 Tax exemptions under the Omnibus Investments Code of 1987

(Executive Order No. 226) and the Barangay Micro Business

Enterprises (BMBEs):

1. Tax exemption, defined.

a. Broader sense. Whenever a tax on property does not apply to all property
within the jurisdiction of the taxing authorities, the property not taxed is said to
be exempted.
b. Narrow sense. The grant of immunity, expressed or implied, to a particular
person or persons or corporations of a particular class, from a tax upon property
or an excise tax which persons or corporations generally within the same taxing
districts are obligated to pay.

2. Tax exemptions according to source:

a. Constitution;
b. Statutory;
c. Treaty;
d. Contractual; and by
e. Licensing ordinance

3. Statutory tax exemptions;

a. Tax exemption provisions under Executive Order No. 226, “The Omnibus
Investments Code of 1987”.
b. Tax exemption provisions under the two basic tax codes (NIRC and TCC, as
amended) and a general code (LGC).

Among the statutory tax exemptions in (b) are those granted to Barangay Micro
Business Enterprises (BMBEs).

4. Tax exemptions to pioneer and non-pioneer preferred enterprises under Executive

Order No. 226, “The Omnibus Investments Code of 1987”.
a. Income tax holiday. Full exemption from taxes imposed by the National
Government. Six (6) years for pioneer enterprises; and four (4) years for non-
pioneer enterprises.
b. Tax and duty exemption on imported capital equipment.
c. Tax exemption on breeding stocks and genetic materials.
d. Tax exemption from contractor’s tax.
e. Exemption from taxes and duties on imported spare parts.
f. Travel tax exemption.
g. Exemption from all kinds of local licenses, fees and dues.
h. For regional or area headquarters of a multinational company:
1. Tax and duty free importation of personal and household effects of alien
executives.
2. Tax and duty free importation of training materials and motor vehicles.
5. Tax exemptions granted to Barangay Micro Business Enterprise (BMBE):
a. BMBE, defined. Any business entity or enterprise engaged in the production,
processing or manufacturing of products or commodities, including agro-
processing, trading and services, whose total assets, including those arising
from loans but exclusive of the land on which the particular business entity’s
office, plant and equipment are situated, shall not be more than Three Million
Pesos (P3,000,000.00)

BMBE shall include any individual owning such business entity or enterprise,
partnership, cooperative, corporation, association or other entity incorporated
and/or organized and existing under Philippine Laws; and registered with the
office of the treasurer of a city or municipality in accordance with the
implementing rules and regulations.

Services shall exclude those rendered by anyone who is duly licensed by the
government after having passed a government licensure examination, in
connection with the exercise of one’s profession.

b. Exemption from taxes and fees. All BMBEs shall be exempted from income tax
for income arising from the operation of the enterprise.

LGUs are encouraged either to reduce the amount of local taxes, fees and
charges imposed or to exempt the BMBE from local taxes, fees and charges.

The exemption covers only the income taxes enumerated under Title II of the
NIRC of 1997 which includes the scheduler rate, the improperly accumulated
earnings tax, the final taxes on passive income, the various capital gains taxes,
etc.

BMBEs, however, are not exempted from the payment of other internal revenue
taxes such as the value-added tax (VAT), the percentage taxes, the
documentary stamp tax, transaction tax, etc.

 Bases Conversion and Development Act (BCDA)

 Republic Act No. 7227 - An Act Accelerating the Conversion of Military
Reservations into Other Productive Uses, Creating the Bases Conversion and
Development Authority for This Purpose, Providing Funds Therefor and For Other
Purposes

 Special Economic Zones

 It is the declared policy of the government to translate into practical realities the
following State policies and mandates in the 1987 Constitution, namely:
(a) "The State recognizes the indispensable role of the private sector, encourages
private enterprise, and provides incentives to needed investments."
(b) "The State shall promote the preferential use of Filipino labor, domestic
materials and locally produced goods and adopt measures that help make them
competitive."

In pursuance of these policies, the government shall actively encourage, promote,

induce and accelerate a sound and balanced industrial, economic and social
development of the country in order to provide jobs to the people especially those in
the rural areas, increase their productivity and their individual and family income, and
thereby improve the level and quality of their living condition through the
establishment, among others, of special economic zones in suitable and strategic
locations in the country and through measures that shall effectively attract legitimate
and productive foreign investments.

Purposes, Intents and Objectives

(a) To establish the legal framework and mechanisms for the integration, coordination,
planning and monitoring of special economic zones, industrial estates / parks, export
processing zones and other economic zones;
(b) To transform selected areas in the country into highly developed agro industrial,
industrial, commercial, tourist, banking, investment, and financial centers, where highly
trained workers and efficient services will be available to commercial enterprises;
(c) To promote the flow of investors, both foreign and local, into special economic
zones which would generate employment opportunities and establish backward and
forward linkages among industries in and around the economic zones;
(d) To stimulate the repatriation of Filipino capital by providing attractive climate and
incentives for business activity;
(e) To promote financial and industrial cooperation between the Philippines and
industrialized countries through technology-intensive industries that will modernize the
country’s industrial sector and improve productivity levels by utilizing new technological
and managerial know-how; and
(f) To vest the special economic zones on certain areas thereof with the status of a
separate customs territory within the framework of the Constitution and the national
sovereignty and territorial integrity of the Philippines.

Definition of Terms
(a) "Special Economic Zones (SEZ)" – hereinafter referred to as the ECOZONES, are
selected areas with highly developed or which have the potential to be
developed into agro-industrial, Industrial tourist/recreational, commercial,
banking, investment and financial centers. An ECOZONE may contain any or all
of the following: Industrial Estates (IEs), Export Processing Zones (EPZs), Free
Trade Zones, and Tourist/Recreational Centers.
 (b) "Industrial Estate (IE)" – refers to a tract of land subdivided and developed
according to a comprehensive plan under a unified continuous management and
with provisions for basic infrastructure and utilities, with or without pre-built
standard factory buildings and community facilities for the use of the community
of industries.

(c) "Export Processing Zone (EPZ)" – a specialized industrial estate located

physically and/or administratively outside customs territory, predominantly
oriented to export production. Enterprises located in export processing zones are
allowed to import capital equipment and raw materials free from duties, taxes
and other import restrictions.

(d) "Free Trade Zone" - an isolated policed area adjacent to a port of entry (as a
seaport) and/or airport where imported goods may be unloaded for immediate
transshipment or stored, repacked, sorted, mixed, or otherwise manipulated
without being subject to import duties. However, movement of these imported
goods from the free-trade area to a non-free-trade area in the country shall be
subject to import duties.

Enterprises within the zone are granted preferential tax treatment and immigration laws
are more lenient.

 Special economic zones were granted special territory various tax and
duty incentives such as under Republic Act No. 7227 – Bases Conversion
and Development Act of 1992 – to enhance the benefits to be derived
from Clark and Subic military reservations.
 Republic Act No. 7227 was amended under Republic Act No. 9400 to
extend the same benefits enjoyed in Subic to the Clark Freeport Economic
Zone, where the latter is considered, a customs territory separate and
distinct from the Philippine Customs Territory. As to importations located
within Clark FEZ enjoy special incentives – tax and duty-free importations.

Eligible Activities under PEZA

1. Export Manufacturing
2. Information Technology Service Export
3. Tourism
4. Medical Tourism
5. Agro-industrial Export Manufacturing
6. Agro-industrial Bio-Fuel Manufacturing
7. Logistics and Warehousing Services
8. Economic Zone Development and Operation
a. Manufacturing Economic Zone Development/Operation
b. IT Park Development/Operation
 c. Tourism Economic Zone Development/Operation
d. Medical Tourism Economic Development/Operation
e. Agro-industrial Economic Development/Operation
f. Retirement Economic Zone Development/Operation
9. Facilities Providers:
a. Facilities for Manufacturing Enterprise
b. Facilities for IT Enterprises
c. Retirement Facilities
10. Utilities

Tax of PEZA REGISTERED ENTERPRISES

 INCOME TAX HOLIDAY (ITH)
o of 3 to 6 years, depending on the registration; and
o expansion may be granted additional ITH for 3 years limited to
incremental revenue

 5% PREFERENTIAL GROSS INCOME TAX

o In lieu of ALL NATIONAL & LOCAL TAXES
o Shall be paid and remitted as follows:
 3% to the National Government
 2% directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is
located
Note: the above exemption does not cover RPT for land owned by
developers.

 TAX BASE: Gross income = gross sales or gross revenues derived from business
activity within the economic zone, net of sales discounts, sales return and
allowances and less cost of sales or direct costs but before any deduction is
made for administrative expenses or incidental losses during a given taxable
period.

 VAT on ECOZONE (as Separate Customs Territory): Ecozone = foreign

territory, separate and distinct from customs territory. Sales made by suppliers
from a customs territory to a purchaser located within an ECOZONE =
considered as exportations. Hence, no VAT shall be imposed to form part of the
cost of goods destined for consumption outside the territorial border of the
taxing authority.

NOTE: The Sale of:

Domestic TO PEZA-registered ZERO-RATED – if seller is VAT-
enterprise (w/in entity w/in the reg
PH Territory) ECOZONE OR
EXEMPT – if not VAT-reg
 PEZA-registered TO PEZA-registered EXEMPT
entity w/in the entity w/in the
ECOZONE ECOZONE
PEZA-registered TO Domestic VAT as an Importer
entity enterprise

Philippine Economic Zone Authority Registered Enterprises

VS. Bureau of Investment Registered Enterprises

PEZA (R.A. No. 7916) BOI (E.O. No. 226)

Located within the ECOZONE No specific location as long as registered
with the BOI all business activity
Business Activities: Business Activities:
1. Export Manufacturing 1. Preferred activities in the
2. Information Technology Service Export Investments Priority Plan (IPP)
3. Tourism 2. Mandatory List in the IPP
4. Medical Tourism 3. Export Activities
5. Agro-industrial Export Manufacturing 4. ARMM List
6. Agro-industrial Bio-Fuel Manufacturing
7. Logistics and Warehousing Services If the activity is not listed in the IPP, the
8. Economic Zone Development and enterprise may still be entitled to
Operation incentives as long as:
a) Manufacturing Economic Zone 1. At least 50% of its production is
Development/Operation for export (if Filipino owned
b) IT Park Development/Operation enterprise)
c) Tourism Economic Zone 2. At least 70% of its production is
Development/Operation for export (if majority is foreign-
d) Medical Tourism Economic owned more than 40% foreign
Development/Operation equity)
e) Agro-industrial Economic
Development/Operation
f) Retirement Economic Zone
Development/Operation
9. Facilities Providers:
a) Facilities for Manufacturing
Enterprise
b) Facilities for IT Enterprises
c) Retirement Facilities
10. Utilities

Tax Incentives (before CREATE LAW): Tax Incentives (before CREATE LAW):
1. 4 or 6 years ITH, extendible to 8 1. 4 or 6 years ITH, extendible to 8
years max; subsequently, 5% years max; subsequently, normal
preferential tax rate on gross corporate income tax under Tax
 income earned Code
2. Exemption from wharfage dues and 2. Exemption from wharfage dues
export tax, import or fees and export tax, duty, import or
3. Tax and duty-free importation of fees
raw materials, machineries, capital 3. Tax credit on raw materials and
equipment, and spare parts supplies
4. Exemption from expanded 4. Exemption from tax and duties on
withholding tax (during the ITH and imported spare parts
5% tax rate regime) 5. Exemption from expanded
5. VAT zero-rating of local purchases withholding tax during ITH
subject to compliance w/ BIR and regime
PEZA requirements 6. Additional deduction for labor
6. Additional ½ of the value of the expense
training expenses incurred in
developing skilled or unskilled labor
or for managerial or other
management development
programs can be deducted from the
national government’s share of 3%
W/ Tax Incentives under Title XIII of the W/ Tax Incentives under Title XIII of the
Tax Code, as amended by the CREATE Tax Code, as amended by the CREATE
Law Law

I. TAX INCENTIVES AND THE FIRB

 Existing investment promotion agencies (e.g., PEZA, BOI, etc.) shall retain their
functions and power under the special laws governing them, except to the extent
modified by CREATE Law.

 New incentives under CREATE Law are governed by the Tax Code, hence, the
BIR will have more power to regulate and implement such new fiscal incentives
granted by CREATE Law.

 FISCAL INCENTIVES REVIEW BOARD (FIRB): Shall have the authority to

grant tax incentives or as may be delegated to the IPAs (such as PEZA and BOI),
to the extent of the approved registered project or activity under the Strategic
Investment Priority Plan (SIPP).

 Definitions:
(A) Capital equipment refers to machinery, equipment, major components thereof,
tools, devices, applications or apparatus, which are directly or reasonably needed in the
registered project or activity of the registered enterprise;

(B) Direct local employment refers to the full and decent employment of Filipinos by
registered business enterprise under an employer-employee relationship to perform
functions that are directly related to the production of goods or performance of services
under the registered project or activity;

(C) Domestic input refers to purchases of locally manufactured goods or locally

produced raw materials or domestically outsourced services known as services
embedded in manufacturing that are used directly in the production of goods under the
registered project or activity. In the case of locally manufactured goods, fifty percent
(50%) of the value-added of the said good should likewise be locally produced or
manufactured;

(D) Domestic market enterprise refers to any enterprise registered with the
Investment Promotion Agency other than export enterprise;

(E) Export enterprise refers to any individual, partnership, corporation, Philippine

branch of a foreign corporation, or other entity organized and existing under Philippine
laws and registered with the Investment Promotion Agency to engage in manufacturing,
assembling or processing activity, and services such as information technology (IT)
activities and business process outsourcing (BPO), and resulting in the direct
exportation, and/or sale of its manufactured, assembled or processed product or
IT/BPO services to another registered export enterprise that will form part of the final
export product or export service of the latter, of at least seventy percent (70%) of its
total production or output;

(F) Freeport zones refers to an isolated and policed area adjacent to a port of entry,
which shall be operated and managed as a separate customs territory to ensure free
flow or movement of goods, except those expressly prohibited by law, within, into, and
exported out of the freeport zone where imported goods may be unloaded for
immediate transshipment or stored, repacked, sorted, mixed, or otherwise manipulated
without being subject to import duties. However, movement of these imported goods
from the free-trade area to a non-free trade area in the country shall be subject to all
applicable internal revenue taxes and duties: Provided, that for the freeport to shall
have a permanent customs control or customs office at its perimeter;

(G) Investment capital refers to the value of investment indicated in Philippine

currency, excluding the value of land and working capital, that shall be used to carry
out a registered project or activity, except that land shall be included as investment
capital for registered real estate development. Investment capital may include the cost
of land improvements, building, leasehold improvements, machinery and equipment,
and other non-current tangible assets; (Has been vetoed by the President.
According to the veto message, land should still be included as part of the
investment capital and exclusion of such asset from the definition may result
to the under-estimation of actual investments.)

(H) Investment Promotion Agencies refer to government entities created by law,

executive order, decree or other issuance, in charge of promoting investments, granting
and administering tax and non-tax incentives, and overseeing the operations of the
different economic zones and freeports in accordance with their respective special laws.
These include the Board of Investments (BOI), Regional Board of Investments-
Autonomous Region in Muslim Mindanao (RBOI-ARMM), Philippine Economic Zone
Authority (PEZA), Bases Conversion and Development Corporation (BCDA), Subic Bay
Metropolitan Authority (SBMA), Clark Development Corporation (CDC), John Hay
Management Corporation (JHMC), Poro Point Management Corporation (PPMC),
Cagayan Economic Zone Authority (CEZA). Zamboanga City Special Economic Zone
Authority (ZCSEZA), PHIVIDEC Industrial Authority (PIA), Aurora Pacific Economic Zone
and Freeport Authority (APECO), Authority of the Freeport Area of Bataan (AFAB),
Tourism Infrastructure and Enterprise Zone Authority (TIEZA), and all other similar
existing authorities or that may be created by law unless otherwise specifically
exempted from the coverage of this Code;

(I) Metropolitan areas refer to Metro Cebu and Metro Davao or those local
government units which are later qualified or grouped as such by the National Economic
Development Authority or through laws or executive issuances;

(J) Other government agencies administering tax incentives refer to

government agencies other than Investment Promotion Agencies which register or
administer tax incentives of any kind to any specific entities and/or class of persons
pursuant to any law;

(K) Other registered entities refer to any individual, partnership, organization,

corporation, Philippine branch of a foreign corporation, or other entity incorporated
and/or organized and existing under Philippine laws, and registered with other
government agencies administering tax incentives;

(L) Qualified capital expenditure refers to purchases of capital goods with a useful
life of more than one (1) year acquired for the entity's production of goods and services
to be directly used in the project or activity of the registered business enterprise;

(M) Registered business enterprise refers to any individual, partnership,

corporation, Philippine branch of a foreign corporation, or other entity organized and
existing under Philippine laws and registered with an Investment Promotion Agency
excluding service enterprises such as those engaged in customs brokerage, trucking or
forwarding services, janitorial services, security services, insurance, banking, and other
financial services, consumers' cooperatives, credit unions, consultancy services, retail
enterprises, restaurants, or such other similar services, as may be determined by the
Fiscal Incentives Review Board, irrespective of location, whether inside or outside the
zones, duly accredited or licensed by any of the Investment Promotion Agencies and
whose income delivered within the economic zones shall be subject to taxes under the
National Internal Revenue Code of 1997, as amended;

(N) Research and development refers to experimental or other related projects or

activities:
(1) Whose outcome cannot be known or determined in advance on the basis of
current knowledge, information or experience, but can only be determined by
applying a systematic progression of work;
(i) Based on principles of established science; and
(ii) Proceeds from hypothesis to experiment, observation and evaluation, and
leads to logical conclusions.
(2) That are conducted for the purpose of generating new knowledge, including new
knowledge in the form of new or improved materials, products, devices, processes
or services;

(O) Sophisticated refers to the state when a product or service requires a high level
of technology, human capital, competencies or know-how, and infrastructure to be
produced or offered;

(P) Sophistication refers to the level of technology, human capital, competencies or

know-how, and infrastructure required for a product or service to be offered by an
economy like that of the Philippines;

(Q) Source document refers to input materials and documents reasonable needed by
information technology (IT) and IT-enabled industries such as books, directories,
magazines, newspapers, brochures, pamphlets, medical records or files, legal records or
files, instruction materials, and drawings, blueprints, or outlines;

(R) Special economic zone or ecozone refers to a selected area, which shall be
operated and managed as a separate customs territory that is highly developed or has
the potential to be developed into an agro-industrial, industrial, information technology,
or tourist/recreational area, whose metes and bounds are fixed or delimited by
presidential proclamations and within a specific geographical area which includes
industrial estates (IEs), export processing zone (EPZs), ICT parks and centers, and free
trade zones: Provided, That for the ecozone to qualify as a separate customs territory,
an ecozone shall have a permanent customs control or customs office at its perimeter:
Provided, however, That areas where mining extraction is undertaken shall not be
declared as an ecozone: Provided, further, That vertical ecozones, such as, but not
limited to, buildings, selected floors within buildings, and selected areas on a floor, need
to comply with the minimum contiguous land area as determined by the Fiscal
Incentives Review Board; and

(S) Training refers to courses, curricula, certifications or modules provided to Filipino

employees that are directly related to the production of goods and performance of
service under the registered project or activity and that are of a technical nature, which
shall develop or improve the specific skills or practical knowledge of the employee
especially in the mechanical, industrial art, scientific field or practical science of a
particular position or job function in the registered project or activity, or in preparation
for enhancing the value chain."

Income Tax incentives

a. Income tax holiday – 4 years to 7 years depending on the mixture of Tier
(industry or activity) and geographical location in the Philippines; after ITH:
• For Domestic Market Enterprises: entitled to avail of the Enhanced
Deductions for a period of 5 years after the expiration of the ITH. The
option to avail of the 5% SCIT was removed, vetoed by the President.
• For Export Enterprises: entitled to have the option to either avail of the
5% SCIT of the Enhanced Deductions for a period of 10 years after the
expiration of the ITH.

b. Special Corporate Income Tax (SCIT) – 5% tax on the gross income earned, in
lieu of all national and local taxes effective July 1,2020, allowed only to a
Registered Business Enterprise (RBE) classified as an Export Enterprise only
(entities under SIPP with at least 70% of total production being exported);

 Note: The provision to split the 5% between the national and

local government at 3% and 2% has been vetoed, giving
flexibility as to the allocation of taxes between the national and
local government.

 SCIT = Gross Income Earned x 5%

 Gross Income Earned = gross sales or gross revenues derived from the
registered project or activity, net of sales discounts, sales return and
allowances and minus costs of sales or direct costs but before any
deduction is made for administrative expenses or incidental losses during
a given taxable period.

 Only the following shall be considered as direct cost for purposes of

computing the SCIT:
a) Direct salaries, wages or labor expenses;
b) Production supervision salaries;
c) Raw materials used in the manufacture of products;
 d) Goods in process (intermediate goods);
e) Finished goods;
f) Supplies and fuels used in production;
g) Depreciation of machinery, equipment and building directly
and exclusively used in the rendition/production of
registered activity, and of that portion of the building owned
or constructed that is directly and exclusively related in the
rendition/production of the registered activity;
h) Rent and utility charges associated with building, equipment
and warehouses, or handling of goods used directly and
exclusively in the rendition/production of registered activity;
i) Financing charges associated with fixed assets used directly
and exclusively in the registered activity the amount of
which were not previously capitalized;
j) Service supervision salaries; and
k) Direct materials, supplies used;

or

Enhanced Deductions (ED) – which may be availed by both Export Enterprise

and Domestic Enterprises

The following are the enhanced deduction on top of the expense items:
• 10% depreciation for buildings and 20% for machinery and equipment
• 100% research and development expense
• 100% training expense
• 50% power/electricity expense
• 50% domestic input expense
• 50% direct labor expense
• 50% reinvestment allowance for the manufacturing industry(when
undistributed surplus for activities are SIPP are reinvested)
• Net Operating Loss Carry-Over for the first 3 year may be carried over for
the next 5 years.

 Duty exemption on importation of capital equipment, raw material, spare part,

or accessories for registered activities under CREATE,
 VAT exemption on importation and VAT zero-rating on local purchases
for registered activities under CREATE.

Note: Those exemptions closely resemble the benefits provided to existing PEZA
enterprises. It should be noted however that the choice of using enhanced deductions
for export enterprise does not exempt if from local and other national taxes, unlike the
5% SCIT which is paid in lieu of all national and local taxes.
  Importation of Covid-19 vaccines – Exemption from import duties, taxes and
other fees subject to the approval or licenses issued by the DOH ad FDA.
 Petroleum products – Persons who directly import petroleum products under
R.A. 8479 for resale in Philippine customs territory and/or free zones defined
under the Customs Modernization and Tariff Act (CMTA or R.A. 10863) shall be
subject to taxes (no exemption). The importer, however, may apply for refund of
duties and taxes applicable under CMTA upon direct/indirect exportation.
 Crude oil intended to be refined at a local refinery, including those lost during
the refining process, shall be exempt from duties and taxes upon importation.

PERIOD OF AVAILMENT: The periods likewise vary depending on the INDUSTRY

TIERS and the LOCATION to determine the period of availment, aside from
distinguishing between a domestic market enterprise and an export enterprise.

Industry Tiers

TIER I (High earning potential, develop emerging economies)

 Have high potential for job creation
 Take place in sectors with market failures resulting in under-provision of basic
goods and services
 Generate value creation through innovation, upgrading, or moving up the value
chain
 Provide essential support for sectors that are critical to industrial development
 Are emerging owing to potential comparative advantage

TIER II (Bringing existing technologies overseas to the Philippines)

 Produce supplies, parts and components, and intermediate services that are not
locally produced or manufactured but are critical to industrial development and
import-substituting activities, including crude oil refining

TIER III (Creation of original products/services)

 Research and development resulting in demonstrably significant value added,
higher productivity, improved efficiency, breakthroughs in science and health,
and high-paying jobs
 Generation of new knowledge and intellectual property registered and/or
licensed in the Philippines
 Commercialization of patents, industrial designs, copyrights, and utility models
owned or co- owned by a registered business enterprise
 Highly technical manufacturing
 Are critical to the structural transformation of the economy and require
substantial catchup efforts
Note: The President vetoed the specific industries to be included per tier
level. This is to allow the tier levels to accommodate industries and be more
flexible in adapting to changes in the economy and advances technology.

Tier list and location prioritization – Shall be subject to review and revision
every 3 years in accordance with the SIPP.

Location of the Project/Activity

 National Capital Region
 Metropolitan Areas and Adjacent to NCR
 All other areas

Period of Availment of Incentives

For exporters:

Location/ Industry Tiers Tier I Tier II Tier III

National Capital Region 4 ITH + 5 ITH + 6 ITH +
10 ED / SCIT 10 ED / SCIT 10 ED / SCIT
Metropolitan areas of areas 5 ITH + 6 ITH + 7 ITH +
contiguous and adjacent to the 10 ED / SCIT 10 ED / SCIT 10 ED / SCIT
NCR
All other areas 6 ITH + 7 ITH + 7 ITH +
10 ED / SCIT 10 ED / SCIT 10 ED / SCIT

For domestic market activities:

Location/ Industry Tiers Tier I Tier II Tier III

National Capital Region 4 ITH 5 ITH 6 ITH
+ 5 ED + 5 ED + 5 ED
Metropolitan areas of areas 5 ITH 6 ITH 7 ITH
contiguous and adjacent to the + 5 ED + 5 ED + 5 ED
NCR
All other areas 6 ITH 7 ITH 7 ITH
+ 5 ED + 5 ED + 5 ED

 Additional ITH for economic recovery – in addition to the incentives provided in

tiers, projects or activities of registered enterprises located in areas recovering
from armed conflict or a major disaster, as determined by the President, an
additional 2 years of ITH may be granted.

 Additional ITH due to relocation from NCR – existing registered enterprises prior
to CREATE or those registered under CREATE, upon relocation from NCR during
 the period of availment of incentives, shall be entitled to an additional 3 years of
ITH upon the completion of the relocation of operations.

II. TARIFF & CUSTOMS DUTIES *

1. Tariff and customs laws - include:
a. Provisions of the Tariff and Customs Code (TCC) of the Philippines and
regulations issued pursuant thereto; and
b. Other laws and regulations subject to the enforcement by the Bureau of Customs
(BOC) or otherwise within its jurisdiction.

NOTE: Tariff means taxes, and Customs refer to the required procedure for
importation to and exportation from the Philippines of products, commodities, or
articles.

2. Functions of the BOC, in general:

a. Assessment and collection of the lawful revenues from imported and exported
articles and all other dues, fees, charges, fines, and penalties under the tariff and
customs laws;
b. Prevention and suppression of smuggling and other frauds upon the customs;
c. Supervision and control over the entrance and clearance of vessels and aircrafts
engaged in foreign commerce;
d. Enforcement of tariff and customs laws and all other laws, rules and regulations
relating to the tariff and customs administration;
e. Supervision and control over the handling of foreign mails arriving in the
Philippines, for the purpose of the collection of the lawful duty on the dutiable
articles thus imported and the prevention of smuggling through the medium of
such mails;
f. Supervision and control of all import and export cargoes, landed or stored in
piers, airports, terminal facilities, including container yards and freight stations,
for the protection of government revenue; and
g. Exercise exclusive original jurisdiction over seizure and forfeiture cases under the
tariff and customs laws.

3. Functions of the BOC under the Administrative Code of 1987:

a. Collect customs duties, taxes and the corresponding fees, charges and penalties;
b. Account for all customs revenues collected.
c. Exercise police authority for the enforcement of tariff and customs laws;
d. Prevent and suppress smuggling, pilferage and all other economic frauds within
all ports of entry;
e. Supervise and control exports, imports, foreign mails, and the clearance of
vessels and aircrafts in all ports of entry;
f. Administer all legal requirements that are appropriate;
g. Prevent and prosecute smuggling and other illegal activities in all ports under its
jurisdiction;
h. Exercise supervision and control over its constituent units; and
i. Perform such other functions as may be provided by law.

4. Territorial jurisdiction of the BOC.

The right of supervision and police authority of the BOC cover all seas , coasts, ports,
airports, harbors, bays, rivers and inland waters (whether navigable or not from the
sea) within the jurisdiction of the Philippines.

5. Tariff (Tarifa), defined.

a. Customs duties, toll or tribute payable upon merchandise to the national
government; or
b. Rate of customs; or
c. List of articles liable to duties.

6. Customs duties, defined.

a. Taxes on the importation and exportation of commodities; or
b. Tariff or tax assessed upon merchandise from, or exported to, a foreign country.

Tariffs and customs are actually synonyms with one another because they both refer
to the taxes imposed on imported or exported wares, articles, or merchandise.

7. Kinds of tariffs or customs duties:

a. Regular tariffs or customs duties. These are the taxes that are imposed or
assessed upon merchandise from, or exported to, a foreign country for the
purpose of raising revenues.

They are also referred to as tariff barriers or protective tariffs as they may also
be imposed to prevent the entry of merchandise that would compete with locally
manufactured items.

High tariffs on exports may also serve to discourage the exportation of certain
articles (usually raw materials)in order to promote their manufacture into
finished products.

b. Special tariffs or customs duties. These are additional import duties imposed on
specific kinds of imported articles under certain conditions.

They are imposed for the protection of consumers and manufacturers as well as
Philippine products from undue competition posed by foreign made products.
8. Kinds of regular tariffs or customs duties:
a. Ad valorem customs duties. These are computed on the basis of transaction
value of the imported article.
b. Specific customs duties. These are computed on the basis of a unit of measure,
such as per kilogram, per piece, per dozen, per liter, etc.
c. Mixed or compound customs duties. These are imposed both ad valorem and
specific customs duties, e.g., 10% ad valorem plus P100 per piece.

9. Kinds of special tariffs or customs duties:

a. Anti–dumping duty. This is a special duty imposed on the importation of a
product, commodity, or article of commerce into the Philippines at less than its
normal value when destined for domestic consumption in the exporting country,
which importation is causing or is threatening to cause material injury to a
domestic industry, or materially retards the establishment of a domestic industry
producing the like product.

The anti–dumping duty is the difference between the export price and the
normal value of such product, commodity, or article.

The imposing authority is the Secretary of Trade and Industry in the case of non-
agricultural product, commodity, article; or the Secretary of Agriculture, in the
case of agricultural product, commodity, or article, after formal investigation and
affirmative finding of the Tariff Commission.

b. Countervailing duty. This is an additional customs duty imposed on any product,

commodity, or article of commerce which is granted directly or indirectly by the
government in the country of origin or exportation, any kind or form of specific
subsidy upon the production, manufacture or exportation of such product,
commodity, or article, and the importation of such subsidized product,
commodity, or article has caused or threatens to cause material injury to a
domestic industry or has materially retarded the growth or prevents the
establishment of a domestic industry.

The duty shall be equivalent to the subsidy, bounty, or subvention. The imposing
authority is the Secretary of Trade and Industry in the case of non-agricultural
product, commodity, or article; or the Secretary of Agriculture, in the case of
agricultural product, commodity, or article, after formal investigation and
affirmative finding of the Tariff Commission.

c. Marking duty. This is an additional customs duty imposed on foreign articles (or
its container if the article itself cannot be marked) not marked in any official
language of the Philippines in a conspicuous place as legibly, indelibly and
 permanently in such manner as to indicate to an ultimate purchaser in the
Philippines the name of the country of origin.

The duty shall be 5% ad valorem of the articles. The imposing authority is the
Commissioner of Customs.

d. Discriminating duty. This is new or additional customs duty imposed upon articles
wholly or in part of the growth or product of, or imported in a vessel of, any
foreign country which: (1) imposes, directly or indirectly, upon the disposition or
transportation in transit through or re-exportation from such country of any
article wholly or in part of the growth of product in the Philippines any
unreasonable charge, exaction, regulation, or limitation which is not equally
enforced upon like articles of every foreign country; or (2) discriminates against
the commerce of the Philippines , directly or indirectly, by law or administrative
regulation or practice, by or in respect to any customs, tonnage, or port duty,
fee, charge, exaction, classification, regulation, condition, restriction or
prohibition in such manner as to place the commerce of the Philippines at a
disadvantage compared with the commerce of any foreign country.

The duty shall not exceed 100% ad valorem of the article. The imposing
authority is the President of the Philippines.

10. Computation of customs duties on imported articles:

a. First step – classification of the articles into their appropriate tariff
heading.

Proper description of the article is needed because the tariff headings classify
articles in accordance with their description.

Each tariff heading has its own rate of customs duties, i.e., whether ad valorem,
specific, or mixed (compound).

b. Second (last) step – determine the valuation if the rate is ad valorem or

mixed (compound) or the unit of measure if the rate is specific.

Under the current law for ad valorem or mixed (compound) customs duties, the
valuation system uses the transaction value and in its absence the alternative
methods.

The rate determined under the first step is multiplied by the valuation (converted
to Philippine currency) of the article if it is ad valorem or mixed (compound)
rates of custom duties; or by the unit of measure if the rate is specific.
11. Six methods of valuation for imported articles subject to ad valorem customs
duty:
a. Method One – Transaction value which shall be the price actually paid or
payable for the goods when sold for export to the Philippines adjusted by
adding certain cost elements (e.g., cost of containers and packing, freight,
insurance and others) incurred by the buyer not included in the price
actually paid or payable for the imported goods.

If the dutiable value cannot be determined under method one, then use the
following values, one after the other.

b. Method Two - Transaction value of identical goods sold for export to the
Philippines and exported at or about the same time as the goods being
valued. The sale involving such identical goods shall also be at the same
commercial level and in substantially the same quantity as the goods
being valued.

Where the dutiable value cannot be determined using method two, then proceed
to method three.

c. Method Three – Transactions value of similar goods sold for export to the
Philippines and exported at or about the same time as the goods being
valued. The sale involving such similar goods shall also be at the same
commercial level and in substantially the same quantity as the goods
being valued.

If the dutiable value cannot be determined using the successive application of

methods two and three, the dutiable value shall be determined under method
four or five, except that at the request of the importer, the order of application
of methods four and five shall be reversed: Provided, however, that if the
Commissioner of Customs deems that he will experience real difficulties in
determining the dutiable value using method five then the Commissioner of
Customs may refuse such a request and under such event the dutiable value
shall be determined under method four, if it can be so determined.

d. Method Four – Deductive value which shall be based on the unit price at
which the imported goods or identical or similar imported goods are sold
in the Philippines, in the same condition as when imported, in the greatest
aggregate quantity, at or about the time of importation of the goods being
valued, to persons not related to the persons from whom they buy such
goods subject to the deductions of the following:
 1. Either the commissions usually paid or agreed to be paid or the additions
usually made for profit and general expenses in connection with sales in such
country of imported goods of the same class or kind;

2. The usual costs of transport and insurance and associated costs incurred
within the Philippines; and

3. Where appropriate: (a) The cost of transport of the imported goods from the
port of exportation to the port of entry in the Philippines; (b) Loading,
unloading and handling charges associated with the transport of the imported
goods from the country of exportation to the port of entry in the Philippines;
and (c) The cost of insurance.

e. Method Five – Computed value where the dutiable value shall be the sum
of:
1. The cost or value of materials and fabrication or other processing employed
in producing the imported goods;

2. The amount for profit and general expenses equal to that usually reflected in
the sale of goods of the same class or kind as the goods being valued which
are made by producers in the country of exportation for export to the
Philippines;

3. The freight insurance fees and other transportation expenses for the
importation of the goods;

4. Any assist if its value is not included in (1) hereof; and

5. The cost of containers and packing, if their values are not included in
paragraph (1) hereof.

If the dutiable value still cannot be determined using methods four and five, then
it shall be determined using method six.

f. Method Six – Fallback value which is the use of other reasonable means
and on the basis of data available in the Philippines.

If the importer so requests, the importer shall be informed in writing of the

dutiable value determined under method six and the method used to determine
such value.

12. When tariff and customs laws apply and when the BOC acquires jurisdiction?
 Tariff and customs laws are applied only after importation has begun but before
importation is terminated. Thus, the jurisdiction of the BOC attaches only after
importation has begun and retains such jurisdiction up to the time that importation
is deemed terminated.

13. When importation begins and deemed terminated?

a. Importation begins when the conveying vessel or aircraft enters the territorial
jurisdiction of the Philippines (12-mile limit computed from the base lines) with
intention to unload therein; and

b. Importation is deemed terminated upon payment of the duties, taxes and other
charges due upon the articles, or secured to be paid, at the port of entry and the
legal permit for withdrawal shall have been granted.

In case the articles are free of duties, taxes, and other charges, importation is
deemed terminated until they have legally left the jurisdiction of the customs.

14. Jurisdiction of Collector of Customs over imported articles:

a. Shall cause all articles entering the jurisdiction of his district and destined for
importation through his port to be entered at the customshouse;
b. Shall cause all such articles to be appraised and classified;
c. Shall assess and collect the duties, taxes, and other charges thereon; and
d. Shall hold possession of all imported articles upon which duties, taxes, and other
charges have not been paid or secured to be paid, disposing of the same
according to law.

15. Import procedures – All imported articles invite import taxes, even those having
been previously exported. The entry form must be filled in at the Customs Office in
30 days following the unloading of the last package; failing to do so would amount
to abandonment of the goods and ipso facto (by that very fact) a confiscation of
the cargo.

Importation of certain commodities is regulated or prohibited. Imports are classified

either as: (a) freely importable commodities; (b) regulated commodities; or (c)
prohibited or banned commodities.

16. Specific import procedures – Some products such as animals, plants, foodstuffs,
medicines, chemicals, etc., require a special certificate.

Tariff-Rate Quotas (TRQs) still remain on a number of sensitive products, such as

corn, poultry, meat, pork, sugar, and coffee. Minimum Access Volumes (MAV) have
been established for these commodities.

17. Documents required for importation of goods:

 a. Commercial invoice/Pro form invoice;
b. Bill of lading (for sea freight) or air waybill (for air freight);
c. Certificate of origin (if requested);
d. Packing list;
e. Special certificates/import clearance/permit depending on the nature of goods
being shipped and/or requested by the importer/bank; and
f. Commercial invoice of returned Philippine goods (if applicable).

18. Documents required for export of goods – The following documents are commonly
used in exporting; which of them are actually used in each case depends on the
requirements of both the Philippine government and the government of the
importing country:
a. Commercial invoice.
b. Bill of lading.
c. Customs export declaration.
d. Export license (when needed).
e. Export packing list.
f. Consular invoice.
g. Certificate of origin.
h. Inspection certification.
i. Dock receipt and warehouse receipt.
j. Destination control statement.
k. Insurance certificate.

19. Duties and functions of the Tariff Commission (TC) under the TCC:
a. Anti-dumping investigations – The TC conducts formal investigations including
public hearings, or petitions filed against the importation of articles at dumping
prices to determine whether or not the domestic industry is injured or threatened
with injury as a result of such importation. The TC submits a report of findings,
whether favorable or not, to the Secretary of Finance for the latter to issue the
Department Order.

b. Countervailing investigations – The TC conducts investigations or petitions

against imported articles directly or indirectly granted any bounty, subsidy or
subvention, with the aim in view of protecting domestic industries from unfair
trade competition. The TC submits a report of its findings to the Secretary of
Finance.

c. Flexible tariff clause investigations – The TC undertakes investigations, including

public hearings, or petitions to increase, reduce or even remove existing rates of
duty, including any necessary change in tariff classification, for the purpose of
protecting local industries or the economy as a whole. The TC submits its
findings and recommendations to the NEDA, the agency that makes the final
recommendation for the President’s approval.
 d. Promotion of foreign trade investigations – The TC conducts an investigation to
determine whether or not trade agreement entered into with any foreign
government, for the purpose of expanding foreign markets for Philippine
products as a means of assistance in the economic development of the country
and in establishing and maintaining better relations with other countries, is in the
national interest. These trade agreements include those entered into with the
WTO and ASEAN. The report of its findings is submitted to NEDA which makes its
recommendation to the NEDA Board and the President.

e. Trade monitoring – The TC monitors trade developments that result from the
implementation of trade related policies, programs and regulations, such as the
Import Liberalization Program (ILP) and exemptions from the payment of import
duties.

f. Assistance to the President and Congress of the Philippines – The TC provides

information and other forms of assistance to the President and Congress on the
evaluation of tariff and tariff-related matters.

g. Tariff commodity classification – The TC issues tariff classification rulings after

thorough research and analysis on commodities imported or to be imported.
Such classifications are binding upon the BOC unless the Secretary of Finance
rules otherwise. As a matter of policy, the TC does not issue rulings on specific
commodities subject of a protest.

h. Safeguard measures investigations – The TC conducts the formal investigation of

safeguard cases. It is mandated to complete its investigation and submit its
report to the Secretary of Finance within 120 calendar days from receipt of
referral by the Secretary of Finance, except when the Secretary of Finance
certifies that the same is urgent, in which case the TC shall complete the
investigation and submit the report to the Secretary of Finance within 60 days.

20. Tax remedies under the NIRC versus the TCC:

a. Payment. Under the NIRC, discrepancies in the form of additional taxes are not
paid if contested; under the TCC, payment must first be effected.
b. Protest. Under the NIRC, there is no need for payment under protest before
resort to the CTA is made. Payment under protest is required under the TCC.
c. Under the NIRC, the CIR takes action; while under the TCC, it is the Collector
who takes action before the Customs Commissioner.
d. Protests under the NIRC shall be filed within a period of 30 days from receipt of
the final assessment notice. Under the TCC, protest shall be made at the time of
payment or within 15 days thereafter.
e. Under the NIRC, the CIR is given a period of 180 days from receipt of the
complete supporting documents (in request for reinvestigation) to decide. No
time period is given within which the Collector must decide the protest.
f. Under the NIRC, there is no automatic review process should the CIR decide a
protest adversely against the government. Under the TCC, a decision of the
Customs Commissioner that is adverse to the government is subject to automatic
review by the Secretary of Finance.