Further Strengthening The Fiscal Incentives Administered By The Board Of Investments To Encourage Exports And The Setting Up Of Overseas Trade Offices

Case Overview and Summary

Summary of Presidential Decree No. 1646

Strengthening Fiscal Incentives for Exports and Overseas Trade Offices

• Increases the allowable deduction for registered export traders under R.A. 6135 from 10% to 20% of total export sales. (Section 1)
• Allows registered export traders to additionally deduct expenses for establishing and maintaining overseas offices for the first 5 years, with the Central Bank providing necessary foreign exchange. (Section 1)

Additional Incentives for Registered Export Producers under R.A. 6135 (Section 2):
• Amortized deduction of organizational and pre-operating expenses as provided under Sec. 7(a) of R.A. 5186.
• Accelerated depreciation as provided under Sec. 7(b) of R.A. 5186.
• Net operating loss carry-over as provided in Sec. 7(c) of R.A. 5186.
• Exemption from the 5% duty and 5% tax on previously exempt importations under P.D. 1395.
• Exemption from P.D. 485 regarding the reduction of tax exemption on imported capital equipment for non-pioneer enterprises with total assets or projected total assets of P500,000.00 for replacement, modernization, or expansion of projects with over 20% return on equity.
• Extension of tax-free importation of capital equipment from 5 to 7 years.
• Sales tax exemption for articles sold by a registered export producer to another export producer or export trader, under guidelines formulated by the Board of Investments in consultation with the Bureau of Internal Revenue. (Section 2)

Qualifying as a Registered Export Producer and Reduced Income Tax Incentive (Section 3):
• Export sales shall be deemed to include sales to another export producer who utilizes such products as direct inputs of its export products and sales to an export trader, whether registered with the Board of Investments or not.

Export Priorities Plan and Local Content Requirement (Section 4):
• Export products for listing in the Export Priorities Plan need not meet the limitation that not more than 80% of its value is attributable to imported raw materials, provided that it meets the local content requirement, if any, set by the Board of Investments.
• Products of existing firms with capacity for export, qualified as non-traditional export, shall be deemed listed in the Export Priorities Plan under conditions imposed by the Board of Investments.

Foreign Ownership Requirement (Section 5):
• Registered enterprises exporting 100% of its production need not comply with Section 19(a)(3) of R.A. 5186, which requires the foreign exporter to become a Filipino national within a certain period, subject to minimal local sales authorized by the Board of Investments to meet domestic shortages.

Repeal of Earnings Limit (Section 6):
• Section 16(r) of R.A. 5186 and Section 13(3) of R.A. 6135, authorizing the Board of Investments to suspend or cancel registrations if the firm's earnings exceed 33-1/3% of equity, are hereby repealed.
• Any other laws, decrees, rules, and regulations inconsistent with this Decree are hereby repealed or modified accordingly.