Rules and Regulations Implementing P.D. No. 1789 (Omnibus Investment Code of 1981)

1981

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

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

PART I

General Provisions

RULE I

Definitions and Basic Guidelines

SECTION 1. For purposes of these rules and regulations —

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

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

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

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

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

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

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

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

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

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

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

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

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

(6)  Undertaking building construction or erection project.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(5)  Such other criteria as the Board may adopt. aisa dc

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RULE II

Qualifications for Applicants

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

SECTION 2.  Specific Requirements. — Additionally, the applicant must show:

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

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

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

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

PART II

Investments with Incentives

RULE III

Application for Registration

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B.  Export Producer: acd

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

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

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

C.  Export Trader:

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

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

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

D.  Service Exporter:

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

(2)   Contracts of service of employment, if any.

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

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

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

RULE IV

Board Action

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

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

RULE V

Certificate of Registration

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

(1)  Payment of registration fee;

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

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

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

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

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

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

RULE VI

Incentives to Investors in a Registered Producer Enterprise

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

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

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

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

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

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

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

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

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

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

RULE VII

Additional Incentives to Philippine Nationals Investing in a Pioneer Enterprise

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

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

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

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

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

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

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

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

RULE VIII

Incentives to Registered Producer Enterprises

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

 

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

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

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

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

RULE IX

Importation of Capital Equipment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(c)  The capital equipment shall be installed and/or used in the site indicated by the applicant and shall not be used or transferred elsewhere without the prior approval of the Board; casia

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

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

 

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

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

RULE X

Purchase of Domestic Capital Equipment

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

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

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

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

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

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

RULE XI

Tax Credit for Withholding Tax on Interest

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

RULE XII

Employment of Foreign Nationals

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

The application shall be accompanied by the following documents:

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

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

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

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

SECTION 2.  Length of Employment. —

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

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

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

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

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

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

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

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

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

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

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

RULE XIII

Expansion Reinvestment Allowance

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

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

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

SECTION 3.  Expansion When Deemed Effected. — The benefit of reinvestment allowance shall not be granted for expansion that has already been effected. In general, expansion is deemed effected on the date the letter of credit for the importation of capital equipment, machinery and spare parts is opened; or if there are no letters of credit, on the date the letter of guarantee or instrument of payment is executed; however, for equipment previously authorized by the Board under article 45(d) or 45(e) of the Code or for civil works, expansion is deemed effected upon actual installation of the capital equipment or completion of said civil works.

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

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

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

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

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

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

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

RULE XIV

Deduction for Labor Training

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

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

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

RULE XV

Additional Incentives to Pioneer Enterprises

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

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

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

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

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

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

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

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

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

RULE XVI

Incentives to Agricultural Producers

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

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

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

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

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

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

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

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

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

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

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

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

 

RULE XVII

Additional Incentives to Registered Export Producers

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

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

SECTION 2.  Reduced Income Tax. — The reduced income tax provided for in Article 48(b) of the Code shall be available to registered export producers for the first five (5) years from registration or commercial operation. This deduction from taxable income derived from sales of registered export products locally and abroad, shall be the sum of the "direct labor cost" and "local raw materials" as defined in these Rules: Provided, That whenever an export producer's project is located in an area designated by the Board as necessary for the proper dispersal of industry or such area is deficient in infrastructure, public utilities and other facilities, an amount equivalent to double the direct labor cost shall be used in the grant of this incentive: Provided, however, That in no case shall it exceed twenty-five (25%) per cent of its total export revenue from the registered product: Provided, further, That a registered export producer of traditional products can only doubly deduct the labor component and not the local raw materials: And provided, finally, That the Board shall withhold this incentive in case of an export producer registered in a non-pioneer area who is a non-Philippine national.

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

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

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

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

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

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

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

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

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

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

(a)  Tax credit — Article 48(a);

(b)  Reduced Income Tax — Article 48(b);

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

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

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

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

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

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

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

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

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

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

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

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

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

RULE XVIII

Incentives to Registered Export Traders

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

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

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

 

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

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

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

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

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

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

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

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

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

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

(1)   Cost of establishing an overseas trade office:

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

(b)  Furniture and fixtures;

(c)   Office equipment;

(d)  Motor vehicle for office use;

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

(2)   Cost of maintaining an overseas trade office:

(a)  Office rentals;

(b)   Salaries and wages of staff;

(c)   Supplies;

(d)   Light and water;

(e)   Depreciation of fixed assets;

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

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

(c)   Preference to loans and financing assistance. —

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

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

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

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

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

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

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

RULE XIX

Incentives to Registered Service Exporters

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

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

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

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

RULE XX

Conditions for Availment of Incentives in General

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

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

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

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

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

RULE XXI

Public Participation Requirement

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

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

(a)   Pioneer registered enterprises;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(a)  pertinent data about the registered enterprise;

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

(c)   terms of offering and mode of payment;

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

(e)  management profile of the registered enterprise;

(f)  current ratio and other financial relationships;

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

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

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

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

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

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

RULE XXII.  Preferred Non-Pioneer Areas Without Incentives

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

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

RULE XXIII.  Non-Registered Activities

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

RULE XXIV

Basis of Allowable Deduction

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

RULE XXV

Duration of Incentives

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

RULE XXVI

Withdrawal from Business or Suspension of Operations, Effects Thereof

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

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

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

RULE XXVII

Submission of Reports and Other Documents

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

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

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

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

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

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

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

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

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

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

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

(k)   Audited annual financial statements, viz.: (1) profit and loss statement; and (2) balance sheets — one (1) month from date of filing with the Bureau of Internal Revenue of the annual income tax return for the preceding calendar/fiscal year;

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

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

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

(o)   Statement of the total peso value of incentives availed of under the Code during the previous calendar year — not later than January 31 of the current year.

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

PART III

Foreign Investments Without Incentives

RULE XXVIII

Permitted Investments

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

RULE XXIX

Permissible Investments

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

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

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

RULE XXX

Doing Business in the Philippines

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

(a)  an alien individual;

(b)  a foreign company; and

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

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

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

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

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

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

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

(a)  Bio-data of the applicant;

(b)  Proof of status of admission;

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

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

(e)  Business name;

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

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

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

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

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

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

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

(d)  Business name; acd

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

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

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

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

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

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

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

(d)  Business name;

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

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

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

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

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

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

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

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

PART IV

Final Provisions

RULE XXXI

Scope of These Rules

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

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

RULE XXXII

Violations of the Provisions of the Code

SECTION 1.  Grounds for Cancellation. — Registration may be cancelled for any of the following grounds:

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

(b)  Violation of any provision of the Code; aisa dc

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

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

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

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

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

RULE XXXIII

Reckoning of Dates

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

RULE XXXIV

Notices

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

RULE XXXV

Schedule of Fees

The following fees shall be collected by the Board:

(a)	Publication fee	P250.00
	or such higher fee set by the Board taking
	into account current advertising cost.
(b)	Filing fee for each application for
	registration	100.00
(c)	Fee for issuance of each certificate of
	registration	300.00

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

RULE XXXVI

Effectivity

These Rules shall take effect thirty (30) days after publication in two (2) newspapers of general circulation in the Philippines.

Published in the Daily Express dated April 1, 1981.