BOI Registration and Investment Incentives in the Philippines: A Practical Guide

Registration with the Board of Investments (BOI) begins with confirming that the proposed activity falls within a preferred area of investment, then filing an application for registration with the Board. Under Republic Act No. 5186, the Investment Incentives Act, the Board processes and approves applications, imposes terms and conditions, and issues the certificate of registration upon payment of the necessary fees. Only then does the enterprise become a "registered enterprise" entitled to the incentives. Because the incentives attach to registration, the application itself is the critical step.

What BOI registration means under Philippine law

Republic Act No. 5186 created the Board of Investments and established the incentives and guarantees for investments in the Philippines. Under Section 3 of the law, a registered enterprise is a corporation incorporated and organized under Philippine laws, of which at least sixty percent of the capital stock outstanding and entitled to vote is owned and held by Philippine Nationals, and at least sixty percent of the members of the Board of Directors are citizens of the Philippines, engaged in a preferred area of investment, and duly registered with the Board.

The same section excludes certain businesses from the definition, including commercial banks, savings and mortgage banks, rural banks, and other organizations whose principal purpose or principal source of income is to receive deposits, lend or borrow money, or deal in securities, as well as organizations whose exclusive or principal purpose is to provide services or to buy and resell goods in substantially the same form.

A preferred area of investment means an economic activity that the Board has declared as such in accordance with Section 18 of the law. A pioneer enterprise is a registered enterprise engaged in the manufacture, processing, or production — not merely assembly or packaging — of goods, products, commodities, or raw materials not being produced in the Philippines on a commercial scale, or one that uses a design, formula, scheme, method, process, or system of production that is new and untried in the Philippines.

How the registration process works

The Board's powers and duties under Section 16 include drawing up the annual investments priorities plan, promulgating implementing rules and regulations, and processing and approving applications for registration. The certificate of registration is issued upon payment of the necessary fees, which under Section 16 shall not exceed two hundred pesos.

In practice, the path is:

1. Confirm coverage. Check whether the proposed activity is a preferred area of investment, or qualifies as a pioneer enterprise, based on the investments priorities plan.
2. Prepare the corporate structure. Ensure the ownership and board composition meet the definition of a registered enterprise.
3. File the application with the Board of Investments.
4. Comply with the terms and conditions the Board imposes in approving the application.
5. Pay the registration fees and obtain the certificate of registration.

The Board may impose such terms and conditions as it deems necessary to promote the objectives of the Act.

Incentives available to a registered enterprise

Under Section 7 of Republic Act No. 5186, a registered enterprise, to the extent engaged in a preferred area of investment, may be granted:

• Deduction of organization and pre-operating expenses, which may be deducted from taxable income over a period of not more than ten years beginning with the month the enterprise begins operations.
• Accelerated depreciation of fixed assets, at the option of the taxpayer and in accordance with the procedure established by the Bureau of Internal Revenue.
• Net operating loss carry-over, under which a net operating loss incurred in any of the first ten years of operations may be carried over as a deduction from taxable income for the six years immediately following the year of the loss.
• Tax exemption on imported capital equipment, subject to the conditions in the law, including that the machinery, equipment, and spare parts are not manufactured domestically in reasonable quantity and quality at reasonable prices, are directly and actually needed and used exclusively by the registered enterprise, and that prior approval of the Board was obtained before importation.
• Tax credit on domestic capital equipment, equivalent to one hundred percent of the value of the compensating tax and customs duties that would have been paid had the items been imported, with a further credit of fifty percent of that amount to the domestic manufacturer.
• Employment of foreign nationals in supervisory, technical, or advisory positions, within the limits and conditions set by the law.
• Deduction for expansion reinvestment, when the enterprise reinvests undistributed profit or surplus in approved machinery, equipment, and related facilities.

Pioneer enterprises may be granted additional incentives under Section 8, including tax exemptions under the National Internal Revenue Code, except income tax, and post-operative tariff protection upon certification.

Incentives for investors and for exports

Section 5 grants investors in a registered enterprise the right to protection from infringement of patents, trademarks, copyright, trade names, and other proprietary rights registered with the Board and the appropriate government agencies, as well as a capital gains tax exemption on gains invested in new issues of capital stock of a registered enterprise within six months from the date the gains were realized, subject to the conditions in the law.

Philippine Nationals investing in a pioneer enterprise may avail of additional incentives under Section 6, including an investment allowance, a capital gains tax exemption, and exemption on the sale of stock dividends.

Registered enterprises are also entitled to special export incentives under Section 9, including double deduction of promotional expenses, double deduction of shipping costs, and a special tax credit on raw materials, subject to prior application with and approval by the Board.

Frequently asked questions

What is a registered enterprise under the Investment Incentives Act? It is a corporation organized under Philippine laws, with at least sixty percent of the capital stock outstanding and entitled to vote owned and held by Philippine Nationals and at least sixty percent of the board composed of Philippine citizens, engaged in a preferred area of investment, and duly registered with the Board of Investments.

What incentives can a BOI-registered enterprise claim? Depending on the area of investment, these may include deduction of organization and pre-operating expenses, accelerated depreciation, net operating loss carry-over, tax exemption on imported capital equipment, tax credit on domestic capital equipment, and special export incentives.

What makes an enterprise a pioneer enterprise? It must be engaged in the manufacture, processing, or production — not merely assembly or packaging — of goods, products, commodities, or raw materials not produced in the Philippines on a commercial scale, or use a design, formula, scheme, method, process, or system of production that is new and untried in the Philippines.

Practical takeaways

• Registration with the Board of Investments is what makes an enterprise a "registered enterprise" entitled to incentives under Republic Act No. 5186.
• Confirm first that the proposed activity is a preferred area of investment or qualifies as a pioneer enterprise.
• Ownership and board composition must meet the sixty percent Philippine National requirement in the definition of a registered enterprise.
• Many incentives carry conditions — such as prior Board approval for importations and minimum holding periods for shares — that must be complied with to keep the benefit.
• The certificate of registration is issued upon payment of the necessary fees, which under Section 16 shall not exceed two hundred pesos.

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

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