The Philippines’ Inclusive Business Program to Provide a Range of Incentives to Foreign Investors

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The Philippines is currently accepting applications from companies to participate in its Inclusive Business (IB) program.  The program is intended to help reduce poverty across the nation by encouraging businesses to set up their operations in areas that have been identified as economically disadvantaged. In return for basing their operations in these areas, businesses will be granted a range of financial and other incentives. The program will initially focus on the areas of Marivetes (Bataan), Cavite, Mactan (Cebu), and Baguio.

Major international companies are already seeking to take advantage of the new program.  Unilever Philippines has already submitted its application to the Philippines Board of Investment (BOI) – the company is keen to receive better incentives from the Philippines government. The company’s participation in the program is part of a wider strategy to expand its operations throughout the country – to include a US$120 million upgrade of its manufacturing infrastructure.  The upgrades include importing new equipment, updating existing technology, and expanding its asset base.

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In order to qualify for the IB program, businesses must commit to setting up their operations in areas that have been classified as economically disadvantaged. In return for this, and a commitment to sustainable farming of tamarind, tea, cocoa and vanilla, Unilever will receive benefits such as:

  • An income tax holiday lasting four to eight years
  • Zero import duties on capital equipment
  • Simplified business procedures, such as reduced paperwork

While the IB program is certainly a step in the right direction vis-à-vis the Philippines government’s treatment of foreign-invested companies, there are still a number of economic restrictions hindering foreign investors. For example, foreign-ownership continues to be restricted by the 60/40 capital rule, which allows the foreign investor and domestic partner to own 40 percent and 60 percent of their enterprise respectively. Additionally, a dividend tax rate of 30 percent is applied to foreign investors, while local companies are only liable for a rate of 15 percent. Compounding this problem, countries such as Vietnam have zero dividend taxes for companies.  Additionally, because of the residents’ fluent English and high productivity, labor costs in the Philippines are among the highest in Southeast Asia. Myanmar has the lowest labor costs in the region.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asean@dezshira.com or visit www.dezshira.com.

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