AN ACT PRESCRIBING INCENTIVES AND GUARANTEES TO INVESTMENTS IN THE PHILIPPINES

Case Overview and Summary

Summary of Republic Act No. 5186 (Investment Incentives Act)

Declaration of Policy (Section 2):
- Accelerate economic development through encouraging Filipino and foreign investments in industries that increase national income, exports, employment, and equitable distribution of wealth.
- Welcome foreign capital in joint ventures with substantial Filipino capital for capital-intensive and domestic raw material-utilizing enterprises.

Definitions (Section 3):
- Registered enterprise: Philippine corporation engaged in preferred area of investment, with at least 60% Filipino ownership and directors.
- Technological assistance contracts: contracts for transfer of foreign patents, processes, technical assistance.
- Foreign loan: credit facility obtained by a registered enterprise from foreign sources.
- Foreign investments: equity investment by non-Filipinos in a registered enterprise.
- Philippine National: Filipino citizen, partnership/association wholly owned by Filipinos, or corporation with at least 60% Filipino ownership and directors.
- Preferred areas of investment: economic activities declared as such by the Board.
- Pioneer enterprise: registered enterprise engaged in manufacturing not done commercially in the Philippines or using new production methods, with substantial use of domestic raw materials.
- Measured capacity: additional production volume determined by the Board as desirable for each preferred/pioneer area.
- Tax credit: credits against taxes extended to a registered enterprise.
- Investment Priorities Plan: plan prepared by the Board indicating demand, supply, investment areas, measured capacities, roles of public and private sectors.

Basic Rights and Guarantees (Section 4):
- Repatriation of investment proceeds and earnings for foreign investments.
- Remittance of payments for foreign loans and technological assistance contracts.
- Freedom from expropriation and requisition, with just compensation.

Incentives to Investors in Registered Enterprises (Section 5):
- Protection of patents and proprietary rights.
- Capital gains tax exemption on proceeds reinvested in registered enterprises within 6 months.

Incentives to Philippine Nationals Investing in Pioneer Enterprises (Section 6):
- Tax allowance for investments up to 10% of taxable income.
- Capital gains tax exemption on proceeds reinvested in pioneer enterprises within 6 months.
- Tax exemption on sale of stock dividends received from pioneer enterprises within 7 years.

Incentives to Registered Enterprises (Section 7):
- Deduction of organizational and pre-operating expenses over 10 years.
- Accelerated depreciation of fixed assets.
- Net operating loss carry-over for 6 years.
- Tax exemption on imported capital equipment for 7 years.
- Tax credit on domestic capital equipment purchases.
- Tax credit for withholding tax on interest payments on foreign loans.
- Employment of foreign nationals in supervisory positions for 5 years.
- Deduction for expansion reinvestment.
- Anti-dumping protection and protection from government competition.

Incentives to Pioneer Enterprises (Section 8):
- Tax exemptions: 100% until 1972, gradually decreasing to 10% until 1981.
- Employment of foreign nationals, with repatriation after 5 years except for key positions.
- Post-operative tariff protection up to 50% of dutiable value of imported similar items.

Special Export Incentives for Registered Enterprises (Section 9):
- Double deduction of promotional expenses for exports.
- Double deduction of shipping costs for exports on Philippine vessels.
- Special tax credit on raw materials used for exported products.

Preference in Grant of Government Loans (Section 10):
- Government financial institutions to prioritize applications from pioneer and registered enterprises.
- Contribution to capital of registered enterprises to enable 60% Filipino control.

Private Financial Assistance (Section 11):
- Insurance companies allowed to invest in registered enterprises.

Loans for Investment (Section 12):
- GSIS and SSS to extend 5-year loans at 6% interest to members for purchasing shares in registered enterprises.

Board of Investments (Section 13-17):
- Creation of 5-member Board of Investments appointed by the President.
- Qualifications, compensation, and powers/duties of the Board and Chairman.

Preferred and Pioneer Areas of Investment (Section 18):
- Board to submit annual Investment Priorities Plan indicating preferred/pioneer areas and measured capacities.
- Criteria for determining preferred/pioneer areas.
- Approval process for the Investment Priorities Plan.

Qualification of Applicants (Section 19):
- Requirements for enterprises to be registered, including Filipino ownership, proposed project, accounting system.
- Criteria for selecting enterprises if applications exceed measured capacity.
- Appeal process for Board decisions.

Certification of Registration (Section 21):
- Issuance of certificate of registration stating terms and conditions.

General Provisions (Section 22):
- Registered enterprises may have up to 15 directors.
- Two types of voting shares: transferable only to Filipinos (at least 60%) and transferable to any nationality (up to 40%).
- Philippine Nationals as stockholders may establish a marketing corporation.

Other Incentives Acts (Section 23):
- After designating preferred/pioneer areas, no new applications under RA 3127 except for existing/pending applications or non-covered industries.
- Registered enterprises entitled to benefits not granted by other laws.

Penal Clause (Section 24):
- Violations punishable by fine up to ₱50,000 and/or imprisonment up to 3 years, deportation for foreign offenders.
- Prohibition on government officials intervening in transactions with the Board.

Applicability and Interpretation (Section 25):
- Applicability to existing enterprises in preferred areas.
- Benefits limited to preferred/pioneer portions of multiple area enterprises.
- Doubts resolved in favor of investors and registered enterprises.

Appropriation (Section 27):
- ₱2 million appropriated for fiscal year 1967-1968.

Repealing Clause (Section 28)

Effectivity (Section 29)
- Effective upon approval on September 16, 1967.