CBP Circular No. 960-83

October 21, 1983 CBP CIRCULAR NO. 960-83 The Monetary Board in its Resolution Nos. 1632 and 1718 dated September 30, 1983 and October 21, 1983, respectively, approved the consolidation, amendment and reissuance of the rules and regulations on foreign exchange non-trade transactions including those on gold and silver, as follows: CHAPTER I Invisible Receipts A. Basic Policy and General Provisions SECTION 1. Basic Policy. Policy measures adopted by the Philippine Government for the purpose of ensuring that the workings of the economy is fully appropriate to the more volatile and competitive international environment and to the realities of the world energy situation includes the acceleration of the energy program, gradual relaxation of the few remaining foreign exchange controls on imports, simplification and reduction of tariff levels, lifting of interest rate ceilings, and greater flexibility in the foreign exchange rate to prevent the overvaluation of the peso. With the high balance of payments deficit in 1982, it is necessary for all agencies of government to adopt all possible measures to see to it that foreign exchange receipts are maximized and foreign exchange outflows are minimized and to keep international debt to a minimum, thus ensuring the attainment of structural adjustment program objectives and the preservation of the country's international credit standing. SECTION 2. Definition of Terms. The following terms when used in this Chapter shall have the meaning indicated unless the context clearly indicates otherwise: a. "Central Bank" or "CB" shall refer to the Central Bank of the Philippines. b. "Invisibles" shall refer to foreign exchange transactions, arrangements, or business operations which are non-trade in nature. c. "Persons" shall refer to both natural and juridical persons. "Juridical persons" refer to firms, associations and corporations duly organized, existing and operating in accordance with law. d. "Foreign exchange" shall refer to foreign currency notes, coins, checks, letters of credit, drafts, bills of exchange, or other instruments customarily employed for international transfer and denominated in freely convertible foreign currencies. e. "Acceptable foreign exchange" shall refer to foreign exchange which may be accepted as payment or purchased for pesos by the Central Bank and consist of the following: U.S. Dollar Pound Sterling Canadian Dollar Deutsche Mark Australian Dollar Netherlands Guilder Singapore Dollar Japanese Yen Hongkong Dollar Austrian Schilling Malaysian Dollar Saudi Arabia Rial Swiss Franc Kuwait Dinar French Franc Bahrain Dinar Belgian Franc Italian Lira Other foreign currencies may be considered acceptable by the Central Bank. f. "Filipino contract worker" or "Overseas Filipino worker" shall refer to any member of the Philippine labor force employed abroad. g. "Mandatory remittance" shall refer to the amount or portion of the basic salary of the Filipino contract workers abroad required under existing laws and regulations to be remitted by said workers to their beneficiaries in the Philippines and sold for pesos to the Philippine banking system. h. "Licensed agencies or other entities" shall refer to any agency or entity licensed or authorized by the Ministry of Labor and Employment to hire or recruit Filipino workers for employment abroad. i. "Philippine banking system" shall refer to commercial banks, savings and mortgage banks, development banks, rural banks, stock savings and loan associations, and branches in the Philippines of foreign banks called Philippine branches which are either authorized by law or the Central Bank to act as foreign exchange dealers. j. "Commercial banks" shall refer to commercial banks as authorized under R.A. No. 337, as amended. The term shall include commercial banks with expanded commercial banking functions. k. "Service exporters" shall refer to natural persons who are residents of the Philippines or juridical persons organized/licensed under Philippine laws, engaged in providing technical, professional and other services rendered outside Philippine jurisdiction and paid for in foreign currencies. These shall include, but shall not be limited to, the following: 1. Shipowners and operators engaged in overseas operations; 2. Airline owners and operators engaged in international flight operations; 3. Crewing/manning agents for foreign principals; 4. Travel agencies and tour operators contracting and/or arranging inbound tours; 5. Those engaged in port operations, marine services, medical and dental services, catering services, hauling services and such other related service abroad; 6. Those rendering management, engineering, planning and other services abroad, whether as prime contractors or sub-contractors; 7. Those winning construction or supply contracts on foreign-assisted projects as provided under Executive Order No. 765; 8. Those engaged in cultural presentation and/or exhibition abroad of television/cinematographic film and musical recordings made or produced in the Philippines. DTcACa l. "Overseas contractors" shall refer to persons who: 1. undertake construction projects abroad as well as those supplying any one or a combination of labor, machinery and materials; 2. those with service contracts within U.S. military, naval and air bases in the Philippines; and 3. those with service contracts for projects financed and/or assisted by the World Bank and other similar international organizations. m. "Gross foreign exchange receipts" shall refer to all foreign exchange earnings/revenues from operations and from other sources. Foreign exchange earnings from other sources include, but are not limited to, proceeds of sale and/or rental of equipment used in business operations, recoveries on the loss of or damage to such equipment and/or appurtenances thereto, etc., which have been or which should have been recorded in the books of foreign exchange earnings/revenues for a prescribed period by the company concerned. n. "Foreign exchange disbursements" shall refer to expenditures in foreign exchange which have been or which should have been recorded in the books of the company as having been incurred during a given period. It includes, but need not necessarily be limited to: 1. operating expenses including purchase of spare parts and supplies that have not been capitalized; 2. capital expenditures; 3. refunds of deposits; 4. interline billings; and 5. other indirect and related expenses. o. "Net foreign exchange receipts" shall refer to gross foreign exchange receipts less foreign exchange disbursements. p. "Authorized agent banks" shall refer only to commercial banks and banks with expanded commercial banking functions which are authorized to purchase and sell, or otherwise deal in foreign currencies and foreign exchange instruments. q. "Authorized foreign exchange dealers" shall refer to thrift banks, rural banks and non-banks which are duly authorized by the Central Bank to purchase for pesos foreign currencies and sell such currencies to the Central Bank Head Office or any of its Regional Cash Units or Philippine National Bank or any of its branches. The authority does not include sale for pesos of foreign currencies. SECTION 3. General Rule. Only commercial banks are authorized to purchase, sell or otherwise deal in foreign exchange. Authorized foreign exchange dealers may purchase foreign exchange and sell such purchases to PNB or to the Central Bank. No person shall buy, or attempt to buy acceptable foreign exchange except from authorized agent banks; nor shall a person sell or attempt to sell foreign exchange except to authorized agent banks or to authorized foreign exchange dealers. SECTION 4. Foreign Exchange Retention Abroad. No person shall promote, finance, enter into or participate in any foreign exchange transactions where the foreign exchange involved is paid, retained, delivered or transferred abroad while the corresponding pesos are paid for or are received in the Philippines, except when specifically authorized by the Central Bank or otherwise allowed under Central Bank regulations. Residents, firms, associations, or corporations unless otherwise permitted under CB regulations are prohibited from maintaining foreign exchange accounts abroad. SECTION 5. Approval of Contracts for Services. No agreement or contract involving or requiring rendition of services by a private resident person to a private non-resident person situated abroad shall be entered into without prior Central Bank approval. Agreements or contracts entered into by residents, construction firms, engineering firms, architectural firms, labor contractors, or other service exporters shall contain a stipulation that the services shall be paid for in foreign currencies acceptable to the Central Bank. Resident persons shall furnish the appropriate department of the Central Bank copies of agreements or contracts which they may enter into. Agreements or contracts for services by a resident to a non-resident which stipulates the payment in pesos shall likewise be submitted to the appropriate department of the Central Bank for prior approval. SECTION 6. Export, Import of Foreign Exchange, Exceptions. No person shall take out or transmit or attempt to take out or transmit foreign exchange, in any form, out of the Philippines directly, through other persons, through the mails or through international carriers except when specifically authorized by the Central Bank or allowed under existing international agreements or Central Bank regulations. Tourists and non-resident visitors may take out or send out from the Philippines foreign exchange in amounts not exceeding such amounts of foreign exchange brought in by them. For purposes of establishing the amount of foreign exchange brought in or out of the Philippines, tourists and non-resident temporary visitors bringing with them more than US$3,000.00 or its equivalent in other foreign currencies shall declare their foreign exchange in the form prescribed by the Central Bank at points of entries upon arrival in the Philippines. SECTION 7. Export, Import of Philippine Notes/Coins. Any person may import or export, and any traveller may bring with him, Philippine notes and coins, checks, money orders and other bills of exchange drawn in pesos against banks operating in the Philippines in an amount not exceeding P500.00; Provided, That any amount in excess of P500.00 shall require prior authorization of the Central Bank; Provided, further, That any person may freely bring in to the Philippines any amount of legal tender "Ang Bagong Lipunan" and P1,500-piso," IMF-IBRD" gold coins duly issued by the Central Bank. SECTION 8. International Agreements. There shall be no restrictions on withdrawals or deposits on peso accounts of foreign central banks and non-resident commercial banks with authorized agent banks; Provided, That such accounts are funded by inward foreign exchange remittances. Peso accounts with authorized agent banks of United Nations agencies and other international institutions of which the Government of the Republic of the Philippines is a member, as well as peso accounts of foreign government agencies and establishments, shall be serviced in accordance with the applicable agreements and the practice followed for such accounts. EICScD B. Surrender of Foreign Exchange SECTION 9. Rules on Residents. The following rules shall govern the surrender of foreign exchange by residents: a. Foreign exchange earned or acquired abroad by residents, shall not be disposed of, in whole or in part, for any purpose whatsoever, nor shall they be used to offset any account due to a non-resident without the prior authority of the Central Bank unless the utilization abroad is specifically allowed under existing Central Bank regulations. b. Resident persons earning or acquiring foreign exchange from abroad arising from "invisibles" whether directly received in the Philippines or through their agents or representatives abroad, shall cause the remittance of the full value of such foreign exchange into the Philippines, in foreign currencies acceptable to the Central Bank within fifteen (15) days from the date they have established ownership thereof. Such foreign exchange shall be sold to authorized agent banks within three (3) business days from the date of their receipt in the Philippines. c. The foregoing provisions shall not apply to foreign exchange which is eligible for deposit under the Philippine Foreign Currency Deposit System, as provided in Republic Act 6426, as amended. aCSTDc SECTION 10. Reports of Foreign Exchange Earners. All resident persons who habitually/customarily earn, acquire, or receive foreign exchange from invisibles locally or from abroad, shall submit reports in the prescribed form of such earnings, acquisition or receipts with the appropriate CB department. Those required to submit reports under this section shall include, but need not necessarily be limited to the following: a. Agents or branch offices of foreign shipping firms; b. Shipbuilders, ship repairers, or ship handlers providing supplies to or rendering services to foreign-owned or operated vessels; c. Shipping/crewing agencies or suppliers of crew members to foreign-owned or operated vessels or aircrafts; d. Agents or branch offices of foreign airline companies; e. Indentors, commission agents, or Philippine representatives of foreign firms; f. Insurance companies or insurance agencies engaged in foreign insurance and reinsurance business, or engaged in insurance business abroad through overseas branch offices or agencies; g. Recruitment agencies, construction firms, engineering firms, architectural firms, and labor contractors undertaking jobs at U.S. military, naval or air bases, or other United States establishments in the Philippines, or undertaking projects abroad; h. Oil companies engaged in selling aviation gasoline, bunker oil, and/or other oil products to aircrafts of foreign airline companies or vessels of foreign shipping companies; i. Recipients of foreign exchange payment of royalties, films, television and other rentals; j. Recipients of foreign exchange from non-residents pursuant to other contracts of services; k. Tour operators, travel agencies, brokerage firms, transportation companies that are receiving foreign exchange from any source; l. Hotels, pension houses, inns, condominiums, tourist shops, boutiques, department stores, restaurants, niteclubs, cocktail lounges, sauna baths, barber shops and other similar establishments that are receiving foreign exchange from any source; m. Publications, advertising, communication, and telecommunication companies receiving payment in foreign exchange; n. Regional headquarters, representative offices, subsidiaries and/or affiliates of foreign companies; o. Real estate dealers, brokers, operators, owners receiving rentals, commissions, payments in foreign currencies; p. Clubs, associations and other aggrupations for whatever purpose (religious, political, etc.) earning or receiving foreign exchange from any source; and q. Firms issuing/servicing international credit cards. Authorized foreign exchange dealers and registered foreign exchange earners shall submit separate monthly reports to the Foreign Exchange Department, copy furnished the Supervision and Examination Sector, Department IV, Central Bank supported by proofs/evidences of receipts and sales of foreign exchange to the banking system; Provided, That foreign exchange eligible for deposit under the Philippine Foreign Currency Deposit System, as provided in Republic Act No. 6426, as amended, need not be covered by the report. Reports of foreign exchange earners shall be supported by their own official receipts for merchandise sold and/or services rendered. Residents, firms or establishments habitually/customarily earning, acquiring or receiving foreign exchange from sales of merchandise, services or from whatever source shall register with the Foreign Exchange Department of the Central Bank within ninety (90) days from the date of this Circular. SECTION 11. Verification. Verification of the residents or the authorized foreign exchange dealers' reports shall be made by the Foreign Exchange Department and/or SES Department IV of the Central Bank against the books of accounts and other pertinent records. SECTION 12. Overseas Filipino Workers. The following rules shall govern remittances of Filipino workers abroad: a. Filipino workers abroad shall remit on a regular monthly basis, a portion of their basic salaries abroad to their beneficiaries in the Philippines, and sell for pesos such remittances through the Philippine banking system, in accordance with the following percentages: Worker Percentage of Basic Salary 1. Seamen or mariners 70% 2. Workers of Filipino contractors and construction companies 70% 3. Doctors, engineers, teachers, nurses and other professional workers whose employment contracts provide for free board and lodging 70% 4. All other professional workers whose employment contracts do not provide free board and lodging facilities 50% 5. Domestic and other service workers 50% 6. All other workers not falling under the aforementioned categories 50% b. Licensed agencies and other entities authorized by the Ministry of Labor and Employment to recruit Filipino workers for overseas employment are similarly required to remit their workers' earnings, as provided for by Executive Order No. 857 in Appendix 1. Such agencies and entities shall cause the inward remittance and sell for pesos the foreign exchange payments due from foreign employers, representing mobilization expenses of Filipino overseas workers, including their air fares and other incidentals. c. Non-compliance with the mandatory remittance requirement shall have the following effects on overseas Filipino workers: 1. No passport shall be issued, renewed or extended by the Ministry of Foreign Affairs unless proof of applicant's substantial compliance with the mandatory remittance requirement in the percentages provided for under these rules is submitted. 2. Passports issued to Filipino contract workers shall have an initial period of validity of one year. The Ministry of Foreign Affairs may however adjust, as circumstances may require, the initial passport validity period. (Valid for 2 years, Res. 1-83, Appendix 3) 3. The passport shall be renewable every two years upon submission of usual requirements and presentation of documentary proof of compliance to the remittance requirement. 4. A contract worker who fails to comply with the mandatory remittance requirement shall be suspended from the list of eligible workers for overseas employment and in cases of subsequent violations, he shall be repatriated at his own expense or at the expense of his employer, as the case may be. d. Non-compliance with the mandatory remittance requirements shall have the following effects on employers: 1. No accreditation shall be issued to an employer and no license or authority shall be granted to an agency or entity by the Ministry of Labor and Employment unless they submit proof that they have provided facilities to effect the remittances of foreign exchange earnings of Filipino workers under their employ. 2. No contract of employment and/or service agreement shall be approved or renewed by the Ministry of Labor and Employment unless proof of compliance with the mandatory remittance requirement is submitted. 3. Filipino or foreign employers and/or representatives who fail to comply with these rules shall be excluded from the overseas employment program. 4. Failure of local private employment agencies and other similar entities to comply with the mandatory remittance requirement shall be a ground for cancellation of their authority to recruit workers for overseas employment without prejudice to their liabilities under existing laws and regulations. e. Remittance of foreign exchange shall be in accordance with Letter of Instructions No. 1219 and its implementing "Guidelines and Mechanism to Facilitate the Remittance of Salaries of Filipino Overseas Workers" adopted by the Central Bank, Ministry of Labor and Employment, and Ministry of Foreign Affairs which are found in Appendix 2, and Executive Order No. 857 dated December 13, 1982 and its implementing rules and regulations, and Resolution No. 1-83 dated February 9, 1983 of the Inter-Agency Committee on its implementation which are found in Appendices 1 and 3. CITcSH SECTION 13. Air and Sea Carriers. The following rules shall govern foreign exchange receipts and disbursements of resident airline companies, Philippine flag vessels of foreign registry-owned by residents of the Philippines and Philippine shipping agents of foreign flag vessels: a. Airline companies organized and incorporated in accordance with Philippine laws engaged, or may hereafter engage, in regular or chartered flights outside the Philippines, and owners or operators of Philippine flag vessels or of vessels of foreign registry owned by residents, shall: 1. Report in the prescribed form to the appropriate department of the Central Bank all their foreign exchange receipts from operations and other sources and their foreign exchange disbursements abroad, not later than ten (10) days following the end of every month; 2. Remit to the Central Bank, or through any of the authorized agent banks, not later than ten (10) days following the end of every calendar month, their net foreign exchange receipts; b. They may retain abroad, on a non-cumulative basis, portion of their net foreign exchange receipts to meet their foreign exchange requirements for the succeeding calendar quarter as follows: 1. Working operating fund Retention of funds abroad for this purpose shall not exceed, at any given quarter, the equivalent of the average for three (3) months of the reported operating foreign exchange expenditures/expenses during the preceding 12-month period. 2. Funds for liquidating maturing obligations Retention of funds abroad for this purposes, shall not exceed the installment due on the principal and interest during the succeeding calendar quarter of foreign loans/obligations registered with the Central Bank. 3. Funds for contingencies Retention of funds abroad for this purpose shall not exceed at any given quarter ten per cent (10%) of the gross foreign exchange receipts during the preceding 12-month period; Provided, however, That where the international operations are less than 12 months, the ten per cent (10%) shall be based on the gross foreign exchange receipts for the actual period of operations; Provided, further, That the retentions herein authorized shall be utilized to cover only the payment of the following: a) cost of extraordinary repairs and other expenses resulting from damage to the aircraft/vessels and/or to its appurtenances by collision, grounding, heavy weather, breakdowns and other perils of the air/sea; b) payment of third party claims for damage to other aircraft, cargo, airfields, vessels, wharfs, piers, locks, etc., injuries to longshoremen caused by the aircraft/vessels and/or its crew members; c) expenses of crew members for shelter, subsistence, and the like; Provided, That such expenditures are caused by or arise from prolonged failure to resume international operations due to government restrictions and/or causes beyond the control of the airline company concerned; d) expenses arising from frequent longshoremen strikes, fines imposed upon the vessel and cargo operations; e) expenses arising from death, illness and/or injury to the officers and crew members; f) Other unforeseen extraordinary expenses including, but not limited to, fines and penalties imposed by government authorities. c. Foreign exchange in excess of the above authorized retentions shall be remitted to the Philippines within ten (10) days after the end of each quarter. d. The authorized retentions/funds or a portion thereof of any one or more sub-stations of airline companies may be transferred to, or borrowed by, deficit substations. e. Philippine residents agents handling vessels of foreign registry shall comply with the reporting requirements under Items a.1 and a.2 of this section. A separate report for each foreign principal or owner shall be submitted. All general account transactions and miscellaneous expenses on behalf of foreign principals are to be shown as disbursements. This may take the form of a single monthly entry for all general account items on behalf of each principal. All entries for vessels and general accounts shall be made in chronological order and remittances received shall appear in the same order. f. Charters involving resident passengers/charterers shall be paid in Philippine currency; and charters involving non-resident passengers/charterers shall be paid for only in authorized foreign currencies; g. Airline companies may obtain short-term loans/financing from sources within their areas of operations in amounts not exceeding US$10,000 per year for each station; Provided, That the proceeds of such borrowings will be utilized solely for their international flight operations and/or for their contingency needs; Provided, further, That a report of such foreign borrowings shall be submitted to the Management of External Debt and Investment Accounts Department (MEDIAD). Such borrowings and/or renewals shall be payable within a period of six (6) months from the date they are incurred. Borrowings and renewals thereof payable beyond this period shall have prior Central Bank approval; and h. Reports shall be subject to verification against the books of accounts and other related records of the resident companies concerned. SECTION 14. Philippine Construction Companies. The following rules shall govern foreign exchange receipts and disbursements of Philippine construction companies registered with the Philippine Overseas Construction Board with overseas projects: a. Philippine construction companies registered with the Philippine Overseas Construction Board with overseas projects, may retain abroad, on a non-cumulative basis, portion of their net foreign exchange receipts to meet their foreign exchange requirements for the succeeding calendar quarter, as follows: 1. Working operating fund Retention of funds abroad for this purpose shall not exceed, at any given quarter, the equivalent of the average for three (3) months of the reported operating foreign exchange expenditures/expenses during the preceding 12-month period. 2. Funds for liquidating maturing obligations Retention of funds abroad for this purpose shall not exceed the installment due during the succeeding calendar quarter on foreign loans/obligations registered with the Central Bank. 3. Funds for contingencies Retention of funds abroad for this purpose shall not exceed, at any given quarter, ten per cent (10%) of the gross foreign exchange receipts during the preceding 12-month period; Provided, however, That where the overseas construction projects are less than 12 months, the ten per cent (10%) shall be based on the gross foreign exchange receipts for the actual period of operations; Provided, further, That the retention herein authorized shall be utilized to cover only payment of the following: a) expenses of officers and contract workers for shelter, subsistence, and the like for the duration of the construction project; b) expenses arising from death, illness and/or injury to the officers and contract workers; and c) other unforeseen extraordinary expenses including, but not limited to, fines and penalties imposed by government authorities. b. The authorized retention/funds or a portion thereof on one or more construction projects may be transferred to, or borrowed by, deficit construction projects. c. Philippine contractors with overseas projects shall report to the appropriate department of the Central Bank all their foreign exchange receipts from operations and other sources and their foreign exchange disbursements abroad, not later than the tenth day after end of the month, in the prescribed Central Bank form, and remit to the Central Bank through any authorized agent bank not later than fifteen (15) days following the end of every quarter, their net foreign exchange receipts and the excess retentions. d. Reports herein required shall be subject to verification against the books of accounts and other related records of the Philippine Construction Companies. SECTION 15. Incentives to Certified Export-Oriented Service Exporters and Overseas Contractors. Service exporters and overseas contractors who may be certified as export-oriented firms may avail of Central Bank assistance or incentives as provided hereunder: a. Qualification requirements Service exporters and overseas contractors applying for Central Bank certification as export-oriented, shall meet the following qualifications: 1. The applicant must be registered with the appropriate regulatory government agency such as the Board of Investments; the Philippine Tourism Authority; the National Seamen Board; the Overseas Employment Development Board and the Phil. Overseas Employment Administration under the Ministry of Labor and Employment; the Philippine Overseas Construction Board; the Civil Aeronautics Board; the Maritime Industry Authority, as the case may be. 2. The applicant's net foreign exchange earnings in compliance with existing foreign exchange regulations, shall not be less than US $100,000 or its equivalent. Service exporters and overseas contractors who do not meet the above minimum qualification requirements but have existing overseas contracts at the time of the application, may be certified on a case-to-case basis. 3. The loan accounts, if any, of applicant and those of its principal officers and stockholders with government financing institutions (DBP, PNB/NIDC, Land Bank, GSIS and SSS) must be in current status. 4. The applicant shall have substantially complied with existing foreign exchange regulations. b. Procedural guidelines The application for certification shall be in letter-form filed with MEDIAD, in case of overseas contractors, and with FED, in case of non-trade foreign ex change earners. The following documents shall support the application: 1. Articles of incorporation/partnership/registration of business name, including attachments thereto; 2. Copy of certificate of registration with the appropriate government regulatory agency; 3. Latest audited financial statements; 4. Report of gross foreign exchange earnings during the year immediately preceding the date of filing of the application duly supported by proofs of foreign exchange inwardly remitted and sold to the banking system; and 5. Other documents that may be deemed necessary. The certification shall be issued under the signature of the Director of MEDIAD or the Foreign Exchange Department of the Central Bank, as the case may be. c. Assistance/incentives CB-certified service exporters/ overseas contractors may avail of any or all of the following assistance and incentives: 1. Preferential rediscounting rates and loan values; 2. Privilege to enter into a foreign currency/peso swap arrangement with the Central Bank; 3. Privilege to import machinery and equipment for their end use payable under the export deduction scheme; 4. Reduced marginal deposits on import letters of credit; and 5. Privilege of retaining a portion of their earnings under a special foreign currency account with commercial banks for their operating expenses abroad, and repayment of CB-approved loans and other contingencies. The amounts allowable for purposes of maintaining such foreign currency accounts, shall be as follows: a) Operating expenses not exceeding the equivalent of their average expenses incurred for the preceding three (3) months; b) Repayment of CB-approved loans not exceeding the equivalent of the amount of amortization payable on principal and interest. This will be on a non-cumulative basis; and c) Funds for contingencies not exceeding ten per cent (10%) of the gross foreign exchange receipts immediately preceding a 12-month period. Service exporters and overseas contractors which are not CB-certified as export oriented but have existing special currency deposit accounts as of the effectivity date of this Circular shall have ninety (90) days within which to qualify as CB-certified export oriented firm; otherwise, new deposits shall not be allowed after the expiry of said period; Provided, That withdrawals shall be allowed from such accounts. SECTION 16. Foreign students. Under existing regulations of the Ministry of Education and Culture, foreign students in the Philippines taking up courses in the tertiary level (including graduate courses) are required to present evidences that the pesos they use to pay their tuition and other school fees and to support themselves while in the country are proceeds of sale of foreign exchange from authorized agent banks and/or authorized foreign exchange dealers, as a condition for the approval/renewal of their study permits. Authorized agent banks and authorized foreign exchange dealers shall clearly indicate in the certification that they may be requested by such foreign students to issue the amount of foreign exchange sold For Philippine pesos and the exact date of sale. The following procedures in the issuance of the certification required by foreign students shall be observed: a. The certification shall be made out in the letterhead of the issuing bank or foreign exchange dealer; b. The name of the authorized signing officer of the issuing bank or authorized foreign exchange dealer shall be typewritten/printed beneath the signature of said authorized officer; c. In the case of banks, the certification shall be authenticated by a validating machine indicating the amount of foreign exchange sold for pesos; d. In the case of authorized foreign exchange dealers, the certification shall clearly indicate the serial number and date of the Central Bank Official Receipt issued to the foreign student concerned. SECTION 17. Multinational Companies in the Philippines. a. A multinational company which is allowed to establish a regional or area headquarters in the Philippines under P.D. No. 218 shall be required through the Securities and Exchange Commission to furnish the Central Bank with certified copies of the following: 1. An undertaking that the multinational company will remit into the country such amount as may be necessary to cover its operations in the Philippines, but which amount will not be less than US$50,000 or its equivalent in other foreign currencies. 2. A certificate of inward remittance from an authorized agent bank showing that it has remitted to the Philippines the amount of at least US$30,000 or its equivalent in other foreign currencies and converted the same to Philippine currency within thirty (30) days from the issuance of its Certificate of Registration from the Securities and Exchange Commission. 3. An annual certificate of inward remittance from an authorized agent bank amounting to at least US$50,000 or its equivalent in other foreign currencies during the past year to be submitted within thirty (30) days from anniversary date of the registration of a regional or area headquarters of the multinational company. 4. A certificate from an authorized agent bank that the executive in the regional or area headquarters of the multinational company in the Philippines has converted to Philippine currency the equivalent of at least US$1,000 per month as his salary or its equivalent in other currencies from the date of his original admission into the Philippines. b. A multinational company with regional or area headquarters in the Philippines which fails to comply with the above regulations shall be referred by the Central Bank to the Securities and Exchange Commission for cancellation of its license or registration. Any of its executive who fails to comply with these regulations shall be referred by the Central Bank to the Bureau of Immigration for cancellation of his multiple entry special visa. The Central Bank may independently blacklist the multinational company and/or executive for non-compliance with the foregoing rules. aEcHCD C. Foreign Exchange Purchases SECTION 18. Buying Rates; Prohibition. The minimum buying rate of authorized agent banks for spot transactions shall be 1% below the prevailing guiding rate, while the maximum buying rate for spot transactions shall be 1/2 of 1% below the prevailing guiding rate; Provided, however, That the maximum buying rate for export bills of US$100,000.00 or over (or its equivalent in other foreign currency) which are paid on telegraphic transfer basis and on which the negotiating bank has made no peso advance shall not exceed the guiding rate on the date of negotiation. There shall be no splitting of transactions or splitting of the documentation on the same transaction for the purpose of applying different rates. D. Reconversion of Foreign Exchange SECTION 19. Reconversion of Foreign Exchange for Tourists and Non-Residents. Only foreign tourists and other non-residents may reconvert their unspent pesos originally converted with authorized agent banks, and/or authorized foreign exchange dealers through the Central Bank and commercial banks situated at the Manila International Airport or other ports of exit before their departure abroad. The following procedures in reconversion shall be observed, except where the amount does not exceed $20 or its equivalent in other foreign currencies: a. Official receipts covering the original conversion of foreign currencies into pesos shall be surrendered to the Central Bank; b. The Cashier/teller shall indicate the corresponding passport number of the tourist/transient on the Central Bank official reconversion receipt and ensure that the signature affixed on the receipt matches the signatures on the passport; c. Receipts surrendered under Item "a" above shall be attached to the copy of the receipt used in Item "b" above; d. Reconversion shall be allowed only if made within fifty-nine (59) days from date of sale of foreign currencies; e. The converted amount shall not exceed the peso proceeds of the foreign currencies originally sold as indicated in the Central Bank official receipt. E. Authorized Foreign Exchange Dealers SECTION 20. Institutions Authorized as Foreign Exchange Dealers. Commercial banks are authorized to purchase, sell or otherwise deal in all foreign currencies or foreign exchange instruments. Thrift banks and rural banks authorized as foreign exchange dealers shall be limited to the purchase of foreign exchange checks, notes and coins. Other financial and non-financial entities authorized as foreign exchange dealers shall purchase only foreign exchange travellers' checks, notes and coins. Thrift banks, rural banks, other financial and non-financial entities shall sell their purchases of foreign exchange to PNB or to the Central Bank. F. Authorized Foreign Exchange Dealers Banks SECTION 21. Certificate of Authority. Banks other than commercial banks shall operate as foreign exchange dealers only after the issuance of a certificate of authority from the Central Bank. The authority shall be limited to the purchase for pesos of acceptable foreign currencies from foreign tourists, resident aliens, other non-residents including "balikbayans", regional or area headquarters of multinational companies in the Philippines, resident persons, firms, associations or corporations earning or acquiring foreign exchange from abroad arising from "invisibles" which are receivable by them directly in the Philippines or through representatives abroad. SECTION 22. Establishment of Extension Units and Signboards. Banks may establish additional extension units as foreign exchange dealers; Provided, That their functions shall be limited to the purchase of acceptable foreign currencies; Provided, further, That extension units are exempted from the government securities requirements for new banking offices. All banks authorized as foreign exchange dealers and units thereof designated by its management to purchase acceptable foreign currencies are required to install lighted plastic signboards in front of their establishments with the following inscriptions: AUTHORIZED FOREIGN EXCHANGE DEALER OF THE CENTRAL BANK For facility in the installation thereof and uniformity, the Central Bank will undertake and assume the costs of procurement, subject to reimbursement. The above-described lighted signboard shall be in addition to the signboard required to be displayed conspicuously inside their respective place of business which contains the following inscription: THIS ESTABLISHMENT IS AN AUTHORIZED FOREIGN EXCHANGE DEALER OF THE CENTRAL BANK OF THE PHILIPPINES FOR EVERY SALE OR CONVERSION OF FOREIGN EXCHANGE TOURISTS AND OTHER NON-RESIDENTS SHALL REQUEST FOR CENTRAL BANK OFFICIAL RECEIPTS SECTION 23. Purchase/Sale of Foreign Exchange. Authorized foreign exchange dealers shall purchase acceptable foreign currency notes, coins and checks at rates in accordance with the "Daily Bulletin on Buying Rates for Acceptable Currencies" published by the Central Bank and available at the Ground Floor Lobby of the 5-storey Central Bank Building or from the Public Relations Office of the Central Bank, Telephone No. 59-73-55. Foreign currencies purchased by qualified thrift banks and rural banks shall be sold the following banking day from the date of purchase to the Central Bank Head Office or any of its Regional Cash Units. Foreign exchange acquisitions in checks and other foreign exchange instruments shall be sold to Philippine National Bank or any of its branches. SECTION 24. Issuance of Official Receipt. The purchases of authorized foreign exchange dealers shall be covered with Central Bank official receipts. The following rules shall be observed in the use of Central Bank official receipts: a. Receipts shall be issued in numerical order, immediately upon each and every purchase of foreign exchange. b. As many booklets as are necessary may be used simultaneously; Provided, That each teller shall use only one booklet at a time. c. The particulars of the receipts shall be posted chronologically under the appropriate columns on the "Daily Record of Foreign Exchange Transactions Sheet" (FED Prescribed Form). d. Central Bank and customer copies of spoiled receipts shall be marked and stamped "CANCELLED". The fortnightly report of foreign exchange transactions shall be supported by both valid and cancelled Central Bank official receipts attached to the original copy of the "Daily Record of Foreign Exchange Transactions Sheet" (FED Prescribed Form). e. A monthly inventory of unused Central Bank official receipts shall be submitted to the Central Bank duly certified by an accountable officer of the reporting bank. The non-issuance of a Central Bank official receipt for any foreign exchange transaction requiring its use is deemed sufficient ground for revocation of the foreign exchange dealer's Certificate of Authority and imposition of sanctions provided in this Circular. HAIaEc SECTION 25. Sanction for Non-Compliance. The Certificate of Authority to deal in foreign exchange may be revoked by the Central Bank for any violation of the terms and conditions specified therein. Within three (3) banking days from receipt of the notice of revocation, it shall surrender to the Bank: a. All unissued Central Bank Official Receipts for the purchase of foreign exchange accompanied by the "Daily Record of Foreign Transaction Sheet" (FED Prescribed Form). b. The plastic signboard displayed in front of its establishment and the one displayed inside its place of business. SECTION 26. Liability for Lost or Tampered Central Bank Official Receipts. Any authorized foreign exchange dealer, who fails to account for each Central Bank official receipt found to have been tampered or unlawfully used by another, shall be liable for the peso-equivalent of the foreign exchange appearing on the face of the unlawfully used receipt. G. Authorized Foreign Exchange Dealers Non-Banks SECTION 27. Qualified Entities. Any corporation, partnership or single proprietorship whose business establishments cater to tourists, transients and non-residents are considered foreign exchange earners and qualified to operate as foreign exchange dealer. These include but need not be limited to: a. Hotels b. Travel agencies c. Restaurants d. Tourist shops e. Tour operators f. Department stores and business entities rendering services to tourists and other foreign travellers g. Resident individuals and firms who have or who intend to establish their place of business in tourist belt areas h. Resident individuals and firms with fixed business/establishments within a radius of around 20 meters from post offices in different cities and municipalities i. Firms engaged in the recruitment, placement, or hiring of Filipino workers for overseas employment j. Non-stock savings and loans associations SECTION 28. Certificate of Authority. A foreign exchange dealer shall operate only after the issuance of a certificate of authority from the Central Bank. It may purchase or convert for pesos foreign currencies, notes, coins and checks from foreign tourists, resident aliens, and other non-residents including "balikbayans"; Provided, That conversion shall be confined at the entity's principal place of business. An application for a certificate of authority may be filed by qualified persons/entities with the Foreign Exchange Department of the Central Bank duly supported by the following documents, when applicable: a. Incorporation papers duly authenticated by the Securities and Exchange Commission; b. Copy of the Certificate of Registration with the Bureau of Domestic Trade; c. Copies of business license and permit; d. Audited financial statement for the preceding two years; e. Xerox copies of the income tax return with BIR stamp for the preceding two years; f. Photographs (front and side views) of the establishment; and g. Favorable indorsement from the appropriate government agencies concerned. A foreign exchange dealer whose Certificate of Authority has been cancelled or forfeited for whatever reason shall be covered by the rules on residents with foreign exchange earnings or acquisitions. As such, it shall register with the Foreign Exchange Department of the Central Bank; Provided, That the surrender of the plastic signboards and unissued Central Bank Official Receipt to the Central Bank shall be deemed as registration as foreign exchange earner. SECTION 29. Purchase of Foreign Exchange. Authorized foreign exchange dealers shall purchase acceptable foreign currency notes, coins and checks at rates in accordance with the "Daily Bulletin on Buying Rates for Acceptable Currencies" published by the Central Bank and available at the Ground Floor Lobby of the 5-storey Central Bank Building or from the Public Relations Office of the Central Bank, Telephone No. 59-73-55. SECTION 30. Sale of Foreign Exchange. The following rules shall govern the sale of foreign exchange by all non-bank foreign exchange dealers to the Central Bank or to its authorized agent banks: a. Foreign currencies purchased by non-bank foreign exchange dealers shall be sold the following banking day from the date of purchase direct to the Central Bank or any of its Regional Cash Units. Foreign exchange acquisitions in checks and other foreign exchange instruments shall be sold to Philippine National Bank or any of its branches. b. Effective July 1, 1983, all existing authorized foreign exchange dealers shall sell to the Central Bank or to its Regional Cash Units or PNB or any of its branches a minimum of US$50,000 per month or its equivalent in other foreign currencies. c. The monthly quota of each authorized foreign exchange dealer with an existing monthly quota of US$50,000 or above per month is hereby increased by US$50,000 per month. d. Effective October 1, 1983, the quota as of July 1, 1983 of each existing authorized foreign exchange dealer shall be increased by an additional US$50,000, such that the minimum quota shall be US$100,000 per month or the existing quota plus US$100,000 as the case may be. e. Hotels and airlines authorized as foreign exchange dealers shall sell to the Central Bank or its authorized agent banks a minimum of: Hotels 15% over and above the average annual receipt/sale to the Central Bank/banking system during the immediately preceding six years divided by 12. Airlines 50% -do- f. Failure of a non-bank authorized as foreign exchange dealer to meet the prescribed monthly quota by July 31, 1983 and October 31, 1983 shall cause the automatic cancellation of its authority. It shall immediately desist from accepting or purchasing foreign exchange. Within three (3) business days from the date of the automatic cancellation of its authority to act as a foreign exchange dealer, it shall surrender to the Central Bank: 1. All unissued Central Bank Official Receipts for the purchase of foreign exchange accompanied by the "Daily Record of Foreign Transactions Sheet" and 2. Two plastic signboards displayed in its place of business. SECTION 31. Personnel Handling Foreign Exchange Transactions. All authorized foreign exchange dealers shall submit a list of offices and personnel who are authorized to handle foreign exchange transactions to the appropriate supervising department(s) of the Central Bank not later than thirty (30) days from effectivity of this Circular. The list shall be supported by three (3) passport size pictures with the corresponding signature of the personnel authorized. Any change in the list of offices or personnel authorized to handle foreign exchange transactions shall be reported to the Central Bank not later than ten (10) days from the date of change. SECTION 32. Issue of Official Receipts. The purchases/receipts of authorized foreign exchange dealers shall be covered by Central Bank official receipts. The following rules shall be observed in the issue of Central Bank official receipts: a. Central Bank official receipts shall be issued for all receipts or purchases of foreign currencies. b. Receipts shall be issued in numerical order immediately upon each and every receipt or purchase of foreign currencies in payment of bills, invoices, or exchange with pesos by clients or customers. The use of the Central Bank official receipt is not intended to replace the use of BIR-registered business official receipts. c. As many booklets as are necessary may be used simultaneously; Provided, That each teller shall use only one booklet at a time. d. Central Bank official receipts shall be validated preferably by the use of checkmeters to indicate the amount converted in words and in figures. The person converting foreign currencies shall sign in his usual signature on the receipt. e. The particulars of the receipts shall be posted chronologically under the appropriate columns on the "Daily Record of Foreign Exchange Transactions Sheet" (FED Prescribed Form). A separate "Daily Record of Foreign Exchange Transaction Sheet" shall be prepared by each teller handling foreign exchange receipts or purchases. f. Customer and Central Bank copies of spoiled receipts shall be marked and stamped "CANCELLED". The fortnightly report of foreign exchange transactions shall be supported by both valid and cancelled Central Bank official receipt attached to the original copy/ies of the "Daily Record of Foreign Exchange Transactions Sheet" (FED Prescribed Form). g. A monthly inventory of unused Central Bank official receipts duly certified by an accountable officer or owner of the reporting authorized foreign exchange dealer shall be submitted to the Central Bank. h. The non-issuance of a Central Bank official receipt by an authorized foreign exchange dealer for any foreign exchange transaction requiring its use is deemed sufficient ground for the revocation of the Certificate of Authority to deal in foreign exchange without prejudice to the imposition of sanctions provided in this Circular. i. Any authorized foreign exchange dealer, who fails to account for each Central Bank official receipt found to have been tampered or unlawfully used by another, shall be liable for the peso equivalent of the foreign exchange appearing on the face of the unlawfully used receipt. CHAPTER II Invisible Disbursement/Payments A. Basic Policy and Definitions SECTION 33. Basic Policy. It is the declared policy of the Central Bank to service existing obligations of residents, corporate or otherwise, to the extent of available foreign exchange resources and expected foreign exchange receipts, in accordance with such priorities as the Monetary Board may deem necessary and reasonable. SECTION 34. Definition of Terms. As used in this Chapter, the following terms shall have the meaning indicated unless the context clearly indicates otherwise: a. "Invisible disbursements/payments" shall refer to all outward payments, remittances and disbursements in foreign exchange covering expenditures and transactions that are generally considered non-trade in nature. b. "Current invisible payments" shall refer to payments of foreign exchange for non-trade transactions made within one-year immediately preceding the date of remittance. c. "Resident" shall mean (1) an individual citizen of the Philippines residing therein; (2) an individual who is not a citizen of the Philippines but is permanently residing therein; (3) a corporation or other juridical person organized under the laws of the Philippines; or (4) a branch, subsidiary, affiliate, extension office or any other unit of corporations or juridical persons organized under the laws of any foreign country operating in the Philippines. d. "Net foreign exchange earnings" shall mean (1) as used in business travel, gross receipts minus expenses; (2) as used in repatriation of foreign investments and remittances of profits and dividends, the total foreign exchange earnings from export of the product less total foreign exchange required to finance production of export sales, operation and servicing of the applicant's firm prorated to his share in the total investment. cHESAD B. General Provisions SECTION 35. General Rule. Only authorized agent banks may sell foreign exchange for invisible disbursements. Conversely, no person shall buy, or attempt to buy, foreign exchange except with authorized agent banks; nor shall a person sell foreign exchange except to authorized agent banks or to persons and entities authorized to purchase foreign exchange. SECTION 36. Contracts Requiring Settlement in Foreign Exchange or Involving Assets of Non-Residents. No person, corporation, firm or association, whether resident of the Philippines or not, shall enter into any contract or transaction involving foreign exchange relating to any asset located within the Philippines belonging to a non-resident person, firm or corporation including, where applicable, their exportation or importation. SECTION 37. Contracts Requiring Settlement in Foreign Exchange or Involving Assets of Residents. No resident person, corporation, firm or association shall enter into any contract or transaction involving or which may involve settlement in foreign exchange, or involving any assets belonging to such residents, expressed in foreign currencies or payable or deliverable abroad, except in cases allowed under the Uniform Currency Act, namely: a. Transactions where the funds involved are the proceeds of loans or investments made directly or indirectly, through bona fide intermediaries or agents, by foreign governments, their agencies and instrumentalities, and international financial and banking institutions so long as the funds are identifiable as having emanated from the sources herein enumerated; b. Transactions affecting high-priority economic projects for agricultural, industrial and power development as may be determined by the National Economic and Development Authority which are financed by or through foreign funds; c. Forward exchange transactions entered into between banks or between banks and individuals or juridical persons; d. Import-export transactions and other international banking transactions, financial investment and industrial transactions. SECTION 38. Transactions Where Foreign Exchange is Retained Abroad. No person, corporation, firm or association shall promote, finance, enter into or participate in any foreign exchange transaction where the foreign exchange involved is retained, delivered, or transferred abroad while the corresponding pesos are paid for or are received in the Philippines unless so specifically authorized by the Central Bank or otherwise allowed under Central Bank regulations. SECTION 39. Illegal Exportation/Transmittal of Foreign Exchange. No person, firm, association or corporation shall take or transmit or attempt to take or transmit foreign exchange, in any form, in any manner, out of the Philippines directly or through other person, through the mails, or through international carriers unless specifically authorized by the Central Bank or allowed under existing international agreements or Central Bank regulations; Provided, That this prohibition shall not apply to tourists and non-resident temporary visitors who are taking or sending out of the Philippines foreign exchange in amounts not exceeding such amounts of foreign exchange brought in and declared by them. For purposes of establishing the amount of foreign exchange brought by them into the Philippines, tourists and non-resident temporary visitors bringing with them more than US$3,000.00 or its equivalent in other foreign exchange which includes foreign currency, notes, checks and other transfer instruments denominated in freely convertible foreign currency, shall declare their foreign exchange at points of entries upon arrival in the Philippines in a form prescribed by the Central Bank. SECTION 40. Selling Rates. The minimum selling rate of authorized agent banks for spot transactions shall be 3/4 of 1% above the prevailing guiding rate; Provided, however, That the minimum selling rate for invisibles telegraphic transfer spot transactions involving US$100,000.00 or over (or its equivalent in other foreign currency) shall at least be 1/8 of 1% above the guiding rate on the date of the remittance. The maximum selling rate for spot transactions shall be 1-1/4% above the prevailing guiding rate. Splitting of transactions and/or splitting of the documentation on the same transaction for the purpose of applying different rates shall not be resorted to. C. Sale of Foreign Exchange Without Prior Central Bank Approval SECTION 41. Sale of Travel Funds in General. Without prior approval of the Central Bank, commercial banks may sell foreign exchange for travel, subject to the following conditions: a. Commercial banks shall sell travel funds only to citizens and permanent residents of the Philippines. They may not sell travel funds to non-residents who are temporarily employed or connected in varying capacities with local or foreign firms doing business in the Philippines. b. Commercial banks may sell travel funds only at their head office, MIA branch and five (5) other branches in Metro Manila. In the provinces, only one (1) branch per province may sell travel funds. The designated branches shall be reported to the Foreign Exchange Department of the Central Bank within five (5) banking days from August 25, 1983. c. The sale of travel funds shall not be made earlier than five (5) days before departure. d. The frequency, amount and categories of travel shall not be cumulated. Any trip, amount and category of travel already availed of shall be deducted by the bank from the trip and amount for which a resident may still be eligible. e. The sale of travel funds by any bank other than commercial banks is prohibited and previous authorizations granted are hereby revoked. SECTION 42. Business Travel. Sale of foreign exchange without prior Central Bank approval for business travel of officers of business firms shall be governed by the following rules: a. Area of travel shall be categorized into: Area 1 United States of America (including its territories), Canada, South America, Central America, Europe, Australia, Middle East, Africa, New Zealand, and Japan. Area 2 Hongkong, Taiwan, Korea, Singapore, Malaysia, Thailand, and other countries not included in Area 1. b. Officers of firms" shall refer only to the following: 1. For corporations/banks: a) Chairman b) President c) Vice President, Senior Vice President or Executive Vice President (whichever title is next in authority to President) d) Marketing Manager: for corporations In-Charge of Export/Foreign Sales; for banks Head, Foreign Department or FCDU/EFCDU or Department in-charge of Foreign Marketing/Sales 2. For partnerships: Only partners whose ranks or functions in the partnerships are equivalent to the positions authorized for corporations or banks. 3. For single proprietorships: Proprietor whose annual gross sales is not less than P1.0 million. c. The allocation of travel funds of officers/professionals to the respective areas shall be based on the net foreign exchange earnings/receipts of their respective firms, as follows: Travel Funds Allocation Net Foreign Exchange Earnings/Receipts Area 1 Area 2 Officers US$1.0 million US$250.00 a day US$200.00 a day of firms or more per for a maximum for a maximum calendar year period of 20 days, period of 15 days, plus US$500.00 plus US$300.00 for representation for representation expenses or a total expenses or a total of US$5,500.00 of US$3,300.00 Officers Less than US$1.0 US$200.00 a day US$140.00 a day of firms million but over for a maximum for a maximum US$100,000.00 period of 20 days, period of 15 days, per calendar year plus US$500.00 plus US$300.00 for representation for representation expenses or a total expenses or a total of US$4,500.00 of US$2,400.00 Officers US$100,000.00 US$140.00 a day US$100.00 a day of firms or less or without for a maximum for a maximum foreign exchange period of 20 days period of 10 days earnings/receipts, or a total of or a total of for a maximum of US$2,800.00 of US$1,000.00 of four (4) trips per calendar year. Professionals No foreign US$140.00 a day US$100.00 a day (e.g. exchange for a maximum for a maximum lawyers, earnings/ period of 20 period of 10 doctors, receipts days or a total days or a total accountants, of US$2,800.00 of US$1,000.00 engineers, architects, scientists, professors) and technicians attending conferences, conventions, seminars or specialized training abroad, for a maximum of two (2) trips per calendar year engineers, architects, scientists, professors) and technicians attending conferences, conventions, seminars or specialized training abroad, for a maximum of two (2) trips per calendar year SECTION 43. Non-Business Travel. The allocation of non-business travel funds without prior Central Bank approval for residents travelling abroad as tourists, emigrants, or for any purpose other than business for only one (1) trip per calendar year shall be in amounts and for categorized areas as follows: Area 1 Area 2 Resident tourists US$1,000.00 US$600.00 Resident tourists US$500.00 US$250.00 whose package tours are prepaid in the Philippines Residents with US$100.00 US$100.00 pre-arranged employment abroad Filipino emigrants US$100.00 US$100.00 Children below One fourth (1/4) of the amounts corresponding 12 years to resident tourists and emigrants Areas 1 and 2 shall refer to destinations as specified under business travel. SECTION 44. Guidelines in Processing Applications for Travel Funds. Commercial banks shall observe the following guidelines: a. Applicant's passport shall be scrutinized to ascertain Filipino citizenship or permanent resident status and whether or not applicant had purchased foreign exchange from other banks for the same trip. No traveller for any one calendar year is authorized to purchase travel funds in excess of the amount allowed under these regulations; b. Applicant's passage ticket shall be scrutinized to ascertain whether or not the farthest destination indicated in traveller's foreign exchange application tallies with that indicated in the ticket; c. The passport and passage ticket of the applicant shall indicate the name of bank, date and amount of travel funds sold. The passport shall also bear the stamped condition that unspent foreign exchange purchased for travel shall be surrendered to the banking system within three (3) days from date of arrival of returning residents or from date of scheduled departure in case travel has been cancelled; d. Xerox copies of stamped pages of passports/passage tickets evidencing foreign exchange sold shall be kept on file and made available at all times. SECTION 45. Documents Required. Commercial banks shall require the following supporting documents for verification: a. For business travel 1. Certified copy of the certificate of registration with the Bureau of Domestic Trade or with the Securities and Exchange Commission of the firm sponsoring the trip or Xerox copy of receipt of payment of professional tax of the traveller, duly certified with the name and position of the certifying person legibly indicated; 2. Certified true copy of Income Tax Return (ITR) for the preceding taxable year of the traveller or, in lieu thereof, tax clearance from the Bureau of Internal Revenue, except when travel is financed by employer; 3. Certification from the commercial bank of the foreign exchange sold to the bank for the past twelve (12) months by the firm concerned; 4. Certification under oath by a duly authorized officer of the firm concerned that the officer authorized to travel (whose position in the firm shall be indicated) is travelling on behalf of the firm; 5. Written justification (purpose and need) for the proposed travel. If the purpose is to attend a conference abroad, a copy of the invitation from the sponsoring organization shall be submitted. b. For professionals and technicians 1. Certified true copy of Income Tax Return (ITR) for the preceding taxable year of the traveller or, tax clearance from the Bureau of Internal Revenue; 2. Copy of the invitation from abroad for a resident professional/technician to attend a conference, seminar, or convention, or for any person or group to participate in international sports competition or cultural presentation, when applicable. c. For resident tourists, etc. 1. Certified true copy of Income Tax Return (ITR) for the preceding taxable year of the traveller or the ITR of the person financing the trip; in lieu of both, tax clearance from the Bureau of Internal Revenue; 2. Applicant's affidavit under oath that he is a tourist travelling on his own or under a package tour, a resident with pre-arranged employment abroad, or a Filipino emigrant. SECTION 46. Official Travel. Commercial banks may sell without prior Central Bank approval additional travel funds to government officials, namely: Ministers, Deputy Ministers, Assemblymen, Governors, City Mayors, Ambassadors, Chairmen and Presidents of government-owned or controlled corporations on official business trips abroad as authorized by the Office of the President (excluding private trips) to be funded out of their own personal funds as follows: Area 1 Maximum of US$150.00 a day for a maximum period of 20 days trip within the area. Area 2 Maximum of US$100.00 a day for a maximum period of 15 days within the area. The travel funds authorized herein shall be in addition to the fiscal agency funds granted to the official concerned as requested by the respective government offices. Areas 1 and 2 shall refer to destinations as specified under business travel. The commercial bank selling travel funds shall require from applicant certified true copies of applicant's official travel papers and corresponding authority from the Office of the President. SECTION 47. Educational travel. Commercial banks may sell without prior approval of the Central Bank foreign exchange to cover the living allowance and educational expenses of Filipinos studying abroad for a bachelor, masteral or doctoral degree, or pursuing high-technology courses, in amounts, for specified purposes and corresponding to categorized areas as follows: Area 1 Area 2 Living Allowances US$500.00 US$350.00 monthly monthly Books & Supplies US$500.00 US$500.00 per annum per annum Clothing Allowance US$500.00 US$300.00 per annum per annum Miscellaneous US$500.00 US$300.00 School Expenses per annum per annum Areas 1 and 2 shall refer to destinations specified under business travel. SECTION 48. Guidelines in processing educational travel funds. In processing application for foreign exchange to defray educational expenses abroad, banks shall observe the following guidelines: a. Only students working or about to work for a bachelor's, master's, or doctoral degree as well as those pursuing or about to pursue high-technology courses at duly accredited colleges/universities as certified by the institutions where the students are enrolled or to be enrolled shall be entitled to living allowance and educational expenses. In the case of high-technology courses, students must show proof of bachelor's degree at the time of submission of the application. b. The living allowance, educational expenses and tuition fees shall be net of scholarship/grant/fellowship/stipends and earnings from employment (if any) and exclusive of tuition and other school fees. Banks may allow the remittance of the living allowance in lump sum or sell foreign exchange to be handcarried by the students concerned upon departure, in amounts not exceeding the allowances for the quarter or semester during which they are enrolled, as the case may be, on the basis of the rates prescribed in the preceding Section. c. Tuition and other school fees shall be payable directly to the schools where the students are enrolled. SECTION 49. Documents required . Applications to purchase foreign exchange for living allowance and educational expenses of students for graduate/post graduate and high-technology courses shall be accompanied by the following documents: a. Statement of enrolment or acceptance by the school abroad showing that the student is working or about to work for a degree or taking a high-technology course. b. School bills/statements of account covering tuition and other school fees. c. Sworn statement of the student that he does not enjoy any scholarship/grant/fellowship/stipend and/or is not gainfully employed. d. Proof or certification under oath that the student's scholarship and earnings from employment, if any, are insufficient to cover minimum needs. e. Latest income tax return of the student or the person supporting the student, accompanied by proof of payment of the corresponding tax. f. Certification of completion of a bachelor's degree from the school where he graduated in the case of a student pursuing or about to pursue a high-technology course. g. Certification from the Ministry of Education and Culture, Professional Regulation Commission, pertinent and reputable professional association duly registered with the Securities and Exchange Commission, or appropriate governmental agency, as the case may be, that the course to be pursued abroad is not available in the Philippines. SECTION 50. Guidelines and documents required for high school students under exchange programs. The following rules shall apply: a. The application shall be treated as a package tour prepaid in the Philippines which shall be granted maximum travel funds of US$500.00 plus US$500.00 for clothing and other incidental expenses, or a total of US$1,000.00 per calendar year. b. The applications shall be filed collectively by the local sponsoring organization, with the following documents: 1. List of names, addresses, passport numbers of the students admitted to the program; 2. Names and addresses of Philippine/foreign foster parents; 3. Certification as to the names and number of participating foreign students who will study in the Philippines whose return tickets shall be paid abroad; and 4. An undertaking that the incoming foreign students shall sell a minimum of US$500.00 each to the commercial banking system during the academic year. c. The number of exchange students going abroad under the program shall not exceed 20 per annum for each local sponsoring organization. d. The authorized agent bank selling foreign exchange shall stamp on the passport and ticket the amount of foreign exchange sold to resident exchange students. SECTION 51. Dependents abroad of Philippine residents . Commercial banks may sell without prior approval of the Central Bank foreign exchange covering the monthly living allowance of dependents abroad of Philippine residents in the following amounts corresponding to the areas indicated below: Amount Area $250.00 monthly United States and Canada per dependent $200 monthly Europe, Japan, Australia per dependent and New Zealand $100 monthly Other countries per dependent subject to the following conditions: a. The dependent is the wife, husband, child or parent of the applicant; b. The dependent is in fact permanently residing abroad as proven by a consular certificate or other documents to that effect; c. The dependent is not gainfully employed in the country of residence abroad; and d. The records of remittance of the remitter or applicant should show that the dependents entitled to the living allowances have been receiving such allowances for the last six (6) months. SECTION 52. Documents required for sale of foreign exchange for dependents abroad. The commercial bank selling foreign exchange shall require the following documents which shall accompany the remitter's application to purchase foreign exchange: a. Consular certificate or other documents that the dependent is in fact residing abroad; b. Certified true copy of birth certificate, marriage contract, adoption papers, whichever is applicable, to prove that dependent is the wife, husband, child or parent of the remitter/applicant; c. Sworn statement by applicant that the dependent is not gainfully employed in the country of residence abroad; d. Records of remittance of the remitter or applicant showing that the dependent entitled to the living allowances had been receiving such allowances for the last six (6) months; and e. Proof that remitter is a Philippine resident. SECTION 53. Remittance of foreign tourists. Requests of foreign tourists holding visas valid for 59 days to remit foreign exchange abroad by demand draft, telegraphic transfer or mail transfer, against payments in another acceptable foreign currency brought in by them in the form of notes, checks, or other negotiable monetary instruments up to One Thousand US dollars (US$1,000.00) or its equivalent in other foreign currencies, per individual, may be allowed. Remittances in excess of US$1,000.00 shall be referred to the appropriate department of the Central Bank for prior clearance. D. Sale of Foreign Exchange Requiring Prior CB Approval SECTION 54. Profits, dividends and interests of non-residents. Remittances abroad of profits, dividends and interests by non-residents shall be governed by the following regulations: a. For resident companies that are owned or controlled by non-residents engaged in BOI-approved projects, in export-oriented industries and non-export-oriented industries that have not availed of domestic credit resources, the transfer of profits and dividends abroad corresponding to the net profits realized, after taxes, during the year, may be allowed in full at the exchange rate prevailing on date of remittance. As used herein, the term "domestic credit resources" of resident companies owned or controlled by non-residents engaged in non-export-oriented industries, refers to all credit availments whether in cash or in kind, from any government or private banking financial institutions or other private sources in the Philippines. b. Other resident companies that are owned or controlled by non-residents may be allowed to transfer profits and dividends abroad in an amount equivalent to twenty-five (25%) percent of the non-residents' equity participation in the net profits after taxes, during the year for which the remittance of the earnings is being made. c. Filipino-controlled firms may be allowed to remit in full the shares of dividends and profits corresponding to the net profits realized, after taxes, during the year, due to their non-resident stockholders or non-resident partners abroad. The amounts of dividends and profits which may be remitted in accordance with the foregoing shall be net of withholding taxes. d. Applications for remittance of profits and dividends to non-residents shall be accompanied by the following: 1. Proof of registration with the Central Bank of foreign investments upon which the profits/dividends sought to be remitted have accrued; 2. Certified copy of the Board Resolution declaring the dividends, accompanied by a computation indicating separately the amount of dividends/profits due to resident and non-resident stockholders; 3. Evidences of payments of withholding tax and other applicable taxes corresponding to the amount; 4. Sworn statement of the remitting company's officer that the remittance will not be financed by domestic borrowings; and 5. Audited financial statement as of the end of the year during which the dividends/profits sought to be remitted were earned. e. Remittance of interest payments abroad by resident companies which have existing foreign obligations registered with the Central Bank prior to November 26, 1969 may be allowed in full. For existing but not registered foreign obligations as of November 26, 1969, remittance of interest abroad may also be allowed in full, only upon subsequent registration with and approval by the Central Bank. f. Interest earned by non-residents from government securities (except treasury bills) may also be remitted in full; Provided, That the government securities were acquired by the non-resident before December 26, 1969 or, if acquired subsequent to said date, such acquisition has Central Bank approval. g. Applications for remittance of interest shall be substantiated by supporting documents, such as financial statements, income tax returns, loan contracts, an auditor's certificate that the amounts being remitted are correct and proof of payment of withholding tax. h. New applications of oil companies operating in the Philippines to purchase foreign exchange to cover remittance of profits, dividends, payment of royalties and other fees shall have the prior clearance of the Bureau of Energy Utilization. i. Where the remittance is applied for by multinational firms, prior clearance from the Central Bank Inter-Agency Committee on domestic borrowings of foreign firms, is required before any remittance of profits and dividends may be allowed. SECTION 55. Royalties, films, rentals and others. Remittances shall be governed by the following rules: a. Remittances of royalties or rentals on patents, trademarks, copyrights and franchises may be allowed up to fifty percent (50%) of the royalties or rentals incurred during the year for which the remittance is being made; Provided, That no royalties shall exceed five percent (5%) of the wholesale price of the commodity which is manufactured locally under a royalty contract. Remittance covering service, license or rental fee shall be based on agreements previously approved by the Central Bank. b. Royalties on retail sales in 1970, and the unremitted royalties for 1969 and prior years, shall be allowed full remittance at the royalty rates indicated in reprinting contracts entered into earlier, and subsisting as of February 21, 1970. c. Royalties incurred after 1970 on reprinting contracts existing as of February 21, 1970 and on those concluded thereafter shall be allowed full remittance only in cases where the reprinting contracts confer upon the local reprinters concerned the right to market reprinted books in foreign countries, substantiated by documents of export shipments made; Provided, however, That the remittances shall not exceed the net export proceeds of the reprinter concerned arising from the sale abroad of the reprinted books. d. Royalties incurred after 1970 on reprinting contracts existing as of February 21, 1970 and on those concluded thereafter, where such contracts restrict the marketing rights of the local reprinters concerned to the domestic market, shall be subject to the quantitative limitations prescribed in Items a to c above. e. Remittance of the producer's share of earnings made on movie films imported without exchange payments may be allowed up to fifty percent (50%) of the producer's share of earnings during the year for which the remittance is being made. Remittances for TV film rentals shall be governed by the individual contracts or agreements. The remitter or applicant shall substantiate the correctness of the amounts being transferred by the following: 1. Copy of the Central Bank approval/registration of the distributorship agreement, which may be submitted only once with the application for the initial remittance of film rentals/producer's shares; 2. Computation on how the producer's shares were arrived at; 3. Copy of official receipts evidencing payment of the withholding tax corresponding to the amount sought to be remitted accompanied with a copy of the appropriate return filed with the Bureau of Internal Revenue; and 4. Copy of the audited Balance Sheet and Profit and Loss Statement corresponding to the year during which the producer's shares accrued. f. Royalty/rental contracts involving "manufacturing royalty", e.g. actual transfer of technological services, such as secret formula/processes, technical know-how and the like, shall not exceed five percent (5%) of the wholesale price of the commodity manufactured under the royalty agreement. For contracts involving marketing services such as the use of foreign brands or transactions or trademarks, the royalty rental rates shall not exceed two percent (2%) of the wholesale price of the commodity manufactured under the royalty agreement. The producer or foreign licensor's share in the proceeds from the distribution/exhibition of the films shall not exceed sixty per cent (60%) of the net proceeds (gross proceeds less local expenses) from the exhibition/distribution of the films. The Monetary Board, in consultation with the Board of Investments, may authorize remittance of royalties on contracts providing for higher royalty/rental rates, or for terms longer than five (5) years; or on contracts containing restrictive provisions prohibiting the local licensees to export the products manufactured under the royalty/rental agreements or limiting their exportation abroad only through the foreign licensors as exclusive distributors. Remittance of royalty/rental arising from contracts involving "manufacturing or marketing services" shall be allowed in full, net of taxes, at the prevailing exchange rate at the time of remittance. g. Companies seeking Central Bank authority to remit royalties, fees or other forms of payments made to a foreign company or a foreign-owned company under the technology transfer arrangements covered by the Memorandum of Agreement entered into by the Ministry of Industry, Central Bank of the Philippines, and the Board of Investments, shall submit, in addition to Central Bank requirements, proof of registration thereof with the Technology Transfer Board before any authority to remit foreign exchange will be granted. (See Appendix 4). Without prejudice to its power to implement monetary and fiscal policies, including remittances of foreign exchange, the Central Bank shall take into account the royalty rates prescribed by the Technology Transfer Board. Technology transfer arrangements covering management and technical consultancy services relating to the operation of industrial enterprises on a continuing basis, involving an aggregate amount of not more than US$20,000 per agreement shall be referred to the Technology Transfer Board for notification and approval. h. Withholding tax must be deducted from the amount of the allowable remittances of royalties or rentals on patents, trademarks, copyrights and franchises as well as from the amount equivalent to the producer's share of earnings made on movie films or of TV film rentals. i. Applications for remittance of royalty/technical service/license/rental fees shall be accompanied by the following documents: 1. Copy of Central Bank approval of the pertinent agreement, which may be submitted only once with the application for the initial remittance of royalty/technical service/licenses/rental fees. In case where the remittance represents blocked royalties (royalties/rentals heretofore unremitted on account of the quantitative restrictions provided in earlier regulations), the same shall be referred to the Central Bank for prior approval and shall be accompanied by proof that the remittance shall not be financed by domestic borrowings; 2. Copy of official receipt evidencing payment of the withholding tax corresponding to the amount sought to be remitted accompanied by a copy of the appropriate return filed with the Bureau of Internal Revenue; 3. Statement/computation of royalty/technical service/license fees due, duly certified by an independent Certified Public Accountant; and 4. Audited financial statements as of the end of the year during which the royalty/license fees sought to be remitted were earned. SECTION 56. Foreign investments . Foreign exchange remittances involving foreign investment in CB-approved Philippine securities shall be governed by the following rules: a. Central Bank approval of the entry of foreign investments is required as a pre-condition for repatriation of investments and earnings. Application for approval of incoming foreign investments shall be coursed through agent banks. b. Repatriation of the foreign cash investments, net of losses, may be made at any time by the foreign investors, subject to the terms and conditions of the swap arrangement between the handling bank and the Central Bank. c. Repatriation of foreign investments should be accompanied with proof of inward remittance of foreign exchange utilized for the purpose. d. For repatriation of foreign investments in CB-approved Philippine securities, the following shall be required: 1. Investments in CB-approved Philippine securities: a) Daily Report of Purchase & Sales of Philippine Securities (CBP-6.22.30); b) Pertinent Sales Confirmation Slips; c) Daily Report of Repatriation of Proceeds of Sales (CBP-6.22.32); d) Summary list of registered investments being liquidated; e) Application to Transfer Securities for Account of Non-Resident (CBP-FED-ASD 3); f) Application for Authority to Sell Securities in the Philippines for Account of Non-Residents (CBP-FEDASD 5); g) Proof of payment of applicable taxes; and h) Statement of Remittance. 2. Other investments: a) Evidence of registration with and approval by the Central Bank of the foreign investments sought to be repatriated; b) Copy of the Contract of Sale covering the investments sold, duly certified by the Secretary of the firm/company where the divestments were made; c) Computation showing how the amount sought to be remitted was arrived at, indicating the taxes due the Philippine Government and other related expenses; and d) Evidence of payment of the capital gains tax (copy of official receipt) and/or other taxes due the Philippine Government. SECTION 57. Emigrant's assets . The following rules shall govern capital transfers of Filipino emigrants' assets: a. Emigrants may remit up to a maximum of US$5,000 of their capital assets to their new country of domicile, subject to prior approval by the Central Bank. The remaining liquid capital assets may be withdrawn starting one (1) year after emigration on a staggered basis not exceeding five (5) years. b. Remittances of emigrants' assets shall be supported by proof of: 1. permanent residence of emigrant/beneficiary abroad; 2. ownership of the asset/s by the emigrant/beneficiary abroad; 3. payment of applicable taxes; 4. applicant's authority to remit. Additional proofs shall be required in the following cases: 1) Remittance of income from real properties Statement of rentals/income earned certified by an independent CPA. 2) Remittance of proceeds of sale of capital assets a) Copy of deed of sale. b) If the subject of the sale is real estate, proof that the transaction was registered with the Register of Deeds. 3) Remittance of proceeds of retirement benefits a) Evidence of payment of retirement benefits. b) If the filing for remittance is five (5) years or over after receipt of the retirement pay, evidence regarding custody of the funds. 4) Capital transfer of testate and intestate inheritance and legacies a) Copy of Court Order approving the partition and distribution of estate. b) Copy of the extra-judicial settlement and partition duly registered with the Register of Deeds. 5) Remittances of proceeds of life insurance benefits Proof of payment of the proceeds of the policy. 6) Remittances of proceeds of sales of personal property Copy of the deed of sale. 7) Remittances of proceeds of sale of shares of stock a) Copy of the confirmation of sale of authorized securities dealer or broker or the issuing corporation. b) Certification of stock transfer agent showing the name of issuing corporation, date of issue, par value, cost of acquisition, and that the shares of stock owned by the beneficiary have been sold at the price indicated. SECTION 58. Transfer of savings; remittance of salaries . Remittances for transfer of savings and salaries shall be governed by the following: a. Transfer of savings of expatriate employee may be allowed in full, net of taxes, when the contract of employment has been concluded or the employee is transferred to other offices abroad. The request for remittance shall be supported by the following documents: 1. Contract of employment; 2. Certification of the employer that the contract has been terminated or concluded; 3. Statement of salaries paid during the validity of the contract of employment; 4. Transcript of bank deposit account certified by the bank official. If the amount to be remitted comes from new deposits (less than one year placement), information regarding the sources of funds, supported by appropriate documents shall be submitted; and 5. Proof of payment of corresponding taxes. b. Remittance of salaries of expatriate employee shall be allowed in amount not more than fifty percent (50%) of the salary, net of withholding tax, and shall be supported by: 1. Copy of the employment contract; 2. Copy of valid "Alien Employment Permit" issued by the Ministry of Labor and Employment; 3. Proof of payment of withholding tax; 4. Statement of salaries paid, duly certified by the employer; and 5. Proof of inward remittances to cover salary of the expatriate employee in case of multinationals. SECTION 59. Freight charges . The following rules shall govern payments of freight charges: a. With prior approval of the Central Bank, all payments for freight charges covering Philippine imports loaded on board Philippine flag vessels and airlines and/or alien flag vessels and airlines which are operated or chartered by Philippine residents may be made in the Philippines in pesos or in other freely convertible foreign currencies. Philippine resident operators or charterers shall accept Philippine pesos offered as payments in the Philippines for such freights. b. Peso freight payments covering Philippine imports shipped on "Free on Board" (FOB) basis are remittable in foreign currency by local shipping agents/forwarders to their principals abroad. Applications for such remittances may be filed with the Central Bank through agent banks subject to documentation requirements which shall include, among others, the following: 1. Statement of net revenues and expenses certified by an independent certified public accountant attesting to the fact that the net peso revenues appearing therein have not yet been remitted; 2. Copy of the bill of lading covering the import shipment certified as authentic by an authorized official of the local shipping agent or representatives of the shipping company concerned. If the shipment is without L/C, copy of Central Bank authority to import under D/A arrangement or to export the commodities under a no-L/C arrangement shall be submitted; and 3. If applicable, information as to balance sheet account where the obligations due was lodged. c. All applications for forward exchange cover and/or applications for remittances of foreign exchange in payment of freight charges for crude oil imports of local oil companies shall be supported with clearance from the Bureau of Energy Utilization, stating that the Philippine National Oil Company and/or its affiliates and subsidiaries did not have the appropriate and/or required tonnage capability, whether owned, chartered or hired to transport the crude oil for which freight payment remittance is requested. SECTION 60. Insurance . The following rules shall govern remittances of net profits, reinsurance premiums and payment of claims for losses: a. Peso deposit accounts HEScID 1. Authorized agent banks may open and maintain peso deposit accounts in the name of non-resident foreign insurers or non-resident foreign reinsurance brokers; Provided, That said accounts shall be credited only with proceeds of inward remittances of foreign exchange and by reinsurance premiums collected and/or received from local ceding companies; Provided, further, That the deposit is supported by a certification of the Insurance Commissioner to the effect that: a) The ceding companies are under obligation to remit to the non-resident foreign insurer or reinsurance broker the amount to be deposited; b) The ceding companies have withheld portion of the premium required by law for treaty reinsurance to be held as reserve and have reinvested the reserve funds in accordance with the provisions of the Insurance Code; c) The ceding companies have certified that they have withheld the required taxes in accordance with the Internal Revenue rules and regulations of the Philippines. 2. There shall be no restrictions on withdrawals from such deposits; Provided, That withdrawals for remittance abroad against such deposits shall be allowed subject to the submission of a certification from the Insurance Commissioner. b. Application for remittances Every application for the purchase of foreign exchange for remittance of net profits, reinsurance premiums and payments of claims for losses of branches of foreign insurance companies authorized to do business in the Philippines shall be accompanied with the following documents: 1. Proof of Central Bank registration/approval of the inward investment. 2. Certification of the Insurance Commissioner that the applicant has complied with the requirements of the Insurance Commission on the remittance of profits, reinsurance and payments of claims for losses; 3. Statement of account or notice of demand; and 4. Latest audited financial statements. Additionally, the following supporting papers shall be required on remittances of: a) Net profits If the applicant is a Philippine agent of the beneficiary (foreign principal), a copy of the agency contract and an affidavit of an authorized official of the agency stating that the beneficiary is not maintaining a branch office or does not have a general manager in the Philippines as verified by the Insurance Commission shall be submitted. A Philippine agent of a foreign insurance company with branch office or general manager in the Philippines shall not be allowed to remit its net premium collections direct to the head office of its principal abroad. Such net premium collections should be delivered by the agent to the beneficiary's (foreign principal's) branch office or general manager in the Philippines. b) Reinsurance premium If the applicant is a resident reinsurance broker (a reinsurance broker authorized to do business in the Philippines), authority in writing by the ceding resident insurance company to remit reinsurance to the accepting non-resident foreign reinsurer or non-resident foreign broker abroad covering reinsurance placed with such reinsurer or through such broker by the resident reinsurance broker shall be submitted. If the accepting foreign insurer or reinsurer is duly authorized by the Insurance Commissioner to do insurance or reinsurance business in the Philippines, the resident ceding company shall not be allowed to remit reinsurance premium to the Head Office abroad of the accepting foreign insurers or reinsurer. Such premium payment shall instead be delivered by the resident ceding company to the branch office in the Philippines of the accepting foreign insurer/reinsurer abroad. c) Payments of claims for losses For payments of claims for losses and other cases of insurance and/or reinsurance payment not specifically covered by the above rules, the agent banks shall require the applicant to submit the pertinent documents to the Insurance Commissioner for prior clearance on a case-to-case basis. SECTION 61. Commissions . Remittances of commissions shall be governed by the following rules: a. Agency agreement for the sale of airline and shipping tickets shall be submitted to the Central Bank for approval. b. Commission earnings of airline or shipping companies in foreign currencies shall be reported to the Central Bank. c. Commissions of travel agents and tour operators of airline and shipping companies shall be paid in the same currency in which the tickets have been paid for. d. Authorized agent banks may allow foreign airline and shipping companies to remit their revenues to their head offices, net of commissions, with the prior approval of the Central Bank. e. Remittance in payment of commissions shall be supported by the following: 1. Computation showing how the amount sought to be remitted was arrived at (in no case to exceed 5% of the FOB price of the export shipment). Agency agreements calling for commission payments in excess of 5% shall have the prior approval of the Central Bank. 2. Evidence of export shipment, such as bills of lading invoices and copy of the letter of credit opened; 3. Certification from the negotiating bank concerned that the export proceeds have been inwardly remitted accompanied by the bank's credit advice; and 4. Latest audited financial statement of the applicant. SECTION 62. Maintenance of trade offices abroad . Remittances for the maintenance of overseas trade offices abroad shall be governed by the following rules: a. Authorized agent banks may act on the request for foreign exchange remittances to maintain overseas trade offices of an export trader registered under Republic Act 6135 up to $100,000 per year per overseas office for operating expenses. b. Requests for remittances of foreign exchange to maintain branch office abroad of Philippine companies shall be supported by the following documents: 1. Copy of the authority to establish the branch office abroad; 2. Evidence of the establishment of the office abroad, including approval of the appropriate government agency where the office is established; 3. Copy of the latest financial statements of the head office duly certified by an independent CPA; 4. Billings/statement of accounts to support the disbursements from the maintenance fund; 5. Report of foreign exchange operations of the branch, duly certified by the Branch Manager concerned; 6. Proof that the branch office abroad is generating economic benefit for the country; and 7. Proof that the operating expenses of the branch abroad is being derived from the profits generated by the company. E. Other Disbursements/Payments for Invisibles SECTION 63. Remittances for other disbursements/payments. The following rules shall govern requests for remittances not specifically covered by the foregoing provisions: a. With prior Central Bank approval, applications for foreign exchange to cover current invisible payments under this Section shall be duly supported by appropriate documents as may be required. b. Central Bank clearance/approval shall be required in payments of foreign exchange for the following: 1. Passenger fares These are payments by residents to foreign carriers in connection with transport of persons and shall be supported by: a) List of passenger ticket issued by the carrier; b) Proof of payment of the corresponding taxes; c) Statement of Revenue and Expenses certified by an independent CPA; d) Statement of gross Philippine billing corresponding to the period covered by the remittance, duly certified by an independent CPA; e) Report on tax exemptions given to non-resident passengers. 2. Time charters These are payments by domestic operators to foreigners for hire of foreign-owned vessels and shall be supported by: a) Copy of Central Bank approval of the Charter Hire Contract which may be submitted only once with the initial application for remittance of charter fees; b) Copy of clearance/authority from the proper government agency for the chartered trips; c) Copy of the latest income tax return of charterer; d) Latest audited financial statements of charterer; e) Billings/statement of account from the creditor, duly certified by an independent CPA; and f) Proof that the required report covering the foreign exchange earnings of the charterer has been submitted to the Central Bank and the proceeds from the operation of the chartered vessel/craft have been remitted inward. 3. Institutional remittances These are donations made by resident private institutions, including missionary, educational and other benevolent contributions and shall be supported by: a) Acceptance of the donation by the donee, indicating his exact address. b) Copy of the latest income tax return of donor and proof of payment of applicable tax; 4. Gifts/Donations Gifts, donations and contributions in excess of US$100 to any one beneficiary shall be referred to the Central Bank for prior approval. 5. Personal remittances These are donations made by residents to non-residents. The supporting documents in Item 3 above shall be required to support these remittances. 6. Management dues and registration fees These cover payments of membership dues and registration fees to associations abroad. Remittances for these purposes shall be supported by: a) Copy of the Articles of Incorporation /Partnership of the remitting firm together with copy of certificate of registration of its business name, whichever is applicable; b) Proof of membership in the foreign association; c) Billings for membership dues or fees; d) Copy of the latest audited financial statements and proof of payment of applicable taxes. 7. Management fees These cover payments for management fees of firms or individuals by local firms or individuals, for services rendered and shall be supported by: a) Duly registered "Management Agreement Contract" as approved by the Central Bank; b) Audited financial statement and proof of payment of applicable taxes; c) Official receipt covering the remittance net of withholding tax, if any. 8. Tuition fees to correspondence schools abroad These cover payments made directly to the correspondence school and shall be supported by: a) Proof of admission or enrollment in the correspondence school. b) Proof of previous remittances; c) Justification for the correspondent study, together with curriculum of courses offered and statement of fees, dues, total cost of the course and schedule of payments; d) Latest income tax return of the applicant or of the person financing the schooling; and e) Billings from the school abroad. 9. Advertising These are payments for the advertisements of local firms in publications abroad and shall be accompanied by: a) Duly signed statement of account and bills of advertising fees; b) Proof of advertisement such as newspaper clippings or appropriate page of the magazine where the advertisement was made; and c) Justification why the advertisement was made abroad. 10. Subscriptions These shall cover payments on subscriptions to foreign publications. Remittance in payment of subscriptions to magazines and other reading materials shall be supported by a statement of account and billings as well as proof of the subscriptions. 11. Retainers' fees These refer to payments by local firms or individuals to foreign retainers, which shall be supported by the following: a) Duly registered Retainer Contract as approved by the Central Bank; b) Justification why such retainership agreement was entered into; c) Audited financial statements of the individual/corporation/firm engaging the foreign retainer. SECTION 64. Other remittances . The following disbursements may also be allowed, subject to Central Bank approval; Provided, That they are reasonable and necessary; that the services, benefits or transactions are not available locally; and the remittances are duly supported by necessary documents showing the veracity of the transactions, which shall include, among others: (a) duly certified statements of accounts, bills, invoices; (b) proof of payment of applicable taxes; (c) audited financial statements certified by an independent CPA, if applicable; and (d) agreement contracts, if any. 1. Port disbursements abroad other than for time charters by domestic carriers including payments to foreigners for bunker fuel, ship's stores and similar supplies, harbor and airfield fees, tonnage and repairs and maintenance. 2. Disbursements to foreign carriers from residents for mail fees and salvage earnings. 3. Fees for comic strips published in local publications. 4. Disbursements to cover international settlement on account, postage, use of telegraph, telegram, cable, radio and other medium of communication facilities. 5. Payments for rebates, discounts and penalties due to specification deficiencies on exports. 6. Payments for income and real property taxes due to foreign governments. 7. Disbursements involving cancellation and refund due to transfer instruments previously credited to the account of the Central Bank and the corresponding adjusting entries. 8. Payments for health and medical expenses to be incurred abroad. Payment of this kind shall be accompanied with a certification under oath of non-availability of local medical facilities and reasonableness of the amount applied for. Payments shall be remitted directly to the hospital/doctor abroad, after showing proof of confinement/treatment and statement of account and/or other bills of expenses. F. Miscellaneous Provisions SECTION 65. Means of servicing payments of invisibles. Commercial banks shall service the remittance covering payments for invisibles by means of telegraphic transfer, mail transfer or demand draft, except that in the case of remittance by demand draft the selling bank shall mail the demand draft directly to the beneficiary abroad. SECTION 66. Processing of applications. The following procedures shall be followed in processing foreign exchange applications: a. Commercial banks shall inform applicants that foreign exchange application shall be filed through authorized agent banks and not directly with the Central Bank. b. Commercial banks shall undertake the initial processing of foreign exchange applications to determine whether the documents submitted by applicants in support of applications are complete as required under pertinent guidelines. c. Commercial banks shall furnish the Central Bank with the names of their accredited liaison officer with whom consultations may be made. d. Only requests and applications requiring Central Bank clearance/prior approval shall be referred to the Central Bank. G. Supervisory Authority of the Central Bank SECTION 67. Verification . The head of the appropriate department of the Central Bank, personally or by deputy shall, when necessary, look into the books of accounts and transactions of each authorized agent bank to verify bank's compliance with the provisions of the law and these regulations. acITSD CHAPTER III Passage Documents The following regulations shall govern the issuance, refund, cancellation, exchange or reissuance of passage documents by airline and shipping companies and travel agencies. A. Definitions and General Provisions SECTION 68. Definition of terms . As used in this Chapter, the following terms shall have the meaning indicated unless the context clearly indicates otherwise: a "Passage documents" shall refer to particular instruments and writings (i.e., tickets and related papers) issued by airline, shipping companies or authorized travel agencies bearing upon specific transactions relating to foreign travel. The term shall include miscellaneous charge orders, exchange orders, and other passage documents issued abroad. b. "Miscellaneous charge order" or "Exchange order" shall refer to the coupons accompanying a ticket issued at extra charge which may be utilized as payment for excess baggage of a passenger, or for passage of said passenger for a trip different from his original itinerary. SECTION 69. Sale of passage documents to residents. Passenger tickets payable in Philippine Currency may be issued locally for travel originating from the Philippines and return thereto, to the following: a. residents of the Philippines; b. officials and staff members of: 1. diplomatic and consular establishments; 2. specialized agencies of the United Nations Organization (UNO) which maintain offices in the Philippines; 3. other international agencies of which the Philippines is a member, including the relatives of said officials and staff members related within the first civil degree, by consanguinity or affinity; c. foreign technicians, for trips to and from the Philippines under contracts of employment duly approved by pertinent agencies of the Philippine government; Provided, That such trips are made within the validity periods of such contracts; d. expatriates working with multinational companies registered under P.D. No. 218 or with OBUs and their dependents; Provided, That such peso payments are funded with inward remittances of foreign exchange. SECTION 70. Sale to non-residents and temporary visitors. Passenger tickets payable in foreign currency authorized as part of the country's international reserves, may be sold to non-residents and temporary visitors except those mentioned in Sec. 71 hereof. Such sale may include miscellaneous charge orders or exchange orders worth not more than US$350.00 or its equivalent in other foreign currencies. Subject to prior approval by the Central Bank, passenger tickets payable in Philippine currency may be issued upon request by other non-residents, including "balikbayans". SECTION 71. Prohibitions . In no case shall any airline or shipping company, or travel agency, issue in the Philippines, passage documents to be paid or payable in pesos for: a. any travel involving a trip from one foreign country to another, or for any travel accommodation incurred or obtained outside the territory of the Philippines; b. any excess baggage originating from countries outside the Philippines; c. any freight charges on shipment sent on consignment to the Philippines. B. Refunds SECTION 72. Refund without Central Bank approval . Without prior approval from the Central Bank, airline and shipping companies may refund or exchange for pesos the following: a. unused miscellaneous charge orders or exchange orders, and other passage documents issued abroad; b. partially used tickets or totally unused tickets; Provided, That an affidavit be executed by the passenger and the principal officer of either the travel agency or airline/shipping company which sold the ticket, to the effect that these tickets have not been utilized to purchase foreign exchange/travel funds. The affidavit is submitted to the Central Bank together with its quarterly report. In the above cases, the particular currency used in purchasing the passage documents, must be indicated in the appropriate box of the ticket. SECTION 73. Refund with Central Bank approval. With prior approval from the Central Bank, airline and shipping companies may refund or exchange in pesos totally unused tickets or partially used tickets utilized in the purchase of foreign exchange; Provided, That the passenger who secured the travel funds shall account for and return said funds to the authorized agent bank which sold the same. The authorized agent bank shall issue the corresponding Central Bank official receipt; Provided, That the Central Bank official receipt shall be submitted by the passenger to the appropriate department of the Central Bank, accompanied by a certification of a principal officer of the authorized agent bank that it re-purchased the travel funds from the passenger concerned. C. Miscellaneous Rules SECTION 74. Examination of books . Airline, shipping companies, and travel agencies shall make available their books of accounts and related records and documents for examination or inspection by examiners of the Central Bank. CHAPTER IV Offshore Banking System A. Basic Policy and General Provisions SECTION 75. Basic policy . Presidential Decree No. 1034 may be viewed as a policy declaration committing the Government's support to offshore banking branches of foreign banks in the country. Its impact is directed towards activities on the international financial scene in which Philippine involvement as a financial center will be stimulated, expanded, and articulated. Their presence in the country will increase Philippine links with foreign lenders, facilitate the flow of desired investments into the country, create employment opportunities and local expertise in international finance, and contribute to the national development effort. SECTION 76. Definition of terms . As used in this Chapter, the following terms shall have the meaning indicated unless the context clearly indicates otherwise: a. "Offshore banking" shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds principally from external sources and the utilization of such funds, as provided herein. b. "Offshore banking unit" or "OBU" shall refer to a branch, subsidiary, or affiliate of a foreign banking corporation which is duly authorized by the Central Bank of the Philippines, as a separate accounting unit, to transact offshore banking business in the Philippines. c. "Net office funds" shall refer to such funds as are remitted, for its own account, by the head office or by any branch of such head office situated outside the Philippines, to its OBU, as well as unremitted earnings of the OBU, minus such funds, also for its own account, as are advanced or otherwise due from the head office or branch of such head office situated outside the Philippines. d. "Deposits" shall refer to funds in foreign currencies which are accepted and held by an OBU in the regular course of business, with the obligation to return an equivalent amount to the owner thereof, with or without interest. e. "Resident" shall mean 1. an individual citizen of the Philippines residing therein; or 2. an individual who is not a citizen of the Philippines but is permanently residing therein; or 3. a corporation or other juridical person organized under the laws of the Philippines; or 4. a branch, subsidiary, affiliate, extension office or any other unit of corporations or juridical persons organized under the laws of any foreign country operating in the Philippines. f. "Non-resident" shall mean an individual, corporation or other juridical person not included in the above definition of "resident." g. "Expanded foreign currency deposit unit" or "EFCDU" shall refer to such local banks and existing local branches of foreign banks which are authorized to operate under R.A. 6426, as amended, by P.D. No. 1035 dated September 30, 1976, which was previously implemented by Central Bank Circular No. 547. h. "Foreign currency deposit unit" or "FCDU" shall refer to banks authorized to operate solely under R.A. No. 6426, which was previously implemented by Central Bank Circular No. 343. i. "Eligible foreign currencies" comprise those foreign Currencies authorized by the Monetary Board of the Central Bank to form part of the country's international reserve assets owned by the Central Bank which are readily available for settling imbalances in the balance of payments or defending the stability of the external value of the local currency. j. "Acceptable foreign currencies" are foreign currencies other than those which form part of the country's international reserves but which are authorized by the Central Bank to be purchased by the authorized agent banks and/or authorized foreign exchange dealers under specific guidelines, k. "Freely convertible foreign currencies" are those which any holder may convert into any eligible foreign currencies. Foreign currencies as used herein shall also mean foreign exchange. EHaCTA B. Criteria for Selection SECTION 77. Criteria for selection. The Monetary Board may authorize only such number of qualified banks to operate as offshore banking units as may, in its judgment, be necessary and desirable for a progressive offshore banking system in the Philippines. The following quantitative and qualitative factors, among others, shall serve as basis for the issuance of certificates of authority to operate an offshore banking unit: (a) liquidity and solvency positions; (b) net worth and resources base; (c) managerial and international banking expertise of applicant bank; (d) contribution to the Philippine economy; and (e) other relevant factors, such as participation in equity of local commercial banks and appropriate geographic representation. C. Qualification; Registration SECTION 78. Qualifications . Only banks organized under any law other than of the Republic of the Philippines, their branches, subsidiaries or affiliates, shall be qualified to operate an offshore banking unit in the Philippines. A local branch of a foreign bank already authorized to accept foreign currency deposits under the provisions of R.A. No. 6426 may qualify to operate as an offshore banking unit in the Philippines; Provided, That its license to transact business under the provisions of R.A. No. 6426 shall be deemed withdrawn on the date of its receipt of the certificate of authority to operate as an offshore banking unit. It shall not accept new deposits or transact any business under authority of R.A. No. 6426 except to service accounts existing on such date. SECTION 79. Registration with SEC . OBUs may engage in banking activities upon receipt of a certificate of authority to operate or a secondary franchise; Provided, That such OBUs shall have secured from the Securities and Exchange Commission (SEC) a primary franchise or license to do business in the Philippines. The following documents are required to be submitted to SEC by OBUs as requisites for a license to transact business in the Philippines: a. Central Bank authority to operate as an OBU; b. Copies of all documents previously submitted to the Central Bank, properly authenticated; c. Verified power of attorney executed by the officer or resident manager of the OBU in the Philippines in favor of a resident agent empowering the latter to accept service of summons and process in all legal proceedings against the corporation and of all matters affecting the same; and d. Financial statements as appearing in printed annual reports, certified to be true and correct by its resident manager in the Philippines. SECTION 80. Corporate undertaking. Upon advice from the Central Bank, a qualified bank shall submit a sworn undertaking of its head office or parent company, through any of its duly authorized officers, supported by an appropriate resolution of its board of directors, to the effect that it shall: a. on demand, provide the necessary specified currencies to cover liquidity needs that may arise or other shortfall that its OBU may incur; b. manage the operations of its OBU soundly and with prudence; c. train continually a specific number of Filipinos in international banking and foreign exchange trading with a view to reducing the number of expatriates; d. hold, at all times, at least US$1 million of its net office funds either in deposits with the Central Bank, or investments in primary issue of foreign currency-denominated securities of the Philippine Government or such other assets that the Central Bank may approve; e. start operations of its OBU within 180 days from receipt of its certificate of authority to operate such unit; f. comply with applicable local laws relating to labor and employment; and g. submit, before start of operations, other documents as may be required by the Central Bank, such as certification or similar documents showing that it is duly authorized by the proper Government entity of its country to engage in offshore banking business in the Philippines. D. Authorized Transactions SECTION 81. Transactions with non-residents and/or with OBUs . An OBU may freely engage in the following transactions with non-residents and/or with other OBUs, in any currency other than the Philippine Peso: a. Accept time and call deposits or issue negotiable certificates of deposit; Provided, That, in the case of non-residents which are non-banks, each deposit shall be at least US$50,000.00, or its equivalent in any currency other than the Philippine peso; b. Accept demand deposits; c. Borrow; d. Deposit; e. Extend loans and advances or participate in syndicated loans; f. Invest in, underwrite or otherwise deal in debt instruments of any maturity; g. Discount bills, acceptances and negotiable certificates of time deposits; h. Open, advise, confirm and/or negotiate letters of credit covering movement of goods or performance of services; Provided, That, the accountee is a non-resident; Provided, further, That where the beneficiary is a resident, negotiation shall be with an authorized agent bank of the Central Bank; i. Issue/renew guarantees, standby letters of credit and similar undertakings; Provided, That, the party on whose behalf the guarantee, standby letters of credit or undertaking is issued/renewed is a non-resident; Provided, further, That where the beneficiary is a resident, the transaction shall be subject to pertinent Central Bank regulations; and j. Engage in foreign exchange trading. Any other transactions not listed above may be undertaken in accordance with such regulations as the Central Bank of the Philippines may issue. SECTION 82. Transactions with FCDUs/EFCDUs. Subject to Central Bank regulations on FCDUs/EFCDUs, an OBU may freely engage in the following transactions with FCDUs/EFCDUs in any currency other than the Philippine peso: a. Accept time, demand and call deposits or issue negotiable certificates of time deposits; b. Borrow with maturities not exceeding 360 days; c. Deposits; d. Extend loans and advances; e. Invest in short-term debt instruments; f. Discount bills, acceptances and negotiable certificates of time deposits; g. Engage in foreign exchange trading; and h. Engage in such other transactions as are authorized under this section between OBUs and resident banks authorized to accept foreign currency deposits under the provisions of R.A. No. 6426. SECTION 83. Transactions with residents (other than FCDUs/EFCDUs and OBUs). Subject to prior approval, an OBU may engage in the following transactions: a. Invest in foreign currency denominated debt instruments of residents (other than EFCDUs and other OBUs). b. Extend short term loans and advances to non-bank resident borrowers subject to the following: 1. Such loans and advances may be granted for the following purposes: a) bridge financing of high priority projects, in the meantime that approved long term credits for said projects are not yet ready for drawing, in order to prevent unnecessary delays in project implementation; or b) refinancing of maturing obligations to avoid the embarrassment of an international default which will seriously affect our international credit standing; or c) working capital for overseas projects approved by the government to be undertaken by Philippine firms; Provided, however, That the loan shall be paid in full before year-end. 2. Renewals of existing revolving credit lines shall be limited only to the extent of the outstanding balance as of the end of 1982, whenever possible, and for the following limited purposes: a) To finance temporary shortfalls in receipts due to uneven collection of receivables or of income over a certain period of time; or b) To meet seasonal and unusual increase in the volume of business; or c) To allow for inventory build-up when such would be beneficial to the economy; or d) To enable the firm to adjust to uncertain increases in the price of imported raw materials or supplies. Firms, or government agencies and corporations applying for renewal of credit lines shall be required to submit a capital build-up program as a condition for approval. 3. Use of revolving credits for permanent or long-term financing of working capital requirements such as normal inventory of buffer stock of imported raw materials or supplies shall not be allowed, except for the oil industry. 4. Firms, government agencies and corporations which have Central Bank-approved revolving credits shall: a) Obtain prior Central Bank approval for all drawings which would increase the outstanding balance of their short term debt beyond end-1982 levels; b) Refinance these credits with other appropriate credits or through a capital build-up program within a reasonable period of time to be scheduled by the Central Bank on a case-to-case basis. Sanctions shall be imposed on private firms and government agencies/corporations and instrumentalities which do not comply with the above requirements and/or with the CB conditions for approval of the line, which shall include, among others, cancellation of their short-term credit authorizations and disapproval of all pending and future loan applications. 5. Financing charges on the above loans shall be limited to the following rates: Interest spread: Not to exceed 3/4% p.a. over LIBOR/SIBOR/prime rate of the lending country. Commitment fee: Not to exceed 1/2% p.a. on the undrawn balance of fixed-term credits reckoned from date of Central Bank approval on effectivity of the loan agreement, whichever comes later. Interbank short-term transactions of not exceeding 360 days, such as credit lines of Philippine banks with correspondent banks, interbank call loans and interbank loans for general liquidity purposes shall not require prior Central Bank approval. c. OBUs may engage in transactions with resident banks which are authorized to accept foreign currency deposits under R.A. 6426. Transactions of OBUs under this section shall be in foreign currencies which are declared by the Central Bank as eligible to form part of the Philippine international reserves and any foreign currency which is freely convertible into said eligible foreign currencies. d. A foreclosed hold-out on dollar deposits which secured peso loans not covered by swap transactions, may be converted into foreign exchange on a case-to-case basis under existing regulations on remittance; Provided, That the local borrowers are firms in priority areas duly certified or registered as such with appropriate government agencies and firms determined by the Central Bank to be engaged in highly essential industries involved in or directly related to food production and franchised utilities. SECTION 84. Financial, advisory and related services . OBUs operating in the Philippines may render financial, advisory and related services to residents under the following terms and conditions: a. Payment shall be made by residents in foreign exchange which they can purchase from any authorized agent bank through appropriate application; b. The financial advisory and other services to be rendered to residents which shall be related to the transactions involving international banking and finance shall be referred to the Central Bank for prior approval; and c. The aggregate receipts for one calendar year derived from fees in payment for these services shall not exceed the aggregate administrative and other operating expenses incurred for the same year. SECTION 85. Importation of resident borrowers . OBUs are authorized to arrange importations of resident borrowers who are recipients of CB-approved OBU long-term loans (5 to 10 years), subject to the following conditions: a. Only machinery, equipment and spare parts allowed under the approved long-term loans shall be covered by this authority. b. The total credit facility granted by the OBU to finance the importation shall not be less than US$1 million. c. In the case of syndicated loans involving the participation of non-OBUs, importations of machinery, equipment and spare parts shall be limited to the amount of OBU participation. d. The OBU granting the loan and arranging the importation may arrange payment of imports under this authority either by Open Account (O/A) Document Against Acceptance (D/A) or Letter of Credit (L/C) any existing regulations to the contrary notwithstanding. e. Importations thru OBUs by means of L/Cs shall be subject to existing regulations on marginal deposit, release certificates and other applicable requirements. The marginal deposit required for L/C opening shall be arranged by the resident borrower with a local commercial bank. f. Proceeds of the approved OBU loan shall be constructively inwardly remitted by crediting the Central Bank account abroad, which may be simultaneously debited to settle drafts drawn by suppliers, under cable advice to the Central Bank. OBUs availing of this authority shall secure prior clearance from the appropriate department of the Central Bank in accordance with the following guidelines: 1. The applicant OBU shall show minimum non-resident assets of US$50 million; or 2. The applicant OBU must exhibit a volume of foreign exchange trading for the month of US$30 million. h. OBUs shall obtain Foreign Exchange Department delegated authority or a Monetary Board authority to qualify under the expanded authority to handle importations of resident borrowers. The individual applications under this authority for importations of machinery, equipment and spare parts by means of L/Cs, O/A or D/A arrangements for account of resident borrowers who are recipients of CB-approved OBU loans shall be coursed through the Management of External Debt and Investment Accounts Department (MEDIAD) under the following guidelines: 1. After approval of the loan by MEDIAD, the pro-forma invoice covering the goods to be imported shall be referred to the Current Imports and Commodity Classification Office (CICCO), Central Bank, for proper commodity classification. 2. Applications to qualify under the expanded authority shall be filed with the appropriate department of the Central Bank, accompanied by an information sheet (CBP Form No. 6-40-07) indicating among other things, the proper commodity classification of the goods to be imported. 3. Individual applications to import shall be filed directly with MEDIAD together with the Foreign Exchange Department clearance to qualify under the expanded authority. The corresponding release certificate shall be issued by MEDIAD. 4. For purposes of determining the total value of non-resident assets as of the end of any month, unclassified assets shall be excluded. 5. The marginal deposit required for L/C opening shall be arranged by the resident borrower with his local authorized agent bank, which marginal deposit shall be subject to Central Bank verification. 6. Duties and taxes levied on the importation shall be paid to and collected by any local authorized agent bank. SECTION 86. Refinancing of trust receipts . OBUs may engage in the refinancing of trust receipts without prior Central Bank approval arising from import transactions of Philippine residents in U.S. dollars or in other eligible foreign currencies and shall be limited to bankers acceptances which are used to refinance import bills under letters of credit. SECTION 87. Financial assistance to officers/employees. OBUs may extend financial assistance (real estate, car, personal loans, etc.) in local currency to their Filipino officers and employees as part of their fringe benefit programs, subject to the following conditions: a. The Filipino employees loan program shall be financed through any of the following means: 1. By inward remittance of acceptable foreign currencies from the Head Office/other foreign-based branches, and/or 2. By assignment to the Manila OBU of the peso dividends due the Head Office/foreign-based branches otherwise remittable abroad under existing regulations. b. OBUs may grant foreign currency loans to their expatriate officers without need of Central Bank approval. c. Authorized agent banks authority to extend peso loans to Filipino officers and employees of OBUs as an alternative method of handling the financial assistance program shall be subject to the following conditions: 1. The OBU concerned shall place US dollar deposits with an authorized agent bank to support the program in an amount equal to or greater than the equivalent of the peso loans on the agent bank's books; 2. In case of default in payment and/or termination of employment of the employee concerned, the OBU will assume the balance of the loan plus interest and other charges, if any, to be paid through an inward remittance of foreign exchange; and 3. Any portion of the interest expense of said loans to be assumed by the OBU shall be paid thru an inward remittance of foreign exchange. E. Administrative Requirements SECTION 88. Visa . A special category of non-immigrant visa under Section 9 of the Philippine Immigration Act of 1940, as amended, shall be issued to foreign personnel of OBUs in the Philippines, as well as their spouses and unmarried children under twenty-one years of age. However, such visas shall not be issued without prior authorization from the Ministry of Foreign Affairs. SECTION 89. Reduction of expatriates . In accordance with Section 7(c) of P.D. No. 1034, foreign personnel may work in an OBU in the Philippines. However, such unit shall train Filipinos in its offshore banking operations, particularly in foreign exchange trading, with a view of reducing the number of its expatriates. SECTION 90. Annual fee . Upon issuance of a certificate of authority to operate an OBU in the Philippines, and yearly thereafter the authorized bank shall pay the Central Bank a fee of US$20,000.00. SECTION 91. Peso deposits . OBUs may open and maintain peso deposit accounts with domestic agent banks exclusively for the following purposes: a. To meet administrative and other operating expenses, such as salaries, rentals and the like, and b. To pay to the designated local beneficiaries of Filipino overseas workers the peso equivalent of their foreign exchange remittances coursed thru the OBUs correspondent banks abroad. These peso deposit accounts shall be funded exclusively by inward remittances of foreign exchange eligible to form part of the Philippine international reserve, or those specified as acceptable to the Central Bank. OBUs may sell inward remittances of foreign exchange for pesos to the Central Bank thru the Foreign Exchange Department, for credit to the demand deposit of the designated authorized agent bank for account of the OBU. F. Immunities SECTION 92. Secrecy of deposits . The provisions of P.D. No. 1246, the law on secrecy of deposits shall apply to deposits in OBUs; Provided, however, That numbered deposits accounts shall not be used. SECTION 93. Effect of certain laws . The provisions of R.A. No. 529 (Uniform Currency Law) as amended, and R.A. No. 3591 (Deposit Insurance Law) as amended, shall not apply to transactions and/or deposits in OBUs in the Philippines. G. Miscellaneous Rules SECTION 94. Accounting and reporting . OBUs shall maintain an accounting system in accordance with such guidelines as may be prescribed by the Central Bank. Periodically or as required, existing reports shall continue to be submitted in the prescribed form to the appropriate department of the Central Bank. SECTION 95. Taxes, customs duties . Transactions of OBUs in the Philippines shall be subject to such taxes as are prescribed in Presidential Decree No. 1034, as implemented by regulations of the Bureau of Internal Revenue. CHAPTER V Foreign Currency Deposit System A. Basic Policy and General Provisions SECTION 96. Basic policy . Republic Act No. 6426 authorized the establishment of a foreign currency deposit system in the Philippines. The Central Bank has since encouraged banks to participate in the system by attractive qualification requirements. The growth of the system is also enhanced by measures such as insurance, secrecy of deposits, tax exemptions, reconversion privileges, exemption from attachment and other privileges. SECTION 97. Definition of terms . a. "Foreign currency deposit unit" or "FCDU" shall refer to banks authorized to operate solely under R.A. No. 6426 which was previously implemented under Central Bank Circular No. 343. b. "Expanded foreign currency deposit unit" or "EFCDU" shall refer to such local banks and local branches of foreign banks which are authorized to operate under R.A. No. 6426, as amended by P.D. No. 1035 dated September 30, 1976, which was previously implemented by Central Bank Circular No. 547. SECTION 98. Certificate of authority . a. Foreign currency deposits under the provisions of R.A. No. 6426 may be accepted by banks duly authorized by the Central Bank. b. Banks shall file an application with the Central Bank of the Philippines for purposes of securing a general certificate of authority. The applicant shall at least have the following minimum qualifications: 1. For a domestic commercial bank a) an unimpaired minimum paid-in capital of P100 million. b) a ratio of capital accounts (net of valuation reserves as determined in the last examination of Supervision & Examination Sector, Department I) to total risk assets of not less than 10%. c) no suspension of its lending operations in the last six (6) months prior to filing of its application. 2. For a Philippine branch of a foreign bank a) No suspension in its lending operations in the last six (6) months prior to filing of its application. 3. For a thrift bank a) an unimpaired minimum paid-in capital of: Located w/in MM Located outside MM Existing (as of 7/10/80) P10 million P5 million New P20 million P10 million b) a ratio of capital accounts (net of valuation reserves as determined in the last examination of Supervision Examination Sector, Department 11) to total risk assets of not less than 10%. c) no suspension in its lending operations in the last six (6) months prior to filing of its application. Provided, however, That upon the effectivity of this Circular, no new certificate of authority to accept foreign currency deposits shall be granted to thrift banks. aHDTAI B. Eligible, Ineligible Currencies/Deposits SECTION 99. Form of deposits; uses . Accounts may be opened in the form of demand, savings, ordinary time, negotiable certificates of deposits, or as trust accounts without need of Central Bank authority for the latter purpose. SECTION 100. Foreign currencies eligible for deposit . Foreign currencies acceptable to form part of the international reserves of the Philippines are eligible as foreign currency deposits. At present, these are: U.S. Dollar Netherlands Guilder Pound Sterling Japanese Yen Swiss Franc Hongkong Dollar French Franc Austrian Schilling Deutsche Mark Singapore Dollar Canadian Dollar Belgian Franc SECTION 101. Foreign currency receipts eligible for deposits . The foreign exchange receipts eligible for deposits shall come from the following sources: a. Earnings/savings of Filipino permanently residing abroad; b. Financial assistance, gift or donation to residents from relatives/other persons permanently residing abroad; c. Funds of non-residents, whether natural or juridical persons, not derived from Philippine sources; d. Proceeds of sale of properties located in the Philippines, of Filipinos who emigrated to foreign countries, converted into foreign exchange for remittance to them in accordance with existing regulations; e. Earnings of Filipino contract workers abroad in excess of the mandatory remittance as provided under Executive Order (E.O.) 857 and the implementing rules; and f. Funds not required to be surrendered under existing Central Bank regulations. SECTION 102. Foreign currency funds ineligible for deposits . a. Foreign exchange purchased from authorized agent banks in accordance with existing regulations such as excess travel funds; unspent financial assistance of dependents abroad of Philippine residents; foreign exchange acquired from any resident persons, firm, association and corporation; and transfer to a foreign currency deposit account or receipt from another foreign currency deposit account, whether for payment of legitimate obligation or otherwise, are not eligible for deposit under the System. b. Banks shall not accept foreign currency deposits. funded by: 1. currency notes/coins from any person/firm, even "balikbayans"; and 2. second endorsed checks. SECTION 103. Surrender of foreign exchange to the banking system. Nothing in these regulations shall be construed as modifying existing regulations on the surrender of foreign exchange to the banking system of: a. Foreign exchange receipts from Philippine exports; b. Foreign exchange receipts from invisible (transactions other than those involving imports or exports of merchandise), representing current earnings or income of residents, examples of which are: 1. Foreign exchange earnings of resident owners or operators of ocean-going vessels; 2. Foreign exchange earnings or acquisitions of resident agents of foreign shipping firms; 3. U.S. dollar pension or allotment checks received by Philippine residents; 4. Foreign exchange earnings or acquisitions of Philippine indentors; 5. Foreign exchange earnings or acquisitions of resident contractors undertaking jobs in U.S. military and naval bases in the Philippines; 6. Foreign exchange acquisitions of authorized foreign exchange dealers (commercial banks, rural banks, thrifts banks, hotels, tourist shops, restaurants, travel agencies, etc.); 7. Foreign exchange acquisitions of resident oil companies, derived from sales of aviation gasoline and oil products in the Philippines to foreign airline and shipping companies; 8. Foreign exchange acquisitions of resident insurance companies from inward insurance and reinsurance business, and from proceeds of settlement of loss claims of resident insurance companies; 9. Foreign exchange proceeds of foreign borrowings of Philippine residents; 10. Foreign exchange derived from U.S. Government expenditures in the Philippines; and 11. Other foreign exchange receipts of residents from non-residents pursuant to contractual obligations. C. Cover Requirement s SECTION 104. Foreign currency cover requirements. Depository banks shall maintain at all times a 100% foreign exchange cover for their foreign exchange liabilities. a. The foreign currency cover shall consist of the following: 1. Foreign currency deposits with the Central Bank equivalent to at least fifteen per cent (15%) of foreign currency deposit liabilities. The Central Bank may pay interest on the foreign currency deposited with it, at rates which it will announce to authorized banks. Until a new announcement is made, the current schedule of interest rates payable on such deposits shall be in effect. 2. Foreign currency deposits with foreign banks; 3. Foreign currency loans or securities, which loans or securities shall be of short-term maturities and readily marketable; 4. Foreign currency notes/coins on hand; and 5. Foreign currency swapped with the Central Bank as represented by the peso accounts arising therefrom. b. Foreign currency deposits of FCDUs of commercial banks with other FCDUs and EFCDUs are not considered eligible foreign currency cover for deposit liabilities. c. For the purpose of complying with the provisions of this section, the principal offices in the Philippines of the authorized bank and all its branches and agencies located therein shall be considered as a single unit. D. Loans SECTION 105. Foreign currency loans. FCDUs may grant foreign currency loans subject to the following rules: a. The foreign currency loans which may be granted by authorized banks as constituting part of the eligible cover may include loans to domestic enterprises which are export oriented in accordance with Central Bank regulations and/or those registered with the Board of Investments under the provisions of the Export Incentive Act (R.A. No. 6135). b. In consideration of applications for such currency loans, the Central Bank will take into account, among other things, projections of export earnings of the applicant domestic enterprises and the maturity pattern of the foreign currency deposit portfolio of the bank. Until the Monetary Board shall otherwise prescribe, foreign currency loans to export-oriented domestic enterprises, shall be subject to prior approval of the Central Bank. E. Immunities SECTION 106. Secrecy of foreign currency deposit. Pursuant to R.A. No. 6426, as amended by P.D. 1246 and P.D. 1034, all foreign currency deposits are declared and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial, administrative or legislative, or any other entity whether public or private. F . Privileges SECTION 107. Numbered accounts. Authorized banks may adopt a numbered account system. SECTION 108. Insurance coverage. The implementing rules and regulations of R.A. No. 3591, as amended, which shall remain in force until further amended by law, provided in effect: a. That foreign currency deposits and foreign currency trust funds are covered by the deposit insurance; and b. That the insurance coverage for each depositor is the equivalent in foreign currency of P15,000.00 converted at the interbank rate on the date of closure of the bank. The insurance on trust funds is separate and is in addition to that covering other deposits of the trustor or beneficiaries. SECTION 109. Rates of interest . Authorized banks are free to pay any rate of interest on foreign currency deposits. SECTION 110. Eligibility as collateral . These deposits are eligible as collateral for peso loans or for foreign currency loans, including foreign currency loans to domestic enterprises. SECTION 111. Reconversion of foreclosed deposit . Foreclosed holdout of dollar deposits used to secure peso loans not covered by swap transaction may be converted into foreign exchange on a case-to-case basis; Provided, That the local borrowers are firms in priority areas duly certified or registered as such with appropriate government agencies and firms determined by the Central Bank to be engaged in highly essential industries involved in or directly related to food production and franchised utilities. G. Exemptions SECTION 112. Tax exemption of interest on deposits . Pursuant to Section 6 of R.A. No. 6426, as amended, all foreign currency deposits made under the Act including interest and all other income or earnings of such deposits, are exempt from any and all taxes whatsoever irrespective of whether or not the deposits are made by residents or non-residents so long as the deposits are eligible or allowed under said law and, in the case of non-residents, irrespective of whether or not they are engaged in trade or business in the Philippines. SECTION 113. Exemption from attachment. Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. SECTION 114. Prospective effect of regulations . Deposits already existing shall not be adversely affected by changes in Central Bank regulations. There shall be no restriction on the withdrawal by the depositor of his deposit or on the transferability of the same abroad except those arising from the contract between the depositor and the bank. H. Operational Rules SECTION 115. Certification of withdrawal . a. Depository banks shall issue a Certificate of Withdrawal to foreign currency depositors withdrawing from their foreign currency deposit accounts, to be used for their travel abroad. b. Certificate of Withdrawal should have the following features: 1. Letterhead of the issuing bank; 2. The name of the authorized signing officer of the issuing bank, printed/typewritten beneath the signature of said authorized signing officer. The specimen signatures of authorized signatories of the Certificate of Withdrawal shall be submitted to the appropriate department of the Central Bank. Changes shall be immediately reported to said office, together with the specimen signatures of new signing officers. 3. The Certificate of Withdrawal should be authenticated by a validating machine that will indicate the date and the amount of foreign currency withdrawn from the foreign currency deposit account. SECTION 116. Presentation of certification to authorities . To facilitate checking by authorized Customs and Central Bank personnel at the airport, banks shall inform foreign currency depositors that they should carry and present the Certification of Withdrawal for immediate identification. I. Miscellaneous Rules SECTION 117. Accounting . a. The foreign currency deposits and their corresponding cover shall be considered as a fund separate and distinct from the regular assets and liabilities of the authorized banks. Authorized banks shall maintain a separate accounting for transactions covered by this chapter that will enable preparation of Balance Sheet and Profit and Loss Statement covering said fund; b. All banks authorized to accept foreign currency deposits are required to maintain a separate subsidiary ledger for their foreign currency transactions; c. Authorized agent banks shall take up in the books of accounts of their authorized units their foreign currency-peso swap transactions with the Central Bank, out of the foreign currency deposit funds, as well as the peso loans extended to residents, out of the peso proceeds of the swaps. SECTION 118. Supervisory authority of the Central Bank. The Governor or the head of the appropriate department of the Central Bank personally, or by deputies, are authorized to verify the books of account and transactions of each authorized bank, to verify the eligible cover, as well as review all other requirements under these regulations and the bank's compliance with the provisions of law and these regulations. SECTION 119. Implementing departments . The Foreign Exchange Department and such other departments of the Central Bank as may be designated by the Governor or the Monetary Board shall be charged with the proper implementation of the law, these regulations and such other rules and regulations that may be issued by the Monetary Board. SECTION 120. Agents abroad . To ensure expeditious action in any legal action or proceedings in respect to foreign currency deposit transactions, authorized banks shall designate or appoint a diplomatic or consulate official thru the Ministry of Foreign Affairs as its foreign agent abroad who will receive summons and/or service of process relative thereto. Such appointment or designation shall have the acceptance in writing of the proposed agent. J. Sanctions SECTION 121. Sanctions . The Central Bank may revoke or suspend the authority of a bank to accept new foreign currency deposit for violation of R.A. No. 6426 or these regulations, or if such bank ceases to possess the minimum qualifications. Any person, firm or association who deposits or causes to deposit under the Foreign Currency Deposit System, funds not eligible for deposit or who fails to sell or delays the sale to the banking system of foreign exchange receipts when required by existing regulations, shall subject the offender to the penal sanction of Section 34 of R.A. No. 265, as amended; Provided, That in the case of a corporation or association, the principal officers thereof (President, Vice President, General Manager, and Treasurer) shall be held accountable for the violation of the regulations. ISTECA CHAPTER VI Expanded Foreign Currency Deposit System A. Basic Policy and General Provisions SECTION 122. Basic Policy . Encouraged by the impressive development of the Asian dollar market in Singapore and Hongkong, and in view of increasing demands for various foreign financing, Presidential Decree 1035 was promulgated. The Decree allowed the expansion of activities of certain depository banks under Republic Act 6426 that had at least P150 million in capital accounts. Such banks are known as Foreign Currency Deposit Units. SECTION 123. Definition of terms . As used in this Chapter, the following terms shall have the meaning indicated unless the context clearly indicates otherwise: a. "Offshore banking unit" or "OBU" shall refer to a branch, subsidiary, or affiliate of a foreign banking corporation which is duly authorized by the Central Bank of the Philippines, as a separate accounting unit, to transact offshore banking business in the Philippines. b. "Resident" shall mean 1. an individual citizen of the Philippines residing therein; or 2. an individual who is not a citizen of the Philippines but is permanently residing therein; or 3. a corporation or other juridical person organized under laws of the Philippines; or 4. a branch, subsidiary, affiliate, extension office or any other unit of corporations or juridical persons organized under the laws of any foreign country operating in the Philippines. c. "Non-resident" shall mean an individual, corporation or other juridical person not included in the above definition of "resident". d. "Expanded foreign currency deposit unit" or "EFCDU" shall refer to such local banks and existing local branches of foreign banks which are authorized to operate under R.A. No. 6426, as amended, by P.D. No. 1035 dated September 30, 1976, which was previously implemented by Central Bank Circular No. 547. e. "Foreign currency deposit unit" or "FCDU" shall refer to banks authorized to operate solely under R.A. No. 6426, which was previously implemented by Central Bank Circular No. 343. SECTION 124. Certificate of authority . A commercial bank authorized to accept foreign currency deposits under R.A. No. 6426, may apply for a certificate of authority with the Central Bank to operate under the expanded foreign currency deposit system; Provided, That the commercial bank meets the following minimum qualifications: a. the applicant bank has unimpaired combined capital accounts, or in case of an existing branch of a foreign bank, unimpaired assigned capital and/or net due to head office account, of at least P150 million. b. based on past performance, the applicant bank has exhibited competence in conducting foreign currency transactions and may therefore be considered capable of engaging in those transactions. SECTION 125. Eligible foreign exchange currencies . An EFCDU may transact business in foreign currencies that are eligible to form part of the Philippine international reserves and acceptable foreign currencies which are freely convertible into such reserves/eligible foreign currencies. CScaDH B. Authorized Transactions In addition to transactions allowable to FCDUs, EFCDUs may engage in the following transactions: SECTION 126. Transactions with non-residents, OBUs, FCDUs and the Central Bank . a. Deposits, loans, investments In addition to transactions allowable under pertinent sections of these regulations, the EFCDU may maintain foreign currency deposit accounts with other EFCDUs and OBUs, subject to prior approval of the Central Bank: 1. extend longer-term foreign currency loans and advances to; 2. invest in longer-term foreign currency debt instruments (whether readily marketable or not) of; and 3. borrow from non-residents, OBUs and other EFCDUs. The acceptance of deposits and normal interbank short-term transactions shall not require prior Central Bank approval. b. Swap transactions 1. An EFCDU may enter into foreign currency-foreign currency swap transactions with the Central Bank, OBUs and other EFCDUs subject to applicable regulations. 2. An EFCDU may enter into foreign currency-peso swap transactions with the Central Bank, and with prior Central Bank approval, with other resident commercial banks. c. Servicing letters of credit An EFCDU acting at the request and in accordance with the instructions of its foreign correspondent bank may perform the following: 1. Issue letters of credit for a non-resident importer in favor of a non-resident exporter; 2. Pay, accept, or negotiate drafts/bills of exchange drawn under the letter of credit; 3. Make payment to the order of the non-resident exporter; Provided, That the foreign correspondent bank shall deposit sufficient foreign exchange with the EFCDU issuing the letter of credit to cover all drawings. SECTION 127. Transactions with residents other than OBUs and EFCDUs. An EFCDU may continue to transact business authorized under the Chapter on FCDUs with residents other than OBUs and other EFCDUs. Subject to prior approval of the Central Bank, an EFCDU may engage in the following transactions: a. Invest in longer-term foreign currency denominated debt instruments of residents; b. Extend short-term loans and advances to non-bank resident borrowers subject to the following: 1. Such loans and advances may be granted for the following purposes: a) bridge financing of high priority projects, in the meantime that approved long-term credits for said projects are not yet ready for drawing, in order to prevent unnecessary delays in project implementation; or b) refinancing of maturing obligations to avoid the embarrassment of an international default which will seriously affect the Philippine international credit standing; or c) working capital for overseas projects approved by the government to be undertaken by Philippine firms: Provided, however, That the loan shall be paid in full before year-end. 2. Renewals of existing revolving credit lines shall be limited only to the extent of the outstanding balance as of the end of 1982, whenever possible, and for the following limited purposes: a) To finance temporary shortfalls in receipts due to uneven collection of receivables/income over a certain period of time; or b) To meet seasonal and/or unusual increase in the volume of business; or c) To allow for inventory build-up when such would be beneficial to the economy; or d) To enable the firm to adjust to uncertain increases in the price of imported raw materials or supplies. Firms, government agencies and corporations applying for renewal of credit lines shall be required to submit a capital build-up program as a condition for approval. 3. Use of revolving credits for permanent or long-term financing of working capital requirements such as normal inventory/buffer stock of imported raw materials or supplies shall not be allowed, except for the oil industry when warranted. 4. Firms, government agencies and corporations which have Central Bank-approved revolving credits shall: a) Obtain prior Central Bank approval for all drawings which would increase the outstanding balance of their short-term debt beyond end-1982 levels; b) Refinance these credits with other appropriate credits or through a capital build-up program within a reasonable period of time to be scheduled by the Central Bank on a case-to-case basis. Private firms and government agencies or corporations and instrumentalities which do not comply with the above requirements and/or with the CB-conditions for approval of the line shall be subject to administrative sanctions which include, among others, cancellation of their short-term credit authorizations and disapproval of all pending and future loan applications. C. Cover Requirements SECTION 128. Foreign currency cover requirements. An EFCDU shall maintain, at all times, a one hundred percent (100%) cover for its deposit liabilities and for all other types of foreign currency liabilities. The foreign currency cover shall consist of: a. Foreign currency deposits with the Central Bank on which the Central Bank may pay interest; b. Foreign currency deposits with foreign banks; c. Short-term loans and readily marketable foreign currency loans or securities; d. Foreign currency notes and coins on hand; e. Foreign currency swapped with the Central Bank as represented by the peso accounts arising therefrom; f. Foreign currency deposits with resident OBUs and other EFCDUs except deposits with FCDUs; g. Foreign currency loans maturing beyond one (1) year; h. Investments in foreign currency-denominated debt instruments with maturities of more than one (1) year and whether readily marketable or not; and i. Foreign currency interest receivable. Not less than seventy percent (70%) of the foreign currency cover shall be in the same currency as that of the corresponding foreign currency liability and thirty percent (30%) or less, at the option of the EFCDU, may be denominated in other eligible foreign currencies. SECTION 129. Exemption. The EFCDU shall be exempt from maintaining fifteen percent (15%) of the cover in the form of foreign currency deposit with the Central Bank. D. Miscellaneous Rules SECTION 130. Applicability of banking laws and Central Bank regulations . The operations of EFCDUs shall be subject to pertinent limitations provided for in R.A. No. 265, R.A. No. 337, both as amended, and other applicable rules and regulations of the Central Bank. SECTION 131. Taxes . The transactions of EFCDUs shall be subject to such taxes as are provided by law and regulations of the Bureau of Internal Revenue (See Appendix 5). SECTION 132. Applicability of R . A . No . 6426, etc . All other provisions of R.A. No. 6426, as amended and the provisions on FCDUs not inconsistent with this Chapter such as those on accounting, reporting requirements, insurance coverage, secrecy of deposits, rates of interest, verification of compliance with the law and regulations and implementation shall apply to EFCDUs. SECTION 133. Non-applicability of the Uniform Currency Law. The pertinent provisions of the Uniform Currency Law, as amended, shall not be applicable to foreign currency transactions of EFCDUs. AaITCS CHAPTER VII Foreign Exchange Position of Commercial Banks SECTION 134. Definition of terms . The following terms as used in this Chapter shall have the meaning indicated unless the context clearly indicates otherwise: a. "Commercial bank" shall refer to commercial banks as defined in R.A. No. 337, as amended, including those with expanded commercial banking authority. b. "Oversold position" shall refer to a situation of a bank where the total regular foreign exchange liabilities exceeds the total of the monetary foreign exchange assets, forward foreign exchange purchases from Central Bank and deposit with Central Bank as recorded or should have been recorded in the regular books of accounts of the commercial bank. "Oversold position", when used in relation with acceptable foreign currencies other than US dollar, shall refer to a situation where the total of the monetary foreign exchange liabilities or other direct obligations and forward sales is more than the total of the monetary foreign exchange assets or spot balances and forward purchases as recorded or should have been recorded in the regular books. c. "Overbought position" shall refer to a situation of a bank where the total of the monetary foreign exchange assets, forward foreign exchange purchases from the Central Bank and the deposit with Central Bank as recorded or should have been recorded in the regular books of accounts of the commercial bank exceeds the total regular monetary foreign exchange liabilities. "Overbought position", when used in relation with acceptable foreign currencies other than US dollar, shall refer to a situation where the total of the monetary foreign exchange assets or spot balances and forward purchases is more than the total of the monetary foreign exchange liabilities or other direct obligations and forward sales as recorded or should have been recorded in the regular books. d. "Balanced foreign exchange position", when used in relation with acceptable currencies other than US dollar, shall refer to a situation where the total of the monetary foreign exchange liabilities or other direct obligations and forward sales is fully covered by the total of the monetary foreign exchange assets or spot balances and forward purchases. e. "Forward exchange cover/contract" shall refer to an agreement for the purchase and sale of foreign exchange for delivery at a specified exchange rate and future date. f. "Spot exchange cover" shall refer to the monetary foreign exchange assets used to cover the monetary foreign exchange liabilities. g. "Swap arrangement" shall refer to the sale of any foreign exchange for pesos by a bank to another bank on the condition that the latter will sell back the same foreign exchange to the former at a fixed future date. h. "Outstanding L/Cs" shall refer to the total unexpired and unnegotiated regular, deferred and standby letters of credit. i. "Net foreign exchange position /holdings" shall refer to net spot foreign exchange position plus outstanding forward exchange purchases from the Central Bank and outstanding deposits with Central Bank as recorded or should have been recorded in the regular books. SECTION 135. Foreign exchange position. a. Commercial banks shall maintain a balanced foreign exchange position for every acceptable foreign currency other than US dollars. They may, at their option, run an oversold or overbought foreign exchange position in any of the acceptable foreign currencies, but such position for each acceptable foreign currency on any day shall not exceed the US dollar equivalent of $250,000.00 based on prevailing exchange rates. However, the oversold position of other currencies shall be fully covered by US dollars; Provided, That at any day, the overall foreign exchange position is not oversold. Over-the-counter purchases of other foreign currency notes not acceptable to form part of the international reserves may be made by a commercial bank; Provided, That the bank's overbought position in any of these foreign currencies shall not exceed the equivalent of US$10,000.00 on any day. b. No overdrafts or foreign exchange borrowing abroad shall be availed of by any commercial bank without the necessary spot exchange cover or forward exchange cover purchased from the Central Bank under swap arrangements. SECTION 136. Allowable retention, surrender . The allowable foreign exchange holdings which banks may maintain shall consist of: a. 10% regular L/Cs outstanding plus deferred L/Cs installments maturing within six (6) months, plus b. 10% of foreign exchange receipts equivalent to a 3-month moving average of the immediately preceding 12-month period. All excess foreign exchange holdings of commercial banks, on a daily basis, shall be sold to the Central Bank. CHAPTER VIII Securities Transactions A. Basic Policy and Definitions SECTION 137. Basic policy . As a matter of national policy, foreign investments in the Philippines are given incentives if made in a preferred area of economic activity and in joint ventures with Filipinos; they are permitted, if made in an area of economic activity which contributes to sound economic development; and encouraged if made in a pioneer area of economic activity. Such investments are subject only to the applicable provisions of the Philippine Constitution, Republic Act No. 5186, otherwise known as the Investment Incentives Act, and Republic Act No. 5455, which covers investments which do not fall within the scope of the Investment Incentives Act. Foreign investments in Philippine securities has been a function of legislations affecting investments and implementing regulations issued by the Central Bank; of external factors such as the global recession, the oil crunch, investor incentives offered by other countries, the higher interest rates prevailing in other capital markets, and inflation. SECTION 138. Definition of terms . As used in this Chapter, the following terms have the meaning indicated unless the context clearly indicates otherwise. a. "Securities" shall refer to shares of stock in a corporation and rights to subscribe for or to receive such shares. The term includes bonds, debentures, notes, or certificates, or other evidence of indebtedness, issued by any corporation, including those issued by a government or political subdivision thereof, with interest coupons in registered form. b. "CB-approved Philippine securities" shall refer to securities listed with the Philippine stock exchanges, whether the principal amount is expressed in Philippine peso or in some other currency. The term shall include securities traded or dealt in by accredited government securities dealers. c. "Foreign securities" shall refer to securities issued by any government, municipal or other public authority of a country other than the Philippines or by any juridical person, organized or incorporated in a country other than the Philippines. d. "Authorized securities dealer" shall refer to a firm or entity duly licensed by the Securities & Exchange Commission as stock dealer or broker and a bona fide member of any of the Philippine stock exchanges which are granted Certificates of Authority by the Central Bank. For purposes of dealing with government securities, the term shall include accredited government securities dealers. All commercial banks, including banks with expanded commercial banking authority, by the nature of their functions, are deemed authorized securities dealers of the Central Bank. e. "Resident" shall refer to 1. an individual citizen of the Philippines residing therein; or 2. an individual who is not a citizen of the Philippines but is permanently residing therein; or 3. a corporation or other juridical person organized under the laws of the Philippines; or 4. a branch, subsidiary, affiliate, extension office or any other unit of corporations or juridical person organized under the laws of any foreign country operating in the Philippines. f. "Non-resident" shall refer to an individual or a juridical person not covered by the definition of "resident". g. "FCDU/EFCDU" shall refer to banks with authority to accept foreign currency deposits. FCDU shall cover authorities granted under R.A. No. 6426 prior to its amendment by P.D. No. 1034. EFCDU shall refer to the authority granted after the amendment of R.A. No. 6426. SECTION 139. Authorized securities dealers. All commercial banks and banks with expanded commercial banking functions are hereby designated as authorized securities dealers. Any duly licensed securities dealer who is a member of any domestic exchanges like the Metro Manila Stock Exchange, Makati Stock Exchange or Metropolitan Stock Exchange, may file the prescribed application form for a Certificate of Authority with the appropriate department of the Central Bank. B. Registration SECTION 140. Registration with Central Bank . Foreign investments in CB-approved Philippine securities funded by inward remittance of foreign exchange shall be registered with the Central Bank. Investments duly registered with the Central Bank shall be eligible for repatriation and remittances of profits and dividends; Provided, That securities acquired under option are not eligible for registration. Foreign investments already registered with the Central Bank need not be registered anew under these regulations. SECTION 141. Registration procedures . a. Applications for registration of foreign cash investments in CB-approved Philippine securities shall be coursed through the authorized agent bank which received the foreign exchange or where the foreign currency deposits are maintained. It shall be supported by proof of inward remittance. b. Applications shall be submitted by authorized agent banks to the appropriate department of the Central Bank within three (3) days after receipt of foreign exchange. c. Registration of security purchases shall consist of a certification by the dealer handling the purchase, setting forth the date of purchase, the name and address of the purchaser, a description of the securities such as the serial numbers, the par value or number of shares, the price paid per unit, and the peso value at the date of purchase. d. All applications for securities transactions which require approval by the Central Bank shall be submitted in triplicate. The triplicate copy showing the date of receipt of the application will be returned to the authorized security dealer. Authorized securities dealers shall furnish the Central Bank with one copy each of all applications for securities transactions executed by them showing such approval. SECTION 142. Transfer of securities by stock transfer agent/registrar . A transfer agent or registrar may not transfer or register Philippine securities from a resident to a non-resident or from a registrar in the Philippines to a registrar elsewhere unless: a. The securities are presented to the transfer agent or registrar for the purpose by a dealer; and b. An approved application authorizing such transfer is exhibited to the transfer agent or registrar. C. Securities Transactions SECTION 143. Responsibilities of authorized securities dealer Authorized securities dealer shall be responsible for: a. the repatriation of Philippine securities purchased abroad from a non-resident seller and their transfer to the resident purchaser; b. the inward remittance to the Philippine banking system of the foreign exchange proceeds of the Philippine securities sold abroad or the initial investments of non-resident, FCDU or EFCDU investors; c. the conversion of such foreign exchange into peso for account of the resident through authorized agent banks; d. issue of license only for transactions authorized under this Chapter; e. the export abroad of CB-approved Philippine securities to non-resident buyers, provided the transaction is registered; and f. submit prescribed Central Bank reports within deadlines. SECTION 144. Sale, transfer and export of securities to non-residents . Authorized securities dealers may execute the sale, transfer and export of securities to non-residents subject to the following rules: a. The sale and transfer to a non-resident of CB-approved Philippine securities or foreign securities; Provided, That payment of the fair market value of the securities is received immediately by the dealer from the non-resident in eligible foreign currency which are sold to an authorized agent bank of the Central Bank within the period prescribed by Central Bank regulations. b. The sale and transfer abroad by a resident of foreign securities and the purchase of foreign securities; Provided, That: 1. Both the purchase and sale are effected through the same dealer executing the transaction and are to be at prices not more than the fair market value in the case of the purchase and not less than the fair market value in the case of the sale; 2. The value of the securities sold must be equal to or greater than the cost of the securities purchased; 3. The securities purchased must be readily marketable securities payable in eligible foreign currencies. c. The export by the dealer of securities sold to non-resident where the dealer has approved the sale and transfer of the securities. d. The export by the dealer of securities for redemption in foreign currency; Provided, That such foreign currency is to be received immediately by the authorized securities dealer and sold to an authorized agent bank of the Central Bank in accordance with existing regulations. e. Dealers may issue licenses authorizing the sale and export to non-residents abroad of CB-approved Philippine securities; Provided, That copies of such licenses shall be furnished the appropriate department of the Central Bank within three (3) banking days from date of issue. SECTION 145. Sale of CB-approved Philippine securities to non-residents and FCDU/EFCDU depositors . Authorized securities dealers may execute CB-approved purchases, as well as subsequent sales of Philippine securities for account of non-residents of the Philippines or foreign currency depositors, subject to the following regulations: a. Purchases of CB-approved Philippine securities by non-residents shall be paid through inward remittances of foreign exchange. Purchases of CB-approved Philippine securities by foreign currency depositors shall be paid in foreign currency withdrawn from the foreign currency account of the purchaser. In either case, the foreign exchange payment shall be sold to the banking system within the period prescribed by existing regulations. The inward remittances of foreign exchange by non-residents for the purchase of the CB-approved Philippine securities shall be effected through an authorized agent bank. The bank shall convert the same into pesos and furnish the authorized securities dealer concerned with a certification of the amount of inward foreign exchange remittance. FCDUs and EFCDUs shall, upon request of the depositors, furnish authorized securities dealers appropriate certifications of amounts withdrawn, deposited or redeposited to such accounts. b. Where the subsequent sale of CB-approved Philippine securities is made for foreign exchange or pesos to a resident or non-resident, the foreign exchange/peso proceeds thereof shall be eligible for redeposit in FCDU or EFCDU, or remittance abroad; Provided, That where the subsequent sale of the same securities is made for pesos, the pesos to be reconverted into foreign exchange shall in no case exceed the value of the foreign currency originally sold for investment. c. The purchases and sales of CB-approved Philippine securities for or on behalf of a non-resident or a foreign currency depositor shall be at fair market value of the securities involved. d. Any peso dividends, net of withholding taxes, on the shares of stock purchased and held by the foreign currency depositor, shall be eligible for conversion and deposit in a foreign currency account; or for conversion and remittance abroad to the non-resident; up to 100% where the shares of stock are those of a BOI-registered or export-oriented industry, or those of a company controlled by citizens of the Philippines, or those of a company which has not availed of domestic credit resources; and up to 25% in the case of shares of stock of other companies. The 25% limitation applies only to investments acquired from June 19, 1972 to March 15, 1973, after which full remittability of said dividend is allowed; Provided, That the investment is registered with the Central Bank. Interests paid on National Government bonds shall be fully eligible for deposit in a foreign currency deposit account or remittance abroad. e. Securities purchased by a non-resident or a foreign currency depositor may be exported abroad by the same dealer who may also effect the transfer from a Philippine to a foreign registry of the shares of stock. f. Dealers shall submit a report sheet on the prescribed form to the Central Bank covering each transaction entered into by or for a non-resident or a foreign currency depositor and executed by the dealer under the provisions of this Chapter. Monthly reports may likewise be required consolidating such transactions executed by authorized securities dealers. g. Nothing herein contained shall be construed as impairing the withdrawability and secrecy of foreign currency deposits under the rules on FCDUs and EFCDUs. SECTION 146. Sale of securities in the Philippines by or on behalf of non-residents . a. A dealer may execute a sale of Philippine securities in the Philippines by or on behalf of a non-resident where: 1. The securities were previously purchased in the Philippines by non- residents; and 2. The purchase was registered with the Central Bank by an authorized securities dealer. b. A dealer may execute a sale of Philippine securities in the Philippines by or on behalf of a non-resident where, the sale is effected for the purposes of exchanging the securities for other securities subject to the following conditions: 1. Both the sale and purchase are to be effected through the authorized securities dealer executing the transaction and are to be at prices not more than the fair market value in the case of the sale and not less than the fair market value in the case of the purchase; 2. The proceeds of the sale may be re-invested only in CB-approved Philippine securities; Provided, That the purchase shall be made not later than the 15th day from the date of sale; 3. The amount re-invested may not be less than 90% of the proceeds of the sale. SECTION 147. Switch transactions . The following regulations shall govern switch transactions in CB-approved Philippine securities: a. Non-resident investors in CB-approved Philippine securities may engage in single or multiple stock switch transactions of their duly registered foreign cash investments. Switch transactions may be done either thru the same dealer through whom the investment was registered or through other authorized securities dealers. b. The fifteen-day time limit prescribed in re-investing proceeds of sale in CB-approved Philippine securities shall not apply to switch transactions. Pending the re-investment or repatriation of peso cash dividends or the proceeds of sale of stock dividends or of the registered investment, said amount shall, at the option of the foreign investor be lodged with the selling authorized securities dealer, or in a trust or other liability account (not a deposit account) with any authorized agent bank. The authorized securities dealer shall submit a report to the Central Bank on peso suspense accounts within 5 days from end of reference month. d. Dealers executing any switch transaction relative to a registered investment shall submit a copy of the approved transaction covering every purchase or every sale to the appropriate department of the Central Bank not later than two (2) days after each transaction. SECTION 148. Payments to non-residents . An authorized agent bank may approve applications of securities dealers to pay or credit a bank account in the name of a non-resident with the proceeds of a sale of securities in the Philippines including accrued interest on such a sale. Debits to bank accounts of non-residents funded with proceeds of sale of securities may be allowed only upon prior authority of the Central Bank. SECTION 149. Transactions abroad in Philippine securities . Authorized securities dealers may approve licenses authorizing: a. the reinvestment abroad of the proceeds of sale of CB-approved Philippine securities belonging to non-residents; and b. the importation into the Philippines of CB-approved Philippine securities, subject to the following conditions: 1. The sale and export or purchase abroad from or to non-residents of the Philippine securities for account of a Philippine resident may be executed only through the authorized securities dealer licensing the transaction and the latter's correspondent broker. Such sale shall be for not less than the fair market value of each CB-approved Philippine securities on the date of sale. The purchase shall be for not more than the fair market value of the CB-approved Philippine securities on the date of the purchase. 2. Within fifteen (15) days from date of sale, the proceeds of the sale abroad of the CB-approved Philippine securities shall be re-invested for account of the resident owner in CB-approved Philippine securities belonging to non-residents which are listed and traded in stock exchanges abroad; Provided, That such Philippine securities purchased from non-residents in over-the-counter transactions are listed and traded in the Manila, Makati and Metropolitan Stock Exchanges. Pending the reinvestment, such proceeds shall be held by the correspondent broker abroad of the dealer licensing the transactions, for the account of the said authorized securities dealer and shall not otherwise be disposed of. Any uninvested amount after the 15th day from the date of sale shall be remitted in foreign exchange to the authorized securities dealer. Said dealer shall sell the foreign exchange to an authorized agent bank of the Central Bank within the period provided by existing regulations. The peso proceeds shall be paid or credited to the account of the resident owner in the books of the dealer. 3. CB-approved Philippine securities purchased from non-resident for account of residents shall be repatriated to the Philippines not later than forty five (45) days from date of purchase. Such securities shall be transferred in the local registry in the name of the resident. SECTION 150. Licensing of purchase or importation of Philippine securities held abroad . Authorized securities dealers may execute licenses authorizing: a. The purchase from non-residents by residents of the Philippines of shares of stock of CB-approved Philippine securities which are held abroad; Provided, That payment for such shares do not involve any foreign exchange outflow from the Philippines and such shares are repatriated to the Philippines and transferred in the local registry in the name of the resident purchaser. b. The importation of such shares to the Philippines for account of the resident purchaser without requiring the purchaser to state the source of the foreign exchange paid for the said shares. The licenses issued by the dealer shall serve as authority for local transfer agents and registrars to transfer the securities involved from foreign registry to Philippine registry and in the name of the resident purchaser. Copies of said licenses shall be furnished the appropriate department of the Central Bank not later than three (3) banking days from date of issue. D. Miscellaneous Rules SECTION 151. Repatriation, remittances of earnings . The repatriation of proceeds of sales of securities and the remittances of capital gains on such investments shall be subject to the following regulations: a. No repatriation/remittance privilege shall accrue to any securities investment unless the same is duly registered with the appropriate department of the Central Bank; b. Securities investments where both purchases and sales are effected in the dollar boards shall, upon registration, enjoy automatic remittance/repatriation privilege, the remittance to be effected net all taxes and charges. The dollar proceeds of sales of such investments may, however, be deposited to the special US dollar accounts authorized in this Chapter. c. The repatriation of proceeds of sales of securities where both purchase and sale were consummated in the peso board, or purchases were made through the dollar boards but the sales were made through the peso boards, or vice-versa and the remittances of capital gains accruing from such investments shall require prior Central Bank clearance. d. After the sale of the investments and before actual repatriation, the proceeds of cash sale may be invested in the following: 1. Foreign currency deposits; 2. Government securities; and/or 3. CB-approved Philippine securities subject to prior approval and registration with the Central Bank. Interim re-investment in foreign currency deposits shall be subject further to the following guidelines: a) The foreign investor or his agent shall apply for the conversion of the peso proceeds with the appropriate department of the Central Bank through an authorized agent bank. b) The reconverted foreign currency shall be deposited under a special account. Withdrawals shall be allowed in accordance with the scheduled repatriation of the original investments. Accelerated withdrawals from the special account may be allowed, subject to prior Central Bank approval; Provided, That the proceeds thereof are reinvested in government securities or CB-approved Philippine securities. c) Applications for approval and/or registration by the Central Bank of interim re-investments of peso proceeds from sale of foreign investments shall be filed in the prescribed form with any authorized agent bank. SECTION 152. Foreign investments in the dollar boards of stock exchanges . a. For purposes of the trading in United States dollars at the dollar boards established by the domestic stock exchanges, settlement of the transactions shall be through foreign exchange instruments which represent or are funded by inward remittances of foreign exchange through authorized agent banks by or for non-residents of the Philippines or by withdrawals from foreign currency deposits. b. Transactions through the dollar boards of the stock exchanges shall be limited to the following categories: 1. Sale of CB-approved Philippine securities by a resident of the Philippines to a non-resident of the Philippines or to an owner of a foreign currency deposit; 2. Sale of CB-approved Philippine securities by a non-resident of the Philippines or by an owner of a foreign currency deposit to another non-resident of the Philippines or to an owner of a foreign currency deposit; and 3. Sale of other securities and instruments, duly approved by the Central Bank for listing in the dollar boards to a non-resident of the Philippines or to an owner of a foreign currency deposit. c. Where the seller of the shares of stock listed in the dollar board is a resident of the Philippines; the dollar proceeds of the sale shall be converted into pesos at the prevailing exchange rate through an authorized agent bank; Provided, however, That if the acquisition of the shares sold was funded by a withdrawal from a foreign currency deposit account, the foreign exchange proceeds may be redeposited to the said account. d. Securities purchased through the dollar boards may be sold through the peso boards and the proceeds of the sale converted into foreign exchange at the prevailing exchange rate for purposes of repatriation or redeposit in foreign currency deposit account. SECTION 153. Special U . S . dollar accounts for foreign investors . Authorized securities dealers may establish special U.S. dollar accounts in their names for the account of individual client-foreign investors with the authorized agent banks, subject to the following conditions: a. The special dollar accounts shall be funded/credited only by: 1. inward remittances of eligible foreign exchange authorized to form part of the international reserves for investment in securities transacted thru the U.S. dollar boards of the local stock exchanges; and 2. proceeds (capital and profits) of sales of securities purchased thru the U.S. dollar boards. b. Debits/withdrawals to the special dollar accounts shall be freely allowed: 1. to finance purchases of securities thru the U.S. dollar boards of the local stock exchanges; 2. to cover payment of commissions, clearing fees and taxes; and 3. for any other withdrawals (whether in foreign exchange or in pesos). Authorized securities dealers may establish and operate the special U.S. dollar accounts solely in their capacity as agents or trustees of their client-foreign investors who shall be identified by their respective names and citizenship. SECTION 154. Swap with Central Bank . a. Proceeds of inward cash remittances earmarked for transactions in Central Bank-approved Philippine securities may be swapped without forward cover for pesos for a minimum period of three (3) months and a maximum of three (3) years, subject to renewal at the option of the foreign investors with the appropriate department of the Central Bank by the authorized agent bank through which the funds were inwardly remitted or deposited. The Central Bank shall buy the cash remittance at the prevailing interbank guiding rate and simultaneously commit itself to sell back the same amount of foreign exchange at the interbank guiding rates prevailing at the date of delivery. Applications for swap shall be made in the prescribed form. b. The application for swap with the Central Bank shall be authorized only upon submission of a collateral swap agreement between the foreign investors or its agent and the local bank. SECTION 155. Transactions prior to December 26, 1969 . Transactions on Philippine securities made prior to December 26, 1969 shall be governed by the rules on invisible payments on "Transfers of Emigrants Assets"; Provided, That interests earned by non-resident holders of government securities, except treasury bills, may be remitted in full. HEcIDa CHAPTER IX Fiscal Agency Services A. Basic Policy and Definitions SECTION 156. Basic policy . The Central Bank, in compliance with the provisions of Section 115 of R.A. No. 265, as amended, shall act as fiscal agent and banker of the Government, its political subdivisions and instrumentalities. It shall service the requirements of Government such as the opening of accounts and transfer of funds. SECTION 157. Definition of terms . a. "Fiscal agency service" shall refer to the Central Bank servicing, as fiscal agent, the foreign exchange demands of the Government, its political subdivisions and instrumentalities. b. "Fiscal agency bills" shall refer to the bills of collection sent to the Government, its political subdivisions and instrumentalities for the peso payments of the foreign exchange disbursed for the Government accounts abroad. B. Functions and Services SECTION 158. Scope of functions . Subject to the usual auditing requirements, the Central Bank shall perform for the Government of the Republic of the Philippines, its political subdivisions and instrumentalities, the following fiscal functions: a. administer the Fiscal Agency Working Fund set-up with the PNB overseas branches and other fiscal agents abroad for account of the Treasurer of the Philippines; b. administer the peso working fund or General Cash Account in the name of the Treasurer of the Philippines; c. receive or collect funds, deposit same in duly designated depositories, effect transfers and make disbursements therefrom; and, d. such other functions as may be duly authorized or directed by the Treasurer of the Philippines. SECTION 159. Requests for services . Requests for fiscal agency service (FAS Form No. 1, as amended) shall be submitted with the following particulars: a. Certification by the accounting officer or other official having control over commitments of appropriations as to availability of funds; b. Certification by the Treasurer of the Philippines as to cash available whenever the request involves US$50,000.00 and above; c. Verification by the auditor as to availability of fund or appropriation and the classification thereof such as: general, special, depository fund; d. A full description of the collection, expenditure, obligation, advance, disbursement, withdrawal, transfer, deposit or other transactions shall be clearly specified in the requests; e. Signature of the head of department, chief of bureau or office, managing head of government-owned or controlled corporation, provincial or city treasurer, or other official having control over appropriations of funds authorized by law or regulation to issue fiscal instructions; f. The fiscal agency service shall not be used, directly or indirectly, for the transmission, collection, transfer, expenditure, or other form of disposition of private funds or other resources to, from and/or within, foreign countries. SECTION 160. Settlement of fiscal agency accounts . Fiscal agency accounts of departments, bureaus and offices of the national Government shall be settled through the Treasurer of the Philippines chargeable against the appropriation of the offices and entities concerned. Government-owned and controlled corporations, provincial or city, municipality and other agencies which do not have an account with the Treasurer of the Philippines shall deposit directly with the Central Bank in check or payment in cash at least equal to the amount of the payment to be made abroad. Excess over actual payments will be refunded by the Central Bank, upon final settlement of the account. C. Other Rules SECTION 161. Miscellaneous rules/requirements . a. Ministries, bureaus and offices of the national government shall: 1. provide the Foreign Exchange Department, Central Bank, with a list of specimen signatures of their officers who submit, certify and authenticate documents relating to FAS requests; 2. submit yearly Foreign Exchange Budget to the Foreign Exchange Department, Central Bank not later than the end of December preceding the subject calendar year. 3. require Accounting Officers and Comptrollers to certify that purchase of foreign exchange invisible payment and/or opening of import letters of credits are in accordance with provisions of Letters of Instructions Nos. 1307 and 1329. b. Sale of US dollar travellers checks and notes for travel funds of government officials/employees shall be effected thru the PNB and Land Bank and its other branches. c. The exchange rate to be used in converting into US dollars and other foreign currencies the peso outlay for the remittance of foreign exchange expenses abroad shall be 3/4 of 1% above the guiding rate as of the date of certification of the availability of funds by the Accounting Officer/Comptroller. CcAIDa CHAPTER X Gold and Silver Transactions A. Basic Policy and Definitions SECTION 162. Basic policy . The Central Bank, pursuant to the provisions of Section 72 of R.A. No. 265, as amended, is authorized to buy and sell gold in any form. It has been the policy of the Central Bank to conserve this metal through purchases at competitive prices, giving incentives to producers and its prudent use through regulations. SECTION 163. Definition of terms . a. "Central Bank" or "CB" shall refer to the Central Bank of the Philippines. b. "Producer" shall refer to domestic primary gold producer. c. "Contract date" shall refer to the date on which the primary gold producer formally notifies the Central Bank of its offer to sell gold on a forward basis. d. "Forward settlement date" shall refer to the specific future date on which the producer shall settle its Forward Gold Contract with the Bank. e. "Forward selling price" shall refer to the sale price per fine troy ounce (FTO) of gold contracted for delivery/settlement in the future, such price to be composed of a Reference Spot Price plus a Forward Premium. f. "Forward buying price" shall refer to the purchase price per fine troy ounce (FTO) of gold contracted for delivery/settlement in the future, such price to be composed of a Reference Spot Price plus a Forward Premium. g. "Reference Spot Price" shall refer to the average of the London A.M. and P.M. fixes and the New York 2:00 P.M. COMEX price for spot gold as of contract date. h. "Forward premium on selling price" shall refer to the London Interbank Bid Rate (LIBID as of Contract Date) corresponding to the term of the hedge less 1.5%. i. "Forward premium on buying price" shall refer to the London Interbank Offered Rate (LIBOR as of Contract Date) corresponding to the term of the hedge. B. Purchases by Central Bank SECTION 164. Purchase of primary gold . All the primary gold production of Philippine mines shall be delivered by the owner or producers thereof to the Central Bank of the Philippines for refining by and sale to the Central Bank Mint and Gold Refinery. The Central Bank shall purchase from the gold producers the refined gold, in Philippine pesos, at the effective exchange rate and at the prevailing international market price. SECTION 165. Central Bank advances . The Central Bank shall make peso advances to gold producers against the refined gold at 100% of the value of the gold for periods of up to 360 days at an interest cost of 8%. After 360 days, the advances shall be liquidated with gold sold to the Central Bank. SECTION 166. Repurchase by producer. The gold producer-seller shall have the option to repurchase the same amount of gold within ninety (90) days counted from the date of sale, under the following conditions: a. Interest at the rate of fourteen percent (14%) per annum based on the original purchase price until such time that the gold producer exercises his option to repurchase. b. The repurchase price shall be the original sales price to the Central Bank plus accumulated interest plus one half of the difference between (1) the final sale price and (2) the original sale price plus accumulated interest. c. The gold producers exercising the option to repurchase shall sell the gold to the Central Bank at the prevailing international market price at the time of repurchase, and at the official exchange rate at the time. This option is renewable every ninety (90) days up to a maximum total repurchase period of 360 days. SECTION 167. Purchase of secondary gold. Mineral concentrates, ores, matte, slime, and precipitates exported abroad for smelting, the gold content thereof, after smelting and refining abroad, shall be sold to the Central Bank and delivered to a Central Bank designated depository. This applies to export shipments made after April 17, 1978. SECTION 168. Panned gold-buying operations . Panned gold-buying operations through the Central Bank buying stations in the Mint and Gold Refinery in Quezon City, Cebu City, Davao City and Surigao, shall be governed by the following policies: a. The payment scheme for panned gold purchased shall be as follows: Transaction Advance Payment Spot 90% Forward 100% If the outturn report shows that an overpayment based on preliminary analysis was made, the excess payment shall be charged against the performance bond and/or the proceeds from the succeeding deliveries. b. For panned gold, refining fees shall be charged on gold deliveries with fineness of less than 99.5% and in accordance with the existing schedule. The minimum refining fee of P1,200 charged to domestic primary producers shall not be applicable to gold panners or traders. c. The trader or panner shall be allowed to withdraw proportionate amounts from the cash bond upon each partial delivery of gold for the length of commitment period, subject to the necessary documentation of the Central Bank gold buying stations. d. A continuing Government Service Insurance System performance bond would be acceptable to the Central Bank in lieu of a bond for each particular transaction. Any deficiency in the amount of the bond in any particular transaction may be supplemented by a cash bond, cashier's check or manager's check. e. A pledge of physically delivered silver coins can be accepted by the Central Bank in lieu of a performance bond for the forward gold commitment provided these coins are valued at 90% based on the Central Bank's prevailing buying prices for silver coins. Should the value of such pledged silver coins fluctuate downward beyond 10%, a supplementary bond shall be required. f. In a forward sale transaction, assigned personnel in the buying stations shall monitor gold deliveries such that they meet the quantity stipulated in the forward sale contract. g. In case of failure to furnish buying stations of the Central Bank's buying prices for gold (spot and forward); e.g., on a non-working holiday in Manila, the prices applicable shall be those of the previous day. SECTION 169. Privilege of export-oriented firms . Gold producers shall qualify as export-oriented firms even if their entire output is sold to the Central Bank. SECTION 170. Purchase of silver . The Central Bank may buy any quantity of silver offered for sale by gold producers at the prevailing market price. All silver holdings, which are at present in safe custody with Johnson Matthey Chemicals, Ltd., London, and all finished silver with the Mint and Gold Refinery (MGR), shall be treated as foreign exchange assets which may be optimized through transactions that would earn foreign exchange for the Central Bank. SECTION 171. Procedural requirements. Gold producers required to sell their entire production of gold to the Central Bank, shall address and transmit to the Office of the Director, Mint and Gold Refinery (MGR), their written communication signed by their President or Vice-President clearly indicating whether (a) the gold is offered for sale for value on the date of delivery or (b) the sale is being postponed to some future date, not later than 4:30 p.m. of the advice date. Subsequent written communication on sale of gold under (b) shall clearly indicate the value date of sale and likewise shall be transmitted not later than 4:30 p.m. of the advice date. Advices received after 4:30 p.m. purporting to show an offer to sell gold immediately shall be for value on the following business day. C. Sales by the Central Bank SECTION 172. Sale of gold . The following shall govern the Central Bank sale of gold for jewelry manufacturers and for other industrial uses: a. The prescribed applications together with supporting documents shall be filed with the appropriate department of the Central Bank. b. Gold shall be sold only to qualified applicants. The total quantity of gold which shall be sold on a quarterly basis to each qualified applicant through the Cash Department or through the Regional Offices, shall not exceed the quarterly gold requirement of the applicant, as determined by the appropriate department of the Central Bank. c. An applicant may buy not more than the gold consumed or utilized during the immediately preceding quarter. In case of insufficiency of the gold allocated for a particular quarter, a supplementary application for the additional requirement may be filed which will be evaluated on the basis of the applicant's interim report of gold utilization submitted to the appropriate department of the Central Bank. d. The Central Bank shall sell gold at the closing selling price of gold in London preceding the date of sale multiplied by the peso-dollar guiding rate on the date of sale. It shall charge a service fee of 3% which represents the cost of conversion and packaging of gold grains to pellets. e. The gold purchaser shall submit to the appropriate department of the Central Bank a quarterly report of production output and gold inventory. SECTION 173. Sale of silver . The Central Bank may sell to the domestic jewelry industry a portion of its silver purchases. The selling price shall be the closing selling price of silver in London on the day preceding the date of sale multiplied by the guiding rate of the peso to the dollar on the date of sale. The sale of silver shall be made under the same administrative producers and qualification requirements as are being enforced in the sale of gold by the Central Bank to domestic end-users. D. Export and Import of Gold, Export of Silver SECTION 174. General rule . Purchases and sales of gold and/or gold-bearing metals situated in the Philippines, without specific license from the Central Bank, may be made by and between Philippine residents only. SECTION 175. Export of Gold and Silver . a. No person shall export or bring out, or attempt to export or bring out, of the Philippines directly, through other persons, through the mails, through international carriers or through any other means, gold and/or gold-bearing materials, including jewelry, in any shape, form and quantity without prior written authorization from the Central Bank. b. For every exportation of silver, in any form, from the Philippines to foreign countries, the exporter shall submit an export declaration to the Central Bank, through its authorized agent banks. All exporters of silver shall report to the Export Department Central Bank, through an authorized agent bank any foreign sale of silver within twenty-four (24) hours after the date of closing or consummation of the contract. The report shall contain the name of buyer, volume or quantity, price, date of sale and other terms and conditions of the contract. The exportation of silver shall be governed by existing export regulations and procedures applicable to said commodity. c. The above requirements shall not apply to the bringing out of the Philippines of: 1. Gold and/or silver forming an integral or necessary part of one's personal effects or of items intended as gifts or souvenirs provided that such personal effects or gifts and souvenirs; Provided, That such personal effects or gifts and souvenir items shall not be brought out in commercial and value" as used herein, shall mean a quantity in excess of two (2) for each kind of such personal effect or item, but in no case shall the aggregate value of the gold or silver content of all said effects and items exceed P10,000.00. 2. Gold and/or silver brought in by tourists and non-residents; Provided, That the entry or importation thereof in the country is properly documented. SECTION 176. Import. Gold in any form, excluding jewelry, may be imported only for industrial and artistic purposes, and any person desiring to import gold must secure a license from the appropriate department of the Central Bank. The issuance of licenses will be subject to the following conditions: a. The applicant must present satisfactory evidence that the proposed transaction is not in violation of the rules and regulations of the exporting country; b. The applicant must present documentary evidence of the name and address of the seller and the amount of gold the applicant has contracted to buy; c. The gold to be imported must be declared with the Bureau of Customs upon arrival; d. Domestic sales of such gold shall be made only to actual users of the metal for industrial and artistic purposes, including jewelers, goldsmiths and dentists; e. The gold must be sold at the prevailing international market price per ounce of fine gold, plus reasonable handling charges; and f. The importer must submit to the Central Bank within five (5) banking days after end of reference month, certified reports in duplicate containing the names, addresses of the buyers, their business, dates of sale, quantity and purpose of purchase, and the quantity of gold on hand at the end of the month. E. Authorized Gold and Silver Bullion Dealers SECTION 177. Authority. Commercial banks shall have the power to buy and sell gold and silver bullions and shall be known as authorized gold and silver dealers. Other banks, may be authorized by the Monetary Board to act as gold and silver dealers, on a case-to-case basis. SECTION 178. Rules. The following rules shall govern the operations of authorized gold and silver dealers: a. Sales of gold and silver bullion by authorized gold and silver dealers in the international free gold and silver market shall be affected in eligible foreign currencies. b. They may freely buy and sell gold and silver bullions among themselves or sell such gold and silver in the international gold and silver market, based on the prevailing market price. They may fix among themselves the daily inter-bank gold and silver bullion price which they may use as guide in their buying and selling operations. c. They shall keep their gold and silver bullion holdings with foreign depositories as may be approved by the Central Bank and/or the Central Bank Mint & Gold Refinery. d. Authorized Gold and Silver bullion dealers' holdings shall form part of their foreign exchange assets. F. Central Bank Facilities 1. Gold Forward Hedging The following rules shall govern gold forward hedging transactions: SECTION 179. Qualifying Requirements. The facility on gold forward hedging shall be open to all primary gold producers upon submission of their latest annual gold production report to the Central Bank. The volume of gold subject to a forward contract by a producer under this facility shall not, at any time, exceed fifty percent (50%) of the producers' gold production during the previous year. SECTION 180. Forward Sale Contract. The following rules shall govern forward sale contracts of gold producers with the Central Bank: a. Any Producer may enter into a forward sale contract with the Central Bank to sell a specified quantity of gold for settlement on a specified Forward Settlement Date at a specified Forward Selling Price. The Forward Premium included in the Forward Selling Price shall be computed as follows: Forward Premium Rate = LIBID less 1.5% Forward Premium Amount (per FTO) = Reference Spot Price x (LIBID less 1.5%) x No. of Days of Hedge/360 b. A Forward Selling Price may be quoted for 3-, 6-, 9- or 12-month settlement. c. Within two (2) business days, the appropriate department of the Central Bank shall confirm the forward sale contract of the gold producer by letter indicating the following: 1. Reference spot price 2. Forward premium 3. Forward settlement date 4. Forward selling price The hedging period shall start two (2) business days after the appropriate department of the Central Bank is notified by the gold producer of their interest to hedge. d. Within the contract period, the gold producer is required to sell to the Central Bank an amount of gold equal to that specified in his outstanding forward contract. 1. Sales of gold by the Producer to the Central Bank during the contract period shall be made at CB's quoted prevailing market price (The Selling Price) and prevailing guiding rate. The amounts of such sales shall be applied firstly against the Producer's outstanding forward sale contract until delivery on the contract is complete. 2. Every sale of gold by the Producer during the contract period at The Selling Price shall be made with a simultaneous commitment to buy back said quantity on the Forward Settlement Date at the same selling price (guiding rate at date of such sale). If the selling price is higher than the contracted Forward Selling Price, the Producer will pay to CB on Forward Settlement Date the differential applying the same guiding rate. If the selling price is lower than the forward selling price CB will pay the Producer the differential at the same guiding rate on Forward Settlement Date. Illustration: I-------------------------I----------------I-----------------------I Contract Date Day X Day Y Forward Settlement Date Transaction Flows: On Contract Date: Producer commits to sell to CB 10 ozs. of gold one-year forward at a Forward Selling Price of US$500/oz. Total value of forward contract is US$5,000. On Day X: Producer sells 5 ozs. of gold to CB at selling price of US$600/oz. On Day Y: Producer sells 5 ozs. of gold to CB at the selling price of US$300.00/oz. Cash Flows (In US Dollars) Gold Producer Central Bank Contract date O O Day X (5 oz. x $600) US$3,000.00 (US$3,000.00) Day Y (5 oz. x $300) 1,500.00 (1,500.00) ___________ ____________ Total Flow 4,500.00 (4,500.00) Forward Settlement* Date 500.00 (500.00) ___________ ____________ Total Proceeds on Gold Sale 5,000.00 (5,000.00) ___________ ____________ *Represents difference between: 1. value of Producer's forward contract with CB and 2. total proceeds of his spot sale deliveries during contract period for the corresponding quantity of gold hedged. e. Settlement of the forward sale contract shall be done with the Mint and Gold Refinery (MGR) not later than two (2) business days after the forward settlement date. f. In cases where the Producer fails to sell the required quantity to CB on or before Forward Settlement Date, the forward contract shall be revoked under the following terms: 1. If the prevailing market price on Forward Settlement Date is lower than the Forward Selling Price, the Producer shall pay to CB an amount equal to one month LIBOR (as of Forward Settlement Date), applied to the undelivered Dollar value of the forward contract, the Peso equivalent value of which shall be calculated at the guiding rate prevailing on Forward Settlement Date. 2. If the prevailing market price on Forward Settlement Date is higher than the Forward Selling Price, the Producer shall pay to CB the sum of (1) the differential between the two prices multiplied by the undelivered quantity and (2) an amount equal to one-month LIBOR (as of Forward Settlement Date) applied to the undelivered quantity of gold at the prevailing market price, the Peso value of both of which shall be calculated at the guiding rate prevailing on Forward Settlement Date. g. Failure by the Producer to pay the amount due to CB in Item "f" above, within two (2) business days after Forward Settlement Date shall result in an additional penalty rate of the average prime rate on the Forward Settlement Date quoted by the following banks: Allied Banking Corporation Bank of the Philippine Islands Far East Bank and Trust Co. h. Within the contract period, the gold producer has the option to pre-terminate or close out any of its forward sale contract or a portion of it by entering into a forward purchase contract with CB to buy a specified quantity of gold against their outstanding forward sale contract at a specified Forward Buying Price. The Forward Premium included in the Forward Buying Price shall be computed as follows: Forward Premium Rate LIBOR Forward Premium Amount (per FTO) = Reference Spot Price x LIBOR x no. of days of Hedge/360 The primary gold producer can only exercise this option whenever the prevailing Forward Buying Price is less than the contracted Forward Selling Price. i. All forward gold sales contracts entered into by a domestic primary gold producer with the Central Bank shall be governed by the rules prescribed herein. Any forward gold sales contracts entered into by a domestic primary gold producer with an institution other than the CB, shall be subject to prior CB approval and submission of their latest gold statistical report. The Central Bank approval for third party gold transactions, if so secured, shall not relieve the primary gold producer from its obligations to have his primary gold production refined at the Mint and Gold Refinery. 2. Facilities to Producers of Metals other than Gold SECTION 181. Producers of Metals Other than Gold. The following facilities shall be available to producers of metals other than gold: a. Fifty per cent (50%) of the producers' actual production during the preceding calendar quarter may be refinanced through bankers acceptances with foreign banks and foreign currency proceeds may be swapped for pesos with the Central Bank for a period of six (6) months renewable for another six (6) months. The swap cost to the producer shall be computed to be the equivalent of the differential between 14% and LIBOR plus the all-in cost of funding. b. Fifty per cent (50%) of actual metal production unsold but covered by a smelting or sale contract may be the subject of inventory financing by the Central Bank. The amount of financing shall be based on the contract price thereof, on the LME or Comex price, whichever is lower. The terms of this financing shall be as follows: 1. 90 days renewable for another 90 days; 2. Rediscounting rate at 8% per annum, and a loan value at 80%; 3. Relending rate of not more than 14% per annum. c. A metal producer may avail himself of both facilities (a) and (b) above. These facilities shall not duplicate any rediscounting privilege which the metal producer normally obtains under the Central Bank export rediscounting window. d. Funds for (b) shall be obtained from the Central Bank's rediscount facilities except as otherwise stated in (e). e. The aforesaid financing (b) shall be implemented through the Development Bank of the Philippines, which shall, however, first exhaust unutilized balances in the Copper Stabilization Fund for the purpose. f. Availment of the foregoing program of assistance shall be allowed for as long as the price of (1) gold is below $370 per fine troy ounce; (2) copper is below $0.90 per pound; and (3) nickel is below $3.00 per pound. The threshold prices of chrome and other metals shall be determined by the Central Bank and the Board of Investments. G. Miscellaneous SECTION 182. Commissions and Charges. The following commissions and charges shall be collected by the Central Bank: a. The Central Bank shall prescribe and collect refining, assaying, storage and other charges. b. Commissions paid to gold traders shall be 3% of London Market price. c. Service fees on local gold grain sales 3%. CHAPTER XI General Provisions The following provisions shall be applicable to all the foregoing chapters: SECTION 183. Reports. Periodically or as required, existing reports shall be submitted in the prescribed form to the appropriate department of the Central Bank. For purposes hereof, the principal office in the Philippines of the bank and all its branches and agencies located therein shall be considered as a single unit. Branches and agencies shall desist from submitting to the Central Bank fragmented reports covering their foreign exchange transactions. SECTION 184. Penal Sanctions. a. Any person who shall engage in the trading or purchase and sale of foreign currency in violation of existing laws or rules and regulations of the Central Bank shall be guilty of the crime of blackmarketing of foreign exchange, and shall suffer the penalty of reclusion temporal (minimum of 12 years and one day and maximum of 20 years) and a fine of no less than Fifty Thousand (P50,000.00) Pesos. b. Any person engaged in the business of exporting who shall underdeclare or undervalue his exports, either as to price or quantity, or any person engaged in the business of importation who shall overvalue or overdeclare his importations, either as to price or quantity, for the purpose of salting and retaining foreign exchange abroad in violation of existing laws and Central Bank rules and regulations, shall be liable for the crime of illegal salting of foreign exchange, and shall suffer the penalty of reclusion temporal and a fine of not less than Fifty Thousand (P50,000.00) Pesos. c. If the offender shall be naturalized citizen of the Philippines, conviction of any of the above offenses shall carry with it the automatic cancellation of his naturalization as a citizen of the Philippines and shall, upon service of sentence, be immediately deported. A foreigner who is convicted of any of the above offenses shall, upon service of his sentence, be immediately deported. d. In addition, and in cases not otherwise covered by the above sanctions, any willful violation of these rules and regulations shall subject the person or persons responsible, to the penal provisions of Section 34 of Republic Act No. 265, as amended. Administrative sanctions under Section 34-A of the same Act may be imposed upon the banking institutions/their directors and/or officers. SECTION 185. Transitory Provision. Rights acquired before the effectivity of this Circular shall not be infringed upon. SECTION 186. Repealing Clause. Except with the provisions pertaining to reports, the following issuances are superseded: a. Circulars 21, 23, 24, 41, 135, 265, 273, 287, 319, 327, 331, 337; 339, 343, 344, 346, 360, 362, 364, 365, 367, 375, 376, 379, 383, 391, 401, 447, 478, 513, 519, 525, 534, 546, 547, 602, 623, 662, 743, 797, 831, 838, 842, 856, 859, 873, 933, 940, 942, 952,953 and Circular 281, 289 insofar as invisible receipts and payments are concerned; Circular 685 and 917 insofar as OBUs are concerned; b. MAAB dated October 27, 1967, MAAB dated December 26, 1969, Stock Brokers and Dealers and Stock Transfer Agents and Registrars, MAAB dated April 14, 1970, MAAB dated July 8, 1970, MAAB dated July 13, 1970, MAAB dated August 7, 1970, Memo To All Authorized Security Dealers and Stock Transfer Agents and Registrars dated August 10, 1970, MAAB dated January 5, 1971, Memo to Authorized Security Dealers dated March 16, 1971, MAAB dated August 18, 1971, MAAB dated September 13, 1971, MAAB and Authorized Security Dealers dated March 26, 1973, MAAB dated May 10, 1973, MAAB dated September 7, 1973, MAAB dated March 1, 1974, MAAB dated July 5, 1974, MAAB and Authorized Security Dealers dated August 9, 1974, MAAB and Authorized Security Dealers dated April 21, 1975, Memo to Authorized Security Dealers dated April 12, 1976, Memorandum dated June 21, 1976, Memo to All Authorized Security Dealers dated June 21, 1976, MAAB dated March 1, 1978, MAAB dated June 27, 1980, MAAB dated July 15, 1980, MAAB dated September 16, 1980, Memo to Airlines, Shipping Companies and Travel Agencies dated January 27, 1982, MAAB dated July 1, 1982, MAAB dated August 23, 1982, MAAB dated October 29, 1982, MAAB dated March 19, 1983, MAAB dated March 22, 1983, MAAB dated June 6, 1983, MAAB dated June 13, 1983, MAAB dated June 13, 1983 (#26), MAAB dated July 7, 1983, MAAB dated July 29, 1983, MAAB dated August 3, 1983 and MAAB dated February 21, 1970 governing foreign borrowings and investments and transfers of emigrants insofar as transfers of emigrants assets are concerned; and c. Circular-Letters dated March 9, 1971, August 17, 1972, October 10, 1972, November 8, 1972, December 28, 1972, January 2, 1973, January 17, 1973, October 3, 1974, November 15, 1974, January 24, 1975, March 21, 1975, July 14, 1975, August 20, 1975, February 2, 1976, February 5, 1976, May 13, 1976, July 21, 1977, August 17, 1977, August 22, 1977, November 21, 1977, November 28, 1977, December 23, 1977, February 24, 1978, August 3, 1978, August 7, 1978, November 9, 1978, November 20, 1978, December 19, 1978, April 24, 1979, November 12, 1979, June 10, 1980, June 16, 1980, August 28, 1980, March 30, 1981, May 11, 1981, July 7, 1981, November 26, 1981, January 20, 1982, March 31, 1982, April 20, 1982; April 29, 1982, July 1, 1982, September 6, 1982, July 5, 1983, July 11, 1983, July 12, 1983, July 27, 1983, August 1, 1983, August 25, 1983 and an undated Circular-Letter, Series of 1983, and dated Sept. 23, 1983. Other Circulars, MAAB, Circular-Letters and Central Bank issuances which are inconsistent with this Circular are deemed amended or modified accordingly. This Circular shall take effect immediately. FOR THE MONETARY BOARD: (SGD.) JAIME C. LAYA Governor APPENDICES APPENDIX 1 December 13, 1982 EXECUTIVE ORDER NO. 857 GOVERNING THE REMITTANCE TO THE PHILIPPINES OF FOREIGN EXCHANGE EARNINGS OF FILIPINO WORKERS ABROAD AND FOR OTHER PURPOSES WHEREAS, existing laws and regulations governing remittances of foreign exchange earnings of overseas Filipino workers to their families, dependents and/or beneficiaries have not been fully effective in ensuring that they are coursed through official financial institutions of the Philippine Government or their authorized agents; WHEREAS, it is necessary to protect the welfare of families, dependents and beneficiaries of Filipino workers abroad and to ensure that the foreign exchange earnings of these workers are remitted through authorized financial institutions of the Philippine Government in line with the country's economic development program; WHEREAS, non-compliance with these aforesaid laws and regulations and recourse to the use of unauthorized and unofficial financing institutions has led to the detriment of the country's balance of payments and economic development program; WHEREAS, it is imperative that the mandatory remittance requirement be fully complied with by all concerned through the institution of appropriate remittance facilities and the imposition of effective sanctions; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and promulgate: cdasia SECTION 1. It shall be mandatory for every Filipino contract worker abroad to remit regularly a portion of his foreign exchange earnings to his beneficiary in the Philippines through the Philippine banking system. Licensed agencies and other entities authorized by the Ministry of Labor and Employment to recruit Filipino workers for overseas employment are similarly required to remit their workers' earnings as provided for in this Order. SECTION 2. All contracts of employment and agency or service agreements submitted to the Ministry of Labor and Employment shall contain a proviso that shall make it mandatory for workers to remit to the Philippines in foreign exchange at least the following portions of their earnings; asia dc a) Seamen or mariners: Seventy (70) percent of basic salary; b) Workers of Filipino contractors and construction companies: Seventy (70) percent of basic salary; c) Doctors, engineers, teachers, nurses and other professional workers whose contract provide for free board and lodging: Eighty (80) percent of basic salary; 1 d) All other professional workers whose employment contracts do not provide for free board and lodging facilities: Fifty (50) percent of basic salary; e) Domestic and other service workers: Fifty (50) percent of basic salary; f) All other workers not falling under the aforementioned categories: Fifty (50) percent of basic salary. SECTION 3. Passports issued to Filipino contract workers shall have an initial period of validity of one year provided that the Ministry of Foreign Affairs may adjust, as circumstances may require, the initial passport validity period. The passport shall be renewable every year upon submission of usual requirements and presentation of documentary proof of compliance to the remittance requirement in the percentages provided for in this Order. The Ministry of Foreign Affairs shall not extend or renew the passport of any contract worker unless proof of his compliance with the mandatory remittance requirement is submitted. asia dc SECTION 4. The Ministry of Labor and Employment shall not approve the renewal of employment contracts and agency or service agreements unless proof of remittance of foreign exchange earnings is submitted. SECTION 5. For purposes of this Order, proof of compliance with the mandatory remittance requirement as mentioned in Section 1 hereof, may consist of any of the following documents or such alternative as may be approved by the Central Bank of the Philippines showing that the contract worker had in fact effected aforesaid remittance and had caused the surrender of the same for pesos through the Philippine banking system: a. Bank receipt evidencing the actual conversion of their foreign exchange earnings into pesos in the Philippines; 2 b. Certification from employer, duly authenticated, that remittance has been effected; c. Certification as to the surrender for pesos to the Philippine banking system; and d. Receipt of International Postal Money Order. SECTION 6. Remittances of foreign exchange earnings may be undertaken individually by the contract worker or collectively through the employer under a payroll deduction scheme, in accordance with Central Bank regulations and applicable guidelines. SECTION 7. As a prerequisite for accreditation by the Ministry of Labor and Employment, an employer shall commit to provide facilities to effect the remittances and monitoring of foreign exchange earnings of Filipino workers in his employ. SECTION 8. The Central Bank of the Philippines shall cause necessary arrangements to be made with the appropriate financing institutions to handle the remittances called for in this Order. In the absence of appropriate banking facilities, the Embassy or Consulate nearest to the job site, in accordance with local laws and regulations, may act in the interim as the channel for remittance of foreign exchange earnings. The Ministry of Foreign Affairs shall immediately inform the Central Bank of the Philippines these arrangements and shall remit all funds thereto. acd SECTION 9. Contract workers who fail to comply with the requirements of this Order shall be suspended or excluded from the list of eligible workers for overseas employment. In cases of subsequent violations, he shall be repatriated from the job site at the expense of the employer or at his expense, as the case may be. Filipino or foreign employers and/or their representatives who fail to comply with the requirements under this Order shall be excluded from the overseas employment program. In the case of local private employment agencies and entities, failure to comply with the provisions hereof shall be a ground for cancellation of their license or authority to recruit workers for overseas employment, without prejudice to their liabilities under existing laws and regulations. asia dc SECTION 10. The Ministries of Labor and Employment and Foreign Affairs and the Central Bank of the Philippines shall draw up the necessary rules and procedures for the proper implementation of this Order within ten (10) days from the signing hereof. SECTION 11. All provisions of existing orders, rules and regulations inconsistent herewith are hereby repealed. SECTION 12. This Order shall take effect thirty (30) days after the promulgation of implementing rules and procedures. asia dc Done in the City of Manila, this 13th day of December, in the year of Our Lord, Nineteen Hundred and Eighty Two. RULES AND REGULATIONS IMPLEMENTING EXECUTIVE ORDER NO. 857 RULE I Definition of Terms SECTION 1. Definitions. a) Filipino contract worker abroad any member of the Philippine labor force employed abroad. b) Mandatory remittance the amount or portion of the basic salary of the Filipino contract workers abroad required under existing laws and regulations to be remitted by the workers to their beneficiaries in the Philippines and sold for pesos to the Philippine banking system. c) Licensed agencies or other entities any agency or entity licensed or authorized by the Ministry of Labor and Employment to hire or recruit Filipino workers for employment abroad. d) Philippine banking system includes local commercial banks, branches of foreign banks, offshore banking units and thrift banks and rural banks authorized by the Central Bank to purchase for pesos foreign exchange. RULE II Statement of Policy SECTION 1. Objective. It is the policy of the State to protect the welfare of families, dependents and beneficiaries of Filipino workers abroad and to ensure that the foreign exchange earnings of these workers are remitted and sold for pesos to authorized banks in the Philippines, in line with the country's economic development program. RULE III Foreign Exchange Remittance SECTION 1. Coverage. This Rule shall apply to any worker defined in Section 1(a), Rule 1 of these Rules and Regulations. It shall also apply to licensed agencies or other entities authorized by the Ministry of Labor and Employment to hire and recruit Filipino workers for overseas employment and their foreign principals or employers. SECTION 2. Obligation to Remit. It shall be mandatory for a worker to remit and sell for pesos regularly, on a monthly basis, a portion of his basic salary abroad to his beneficiary in the Philippines through the Philippine banking system in accordance with Section 4 of this Rule. This obligation shall be stipulated in the contract of employment and/or service agreement submitted to the Ministry of Labor and Employment for approval. All agencies and other entities authorized by the Ministry of Labor and Employment to recruit Filipino workers for overseas employment shall cause the inward remittance and sell for pesos the foreign exchange payments due from foreign employers, representing mobilization expenses of Filipino overseas workers, including their air fares and other incidentals. SECTION 3. Obligation to Report. All agencies and other entities authorized by the Ministry of Labor and Employment to recruit Filipino workers for overseas employment shall submit monthly reports to the Central Bank of the Philippines through its Foreign Exchange Department, which shall, among other things, contain the following information: (a) name of worker; (b) name and address of foreign employer; (c) basic salary of worker in foreign exchange; (d) name and address of designated beneficiary or dependent; and (e) name of local bank of worker and bank account number, if any. The form for this purpose shall be prescribed by the Central Bank of the Philippines. SECTION 4. Mandatory Remittance Requirement. The percentage of foreign exchange remittance referred to in Section 2 of this Rule shall be as follows: a) Seamen or mariners: Seventy (70) percent of basic salary; b) Workers of Filipino contractors and construction companies: Seventy (70) percent of basic salary; c) Doctors, engineers, teachers, nurses and other professional workers whose employment contracts provide for free board and lodging: Seventy (70) percent of basic salary; d) All other professional workers whose employment contracts do not provide for free board and lodging facilities: Fifty (50) percent of basic salary; e) Domestic and other service workers: Fifty (50) percent of basic salary; f) All other workers not falling under the aforementioned categories: Fifty (50) percent of basic salary. SECTION 5. Proof of Compliance. For purposes of Executive Order No. 857, proof of compliance with the mandatory remittance requirement as mentioned in Section 2 hereof, may consist of any of the following documents or such alternatives as may be approved by the Central Bank of the Philippines showing that the contract worker had in fact effected aforesaid remittance and had caused the surrender of the same for pesos through the Philippine banking system: a) Confirmed bank remittance form; or b) Certification from employer, duly authenticated, that remittance has been effected; or c) Bank certification or credit/payment advice evidencing sale for pesos to the Philippine banking system; or d) Central Bank official receipt covering foreign exchange sold in the Philippines to authorized agent banks or authorized foreign exchange dealers; or e) Receipt of International Postal Money Order. SECTION 6. Procedure for Remittance. Remittance of foreign exchange shall be in accordance with the "Guidelines and Mechanism to Facilitate the Remittance of Salaries of Filipino Overseas Workers" adopted pursuant to LOI 1219 dated March 26, 1982. SECTION 7. Remittance Arrangements. The Central Bank of the Philippines shall cause necessary arrangements to be made with the appropriate financing institutions to handle the remittances called for in this Order. Pending the establishment of appropriate arrangements and in the absence of banking facilities, the Embassy or Consulate nearest to the job site may act, in the interim, as a channel for remittance of foreign exchange earnings. In the performance of these functions, the Embassy or Consulate shall abide by customary local laws and regulations on the matter. The Ministry of Foreign Affairs shall report to the Central Bank of the Philippines these arrangements and shall remit all the funds to the Philippine National Bank, which shall take charge of the prompt payment in pesos to the beneficiaries. The Philippine National Bank shall submit to the Central Bank of the Philippines a monthly report covering these transactions in a form to be provided for the purpose within ten (10) banking days following the end of reference month. RULE IV Effect of non-compliance with the mandatory remittance requirement on issuance, renewal and extension of passport SECTION 1. No passport shall be issued, renewed or extended by the Ministry of Foreign Affairs unless proof of applicant's substantial compliance with the mandatory remittance requirement in the percentages provided for under these Rules is submitted. SECTION 2. Passports issued to Filipino contract workers shall have an initial period of validity of one year. The Ministry of Foreign Affairs may however adjust, as circumstances may require, the initial passport validity period. SECTION 3. The passport shall be renewable every year upon submission of usual requirements and presentation of documentary proof of compliance to the remittance requirement defined in Section 5 of Rule III hereof. RULE V Effect of non-compliance with the mandatory remittance. requirement on accreditation of employer, issuance of license and authority and approval or renewal of contracts of employment SECTION 1. No accreditation shall be issued to an employer and no license or authority shall be granted to an agency or entity by the Ministry of Labor and Employment unless they submit proof that they have provided facilities to effect the remittances of foreign exchange earnings of Filipino workers under their employ. SECTION 2. No contracts of employment and/or service agreement shall be approved or renewed by the Ministry of Labor and Employment unless proof of compliance with the mandatory remittance requirement is submitted. SECTION 3. A contract worker who fails to comply with the mandatory remittance requirement shall be suspended or excluded from the list of eligible workers for overseas employment and in cases of subsequent violations, he shall be repatriated at his own expense or at the expense of his employer, as the case may be. SECTION 4. Filipino or foreign employers and/or their representatives who fail to comply with these Rules shall be excluded from the overseas employment program. SECTION 5. In the case of local private employment agencies and other similar entities, their failure to comply with the mandatory remittance requirement shall be a ground for cancellation of their authority to recruit workers for overseas employment without prejudice to their liabilities under existing laws and regulations. RULE VI Agency Guidelines for the Implementation of these Rules SECTION 1. The Ministry of Foreign Affairs, the Ministry of Labor and Employment and the Central Bank of the Philippines shall draw up appropriate procedural guidelines for the proper implementation of these rules by their respective agencies. RULE VII Inter-Agency Coordination SECTION 1. For purposes of coordination and effective implementation of Executive Order No. 857 and its implementing rules and regulations, the Ministry of Foreign Affairs, the Ministry of Labor and Employment and the Central Bank of the Philippines shall designate their respective representatives to constitute an Inter-Agency Committee, pursuant to LOI 1219 dated March 26, 1982. SECTION 2. The Ministry of Labor and Employment, in collaboration with the Central Bank of the Philippines, shall undertake continuing seminars to familiarize and educate contract workers, recruiters and/or their representatives on the procedures for remittance of foreign exchange earnings. SECTION 3. The Ministry of Foreign Affairs, through its diplomatic and consular establishments, and the Ministry of Labor and Employment, shall circularize and disseminate widely the Executive Order and such other implementing rules and guidelines as may be issued hereafter. RULE VIII Date of Effectivity SECTION 1. The provisions of these rules and regulations shall be effective beginning 1 February 1983. Done in the City of Manila, this 29th day of December 1982. (SGD.) JAIME C. LAYA Governor Central Bank of the Philippines (SGD.) BLAS F. OPLE Minister Ministry of Labor and Employment (SGD.) CARLOS P. ROMULO Minister Ministry of Foreign Affairs APPENDIX 2 March 26, 1982 LETTER OF INSTRUCTIONS NO. 1219 TO : The Governor, Central Bank of the Philippines The Minister of Foreign Affairs The Minister of Labor and Employment You are hereby directed to study and prepare the necessary guidelines and mechanism to facilitate the remittances of salaries of the Filipino overseas workers to their designated beneficiaries or bank accounts in the Philippines in accordance with the provisions of the Labor Code as amended and with existing rules and regulations of the Central Bank of the Philippines. cd i In implementing this directive, you may enlist the assistance of any government office or instrumentality and make representations with the appropriate authorities in host countries to insure the expeditious and beneficial availment of the workers and the beneficiaries of their earnings. cd i You are to submit a report on the implementation of this directive within thirty (30) days. Done this 26th day of March, 1982. cd i GUIDELINES AND MECHANISM TO FACILITATE THE REMITTANCES OF SALARIES OF OVERSEAS WORKERS TO THEIR DESIGNATED BENEFICIARIES OR BANK ACCOUNTS IN THE PHILIPPINES General These guidelines shall apply to every contract worker and seaman recruited and placed in overseas employment. It shall also apply to licensed agencies and authority holders and/or their foreign principals or employers. It shall be mandatory for a worker or seaman to remit regularly a portion of his foreign exchange earnings abroad to his beneficiary through the Philippine Banking System. I. Guidelines for Group Remittances (Payroll System 70%) A. Those handled by Filipino Overseas Construction Companies (FOCCs). 1. Remittance into the Philippines of 70% of the basic salaries of their own workers in accordance with the provisions of the Labor Code. a. FOCCs shall prepare monthly reports/payrolls at their Manila Office or at job sites which shall contain, among others, the following information: i. Name of worker; ii. Tax Account Number; iii. Basic monthly salary in foreign exchange; iv. Name of designated beneficiary; v. Address in the Philippines of beneficiary; and vi. Bank and account number. b. FOCCs, thru their banks in the Middle East, shall be responsible for effecting the remittance of 70% of the basic salaries of their workers, to their respective banks in Metro Manila. c. Upon receipt of remittance in Metro Manila, the receiving bank shall credit the account of the remitting FOCC with the equivalent amount in pesos of the remittance, based on the CB-prescribed rate (as appearing in the CB Bulletin on Buying Rates on date of receipt). d. Upon receipt of the corresponding credit advice, the FOCC Office in Metro Manila shall effect payment in pesos to designated beneficiaries in accordance with the prescribed rates available daily from the Treasury, Central Bank. (FOCCs, if they so desire, may advance peso payments to designated beneficiaries even before receipt of credit advice from banks). e. FOCCs shall handle and facilitate the remittance of amounts due beneficiaries residing in the provinces, either thru banks or postal offices. 2. Remittance into the Philippines of foreign exchange earnings/acquisitions of overseas workers outside of the mandatory 70%/50% remittance requirement. a. Filipino Overseas Contractors designated as Foreign Exchange Dealers of the Central Bank shall inform all their workers that they are authorized by the Central Bank of the Philippines to purchase foreign exchange earnings/acquisitions of Filipino overseas workers at rates prescribed by the Central Bank, b. Workers shall inform Filipino Overseas Contractors of the amount they are going to send to the Philippines (regularly or occasionally) outside of the 70%/50% mandatory remittance requirement, several days before the preparation of the payroll. c. Filipino Overseas Contractors shall prepare a summary report covering the amounts being remitted into the Philippines outside of the 70%/50% mandatory remittance requirement. d. The same procedures outlined in paragraph numbered 1-A above shall likewise be observed. B. Remittances Handled by Manning Agencies Remittance procedures outlined in "A" above shall be observed. C. Remittances Handled by Other Filipino Overseas Service Contractors Remittance procedures outlined in "A" above shall be observed. II. Guidelines for Individual Remittance To be Observed by Other Filipino Overseas Contract Workers Who are Required to Remit at Least 50%/70% of Their Basic Salaries in Accordance with the Provisions of the Labor Code A. Through a Bank Abroad Which Has Correspondent Relationship With a Bank in the Philippines 1. The remitter shall fill out the bank's remittance form indicating his/her tax account number after his/her name. 2. The bank abroad shall effect the remittance of the amounts applied for by the remitter to its correspondent bank in the Philippines, either by cable or mail transfer, indicating in the transmittal slip the tax account number after the remitter's name. (Note: All government and private agencies concerned will be provided with a list of correspondent banks abroad of all commercial banks in the Philippines as soon as they are made available to the Central Bank.) 3. Upon receipt of credit advice from abroad, correspondent bank in the Philippines shall effect payment in pesos to the designated local beneficiary based on the exchange rates prescribed daily by the Central Bank, thru the most expedient means, such as but not limited to, the following: a. Crediting the account of beneficiary, if any; b. Issuing a cashier's check payable to beneficiary if the remittance is an "advice and pay"; c. Issuing a cashier's check to another bank within Metro Manila where beneficiary maintains an account, in favor of beneficiary; and d. Cable transfer to the province, if beneficiary resides in the province, or if beneficiary's bank account is maintained outside Metro Manila. B. Through Head Offices, Branch Offices, and/or Correspondents Worldwide of Offshore Banking Units Operating in the Philippines. 1. The same remittance procedures outlined in II-A above shall be observed. (Note: Filipino overseas workers will be informed that offshore banking units in the Philippines are authorized by the Central Bank to convert into pesos foreign currency remittances of Filipino overseas workers received from their head offices, branches, or correspondents abroad. All government and private agencies concerned will be provided with a list of head offices/branches/correspondents abroad of offshore banking units operating in the Philippines as soon as they are made available to the Central Bank.) C. Through International Postal Money Order Services (Note: This facility can be availed of by any person abroad, in any country which has a postal money order agreement with the United States, Japan or Malaysia, who may wish to send money order remittance to any resident of the Philippines. The services practically include places where overseas Filipinos are concentrated such as the Middle East, United Kingdom, Germany, Australia, Papua New Guinea, as well as certain places that form part of African and Socialist countries.) D. Application Procedures and Transmittal of Funds to the Philippines 1. A remitter goes to any Post Office where money order services are available and fills up an application form which shall contain, among others, the following information: a. Name and exact address of the Philippine-based payee; b. Name, exact address and tax account number (TAN) of the remitter; and c. The amount of remittance. 2. The international postal money orders purchased are transmitted by airmail by the selling post offices to their respective money order exchange offices located at St. Louis, Missouri (for U.S.A.), Tokyo (for Japan) and Kuala Lumpur (for Malaysia). 3. International money order lists are then prepared by the aforesaid exchange offices once or twice a week, and the list, together with the money orders arranged in numerical sequence, are transmitted by airmail to Manila, Philippines. 4. Immediately upon receipt of the lists referred to above by the Money Order Exchange Office, Bureau of Posts, Manila, Philippines, domestic money orders are prepared and drawn in pesos based on the foreign exchange rate prescribed by the Central Bank on the day the remittance is converted into pesos. 5. Domestic money orders are then sent direct to the payees immediately by registered mail at their indicated addresses. 6. Domestic money orders are encashed by payees at the designated paying post office or at the Manila Central Post Office or at any commercial bank in the Philippines. III. Implementation of Guidelines The Central Bank, the Ministry of Foreign Affairs, and the Ministry of Labor and Employment, shall collaborate, coordinate, and cooperate with one another in the effective implementation of the foregoing guidelines, as well as in the dissemination of pertinent information among Filipino overseas workers relative to foreign exchange remittances, governmental regulations, requirements, etc. IV. Sanctions Government agencies concerned may impose administrative and/or penal sanctions for violations of the aforementioned guidelines and of other pertinent and related governmental regulations. CaDEAT APPROVED: (SGD.) JAIME C. LAYA Governor Central Bank of the Philippines (SGD.) BLAS C. OPLE (SGD.) CARLOS P. ROMULO Minister Minister Ministry of Labor and Employment Ministry of Foreign Affairs APPROVED: (SGD.) FERDINAND E. MARCOS President Republic of the Philippines APPENDIX 3 INTER-AGENCY COMMITTEE OF THE CENTRAL BANK MINISTRY OF LABOR AND MINISTRY OF FOREIGN AFFAIRS FOR THE IMPLEMENTATION OF E.O. 857 RESOLUTION NO. 1-83 In its meeting held on 9 February 1983 at the Blue Room of the Central Bank and presided over by Central Bank Deputy Governor Juan Quintos, Jr., the Inter-Agency Committee on the Implementation of Executive Order No. 857 decided on the following: I. Guidelines 1.1. Validity of Passports of Contract Workers In accordance with the normal duration of contracts of employment, and taking into account the provisions of both Executive Order Nos. 855 and 857 mandating the Ministry of Foreign Affairs to adjust, as circumstances may require the initial validity period, passports issued to contract workers shall be valid for two years, renewable for another two years subject to compliance with the mandatory remittance requirement. 1.2. Definition of "substantial compliance" As a general rule, compliance with the percentages of mandatory remittance defined in Section 2 of Executive Order No. 857 shall be required. However, during the initial period of the implementation of the Executive Order, which is from February 1, 1983, consular officers may renew old passports or issue new passports and officials of the Ministry of Labor may renew employment contracts if the contract workers concerned are able to submit proof of "substantial compliance" with the mandatory remittance requirement. A contract worker shall be deemed to have substantially complied with the mandatory requirement if, at the time he applies for renewal of passport or renewal of his employment contract during the period cited above, he can show proof that he has remitted and sold for pesos at least one half of the amount of foreign exchange corresponding to the mandatory remittance required of him. The requirement to remit on a monthly basis need not be strictly applied during the initial period of implementation provided that the amount remitted and sold for pesos through authorized financing institutions shall at least be equal to one half of the amount corresponding to the mandatory percentage requirement defined under the Executive Order. For example, if the salary of a contract worker is US$200 a month or US$2,400 a year, such worker is required to remit 50% thereof or US$1,200 annually under Executive Order No. 857. Pursuant to the substantial compliance formula, a contract worker needs only to show proof that he has at least remitted and sold for pesos 50% of US$1,200 thereof or US$600.00 a year. The "substantial compliance" defined herein shall apply to contract workers remitting on an individual basis. It shall not be applicable to those contract workers already remitting or who will be remitting under the payroll system, or on a monthly basis. SDaHEc 1.3. Proof of compliance Proof of compliance could be any one of those enumerated in Sec. 5 of the Executive Order provided the name of the applicant is clearly shown as the sender or seller of the foreign exchange. It shall be the responsibility of the contract worker or his beneficiaries to keep copies of proofs of remittance or sale for pesos as evidence of his compliance for purposes of supporting his application for renewal of passport and/or employment contract. In cases where no remittances of foreign exchange are made abroad, evidence of sale of foreign currencies for pesos to authorized banks of the Central Bank or Foreign Exchange Dealers, shall be accepted as proof of compliance with the mandatory remittance requirement. 1.4. Definition of Beneficiaries Beneficiaries are immediate members, relatives, dependents and other persons to whom a contract worker regularly remits a portion of his foreign exchange earnings to the Philippines. A contract worker may also designate himself as his own beneficiary. 1.5. Conflict in Mandatory Remittance Requirement and Host Country's Regulations on the Matter Should there be conflict in complying with the mandatory remittance requirement in view of the host country's regulations on the matter, the percentages of remittance shall be within allowable limits set down by local laws. 1.6. Beneficiaries Living with Contract Workers Abroad A contract worker whose immediate family members, dependents or beneficiaries are residing with him abroad is not compelled to comply with the mandatory remittance requirement except if the dependents themselves are contract workers, subject to verification of his family status by the Ministries of Foreign Affairs and/or Labor and Employment. He should be encouraged, nevertheless, to remit a portion of his foreign earnings to the Philippines. 1.7. Role of Embassy as Channel for Remittances The role of the Embassy as defined in Sec. 7 of Rule III of the implementing rules is only temporary, in the absence of banking facilities in the job site and pending the establishment of appropriate arrangements by the Central Bank. In exercising this function, the Embassy shall abide by customary local laws and regulations of the host country. 1.8. Remittances of Contract Workers are not Deemed Personal Deductions for Income Taxation Purposes Obligations of contract workers to remit portions of his foreign exchange earnings under Executive Order No. 857 are separate and distinct from the personal deductions defined under the gross income taxation law. 1.9. Filipino Servicemen in U.S Defense Installations Filipino servicemen working in U.S. military installations are not compelled to comply with the mandatory compliance requirement but they should be encouraged nevertheless to remit a portion of their foreign exchange earnings to the Philippines through authorized financing institutions. 1.10. Immigrants and Filipino Employees of the U.N. Immigrants and Filipino professionals and employees working with United Nations agencies or specialized bodies are not compelled to comply with the mandatory requirement of Executive Order No. 857 but they shall, nevertheless, be encouraged to remit portions of their foreign exchange earnings to the Philippines through authorized financing institutions. DIAcTE II. Administrative Measures 1.11. Holding of Training Seminars for Licensed Recruitment Agencies The Committee requested the Central Bank and the Ministry of Labor and Employment to make arrangements for the holding of training seminars for licensed recruitment agencies and entities to apprise them of the spirit and intent of E.O. 857, its rules and regulations, and the procedures governing mandatory remittances of Filipino contract workers and to ensure that all concerned (recruiters and workers) are familiar with their obligations under E.O. 857. 1.12. Clearing House for Inquiries All inquiries arising out of the implementation of Executive Order No. 857 shall be addressed to the Inter-Agency Committee, created under Office Order No. 31, dated February 7, 1983, c/o Atty. Gregorio Suarez, Associate Director, Foreign Exchange Department, Central Bank of the Philippines, Manila. 1.13. Feedback Mechanism Consular officers and labor attachs abroad shall be advised to bring to the Committee's attention, through the Ministry of Foreign Affairs, all questions or matters which could not be resolved in the posts and which may require clarification or interpretation of the Executive Order and its implementing rules and regulations. They are also encouraged to make appropriate suggestion or recommendations to effectively implement the Executive Order. 1.14. The Committee shall transmit immediately to the Ministries of Foreign Affairs and Labor and Employment and the Central Bank of the Philippines, these guidelines for dissemination and information of all concerned. 1.15. The Committee may, from time to time, issue resolutions to clarify further these guidelines. (SGD.) JUAN QUINTOS, JR. Chairman Central Bank of the Philippines (SGD.) CRESCENCIO M. SIDDAYAO (SGD.) FRANCISCO F. SANTOS Member Vice-Chairman Ministry of Labor & Employment Ministry of Foreign Affairs (SGD.) B. D. RUIZ Member Central Bank of the Philippines Attested: (SGD.) GREGORIO R. SUAREZ (SGD.) ALITA R. MARTEL Executive Officer Alternate Chairman APPENDIX 4 MEMORANDUM OF AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Memorandum of Agreement made and executed on this 5th day of July, 1979, at Makati, Metro Manila, by and among: The MINISTRY OF INDUSTRY, a government entity created and existing under Philippine Laws, with principal offices at Makati, Metro Manila, Philippines, herein represented by its Minister, VICENTE T. PATERNO, hereinafter referred to as "MI"; and The CENTRAL BANK OF THE PHILIPPINES, a government entity created and existing under Philippine Laws, principal offices at Manila, Philippines, herein represented by its Governor, GREGORIO S. LICAROS, hereinafter referred to as "CB"; and The BOARD OF INVESTMENTS, a government entity created and existing under Philippine Laws, with principal offices at Makati, Metro Manila, Philippines, herein represented by its Managing Head and Vice-Chairman EDGARDO L. TORDESILLAS, hereinafter referred to as "BOI"; WITNESSETH: THAT WHEREAS, Section 5 of Presidential Decree No. 1520 amending the Charter of the Ministry of Industry provides for the creating of an inter-agency Technology Transfer Board within the Ministry paving the way for a coordinated and comprehensive approach to the multi-faceted aspects of technology transfer; WHEREAS, the said Technology Transfer Board is empowered to require the registration of technology transfer arrangements entered into directly with foreign companies and foreign-owned companies subject to such sanctions it may impose for the effective implementation of this requirement; WHEREAS, such sanctions may be directly imposed by the Board, or indirectly imposed, through the appropriate government offices which exercise direct supervision and jurisdiction over certain enterprises; WHEREAS, the CB and the BOI are two such agencies which exercise direct supervision and jurisdiction over certain enterprises; the BOI, as the implementing agency of the Investment Incentives Act, Export Incentives Act, Agricultural Incentives Act and Foreign Business Regulation Act, over companies with projects approved and registered with the BOI; and the CB, as the monetary authority controlling foreign exchange outflow, over firms which have to remit foreign exchange as payment for technology imports; NOW, THEREFORE, the MI, the CB and the BOI, hereby agree as follows: SECTION 1. This Memorandum of Agreement shall pertain to all technology transfer arrangements entered into directly or indirectly with foreign companies or foreign-owned companies, and covered by Section 1 b, Rule I of the Rules and Regulations to implement the intent and provisions of Section 5 of Presidential Decree No. 1520, whenever such technology transfer arrangements cover matters previously referred to the Board of Investments by the Central Bank specifically agreements covering the following: a. The licensing of the use of patents for inventions, improvements, industrial models and drawings; b. The licensing of the use or exploitation of trademarks; c. The furnishing of technical data, know-how and information by means of a description of processes, formulae, specifications and other means applicable to productive activities on a continuing basis; and d. The furnishing of management and technical consultancy services relating to the operation of industrial enterprises on a continuing basis. However, technology transfer arrangements falling under letter "d" above involving an aggregate amount of not more than $20,000 per agreement shall be referred to the Board for notification and unless the Board communicates its objection within seven (7) days from date of notification, the Board's automatic approval shall be deemed to have been granted. It is understood that all contracts/agreements covering technology transfer arrangements not included in the above enumeration shall be acted upon by the Central Bank without need of prior referral to the Technology Transfer Board. SECTION 2. Subject to the provisions of the preceding Section (Sec. 1), all technology transfer arrangements filed with the CB for royalty remittance purposes or with BOI in connection with its registration function under Republic Act Nos. 5455, 5186, 6135 and Presidential Decree No. 1159 shall be forwarded to the Technology Transfer Board, for evaluation, approval and registration. All technology transfer applications approved by the Technology Transfer Board shall be referred to the CB for evaluation and approval of the foreign exchange aspects of said contracts. SECTION 3. The Technology Transfer Board of MI shall evaluate all technology transfer arrangements filed with it or forwarded to it by BOI, CB or any other agency taking into account the policies of the Board as formulated by representatives from the National Economic and Development Authority, Central Bank of the Philippines, National Science Development Board, Technology Resource Center, Board of Investments, Philippine Patent Office and Ministry of Industry. SECTION 4. All companies with existing technology transfer arrangements applying or approved for registration under the Investment Incentives Act, Export Incentives Act, Agricultural Incentives Act or seeking authority to engage in business under the Foreign Business Regulation Act, shall be required to submit proof of registration of technology transfer arrangements, as defined in Section 1 of this Agreement, entered into with foreign companies or foreign-owned companies. Companies with projects approved for registration under any of the said Acts, but which have, at the time of approval, no existing technology transfer arrangement, shall, on the other hand, be required to file for registration with the Technology Transfer Board any technology transfer arrangements it may enter into in the future, as a post-registration requirement, subject to the provisions of Section 1. SECTION 5. All companies seeking Central Bank authority to remit royalties, fees or other forms of payments made to a foreign company or a foreign-owned company under the technology transfer arrangements defined in Section 1 of this Agreement shall be required to submit, in addition to the Central Bank's requirements, proof of registration thereof with the Technology Transfer Board before any authority to remit foreign exchange will be granted. Without prejudice to the power of the Central Bank to implement monetary and fiscal policies, including the remittance of foreign exchange, the Central Bank shall take into account the royalty rates prescribed by the Technology Transfer Board. SECTION 6. Violation of the terms and conditions of registration of the technology transfer arrangement with the Technology Transfer Board or of Sec. 1 Rule X of the Technology Transfer Board Rules and Regulations, requiring approval and registration with the Technology Transfer Board of any amendment or modification to the agreement shall be subject to the appropriate sanctions that could properly be employed by the BOI and the CB under their respective Charters, upon recommendation by the Technology Transfer Board, such as suspension of incentive benefits or suspension of authority to remit foreign exchange for the imported technology. SECTION 7. The provisions of this Agreement shall apply to contracts to be filed with the CB of the BOI after the effectivity of the Technology Transfer Board Rules and Regulations. SECTION 8. This Memorandum of Agreement shall take effect upon approval. IN WITNESS THEREOF, the MI, the CB and BOI have caused their authorized representatives to sign this Memorandum of Agreement this 5th day of July at Makati, Metro Manila, Philippines. MINISTRY OF INDUSTRY By: (SGD.) VICENTE T. PATERNO Minister CENTRAL BANK OF THE PHILIPPINES By: (SGD.) GREGORIO S. LICAROS Governor BOARD OF INVESTMENTS By: (SGD.) EDGARDO L. TORDESILLAS Vice-Chairman APPENDIX 5 REVENUE REGULATIONS NO. 10-76 SUBJECT : Regulations governing taxation of Offshore Banks and Foreign Currency Deposit Units of depository banks established under P.D. 1034 and 1035, respectively. TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to Section 338 of the National Internal Revenue Code, as amended, the following regulations are hereby promulgated to govern the manner of taxation of offshore banks and the expanded Foreign Currency Deposit Units of depository banks established under Presidential Decree No. 1034 and 1035, respectively. These regulations shall be known as Revenue Regulations No. 10-76. SECTION 2. Definition of terms. a. "Offshore Banking" shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds principally from external sources and the utilization of such funds as provided in Presidential Decree No. 1034. b. "Offshore Banking Unit" hereinafter referred to as OBU, shall mean a branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Central Bank of the Philippines, as a separate accounting unit, to transact offshore banking business in the Philippines in accordance with the provisions of P.D. 1034 as implemented by Central Bank Circular No. 546. c. "Deposits" shall mean funds in foreign currencies which are accepted and held by an offshore banking unit in the regular course of business, with the obligation to return an equivalent amount to the owner thereof, with or without interest. d. "Resident" shall mean (1) an individual citizen of the Philippines residing therein; or (2) an individual who is not a citizen of the Philippines but is permanently residing therein; or (3) a corporation or other juridical person organized under the laws of the Philippines; (4) a branch, subsidiary, affiliate, extension office or any other unit of corporations or juridical persons organized under the laws of any foreign country operating in the Philippines. e. "Non-resident" shall mean an individual, corporation or other juridical person not included in the above definition of "resident". f. "Foreign Currency Deposit Unit" (FCDU) shall mean an accounting unit or department in a local bank or in an existing local branch of foreign banks, which is authorized by the Central Bank of the Philippines to operate under the expanded foreign currency deposit system, in accordance with the provisions of P.D. 1035, as implemented by Central Bank Circular No. 547. The FCDU authority shall be distinguished from the authority to accept foreign currency deposits under R.A. No. 6426, as implemented by Central Bank Circular No. 343. g. "Gross offshore income" shall mean all income arising from transactions allowed by the Central Bank of the Philippines conducted by and between 1) in the case of an offshore banking unit with another offshore banking unit or with an expanded Foreign Currency Deposit Unit or with a non-resident; 2) in the case of an expanded Foreign Currency Deposit Unit with another expanded Foreign Currency Deposit Unit or with an Offshore Banking Unit or with a non-resident. h. "Gross onshore income" shall mean gross interest income arising from foreign currency loans and advances to and/or investments with residents made by Offshore Banking Units or expanded Foreign Currency Deposit Units. Such gross interest income shall include all fees, commissions and other charges which are integral part of the income from the above transactions. HDCAaS SECTION 3. Rates of Income tax to be imposed. The rates of income tax to be imposed, which shall be in lieu of all other taxes such as, but not limited to privilege tax, gross receipt tax, documentary and science stamp tax and profit remittance tax, are as follows: (a) On offshore income, there shall be imposed an income tax of five percent (5% ) based on net offshore income as computed in Section 4. Income realized by offshore banking units on transactions with local commercial banks including branches of foreign banks that may be authorized by the Central Bank of the Philippines to transact business with offshore banking units shall likewise be subject to the same tax, except net income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks. (b) In the case of gross onshore income as defined in Section 2(h) above, the tax shall be ten percent (10%) thereof and shall be a final tax. (c) Income not covered by paragraphs (a) and (b) above shall be subject to the usual corporate taxes imposed by the National Internal Revenue Code, as amended. SECTION 4. M anner of computation of net income. (a) Net offshore income for purposes of Section 3 paragraph (a) above, shall be the amount remaining after deducting from the gross offshore income during the taxable year the following items: 1) the proportion of total interest expenses for the same period based on the ratio of offshore interest income which bears to the total gross interest income; 2) the proportion of general administrative expenses based on the ratio of net offshore income which bears to the total net income after deducting only interest expenses mentioned in sub-paragraph (1) above. 3) Likewise, there shall be allowed a reasonable amount of head office expenses in accordance with the ratio specified in sub-paragraph (2) above. (b) In the case of onshore income, the gross interest income without the benefit of any deduction corresponding to the allocable onshore income, shall be the amount upon which the ten percent (10%) withholding income tax shall be computed. SECTION 5. Manner of filing returns and payment of taxes. Within sixty (60) days after the end of each of the first three quarters of the calendar or fiscal year. (a) for offshore income and other income mentioned in Section 3(c) a return of net taxable offshore income shall be filed with, and the tax due thereon paid, to the Commissioner of Internal Revenue, Revenue Regional Director, Revenue District Officer or the Collection Agent of the City or Municipality where the corporation's principal office is located and where its books of accounts and other data from which the return is prepared are kept, by every offshore banking units and expanded Foreign Currency Deposit Units, regardless of whether there is tax due or not. For these purposes, B.I.R. Form No. 17.02-Q shall be used and the appropriate rates, as enumerated in Section 3 above, shall be applied accordingly. (b) for onshore income in the case of onshore income realized by an offshore banking unit or by an expanded Foreign Currency Deposit Unit, the income need not be included in the quarterly income tax return to be filed as required above as the payor-borrower under Section 53, in relation to Section 54, of the National Internal Revenue Code, is constituted as the withholding agent charged with the obligation of deducting, withholding and remitting to the Commissioner of Internal Revenue the income tax due thereon within the period prescribed by law with the appropriate return in accordance with existing revenue and Central Bank regulations. A copy of the quarterly return filed, together with the copy of the official receipt denoting payments thereon, shall be furnished direct to the offshore banking unit or foreign currency deposit unit concerned, which shall in turn submit to the Bureau of Internal Revenue said documents accompanied by statement showing a list of all its domestic borrowers, amount borrowed and interest income thereon. The statement with its attachments, shall be filed together with the quarterly return required above. A final consolidated return or an adjustment return on B.I.R. Form 1702 covering the total taxable onshore and offshore income for the preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the close of the calendar or fiscal year. The return shall include all the items of gross income and deductions for the whole taxable year. The tax shown on the final or adjustment return, after deducting therefrom the quarterly income taxes paid and withheld during the preceding three quarters of the same taxable year, shall either be paid upon filing, or refunded as the case may be. SECTION 6. Statement to be attached to the return. There shall be attached to the final consolidated return or adjustment return of the taxpayer for such taxable year a sworn statement, a specimen form of which is hereto attached, by a responsible officer setting forth in summarized form the pertinent information required by these regulations with respect to the computation of the net offshore income, gross onshore income and taxes paid or withheld. SECTION 7. Records to be kept. Every offshore banking unit, as well as expanded Foreign Currency Deposit Unit, which is duly authorized by the Central Bank of the Philippines to transact offshore banking business in the Philippines shall maintain books of account which shall be kept in the place of its principal place of business for inspection. In addition, all the supporting data which were used in compiling the summary statement required to be attached to the income tax returns to be filed as prescribed under Section 6 hereof must likewise be made readily available at its principal place of business. SECTION 8. Income of non-resident. Any income of non-residents from transactions with either an offshore banking unit or with an expanded Foreign Currency Deposit Unit shall be exempt from any and all taxes. SECTION 9. Income of foreign personnel. There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by offshore banking units in the Philippines as salaries, wages, annuities, compensations, remunerations and emoluments from such offshore banking units a tax equal to fifteen (15%) percent of such gross income. The aforesaid tax shall be deducted and withheld at source in the same manner and conditions as that provided under Supplement "A" Withholding on Wages and Commonwealth Act No. 466, as amended. SECTION 10. Privileges of the offshore banking units. The offshore banking units shall be exempt from all forms of local licenses, fees, dues, imposts or any other local taxes or burdens. The license fee paid by offshore banking units shall be allowed as a deduction in accordance with Section 4 of these regulations. SECTION 11. Registration. Offshore Banking Units and expanded Foreign Currency Deposit Units shall, upon receipt of advice from the Central Bank, register with the Bureau of Internal Revenue its business name for the purpose of a. registering its trade name; b. registering as an employer pursuant to the provision of R.A. 466; c. registering its name for the purpose of securing its taxpayer account number (TAN). SECTION 12. Repealing Clause. All regulations, rulings or orders or portion thereof, which are inconsistent with the provisions of these regulations are hereby revoked. CSAaDE SECTION 13. Effectivity. These regulations shall apply to income received beginning with taxable year starting after January 1, 1977. (SGD.) CESAR VIRATA Secretary of Finance Recommended by: (SGD.) EFREN I. PLANA Acting Commissioner of Internal Revenue TAN 1456-040-3 REVENUE REGULATIONS NO. 14-77 SUBJECT : Amending Revenue Regulations No. 10-76 TO : All Internal Revenue Officers and Others Concerned Pursuant to Section 338 of the National Internal Revenue Code as amended, the following regulations are hereby promulgated to amend certain sections of Revenue Regulations No. 10-76. SECTION 1. Section 2(h) is hereby amended to read as follows: "SEC. 2(h). Gross onshore income shall mean gross interest income arising from foreign currency loans and advances to and/or investments with residents made by offshore banking units or expanded foreign currency deposit units. In the case of foreign currency loan transactions, such gross interest income shall refer only to the stipulated interest and shall not include any and all fees, commissions and other charges which are integral parts of the income from the above transactions." SECTION 2. Section 3(b) is hereby amended to read as follows: "SEC. 3(b). In the case of gross onshore income as defined in Section 2(h) above, the tax shall be ten percent (10%) thereof and shall be a final tax. Any and all fees, commissions and other charges which are integral parts of the charges imposed on foreign currency loan transactions are exempt from the tax herein imposed." SECTION 3. Section 5(b) is hereby amended to read as follows: "SEC. 5(b). for onshore income In the case of onshore income realized by an offshore banking unit or by an expanded Foreign Currency Deposit Unit, the income need not be included in the quarterly income tax return to be filed as required above as the payor-borrower under Section 53, in relation to Section 54, of the National Internal Revenue Code, is constituted as the withholding agent charge with the obligation of deducting, withholding and remitting to the Commissioner of Internal Revenue the income tax due thereon within the period prescribed by law with the appropriate return in accordance with existing revenue and Central Bank regulations. Regardless, therefore, of whether the accounting method of an OBU-creditor is cash or accrual basis, the withholding tax will be withheld and remitted only after the due date of payment of the interest incurred by an onshore borrower." SECTION 4. Effectivity. This regulation shall apply to income received beginning with taxable year starting after January 1, 1977. (SGD.) CESAR VIRATA Secretary of Finance Recommended by: (SGD.) CONRADO P. DIAZ Acting Commissioner of Internal Revenue TAN: D2567-D1023-A-2 APPENDIX 6 September 30, 1976 September 30, 1976 PRESIDENTIAL DECREE NO. 1034 AUTHORIZING THE ESTABLISHMENT OF AN OFFSHORE BANKING SYSTEM IN THE PHILIPPINES WHEREAS, conditions conducive to the establishment of an offshore banking system, such as political stability, a growing economy and adequate communication facilities, among others, exist in the Philippines; WHEREAS, it is in the interest of developing countries to have as wide access as possible to the sources of capital funds for economic development; WHEREAS, an offshore banking system based in the Philippines will be advantageous and beneficial to the country by increasing our links with foreign lenders, facilitating the flow of desired investments into the Philippines, creating employment opportunities and expertise in international finance, and contributing to the national development effort. WHEREAS, the geographical location, physical and human resources, and other positive factors provide the Philippines with the clear potential to develop as another financial center in Asia; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested by the Constitution, do hereby decree and make the following part of the law of the land: SECTION 1. Definition of Terms . As used in this Decree, unless the context otherwise indicates: a. "Offshore Banking" shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds from external sources and the utilization of such funds as provided in this Decree. b. "Offshore Banking Unit" shall mean a branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Central Bank of the Philippines to transact offshore banking business in the Philippines. c. "Deposits" shall mean funds in foreign currencies which are accepted and held by an offshore banking unit in the regular course of business, with the obligation to return an equivalent amount to the owner thereof, with or without interest. d. "Resident" shall mean (1) an individual citizen of the Philippines residing therein; or (2) an individual who is not a citizen of the Philippines but is permanently residing therein; or (3) a corporation or other juridical person organized under the law of the Philippines. cdt e. "Non-resident" shall mean an individual, corporation or other juridical person not included in the above definition of "resident": Provided, however, that branches, subsidiaries, affiliates, extension offices or any other units of corporation or juridical person organized under the laws of any foreign country operating in the Philippines shall be considered residents of the Philippines. f. "Branch" shall mean a separately managed department or unit of a foreign corporation. SECTION 2. Qualification Requirements . Subject to such regulatory guidelines as the Monetary Board may prescribe, only banks which are organized under any law other than those of the Republic of the Philippines their branches, subsidiaries or affiliates, shall be qualified to operate offshore banking units in the Philippines. However, local branches of foreign banks already authorized to accept foreign currency deposits under the provisions of R.A. No. 6426 may opt to apply for authority to operate an offshore banking unit under the provisions of this Decree: Provided , that, upon their receipt of a corresponding certificate of authority to operate as an offshore banking unit, the license to transact business under the provisions of R.A. No. 6426 shall be deemed automatically withdrawn. SECTION 3. Certificate of Authority to Operate . The Monetary Board of the Central Bank of the Philippines is hereby authorized to issue certificates of authority to operate offshore banking units: Provided, however , that, in issuing such certificates, the Monetary Board shall take into consideration the applicant's liquidity and solvency position, networth and resources, management, international banking expertise, contribution to the Philippine economy, and other relevant factors such as participation in equity of local commercial banks and appropriate geographic representation. The Central Bank of the Philippines is hereby authorized to collect a fee of not less than US$ 20,000.00 upon issuing any certificate of authority to operate and annually thereafter on the anniversary date of such certificate. acd SECTION 4. Corporate Undertaking . No application to operate as an offshore banking unit under the provisions of this Decree shall be considered unless the applicant shall have first submitted to the Central Bank of the Philippines a sworn undertaking of its head office or parent or holding company, duly supported by an appropriate resolution of its board of directors, that, among other things: (a) it will, on demand, provide the necessary specified currencies to cover liquidity needs that may arise or other shortfall that is offshore banking unit may incur; (b) the operations of its offshore banking unit shall be managed soundly and with prudence; (c) it will train and continually educate a specific number of Filipinos in international banking and foreign exchange trading with a view to reducing the number of expatriates; (d) it will provide and maintain in its offshore banking unit net office funds in the minimum amount of US$ 1,000,000.00 and (e) it will start operations of its offshore banking unit within 180 days from receipt of its certificate of authority to operate such unit. SECTION 5. Supervision . The operations and activities of offshore banking units shall be conducted under the supervision of the Central Bank of the Philippines. SECTION 6. Transactions of Offshore Banking Units : Regulations . Transactions of offshore banking units with non-residents or with other offshore banking units shall be freely allowed: Provided , that the Central Bank of the Philippines may establish such safeguards as may be necessary to prevent circumvention of applicable foreign exchange regulations. Transactions of offshore banking units with resident of the Philippines, including those with local commercial banks and local branches of foreign banks authorized to receive foreign currency deposits under Republic Act No. 6426, shall be subject to applicable law and regulations. cdt The Monetary Board of the Central Bank of the Philippines shall promulgate such rules and regulations as may be necessary to carry out and implement the provisions of this Decree. SECTION 7. Tax and Other Incentives . a. The provisions of any law to the contrary notwithstanding, the transactions of offshore banking unit authorized hereunder with non-residents and other offshore banking units shall be subject to a five per cent (5%) tax on the net, income from such transactions which shall be in lieu of all taxes on the said transactions: Provided, however , that transactions of offshore banking units with local commercial banks, including branches of foreign banks that may be authorized by the Central Bank to transact business with offshore banking units, shall likewise be subject to the same tax, except net income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks. Any income of non-residents from transactions with said offshore banking units shall be exempt from any tax. cd b. In the case of transaction with residents (other than other offshore banking units or local commercial banks including local branches of foreign banks that may be authorized by the Central Bank of the Philippines to transact business with offshore banking units), interest income from loans granted to such residents shall be subject only to a ten per cent (10%) withholding tax as final tax. c. Notwithstanding the provision of any law to the contrary, foreign personnel may be assigned by any foreign bank to work in its offshore banking unit in the Philippines. Such foreign personnel, their spouses and unmarried children under twenty-one years of age, shall be issued a multiple entry special visa, valid for a period of one year, to enter the Philippines: Provided, however , that a responsible officer of such foreign bank submits a certificate of the effect that the person who seeks entry in the Philippines is an employee of the said foreign bank and will work exclusively for its offshore banking unit in the Philippines and that he will be paid by the foreign bank in the Philippines compensation in foreign currencies: Provided, further , that in the case of the spouse and unmarried children mentioned herein the certificate shall be to the effect that they are dependents of the foreign personnel working in the offshore banking unit. The admission and stay of the foreign personnel and their dependents mentioned in the next preceding paragraph shall be co-terminous with the validity of the multiple entry special visa: Provided, however , that their stay may be extended yearly upon submission to the Commission on Immigration and Deportation of a sworn certification by a responsible officer of the offshore banking unit in the Philippines that such bank's authority to operate as an offshore banking unit is valid and subsisting and that the personnel concerned has been paid in the Philippines, from the date of original admission, the compensation mentioned in the next preceding paragraph, for which that tax due thereon has been withheld and paid to the Bureau of Internal Revenue. The foreign personnel and their respective spouses and dependents mentioned in this Section shall be exempt from: the Payment of all fees due under the immigration and alien registration laws; securing alien certificates of registration; and obtaining emigration clearance certificates, and all types of clearances required by any government department or agency, except that upon their final departure from the Philippines, the employer of the said foreign personnel shall so advice in writing the Commission on Immigration and Deportation at least five (5) working days prior to such departure, and the finally departing personnel shall be required to submit to the said office a tax clearance from the Bureau of Internal Revenue. d. Section 22 of Commonwealth Act No. 466, as amended, is hereby amended to include an additional subsection (d) to read as follows: "(d) Aliens employed by offshore banking units . There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by offshore banking units established in the Philippines as salaries, wages, annuities, compensations, remunerations and emoluments from such offshore banking units a tax equal to fifteen per centum of such gross income." e. The alien executives of offshore banking units shall enjoy the privileges extended to foreigners coming to settle in the Philippines for the first time as provided for under Section 105(h) of the Tariff and Customs Code, as amended. f. The offshore banking units shall be exempt from all forms of local licenses, fees, dues, imposts, or any other local taxes or burdens. SECTION 8. Effect of Certain Laws . The provisions of Act No. 2566 (Usury Law), Republic Act No. 529, as amended (Uniform Currency Law), and Republic Act No. 3591, as amended (Deposit Insurance Law), shall not apply to transactions and/or deposits in offshore banking units in the Philippines: Provided, however, that the provisions of R.A. No. 1405 (Secrecy of Bank Deposits Law) shall apply to deposits in offshore banking units. SECTION 9. Sanctions for Violations . Any willful violation by any bank authorized to engage in offshore banking in the Philippines of any of the provisions of this Decree, or its implementing rules and regulations, or other terms and conditions of the authority to engage in offshore banking in the Philippines may be subject to the administrative sanctions provided for in Section 34-A, as well as to other applicable provisions, of Republic Act No. 265, as amended. SECTION 10. Repealing Clause . Any provisions of existing general or special laws inconsistent with the provisions of this Decree shall be deemed modified, amended or repealed accordingly. SECTION 11. Effectivity . This Decree shall take effect upon approval. DONE in the City of Manila, this 30th day of September, in the year of Our Lord, nineteen hundred and seventy-six. acd APPENDIX 7 September 30, 1976 September 30, 1976 PRESIDENTIAL DECREE NO. 1035 EXPANDING THE AUTHORITY OF CERTAIN DEPOSITORY BANKS UNDER R.A. NO. 6426 AND FOR OTHER PURPOSES WHEREAS, the establishment of an offshore banking system in the Philippine has been authorized under a separate decree; WHEREAS, a number of local commercial banks, as depository banks under the Foreign Currency Deposit Act (R.A. No. 6426), have the resources and managerial competence to more actively engage in foreign exchange transactions and participate in the grant of foreign currency loans to resident corporations and firms; WHEREAS, it is timely to expand the foreign currency lending authority of the said depository banks under R.A. 6426 and apply to their transactions the same taxes as would be applicable to transaction of the proposed offshore banking units: NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested by the Constitution, do hereby decree and make the following part of the law of the land: SECTION 1. A second paragraph is hereby added to Section 4 of Republic Act No. 6426 which shall read as follows: "DEPOSITORY BANKS WHICH, ON ACCOUNT OF NETWORTH, RESOURCES, PAST PERFORMANCE, OR OTHER PERTINENT CRITERIA, HAVE BEEN QUALIFIED BY THE MONETARY BOARD TO FUNCTION UNDER AN EXPANDED FOREIGN CURRENCY DEPOSIT SYSTEM SHALL BE EXEMPT FROM THE REQUIREMENT IN THE PRECEDING PARAGRAPH OF MAINTAINING FIFTEEN PER CENT (15%) OF THE COVER IN THE FORM OF FOREIGN CURRENCY DEPOSIT WITH THE CENTRAL BANK. SUBJECT TO PRIOR CENTRAL BANK APPROVAL WHEN REQUIRED BY CENTRAL BANK REGULATIONS, SAID DEPOSITORY BANKS MAY EXTEND FOREIGN CURRENCY LOANS TO ANY DOMESTIC ENTERPRISE, WITHOUT THE LIMITATIONS PRESCRIBED IN THE PRECEDING PARAGRAPH REGARDING MATURITY AND MARKETABILITY, AND SUCH LOANS SHALL BE ELIGIBLE FOR PURPOSES OF THE 100% FOREIGN CURRENCY COVER PRESCRIBED IN THE PRECEDING PARAGRAPH." SECTION 2. Subject to such regulations as may be promulgated by the Central Bank, depository banks qualified by the Monetary Board to function under an expanded foreign currency deposit system may obtain foreign currency loan from, and may conduct foreign currency transactions with, non-residents, offshore banking units in the Philippines and other depository banks under said expanded system. The net income from such foreign currency transactions shall be subject to a five percent (5%) tax which shall be in lieu of all taxes on said transactions, except net income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks. Interest income from foreign currency loans granted by such depository bank under said expanded system to residents (other than offshore banking units in the Philippines or other depository banks under the expanded system) shall be subject to a ten per cent (10%) withholding tax as a final tax. Income of non-residents not engaged in trade or business in the Philippines from foreign currency loans to depository banks under the expanded system shall be exempt from income tax. SECTION 3. Section 8 of the same Act is hereby amended to read as follows: "Sec. 8. Secrecy of deposits (.); NON-APPLICABILITY OF THE LAWS ON USURY AND UNIFORM CURRENCY . The secrecy of deposits under this Act shall be governed in accordance with the provisions of Republic Act Numbered One Thousand Four Hundred Five. THE PROVISIONS OF REPUBLIC ACT NUMBERED TWO THOUSAND FIVE HUNDRED SIXTY-SIX (USURY LAW), AS AMENDED, AND REPUBLIC ACT NUMBERED FIVE HUNDRED TWENTY-NINE (UNIFORM CURRENCY LAW), AS AMENDED, SHALL NOT APPLY TO DEPOSITORY BANKS IN RESPECT TO THEIR FOREIGN CURRENCY TRANSACTIONS AUTHORIZED UNDER THIS ACT." SECTION 4. The Monetary Board of the Central Bank of the Philippines shall promulgate the necessary regulations for the implementation of this Decree. SECTION 5. This Decree shall take effect upon approval. DONE in the City of Manila, this 30th day of September, in the year of Our Lord, nineteen hundred and seventy-six. cdt APPENDIX 8 November 21, 1977 November 21, 1977 PRESIDENTIAL DECREE NO. 1246 FURTHER AMENDING CERTAIN PROVISIONS OF REPUBLIC ACT NUMBERED SIXTY-FOUR HUNDRED AND TWENTY-SIX, AS AMENDED BY PRESIDENTIAL DECREE NUMBERED ONE THOUSAND THIRTY-FIVE WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree No. 1035, certain Philippine banking institutions and branches of foreign banks are authorized to accept deposits in foreign currency; cd i WHEREAS, under the provisions of Presidential Decree No. 1034 authorizing the establishment of an offshore banking system in the Philippines, offshore banking units are also authorized to receive foreign currency deposits in certain cases; WHEREAS, in order to assure the development and speedy growth of the Foreign Currency Deposit System and the Offshore Banking System in the Philippines, certain incentives were provided for under the two Systems such as confidentiality of deposits subject to certain exceptions and tax exemptions on the interest income of depositors who are nonresidents and are not engaged in trade or business in the Philippines; WHEREAS, making absolute the protective cloak of confidentiality over such foreign currency deposits, exempting such deposits from tax, and guaranteeing the vested rights of depositors would better encourage the inflow of foreign currency deposits into the banking institutions authorized to accept such deposits in the Philippines thereby placing such institutions more in a position to properly channel the same to loans and investments in the Philippines, thus directly contributing to the economic development of the country; casia NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested by the Constitution, do hereby decree the following: SECTION 1. Section 6 of Republic Act No. 6426, as amended, is hereby amended to read as follows: "Sec. 6. Tax Exemptions . All foreign currency deposits made under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, including interest and all other income or earnings of such deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or non-residents so long as the deposits are eligible or allowed under aforementioned laws and, in the case of non-residents, irrespective of whether or not they are engaged in trade or business in the Philippines." SECTION 2. Section 8 of Republic Act No. 6426, as amended, is hereby amended to read as follows: "Sec. 8. Secrecy of Foreign Currency Deposits . All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositors, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or private: Provided, however , that said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever." SECTION 3. The same Act is further amended by adding the following Section immediately after Section 12 thereof to read as follows: "Sec. 12-A. Amendatory Enactments and Regulations . In the event a new enactment or regulation is issued decreasing the rights hereunder granted, such new enactment or regulation shall not apply to foreign currency deposits already made or existing at the time of issuance of such new enactment or regulation, but such new enactment or regulation shall apply only to foreign currency deposits made after its issuance." SECTION 4. This Decree shall take effect upon approval. Done in the City of Manila, this 21st day of November, in the year of Our Lord, nineteen hundred and seventy-seven. APPENDIX 9 May 31, 1978 PRESIDENTIAL DECREE NO. 1395 AMENDING PRESIDENTIAL DECREE NO. 1352 WHEREAS, Presidential Decree No. 1352 was issued in accordance with the policy enunciated under Presidential Decree No. 776 to rationalize and harmonize the fiscal incentives granted under various existing laws for purposes of conserving government revenues; WHEREAS, in line with such policy, it is necessary to clarify and/or amend the provisions thereof; and WHEREAS, the importations of government agencies or instrumentalities are governed by Presidential Decree No. 1177 and therefore need not to be subject to the provision hereof; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtues of the powers vested in me by the Constitution, do hereby decree; SECTION 1. Presidential Decree No. 1352 is hereby amended to read as follows: "Sec. 1. All importations which are at present totally or partially exempt from customs duties and/or internal revenue tax under the provisions of any general or special law shall be subject to a five (5%) percent customs duty and five (5%) percent internal revenue tax, subject to the same limitations and conditions prescribed under such law, if any. "In the case of importations enjoying partial exemption, the said duty and tax shall be imposed on the exempt portion in addition to the duty and tax due on the taxable portion. "The duty and tax imposed herein shall be computed in accordance with the applicable provisions of the Tariff Customs Code of the Philippines as amended, and the National Internal Revenue Code of 1977, as amended, respectively. "The customs duty and internal revenue tax imposed under this section shall not apply to the following importations: "1. Those which are exempt in pursuance of or in compliance with international treaties or commitments, such as the ADB-RP Host Agreement (1966); the 1947 Convention on Privileges and Immunities of the United Nations and its specialized agencies; the United States Agency for International Development-RP Agreement, the 1947 Military Bases Agreement; and other similar treaties or commitments; cd "2. Those which are exempt under the following Presidential Decrees: "(a) Presidential Decree No. 66; "(b) Presidential Decree No. 87; "(c) Presidential Decree No. 529; "(d) Presidential Decree No. 215; "(e) Presidential Decree No. 666; and "(f) Presidential Decree No. 972. "3. Importations of machinery, equipment and spare parts shipped with such machinery and equipment made by enterprises registered with the appropriate government agency, on or before April 21, 1978, under any tax incentive law, subject to the following conditions; casia "(a) That the importation has been authorized by the appropriate government agency for the prosecution of specific projects already approved by the said agency as of April 21, 1978; and "(b) That the herein exemption shall not be authorized beyond December 31, 1981. "Sec. 2. The duty and tax imposed herein shall be paid before the release of the imported articles from customs' custody. "Where the corresponding tax incentive law authorized a deferral of the duty and internal revenue tax due from registered non-pioneer enterprises, the same privileges may be extended to registered pioneer enterprises by the appropriate implementing government agency. "Sec. 3. Unless otherwise provided by law, in the case of importations subject to the five (5%) percent customs duty and five (5%) percent internal revenue tax herein imposed which are subsequently sold, transferred or exchanged to non-exempt persons or entities, the purchaser shall be considered the importer thereof and shall be liable for the differences between the full customs duty and internal revenue tax due thereon based on the depreciated value of the article at time of sale, transfer or exchange and the five (5%) percent customs duty and five (5%) percent internal revenue tax previously paid. The duty and tax due on such article shall constitute a lien on the article itself, superior to all other charges or lien irrespective of the possessor thereof. "Sec. 4. The pertinent provisions of the following laws are hereby repealed or amended accordingly; cdt "(a) Presidential Decree No. 218, as amended by Presidential Decree No. 348; "(b) Presidential Decree No. 413; "(c) Presidential Decree No. 440; "(d) Presidential Decree No. 535; "(e) Presidential Decree No. 538; "(f) Presidential Decree No. 634; "(g) Presidential Decree No. 992; "(h) Presidential Decree No. 1159; "(i) Republic Act No. 720; "(j) Republic Act No. 1370; "(k) Republic Act No. 2640; "(l) Republic Act No. 3470, as amended; "(m) Republic Act No. 5186; as amended; "(n) Republic Act No. 6135; as amended; and "(o) Other general and special laws, and special charters granting franchises. "Sec. 5. The President may, in the interest of national economic development, upon recommendation of the Fiscal Incentives Review Board, restore any exemption benefit withdrawn under this Decree." SECTION 2. The Secretary of Finance shall, upon the commendation of the Commissioner of Customs and in consultation with the appropriate government agency, promulgate the necessary rules and regulations for the effective implementation of the provisions of this Decree. SECTION 3. All laws, rules and regulations or parts thereof inconsistent with the provisions of this Decree are hereby repealed or amended accordingly. SECTION 4. This Decree shall take effect upon approval. However, any duty and internal revenue tax already paid on importations mentioned in paragraph 3 of Section 1 hereof shall be recomputed in accordance with the provisions of this Decree. Done in the City of Manila, this 31st day of May, in the year of Our Lord, nineteen hundred and seventy-eight. APPENDIX 10 EXCERPTS FROM PRESIDENTIAL DECREE NO. 1773 AMENDING CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE WHEREAS, the taxpaying public has been persistently and incessantly clamoring for upward adjustment of the personal and additional exemptions; WHEREAS, inflation has increased the cost of living and has effectively pushed otherwise nontaxable, low-income individuals beyond the threshold of exemption, thereby justifying the demand for increase in personal and additional exemptions; WHEREAS, it is also necessary to re-structure and improve the progressivity of the graduated income tax rates in order to make the tax system more equitable not only as a source of revenue but also as a social instrument for redistribution of wealth and income; WHEREAS, it is necessary to amend further certain provisions of the National Internal Revenue Code in order to strengthen the enforcement powers of the Bureau of Internal Revenue; ESIcaC NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the Philippines, by virtue of the powers vested in me by the Constitution do hereby decree and order: SECTION 1. Section 7 of the National Internal Revenue Code as amended by Presidential Decree No. 1705 is hereby further amended to read as follows: "Power of the Commissioner of Internal Revenue to Obtain Information, Examine, Summon and Take Testimony (a) From government officers or agencies. When it comes to the knowledge of the Commissioner of Internal Revenue that certain offices or officers of the National and Local governments such as the Office of the Register of Deeds, the Securities and Exchange Commission, the Philippine Patent Office, the Government Service Insurance System, the Social Security System, the Philippine Medical Care Commission, mayors and treasurers and others, possess valuable information for discovery of potential taxpayers, the Commissioner or his authorized representative shall obtain that information upon proper request from the offices or officers concerned. It shall be the duty of those offices or officers to furnish the desired information within thirty days from receipt of the request of the Commissioner of Internal Revenue or his authorized representative. "xxx xxx xxx SECTION 6. Paragraph (e) of Section 24 of the National Internal Revenue Code is hereby amended to read as follows: "(e) Corporate Development Tax. In addition to the tax imposed in subsection (a) of this Section, an additional tax in an amount equivalent to 10% of the same taxable net income shall be paid by a domestic or a resident foreign corporation which qualifies as a closely-held corporation as defined herein: The term "closely-held corporation" means any corporation, (a) at least 50% in value of the outstanding stock or (b) at least 50% of the total combined voting power of all classes of stock entitled to vote, at any time during the taxable year, is owned directly or indirectly by or for not more than five persons, natural or juridical. For the purpose of determining whether an individual indirectly owns shares of stock in a corporation, the attribution rules prescribed by paragraphs (b) and (c) of Section 66 of this Code shall be applied. The additional corporate income tax imposed in this Subsection shall be collected and paid at the same time and in the same manner as the tax imposed in subsection (a) of this Section. "The foregoing provisions shall not apply to banks, non-bank financial intermediaries or corporations organized primarily, and authorized by the Central Bank of the Philippines to hold shares of stock of banks unless (A) More than twenty (20%) percent of all classes of stock entitled to vote of such corporation is held by (1) persons related to each other within the third degree of consanguinity or affinity, or (2) a corporation, the majority of the shares are owned by such related persons or (3) two or more corporations and majority of the shares are owned by the same person or so related persons. SECTION 7. Section 24(f) of the same Code is hereby amended to read follows: "(f) Tax on transactions by offshore banking units and under the expanded foreign currency deposits system "(1) Offshore Banking Units. The provisions of any law to the contrary notwithstanding, income derived by offshore banking units authorized by the Central Bank of the Philippines from foreign currency transactions with non-residents, other than offshore banking units local commercial banks, including branches of foreign banks that may be authorized by the Central Bank to transact business with offshore banking units shall be exempt from all taxes except net income from such transactions as may be specified by the Minister of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks: Provided, however, That any interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks, including local branches of foreign banks that may be authorized by the Central Bank of the Philippines to transact business with offshore banking units, shall be subject only to a 10% final withholding tax." "Any income of nonresidents from transactions with said offshore banking units shall be exempt from income tax." "(2) Expanded Foreign Currency Deposit System. Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transaction with nonresidents, offshore banking units in the Philippines, local commercial banks including branches of foreign banks that may be authorized by the Central Bank to transact business with foreign currency deposit system units and other depository banks under the expanded foreign currency deposit system shall be exempt from all taxes, except net income from such transactions as may be specified by the Minister of Finance, upon recommendation of the Monetary Board to be subject to the usual income tax payable by banks: Provided, however, That interest income from foreign currency loans granted by such depository banks under said expanded system to residents (other than offshore banking units in the Philippines or other depository banks under the expanded system) shall be subject to a 10% final withholding tax." "Any income of nonresidents from transactions with depository banks under the expanded system, shall be exempt from income tax." SECTION 8. Subparagraphs (f) and (g) of Section 30(c) (1), of the National Internal Revenue Code which were added as new subparagraphs thereto by Presidential Decree No. 1705 are hereby designated as subparagraphs (F) and (G), respectively. SECTION 9. Paragraph (k) of Section 30 of the National Internal Revenue Code is hereby amended to read as follows: "(k) Optional standard deduction. In lieu of the deductions allowed under this section, an individual other than a nonresident alien, may elect a standard deduction in an amount not exceeding 10% per centum of his gross income. Unless the taxpayer signifies in his return his intention to elect the optional standard deduction, he shall be considered as having availed himself of the deductions allowed in the preceding subsection. The Minister of Finance shall prescribe the manner of the election. Such election when made in the return shall be irrevocable for the taxable year for which the return is made." SECTION 10. A new paragraph is hereby added to Section 30 of the National Internal Revenue Code to read as follows: "Notwithstanding the provisions of the preceding paragraphs, the Minister of Finance upon recommendation of the Commissioner, may for tax audit purposes prescribe by regulations, limitations or ceilings for any of the itemized deductions under this Section." SECTION 11. Paragraph (b) of Section 35 of the National Internal Revenue Code is hereby amended to read as follows: "(b) In the case of property acquired on or after March first, nineteen hundred and thirteen, the cost thereof if such property was acquired by purchase or the fair market price or value as of the date of the acquisition if the same was acquired by inheritance. If the property was acquired by gift the basis shall be the same as it would be in the hands of the donor, or the last preceding owner by whom it was not acquired by gift, except that if such basis is greater than the fair market value of the property at the time of the gift then for the purpose of determining loss the basis shall be such fair market value." APPENDIX 11 September 24, 1983 September 24, 1983 PRESIDENTIAL DECREE NO. 1883 DEFINING THE CRIMES OF BLACKMARKETING AND SALTING OF FOREIGN EXCHANGE AND IMPOSING INCREASED PENALTIES THEREON WHEREAS, the President of the Philippines, taking cognizance of the balance of payments deficits, issued Letter of Instructions No. 1307 dated April 11, 1983 and Letter of Instructions No. 1329 dated May 31, 1983, directing all agencies of the government to adopt all possible measures to maximize foreign exchange receipts and minimize their outflow; WHEREAS, notwithstanding efforts of the government to prevent and minimize the outflow of foreign exchange through means and methods contrary to existing laws and Central Bank rules and regulations, the outflow of foreign exchange continues unbated; casia WHEREAS, this situation calls for a clearer definition of what constitutes blackmarketing and salting of foreign exchange and for the imposition of heavier penalties on those who are engaging in these practices which are pernicious to the national economy. NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and decree: SECTION 1. Blackmarketing of Foreign Exchange . That any person who shall engage in the trading or purchase and sale of foreign currency in violation of existing laws or rules and regulations of the Central Bank shall be guilty of the crime of blackmarketing of foreign exchange, and shall suffer the penalty of reclusion temporal , (minimum of 12 years and one day and maximum of 20 years) and a fine of not less than Fifty Thousand (P50,000.00) Pesos. SECTION 2. Salting of Foreign Exchange . That any person engaged in the business of exporting who shall underdeclare or undervalue his exports, either as to price or quantity, or any person engaged in the business of importation who shall overvalue or overdeclare his importations, either as to price or quantity, for the purpose of salting and retaining foreign exchange abroad in violation of existing laws and Central Bank rules and regulations, shall be liable for the crime of illegal salting of foreign exchange and shall suffer the penalty of reclusion temporal and a fine of not less than Fifty Thousand (P50,000.00) Pesos. SECTION 3. Definition of Terms . The term "foreign exchange" shall refer to foreign currency notes, coins, checks, letters of credits, drafts, bills of exchange or other instruments customarily employed for international transfer. casia SECTION 4. Other Penalties . If the offender shall be a naturalized citizen of the Philippines, conviction of any of the above offenses shall carry with it the automatic cancellation of his naturalization as a citizen of the Philippines, and shall, upon service of his sentence, be immediately deported. A foreigner who is convicted of any of the above offenses shall, upon service of his sentence, be immediately deported. SECTION 5. This Decree shall take effect immediately. Done in the City of Manila, this 24th day of September, in the year of Our Lord, nineteen hundred and eighty-three. cdt APPENDIX 12 September 24, 1983 LETTER OF INSTRUCTIONS NO. 1354 DIRECTING THE IMMEDIATE IDENTIFICATION AND PROSECUTION OF VIOLATORS OF FOREIGN EXCHANGE REGULATIONS TO : The Governor, Central Bank of the Philippines, The Minister of Trade and Industry, the Minister of Justice, The Chief of Staff, Armed Forces of the Philippines. WHEREAS, it has been determined that there is widespread violation of existing foreign exchange regulations not only by the black market dealers, but also by exporters who undervalue exports and by importers who overvalue imports; WHEREAS, the enforcement of existing regulations, including the imposition of penal provisions, has been lax and ineffective; WHEREAS, a continuation of these violations will aggravate the BOP deficit of the Philippines, despite improved commodity prices and export performance, and will frustrate the efforts of the government in correcting such deficits; WHEREAS, these violations are to be regarded as sabotaging the economy of the country; acd NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution and by Law, do hereby order and direct: 1. The Central Bank of the Philippines and the Ministry of Trade and Industry to immediately organize a task force to undertake a detailed, company-by-company analysis of importers and exporters in order to identify those who are engaged in the salting of foreign exchange and other violations of foreign exchange regulations. 2. The Chief of Staff, Armed Forces of the Philippines, to direct the law enforcement agencies to apprehend such violators. 3. The Ministry of Justice to prosecute, with the full force of the law, such violators. cd This Letter of Instructions shall take effect immediately. Done in the City of Manila, Philippines, this 24th day of September, in the year of Our Lord, nineteen hundred and eighty-three. APPENDIX 13 September 24, 1983 LETTER OF INSTRUCTIONS NO. 1355 PROVIDING INCENTIVES FOR INTERNAL EXPORTS TO : The Ministry of Trade and Industry, The Ministry of Finance, The Central Bank of the Philippines, The Ministry of Labor and Employment, The Board of Investments WHEREAS, fiscal incentives can be utilized to increase the level of foreign exchange of the country to finance developmental requirements; WHEREAS, gift giving is a part of the Filipino cultural heritage which is observed by Filipinos by sending or bringing gifts to relatives and friends usually in the form of foreign-manufactured goods; WHEREAS, Philippine-made products can easily equal if not surpass foreign-made articles; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, de hereby declare and instruct the following: 1. It is hereby declared to be a policy of the state to encourage the patronage of Philippine made products by providing appropriate incentives therefor, to Filipinos abroad and other non-residents of the Philippines, as well as returning overseas Filipinos. cd i 2. Goods paid for foreign exchange by the above mentioned persons shall be governed by the following: a) Goods assembled or manufactured in the Philippines for household and personal use, when paid for in convertible foreign currency inwardly remitted through the banking system in the Philippines, termed as foreign exchange denominated sales or internal exports, shall be exempt from the payment of gift taxes and percentage tax on sales under the National Internal Revenue Code as amended. b) In order to ensure effective implementation, the Philippines International Trading Corporation (PITC) is hereby designated as the implementing agency for this Program, by way of distributing these products. The PITC will work with the private sector in pursuing the objectives of this program subject to the implementing rules and regulations to be prepared by an Inter-Agency Committee chaired by the Ministry of Trade and Industry, and composed of the Ministry of Finance, the Central Bank of the Philippines, Ministry of Labor and Employment, the Board of Investments and the PITC. c) The manufacturers of the goods considered as internal exports shall be entitled to a tax credit equivalent to the sales, compensating, and specific taxes and duties on supplies, raw materials and semi-manufactured products used in the manufacture of the said internal exports. A provision for standard costing of the products may be established by the Inter-Agency Committee. cd d) The foregoing fiscal incentives shall, however, apply only to sales not exceeding an aggregate foreign exchange value of One Thousand United States Dollars (US $1,000.00) or its equivalent in other convertible foreign currencies. 3. Finished goods imported into the Philippines even if paid for in foreign currency, shall not be entitled to the fiscal incentives provided under this LOI. 4. The Ministry of Trade and Industry, under an International Gift-giving program, is hereby authorized to make available the facilities of its foreign trade services network in the promotion of the products envisioned under this LOI. Moreover, said Ministry shall cause to be published and distributed a catalogue of products to be eligible to participate in such program under such rules and regulations as the Inter-Agency Committee shall adopt and promulgate. 5. Any and all statutes, orders, rules, regulations or parts thereof inconsistent herewith are hereby repealed or modified accordingly. 6. These orders and instructions shall take effect immediately. Done in the City of Manila, this 24th day of September, in the year of Our Lord, nineteen hundred and eighty-three. Footnotes APPENDIX 1 1. As amended by Executive Order No. 925, January 1, 1984. 2. As amended by Executive Order No. 935, February 28, 1984.