Automotive Manufacturing in the Philippines: Licensing and Incentives

Automotive manufacturing in the Philippines is governed by investment-promotion registration, tax rules, and customs procedures. A manufacturer typically registers its project with an Investment Promotion Agency (IPA) such as the Board of Investments (BOI) or the Philippine Economic Zone Authority (PEZA), obtains a certificate of registration, and then complies with the National Internal Revenue Code and the Customs Modernization and Tariff Act. Registration is what entitles a project to incentives; the tax and customs rules apply to everyone. The sections below explain the framework in plain language.

Who Regulates Automotive Manufacturing

Two regimes overlap. First, investment promotion: under Republic Act No. 5186, the Investment Incentives Act, a "registered enterprise" is a corporation organized under Philippine laws, engaged in a preferred area of investment, and duly registered with the Board of Investments. Second, tax and customs: Republic Act No. 12066 amended the National Internal Revenue Code and defines the incentives available to registered business enterprises, while Republic Act No. 10863, the Customs Modernization and Tariff Act (CMTA), governs importation.

Registering With an Investment Promotion Agency

Under Republic Act No. 12066, which amended the National Internal Revenue Code, Investment Promotion Agencies include the Board of Investments, the Philippine Economic Zone Authority, and similar authorities. A project must be registered to enjoy incentives.

Registration produces a certificate of registration, which Republic Act No. 12066 defines as the document evidencing registration with an IPA and entitlement to tax incentives. Each registered project or activity must be supported by a separate certificate of registration.

Under the same law, incentives are granted only to the extent of the approved registered project or activity under the Strategic Investment Priority Plan, taking into account investment capital and generation of direct local employment.

Corporate Income Tax for Manufacturers

Under Section 27(A) of the National Internal Revenue Code, as amended by Republic Act No. 12066, domestic corporations are taxed at 25% of taxable income. Corporations with net taxable income not exceeding Five million pesos (P5,000,000) and total assets not exceeding One hundred million pesos (P100,000,000), excluding land where the office, plant, and equipment are situated, are taxed at 20%.

Registered business enterprises under the enhanced deductions regime are taxed at 20% on taxable income from registered projects or activities. Under Section 28(A)(1), resident foreign corporations are taxed at 25%, or 20% under the enhanced deductions regime.

Importing Machinery, Equipment, and Raw Materials

Under Section 103 of the Customs Modernization and Tariff Act, importation begins when the carrying vessel or aircraft enters Philippine territory with intent to unload, and is deemed terminated when duties and taxes are paid or secured and legal permit for withdrawal is granted. Under Section 104, all goods imported are subject to duty unless otherwise provided.

A certificate of authority to import is defined by Republic Act No. 12066 as proof of entitlement to exemption from value-added tax and/or duty-free importation, listing the capital equipment, raw materials, spare parts, or accessories directly attributable to production. The same law defines "capital equipment" as machinery, equipment, major components, tools, devices, applications, or apparatus directly attributable to the registered project.

VAT Zero-Rating and Exempt Transactions

Under Section 106 of the National Internal Revenue Code, as amended by Republic Act No. 12066, zero percent (0%) VAT applies to certain export sales, including the sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise for manufacturing in the Philippines, paid in acceptable foreign currency. Sales to bonded manufacturing warehouses of export-oriented enterprises are also zero-rated.

The same law exempts certain transactions from VAT, including the importation of goods by an export-oriented enterprise whose export sales are at least seventy percent (70%) of total annual production of the preceding taxable year, provided the goods are directly attributable to the export activity.

Frequently asked questions

What agency registers automotive manufacturers in the Philippines? Registration is with an Investment Promotion Agency, such as the Board of Investments or the Philippine Economic Zone Authority, as identified in Republic Act No. 12066.

What tax rate applies to a registered automotive manufacturer? Registered business enterprises under the enhanced deductions regime are taxed at 20% on income from registered projects or activities; the general domestic corporate rate is 25%.

Does importation of machinery require prior approval? A certificate of authority to import is issued by the IPA as proof of entitlement to VAT exemption or duty-free importation for listed items directly attributable to production.

Practical takeaways

• Register the project with an IPA such as the BOI or PEZA; each project needs its own certificate of registration.
• Incentives apply only to the extent of the approved registered project or activity under the Strategic Investment Priority Plan.
• Confirm the applicable corporate income tax rate: 25% generally, 20% for qualified corporations and registered business enterprises under the enhanced deductions regime.
• Secure a certificate of authority to import before bringing in capital equipment or raw materials intended to be duty-free or VAT-exempt.
• Export-oriented manufacturers should track the 70% export sales threshold for VAT zero-rating and exemption eligibility.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 5186 - AN ACT PRESCRIBING INCENTIVES AND GUARANTEES TO INVESTMENTS IN THE PHILIPPINES, CREATING A BOARD OF INVESTMENTS, APPROPRIATING THE NECESSARY FUNDS THEREFOR AND FOR OTHER PURPOSES.

• REPUBLIC ACT NO. 12066 - AN ACT AMENDING SECTIONS 27, 28, 32, 34, 57, 106, 108, 109, 112, 135, 237-A, 269, 292, 293, 294, 295, 296, 297, 300, 301, 308, 309, 310, AND 311, AND ADDING NEW SECTIONS 135-A, 295-A, 296-A, AND 297-A OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES

• REPUBLIC ACT NO. 10863 - AN ACT MODERNIZING THE CUSTOMS AND TARIFF ADMINISTRATION

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.