Historically, the Philippine economy has been characterized by cycles of boom and bust, based on import substitution rather than export-led growth. The current government is implementing proactive policies to reform and modernize the economic system, making it more internationally oriented and market-driven. Over the past few years, the economy has seen significant growth, supported by a narrowing fiscal deficit, lower inflation, and moderate interest rates.
Below is an introduction to the preferential policies introduced by the Philippine government:
Preferential Policy Framework: Income Tax Exemption; newly registered priority project enterprises will be exempt from income tax for 6 years, while traditional enterprises are exempt for 4 years. Expansion and modernization projects are granted a 3-year tax exemption period, which extends to 6 years if the project is located in a less developed area.
Newly registered enterprises may enjoy an additional 1-year tax exemption if they meet any of the following conditions: (1) Locally produced raw materials account for at least 50% of total raw materials; (2) The ratio of the value of imported and locally produced fixed equipment to the number of workers does not exceed $10,000 per person; (3) Annual foreign exchange deposits or earnings reach over $500,000 within the first 3 years of operation.
Deduction of labor costs from taxable income; exemption from taxes on raw materials used for manufacturing, processing, or producing export goods; deduction of necessary and major infrastructure expenses from taxable income; exemption from customs duties on materials and components related to imported equipment; exemption from wharfage fees and export duties; exemption from local business taxes for 4 to 6 years from the date of registration with the Board of Investments; non-fiscal incentives include simplified customs procedures; unrestricted use of consigned equipment; labeling of equipment consigned to the Philippines as exportable; and entry into the bonded manufacturing warehouse system.
Employment of Foreign Nationals: Foreign nationals may hold management, technical, and advisory positions in registered enterprises for a period of 5 years, which may be extended with the approval of the Board of Investments. Presidents, general managers, treasurers, or equivalent positions may be granted longer residency.
Regulations for Foreigners Working in the Philippines: Foreigners working in the Philippines must obtain an Alien Employment Permit (AEP) issued by the Department of Labor and Employment (DOLE) and a legal visa from the Bureau of Immigration. Foreigners working in the Philippines enjoy the same rights as local employees.
The Alien Employment Permit is issued by the Department of Labor and Employment to foreigners intending to work in the Philippines (excluding executives of offshore banks and regional headquarters). The primary criterion used by the Department of Labor and Employment to evaluate applicants is whether the applicant is qualified for the position applied for and is willing to perform the work. After obtaining the permit, a foreigner may not change jobs or employers without the approval of the Department of Labor and Employment. If a foreign contractor employs foreign staff, these employees must also pass a labor market test organized by the Philippine Department of Labor and Employment and the Professional Regulation Commission before they can practice their profession in the Philippines.
