NATIONAL LAWS

Republic Act No. 7042, also known as the “Foreign Investments Act of 1991,” is the primary law regulating foreign investments in the Philippines. It generally allows foreign investors to invest up to 100% equity in domestic market enterprises, subject to certain restrictions.

The law aims to encourage foreign investors to provide employment opportunities, develop local resources, increase the value of exports, and help fuel the overall Philippine economy.

Foreign investments can be made in various forms, including: Capital goods, Patents, Formulae, Other technological rights or processes.

The FINL is a list of areas or activities that impose limits on foreign ownership. It is divided into two parts: List A and List B.

List A consists of investment areas reserved for Philippine nationals, primarily due to restrictions set by the Philippine Constitution. Foreign ownership in some of these areas is restricted to a maximum of 40%.

• Mass media, except recording
• Practice of licensed professions
• Retail trade
• Cooperatives
• Private security agencies

Limited foreign ownership is permitted in areas such as: Private radio communication networks, Private recruitment, Advertising, Ownership of private lands and condominium units, Exploration, development, and utilization of natural resources.

List B indicates limits on foreign ownership for reasons of security, defense, risk to public health and morals, and protection of small and medium-scale enterprises. Examples: manufacture of firearms, military equipment, telescopic sights, all forms of gambling except PAGCOR agreements.

The standard setup for companies with both Filipino and foreign ownership serving the local market is 60% Filipino / 40% foreign, with Filipinos owning the larger share. The paid-up capital can be less than US$200,000 subject to conditions.

For a foreign entity to own more than 40% of a domestic company (if not listed in the FINL and serving the domestic market), the required capital could not be less than US$200,000. This threshold could be lowered to US$100,000 if activities involved advanced technology or the company had at least 50 direct employees.

Repatriation of investments (same currency, prevailing exchange rate), remittance of earnings, freedom from expropriation except for public use with just compensation, and non-requisition of investment except in war/national emergency with just compensation.

Act 11647 is the law that amends the Foreign Investment Act (RA 7042), signed March 2, 2022.

Promote foreign investments by allowing international investors to set up and fully own domestic enterprises, including micro and small enterprises, to contribute to sustainable economic growth and increase market competition.

Foreign nationals can own an MSME with minimum paid-in capital of US$100,000 provided the enterprise: (a) utilizes advanced technology, (b) endorsed as startup enabler/startup, or (c) hires no less than 15 Filipino employees (reduced from 50).

A new inter-agency body under DTI created to integrate and coordinate all promotion and facilitation efforts to encourage foreign investments across government agencies.

The President can order the IIPCC to review, suspend, prohibit, or limit foreign investments that may threaten national safety, security, and well-being (e.g., military industries, cyber infrastructure, pipeline transportation).

Foreign businesses employing foreign nationals and benefiting from fiscal incentives must devise an understudy or skills development program for their Filipino workers, monitored by DOLE.

The IIPCC, in coordination with NSC and NEDA, reviews foreign investments in sensitive sectors like military-related industries, cyber infrastructure, and pipeline transportation to ensure they do not threaten territorial integrity or citizen safety.

The Act promotes the development and utilization of renewable energy sources, such as solar, wind, and biomass, within the Philippines.

The Act covers biomass, geothermal, solar, hydro, wind, and ocean energy sources.

All filings for incentives should be done with the Department of Energy (DOE).

Developers are granted an ITH for the first seven years of commercial operations. Expansion projects on additional investments may receive an ITH extension for a maximum period of 21 years (up to three times the initial 7-year period).

Yes, duty-free importation of machinery and equipment for a period of ten years.

Special realty and other taxes on civil works, equipment, machinery, and other improvements actually and exclusively used for RE facilities shall not exceed 1.5%.

After the initial seven years of the Income Tax Holiday, a corporate tax rate of 10% is applied.

NOLCO allows for the net operating loss incurred during the first three years of commercial operations to be carried over as a deduction from gross income for the next three consecutive taxable years immediately following the year of such loss.

If a renewable energy project fails to receive an ITH before full operation, it may apply for Accelerated Depreciation in its tax books and be taxed based on such.

No. There is zero-rated VAT on sales and local purchases of renewable energy-generated power and fuel.

No, the Act provides for the Tax Exemption of Carbon Credits, which applies to all proceeds from their sale.

The Act led to the establishment of the Philippine Electricity Market Corporation (PEMC) (Sec. 8), the National Renewable Energy Board (NREB) (Sec. 27), and the Renewable Energy Management Bureau (REMB) (Sec. 32).

PEMC refers to the Corporation incorporated upon the initiative of the DOE, composed of all Wholesale Electricity Spot Market (WESM) Members. Its Board of Directors serves as the PEM Board.

Functions include: Policy Recommendation of Renewable Portfolio Standards, implementation oversight, monitoring and review of the National Renewable Energy Program (NREP), and supervision of the Renewable Energy Trust Fund.

Policy implementation, centralized information base, promotion of RE commercialization, supervision and monitoring of RE development, and providing technical training/advisory services.

Yes. In November 2022, the DOE (via Department Circular No. 2022-11-0034) allowed 100% foreign ownership in the renewable energy sector, increasing from the previous 40% cap.

Under the National Renewable Energy Program (NREP) 2020-2040, the country aims to increase the share of renewable energy to 35% by 2030 and 50% by 2040.

It is a Philippine law that aims to promote economic growth by establishing special economic zones (Ecozones) to attract investment, create jobs, and facilitate development of industries and tourist centers.

The core purpose is to transform designated areas into highly developed centers for industry, commerce, and tourism, thereby stimulating overall economic development and creating widespread employment opportunities.

The Act established industrial estates, export processing zones, free trade zones, and tourist/recreational centers.

The Act created the Philippine Economic Zone Authority (PEZA) as the main government agency responsible for planning, monitoring, and implementation of all Ecozone policies.

Establishments were granted fiscal incentives as provided under PD No. 66 or Book VI of EO 226 (Omnibus Investment Code). Exporters using local materials also qualified for tax credits under the Export Development Act of 1994.

In lieu of paying taxes under the National Internal Revenue Code, businesses within the Ecozone remit five percent (5%) of their gross income earned to the national government.

3% to national government, 1% to affected LGUs (based on population, land area, equal sharing), and 1% for a development fund for municipalities outside and contiguous to the Ecozone.

The Act restructured PEZA, providing enhanced governance and streamlined organizational structure. It also defined roles for monitoring both government-owned and privately-owned zones.

RA 8748 solidified tax exemption benefits: except for real property taxes on land owned by developers, no national and local taxes are imposed on Ecozone businesses; they instead pay the 5% gross income tax.

3% is remitted to the National Government, and 2% is directly remitted by the business establishment to the treasurer's office of the municipality or city where the enterprise is located.

The Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act (RA 12066) amends the original CREATE Act, providing longer and more competitive tax incentives and clarifying provisions for Registered Business Enterprises (RBEs).

Longer Income Tax Holiday periods, clearer VAT zero-rating treatment, additional Enhanced Deductions, support for flexible work arrangements, and alignment of local tax imposition rules.

The CIT rate for Registered Business Enterprises (RBEs) under the Enhanced Deduction Regime is reduced from 25% to 20%.

The maximum Withholding Creditable Tax is lowered from 1% to 32% (under CREATE Act) to a maximum of 15% under CREATE MORE.

Power Expense Deduction: increased from 50% to 100% additional deduction. Reinvestment Allowance: maximum 50% deduction expanded to both Manufacturing and Tourism industries until December 31, 2034.

Yes. A 50% additional deduction is now available for expenses related to exhibitions, trade missions, or trade fairs.

Companies can now avail of Enhanced Deductions After the Income Tax Holiday (ITH) or at the onset/start of commercial operations (SCO), offering greater flexibility.

• High Priority Projects (HPPs): Maximum ITH extended from 6 years to 8 years.
• Innovation & High Technology (IH&T) Projects: Maximum ITH extended from 7 years to 10 years.

Projects must have a comprehensive sustainable development plan, inclusive business approaches, high sophistication and innovation, AND either (a) minimum investment capital of P50 billion (or equivalent) OR (b) generate minimum 10,000 direct local jobs within 3 years from certificate issuance.

The deadline to act on VAT refund claims and Excise Tax refund claims for imported petroleum products is shortened from 180 days to 90 days.

Yes. Micro & Small Enterprises: 100% deduction; Medium & Large Enterprises: 50% deduction for the cost of setting up an electronic sales reporting system.