What is the Omnibus Investments

Code of 1987 or EO 226? When did it

become effective?

The Omnibus Investments Code of 1987, as

amended, integrates the basic laws on investments,
clarifying and harmonizing their provisions to
encourage and guide domestic and foreign
investors. It was passed through EO 226, which took
effect on August 13, 1987.
 Which government agency is
authorized to register companies for
incentive purposes under EO 226?
 Composition of the Board (7 Governors):

Ramon M. Lopez
Secretary of Trade and Industry
(Chairman)

!3 Undersecretaries of Trade and Industry (4 yrs)

!3 Representatives from other government agencies and the private sector
Some of the main duties of the BOI:
Regulation and promotion of Investments in the
Philippines
Preparation of Annual Investment Priorities Plan (IPP)
Process and approve applications for registration; as well
as the cancellation/suspension thereof
Extension of the period of availment of incentives by any
registered enterprise (not exceeding 10 years), subject to
conditions
Periodical verification of the proportion of participation of
Philippine nationals, as well as the compliance of
registered enterprises
 What is the Investment Priorities
Plan?

The IPP is a list of various areas of

economic activities for investment eligible
for incentives under the Code.
 Registered Enterprises

any individual, partnership, cooperative,

corporation or other entity incorporated
and/or organized and existing under
Philippine laws; and registered with the
Board of Investments; shall not include
banks, consumer cooperatives, and
credit unions, and the like
 Registration Process
1. File BOI Form 501 with supporting documents and filing fee
2. Evaluation of Application and Preparation of Evaluation
Report (incl. Publication of Notice of Filing of Application, plant
visit)
3. Presentation to the BOI Management Committee
4. BOI Governing Board Confirmation
5. Letter advice to Applicant of Board Action
6. If Approved, send letter of approval including pre- registration
requirements
7. Applicant complies with the pre-registration requirements
8. Preparation and issuance of Certificate of Registration upon
payment by applicant of Registration Fee
9. Release of Certificate of Registration
 Qualifications of Registered
Enterprises
Must be a Filipino citizen or Filipino-owned
corporation:

-At least 60% of the capital stock (voting)

is owned by Filipino
-At least 60% of the members of the Board
of Directors are Filipino
 Qualifications of Registered
Enterprises
If foreign-owned corporation:

- Must be engaged in a Pioneer Project. The pioneer

area it will engage in is one that is not within the activities
reserved by the Constitution or other laws of the
Philippines to Philippine citizens or corporations owned
and controlled by the Philippine citizens.

- Export at least 70% of its total production.

- Must divest within 30 years from the date of registration

to attain Filipino ownership, except if exporting 100% of
total production.
 Qualifications of
Registered Enterprises

The applicant is proposing to engage in

preferred areas of investment found in the
current IPP, or if not listed, at least 50% of
its production is for export.
 What are the fiscal incentives to BOI-
Registered Enterprises?
A.)TAX EXEMPTION
Income tax holiday (ITH):
New projects with a pioneer status 6 years
New projects with a non-pioneer status 4 yrs
Expansion projects - 3 years
New or expansion projects in less developed
areas (LDAs), regardless of status - 6 years
Modernization projects - 3 years
What are the fiscal incentives to BOI-
Registered Enterprises?

New registered pioneer and non-pioneer enterprises and

those located in the less developed areas may avail
themselves of a bonus (extension) year in each of the
following cases:

1.)Capital equipment to labor ratio

Total imported or domestic

Capital equipment < $10,000/worker
Number of workers
What are the fiscal incentives to BOI-
Registered Enterprises?
utilization of indigenous raw materials at rates set by the
Board (atleast 50%);

Cost of indigenous materials

Total Cost of Materials

the net foreign exchange savings or earnings amount to at

least US$500,000.00 annually during the first three (3) years
of operation

Foreign Exchange Earnings/Savings

- Foreign Exchange Costs/Expenses
Net Foreign Exchange Savings/ Earnings

In no case shall the registered pioneer firm avail itself of this incentive
for a period exceeding 8 years.
What are the fiscal incentives to BOI-
Registered Enterprises?

Tax and Duty Exemption on Imported

Capital Equipment
Exemption from wharfage dues and export
tax, duty, impost and fees (10 years)
Tax exemption on breeding stocks and
genetic materials. (10 years)
What are the fiscal incentives to BOI-
Registered Enterprises?

B.)TAX CREDITS

Tax credit on tax and duty portion of domestic

breeding stocks and genetic materials -
100% tax credit within 10 years from
registration
Tax credit for taxes on raw materials
Tax credit on domestic capital equipment
What are the fiscal incentives to BOI-
Registered Enterprises?

C.)ADDITIONAL DEDUCTIONS FROM TAXABLE

INCOME

Additional Deduction for Labor Expense (first 5 years)

-50% of the wages corresponding to the increment in the
number of direct labor for skilled and unskilled workers
(doubled if located in Less Developed Areas)

Additional deduction for necessary and major

infrastructure works
LESS DEVELOPED AREAS
LESS DEVELOPED AREAS
LESS DEVELOPED AREAS
 Special Economic Omnibus
Zone Act Investments Code
(RA No. 7916) (EO 226)

Government Philippine Economic Zone Board of Investments

Agency Authority (PEZA) (BOI)

Companies are required to

relocate operations inside
Physical Location a PEZA IT Zone or PEZA
No requirement
building
 Special Economic Omnibus
Zone Act Investments Code
(RA No. 7916) (EO 226)
Preferred Areas of
Eligible activities Activities
(exclusive list):
EZ Export Mandatory Inclusions:
Manufacturing Industrial tree
Information Technology plantation, Mining, Oil
Tourism EZ refining, Storage and
Eligibility Locator Enterprise distribution of
Medical Tourism petroleum products,
Agro-Industrial Tourism, Rehabilitation
EZ Logistics Services self-development and
EZ Developer/Operator self-reliance of persons
Facilities Enterprise with disability,
EZ Utilities Enterprise Publication and
printing of books
 Special Economic Omnibus
Zone Act Investments Code
(RA No. 7916) (EO 226)
Must be Filipino citizen
or Filipino owned
Activities must be listed
Exclusive List
on IPP, or
Location of project in
!If Filipino owned at
Qualifications PEZA Zone
least 50% of prod for
At least 70% of production
export;
for export
!If foreign owned at
least 70% of prod for
export
 Special(Economic(Zone(Act(( Omnibus(Investments(Code(
(RA(No.(7916)( (EO(226)(

( Income!tax!holiday!(ITH):!
Income!Tax!Holiday! Bonus!(extension)!year!in!each!of!the!
following!cases:!
Special(5%!tax!rate!on!gross!
1.Capital!equipment!to!labor!ra9o!
income!a3er!the!lapse!of!the!ITH!
2.Indidenous!Materials!Criterion!
ExempCon(frome!du9es!and!taxes!
3.!Net!Foreign!Exchange!Criterion!
Tax!Credit!for!Import!Subs9tu9on!
Tax(and!Duty!Exemp9on!on!Imported!
AddiConal!Deduc9on!for!Training! Capital!Equipment!
Expenses!
ExempCon!from!wharfage!dues!and!
ExempCon!from!Wharfage!Dues,! export!tax,!duty,!impost!and!fees!(10!
Export!Tax,!Impost!and!Fees! years)!
Fiscal(
Tax!Credit!on!Domes9c!Capital!
IncenCves( Equipment!
Tax!exemp9on!on!breeding!stocks!and!
gene9c!materials.!(10!years)!
Tax!and!Duty!Free!Importa9on!of! Tax(credit!on!tax!and!duty!por9on!of!
Breeding!Stocks!and!Gene9c! domes9c!breeding!stocks!and!gene9c!
Materials! materials!
Tax!credit!on!Domes9c!Breeding! Tax!credit!for!taxes!on!raw!materials!
Stocks!and!Gene9c!Materials!
Tax!credit!on!domes9c!capital!equipment!
Unrestricted!Use!of!Consigned!
AddiConal!Deduc9on!from!Taxable!
Equipment!
Income!
QUESTIONS
 ADOLPINES CORPORATION is a business organization which
commenced its commercial operation on January 1, 2010 whose
principal purpose or principal source of income is to receive
deposits, and lend or borrow money. The following data can be
gathered from its financial statements, ended December 31, 2016:

Total Revenue 1,450,000

Total Allowable Deductions 500,000

1. How much Income Tax Holiday can ADOLPINES CORPORATION

avail during its 2nd year of commercial operation?

2. Suppose ADOLPINES CORPORATION is a registared non-pioneer

enterprise, how much income tax holiday can ADOLPINES
CORPORATION avail during 2016.
The Manufacturing Cost Statement of the Audited FS of Choi
Company, a non-pioneer registered enterprise, showed the
annual cost of raw materials for all taxable years prior to its
extention. Also the annual cost of indigenous raw materials
which were taken from the certified Breakdown of Raw
Material Components submitted in support of the AFS are
also given below:

Compute the indigenous raw material ratio each year.

Is Choi Company can avail an extension of bonus year

using the indigenous raw material criterion?
 God's Girl Co. is engaged in the manufacturing of shoes. It imported
equipment worth 500,000 from God's Boy Inc. based in Singapore,
which won't be used exclusively by the registered enterprise in the
manufacture of its products.

1. How much is the tax exemption of God's Girl Co. with regards to its
importation of the equipment?

2. Suppose the imported equipment is used exclusively by the company

in manufacturing its product then after 2 years, they sold the
equipment to Brader Inc. a registered enterprise enjoying similar
incentives with the approval of the Board. How much is God's Girl
Co. liable to the BIR?

What if they sold the equipment to Brader Inc. a registered enterprise

enjoying similar incentives without the approval of the Board. How
much is God's Girl Co. liable to the BIR? How about Brader Inc?
 PAPPI Corporation, a registered enterprise, commenced operation
on January 1, 2010. During its six years of operation, it averaged
6,000 workers which includes supervisors, warehousemen, quality
control personnel outside the production line, utility and maintenance
personnel and subcontracted labor that average 1,000 workers
annually. Salaries expense incurred annually is $2500/ worker.

The Audited FS of PAPPI Corporation for the year ended presented

the following relevant data:
Cost of Equipment - $50,000,000
Total Sales - $100,000,000
Direct Materials - $15,000,000
Indirect labor- $15,000,000 (unskilled workers-65% and skilled
workers -35%)

Questions
1.) Suppose PAPPI Corporation is a pioneer enterprise:
a)Can it avail the bonus year of Income Tax Holiday?
b)How much is the capital equipment to labor ratio?
2.)Supposed PAPPI Corporation is a registered expanding
enterprise and the company avail its income tax holiday,
how much are the total allowable deductions during its
first 3 years of commercial operation? what if, it did not
avail its income tax holiday, how much is the total
allowable deduction?

3.)If the company did not avail its income tax holiday, how
much additional deduction for labor expense from its
taxable income during its first 5 years of commercial
operation?

Assumed the activity of the company is located at less

developed areas, how much will be the additional
deduction for labor expense from the taxable income
during its first 5 years of commercial operation?
 Compute the net foreign exchange earnings/savings below:

1.How much is the net foreign exchange earnings per year?

2.Can the company avail the additional bonus year of income tax
holiday based on net foreign exchange earnings criterion?
3. How much is the average net foreign exchange earnings during
the 3-year period?
 The following data below are the expenses/ costs taken from the certified
Summary of Imported Costs submitted with the application to avail a company
of a bonus year for income tax holdiay. Which of the following are included in
the items of foreign exchange costs/expenses in computing the net foreign
exchange earnings criterion? How much?

Raw materials imported from own account 45,000

Imported supplies used in the production of registered
products 50,000
Imported spare parts of machinery and equipment
used in the production of registered products 75,000
Other imported materials used in production purchased
from traders/importers (e.g. chemicals, etc.) 65,000
Machinery and equipment imported from own account 95,000
Depreciation of imported machinery and equipment
used in production 25,000
Rental payment on consigned/leased machinery and equipment 30,000
Freight, insurance and handling charges paid for in
foreign currency 15,000
Interest expense/s on CB-approved
/registered foreign loans 10,000
Remuneration of foreign personnel paid for in foreign currency 20,000
 CASIO Co. a registered pioneer enterprise is a manufacturer of scientific
calculators. It commenced its commercial operation on January 1, 2010.
During 2016, total production units is 500,000 of which 350,000 units are
exported. The company imported capital equipment with a selling price of
500,000. It acquired raw materials domestically for 5,000,000 which are
used in the production of its product and its tax is indicated as a separate
item in the sales invoice. They have the following data in its books:

Sales (400,000) 56,000,000

Direct Materials 8,000,000
Insurance-Equipment 100,000
Direct Labor 10,000,000
Factory Overhead 5,000,000
General & Administrative Expense (production) 350,000
Depreciation Expense(Equipment) 50,000
Depreciation Expense(Machinery) 50,000

1. Compute for the tax credit of raw materials purchased domestically.

2. Compute for the income tax payable of Casio Co.