations in the preferred area, written notice thereof shall be sent to the Board before the decision is implemented.

Withdrawal from business operations in the preferred are shall automatically cancel the certificate of registration, which shall then be turned over to the Board. Upon such withdrawal, the enterprise and its stockholders shall cease to be entitled to the incentives provided in the Code, except the basic rights and guarantees mentioned in Article 42 of the Code.

The effect of withdrawal or suspension of operations in the preferred area shall, in each particular instance, be determined by the Board, taking into account the reasons therefor and the condition of the enterprise concerned. The Board may, in appropriate cases, require refund of incentives in whole or in part with or without interest or penalties.

RULE XXVII
Submission of Reports and Other Documents

Every registered enterprise shall, for each preferred area of investment, submit to the Board the following reports and/or documents within the time herein prescribed:

(a) Amendment of articles of incorporation or by-laws within thirty (30) calendar days from the date of registration of said amendments with the Securities and Exchange Commission:

(b) Replacement of any director or other principal officers, with an indication of the nationality of each new officer, and accompanied by a copy of his certificate of citizenship, if a naturalized Filipino within thirty (30) calendar days after said replacement;

(c) List of alien officers and employees, their nationalities and positions, together with a copy of its plantilla within the month of January every year;

(d) If the enterprise has any alien employees discharging supervisory, technical or advisory functions, its program for training Filipinos in said functions within thirty (30) calendar days from the registration of the enterprise; otherwise within thirty (30) calendar days from the date any such alien employee was employed;

(e) Report of the implementation of the above training program within the month of June every year;

(f) Change of address or principal place of business within ten (10) calendar days after such change;

(g) Change of its authorized representative to the Board within ten (10) calendar days after such change;

(h) Notice of the date the enterprise began operation within ten (10) calendar days from said date;

(i) Notice of projected investment abroad not later than thirty (30) calendar days before any such investment is made;

(j) Income Tax Returns thirty (30) calendar days from the filing thereof;

(k) Audited Annual Financial Statements, viz: (1) Profit and Loss statement; and (2) Balance Sheets one (1) month from date of filing with the Bureau of Internal Revenue of the annual income tax return for the preceding calendar/fiscal year;

(l) Quarterly production and sales report one (1) month after the end of each quarter;

(m) Form S-1-January 31 of each year;

(n) Chart of Account Three (3) months after issuance of certificate of registration;

(o) Statement of the Total Peso Value of incentives Availed of under the Code during the previous calendar year not later than January 31 of the current year.

(p) The enterprise shall submit to the BOI a clearance from the National Pollution Control Commission (NPC) from time to time, as may be required by the BOI after sufficient notice.

PART III
Foreign Investments Without Incentives

RULE XXVIII
Permitted Investments

The enterprise in which any permitted investment is made by a non-Philippine national shall, for record purposes, report the same to the Board in the form prescribed therefor in accordance with Article 67(2) of the Code. The transfer of equity participation from a Philippine national to a non-Philippine national, regardless of the amount thereof, shall be reported to the Board. The acquisition by a corporation of its own shares of stock from Philippine nationals such that the equity participation of non-Philippine nationals therein is increased shall also be reported to the Board. So will the retirement of shares of stock with the same end result require notice to the Board.

RULE XXIX
Permissible Investments

Section 1. Permissible Investments. Permissible investments shall comprise all investments by non-Philippine nationals in an enterprise not registered under Book One of this Code, where the resulting total equity participation of non-Philippine nationals exceeds thirty (30%) per cent of the outstanding capital of the enterprise. Thus, an additional alien investment in a domestic enterprise already more than thirty (30%) per cent owned or controlled by aliens shall be subject to prior Board authorization. This, however, is without prejudice to the grant by the Board of advance authority for permissible investment under Sec. 3 of this Rule.

Sec. 2. Request for Authorization. The enterprise in which permissible investment is sought to be made shall apply for prior authority with the Board in accordance with Article 68 of the Code. Such application shall be made in three (3) copies upon forms prescribed by the Board and sworn to before a notary public.

Sec. 3. Advance Authority. To obviate possible difficulties in the making of investments by non-Philippine nationals particularly in corporations the shares of stock of which are traded in stock exchanges, the Board as a general rule, may, upon application of the enterprises, grant advance authority for the acquisition by non-Philippine nationals of a maximum percentage of equity therein, subject to applicable provisions of the Constitution and nationalization laws. An enterprise granted such advance authority shall submit semestral reports to the Board on the percentage of interest therein of non-Philippine nationals as of December 31 and June 30 of each year within thirty (30) days from said dates. The reports shall be made in three (3) copies upon forms prescribed by the Board and sworn to before a notary public.

RULE XXX
Doing Business in the Philippines

Section 1. Board Authorization. The following persons and entities shall, prior to their registration with the Securities and Exchange Commission or other government registering agency and obtaining permits and licenses from national and local authorities, secure written authorization from the Board before doing business or engaging in any economic activity in the Philippines:

(a) An alien individual;

(b) A foreign company; and

(c) A domestic enterprise which is a non-Philippine national, or more than thirty (30%) per cent of the outstanding capital of which is owned or controlled by non-Philippine nationals.

Sec. 2. Existing Enterprises. Any of the foregoing persons or entities lawfully licensed to do business in the Philippines before September 30, 1968 may continue to pursue the same business activity in which they were actually and lawfully engaged on said date but they shall submit a report as prescribed by the Board.

Sec. 3. Expansion of Business Activities. A business expansion may be in the same line of business in which an enterprise is actually and lawfully engaged or in another line but within the field for which the enterprise had been previously registered with the Securities and Exchange Commission or other appropriate government agency; or in a different area not covered by its existing registration to do business.

(a) Where the first type of business expansion is to be financed out of loans or the existing resources of an enterprise, including payments on outstanding stock purchases or subscriptions, or through the capitalization of surplus profits, no Board authorization is required. Even where the said expansion is to be financed out of new or additional investment to be made by non-Philippine nationals, Board authorization is not required, although the investment itself shall be subject to the rules governing permitted or permissible investments.

(b) The second and third types of business expansion require prior Board authorization regardless of the source of financing.

Sec. 4. Applications. Applications for authority to do business or engage in any economic activity in the Philippines shall be filed with the Board in three (3) copies upon forms prescribed therefor and sworn to before a notary public.

Sec. 5. Data to be Submitted by Alien Individual. If the applicant is an alien individual, he shall submit to the Board, in addition to those prescribed by the Board, the following data or documents in support of his application:

(a) Bio-data of the applicant;

(b) Proof of status of admission;

(c) Notarized copy of the latest financial statements, and/or certified true copy of his latest income tax returns filed with the Bureau of Internal Revenue;

(d) Country in which he is a national and proof of reciprocity:

(e) Business name;

(f) Specific line or lines of business for which authority is sought;

(g) Name of proposed resident agent who must be a Philippine citizen, his business address, residence and personal, including financial circumstances; and

(h) Firm written commitment to comply with the other requirements under Article 70 of the Code.

Sec. 6. Data to be Submitted by Foreign Companies. If the applicant is a foreign company, it shall submit to the Board, in addition to those which the Board may require, the following documents and data in support of its application:

(a) Copies of its charter or articles of organization and by-laws duly authenticated by the legal custodian of such record in its home state in accordance with Act No. 2103, accompanied by a translation thereof into an official language;

(b) Background date about the company, copies of its latest annual report and audited financial statements, including a certified true copy of its latest income tax returns filed with the Bureau of Internal Revenue, if any;

(c) Country of its domicile and proof of reciprocity;

(d) Business name;

(e) Specific line or lines of business for which authority is sought;

(f) Name of proposed resident agent who must be a Philippine citizen, his business address, residence and personal, including financial circumstances; and

(g) Firm written commitment to comply with the other requirements in the second paragraph of Article 70 of the Code.

Sec. 7. Data to be Submitted by Domestic Company. If the applicant is or will be organized as a domestic company, it shall submit to the Board, in addition to those prescribed by the Board, the following data or documents in support of its application:

(a) Copies of its articles of co-partnership or incorporation or other articles of organization:

(b) Capital structure, including, in the case of a corporation, its authorized capital stock, outstanding capital, the number and classes of shares outstanding and their par value:

(c) Percentage of ownership of Philippine nationals, and other non-Philippine nationals:

(d) Business name:

(e) Specific line or business for which authority is sought:

(f) Names, nationalities, business addresses and residences of the partners or directors, as well as the stockholders each owning ten (10%) per cent or more of the outstanding stocks; and

(g) Companies engaged in the same line or lines of business as the applicant in which the above partners or directors and stockholders have interests, either managerial or in the form of equity or voting rights.

Sec. 8. Reciprocity. To determine the nationality of a foreign company, the statement under oath by the officer of such company having custody of the books in which such information is recorded to the effect that at least sixty (60%) per cent of the capital thereof is owned and controlled by nationals of such state or country shall be considered prima facie proof of such fact subject to verification by the Board. Proof of reciprocity shall consist of a certification by the proper official of the home state of the applicant alien or foreign company to the effect that the law of such state allows or permits reciprocal rights to Philippine citizens and enterprises to engage there in business. Home state refers to the country or individual state within a federal country of which applicant is a citizen or in which it is domiciled other than the Philippines. Such certification must be authenticated in accordance with Act No. 2103.

Sec. 9. Preference of Credit. The preference of credit prescribed in Article 70 of the Code shall run in favor of resident creditors, both Filipinos and aliens. Nevertheless, as between resident creditors on the one hand and non-resident creditors on the other, the above provisions shall be without prejudice to the operation within each class of the order of preference established under existing laws; nor shall said provision impair existing obligations of contract.

Section 10. Liaison Offices. Liaison offices which were not previously registered with the Securities and Exchange Commission or were registered as such with the Securities and Exchange Commission but not for the purpose of doing business in the Philippines shall be subject to the licensing requirements of the Code and these Rules, irrespective of the time said offices were established in the Philippines.

Section 11. Action Against Irregular and Illegal Certificates Of Authority. The action for cancellation of licenses to do business which must be instituted in the proper Court of First Instance under the proviso of Article 71 of the Code, refers to licenses to do business in the Philippines issued irregularly or contrary to law; prior to the date of effectivity of Republic Act Numbered Fifty-four Hundred and Fifty-five on September 30, 1968.

Section 12. Publication of Board Action. The requirement of publication of the action of the Board and posting of notice under article 74 of the Code shall apply to applications for authority to either invest or do business. It shall also apply to applications for advance authority under Rule XXIX, Sec. 3 hereof.

PART IV
Final Provisions

RULE XXXI
Scope of These Rules

Section 1. Applicability. Whenever appropriate, the rules herein shall apply to enterprises registered under R.A 5186, R.A. 6135 and P.D. 1159, unless their application would prejudice any right acquired by the registered enterprise under the said laws: The foregoing rule, notwithstanding any additional benefit granted under P.D. 1789, may only be extended to enterprises registered under R.A. 5186, R.A. 6135 and P.D. 1159 if in the determination of the Board the firm is otherwise qualified to enjoy said incentives considering the merits of each case. In such cases, the enterprise shall be deemed registered under the Code for the enjoyment of the incentives thereunder.

Sec. 2. Transitory Provisions. Pending the effectivity of these Rules, the implementing rules and regulations of R.A. 5186, R.A. 6135, P.D. 1159 and R.A. 5455 shall apply unless inconsistent with the provisions of P.D. 1789.

RULE XXXII
Violations of the Provisions of the Code

Section 1. Grounds For Cancellation. Registration may be canceled for any of the following grounds:

(a) Failure to maintain the qualifications for registration as required by the Code:

(b) Violation of any provision of the Code;

(c) Violation of any of these Rules and Regulations or any of the general and specific terms and conditions of registration; or

(d) Violation of any law for the protection of labor or of the consuming public.

Sec. 2. Grounds For Suspension. For the same grounds enumerated in the next preceding section the Board may suspend the enjoyment of one or more incentives enjoyed by a registered enterprise depending upon the gravity of the offense committed.

Sec. 3. Automatic Cancellation. Delay in the implementation of the time table of the project by the registered enterprise shall result in the automatic cancellation of the certificate of registration of the registered enterprise.

Sec. 4. Hearing Of Violation Of The Code. For purposes of conducting hearings and investigations involving violations of the provisions of the Code, its rules and regulations, and terms and conditions of registration of registered enterprises and firms, the Board shall adopt its rules of procedure governing the same within thirty (30) days from the date of effectivity of these Rules.

RULE XXXIII
Reckoning of Dates

Whenever the Code or these rules and regulations prescribed a period within which an act shall or shall not be performed, the first day shall be excluded and the last day included in the computation thereof, unless otherwise provided. But when the last day falls on a Saturday or holiday, the deadline shall be extended to the next succeeding business day. Saturdays and holidays within the prescribed period shall be included, unless otherwise indicated.

RULE XXXIV
Notices

Notices sent by the Board shall be addressed to the applicant for registration or registered enterprise at its principal place of business. Such notices may with like effect be delivered to its authorized representative as appearing in the records of the Board.

RULE XXXV
Schedule of Fees

The following fees shall be collected by the Board:


(a) Publication fee or such higher fee set by the Board taking into account current advertising cost.P250.00
(b) Filing fee for each application for registration100.00
(c) Fee for issuance of each certificate of registration300.00

For very small business and indigent applicant, the Board may in its discretion waive such fees except the publication fee.

RULE XXXVI
Effectivity

These Rules shall take effect thirty (30) days after publication in two (2) newspapers of general circulation in the Philippines. (Published in the Daily Express dated April 1, 1981.)




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