Importing Machinery and Capital Equipment into the Philippines: Duties, Taxes, and Exemptions

All goods imported into the Philippines are subject to customs duty upon importation unless a law or regulation provides otherwise. Under the Customs Modernization and Tariff Act (CMTA), duties attach the moment goods enter the country, and the rate that applies is the rate in force at the date of importation or upon withdrawal from a warehouse for consumption. Imported machinery is therefore dutiable by default. The practical question is whether the importer qualifies for an exemption — most commonly through registration with an Investment Promotion Agency, which may grant duty exemption on capital equipment under the National Internal Revenue Code.

How importation and duty liability begin

The CMTA provides that importation begins when the carrying vessel or aircraft enters Philippine territory with the intention to unload. It is deemed terminated only when the duties, taxes, and other charges due have been paid or secured, and a legal permit for withdrawal has been granted; or, where the goods are free of duties and taxes, when they have legally left the jurisdiction of the Bureau of Customs.

The CMTA likewise provides that all goods imported into the Philippines are subject to duty upon importation, including goods previously exported from the country. Unpaid duties and taxes incur legal interest of twenty percent (20%) per annum computed from the date of final assessment, and the same interest accrues on any fine or penalty imposed.

Who may file the goods declaration

The declarant — the consignee or the person who has the right to dispose of the goods — lodges the goods declaration with the Bureau. Under the CMTA, the declarant may be the importer as holder of the bill of lading, the exporter as owner of the goods to be shipped out, a customs broker acting under the authority of the importer or holder of the bill, or a person duly empowered to act as agent or attorney-in-fact. Where the consignee is a juridical person, it may authorize a responsible officer to sign the declaration on its behalf.

The CMTA makes the declarant responsible for the accuracy of the goods declaration and for payment of all duties, taxes, and other charges. A licensed customs broker who assists is likewise responsible for accuracy but is not liable for the payment of duties and taxes.

Are import permits required for machinery?

Generally, no. The CMTA provides that, unless otherwise provided by law or regulation, all goods may be freely imported into and exported from the Philippines without need for import and export permits, clearances, or licenses. Goods subject to regulation, however, must be imported only after securing the necessary goods declaration, clearances, licenses, and other requirements prior to importation. The CMTA also lists prohibited goods and restricted goods — categories that do not ordinarily cover industrial machinery, but which an importer should still check against the specific equipment being brought in.

Duty exemption on capital equipment for registered enterprises

The most significant relief for manufacturers comes from the tax incentives regime. Under the National Internal Revenue Code, as amended by Republic Act No. 12066, capital equipment refers to machinery, equipment, major components thereof, tools, devices, applications, or apparatus directly attributable to the registered project or activity of a registered business enterprise.

The same law lists, among the incentives that may be granted, duty exemption on importation of capital equipment, raw materials, spare parts, or accessories, including goods used for administrative purposes, of the registered project or activity. It likewise provides for VAT exemption on importation and VAT zero-rating on local purchases.

The conditions for the duty exemption are set out in the same statute. The exemption applies only to importation of capital equipment, raw materials, spare parts, or accessories directly attributable to the registered project or activity, including goods used for administrative purposes, and only if:

• the items are not produced or manufactured domestically in sufficient quantity or of comparable quality and at reasonable prices; and
• the approval of the Investment Promotion Agency was obtained prior to importation.

An Investment Promotion Agency may also authorize the importation pending issuance of the certificate of registration, subject to posting a performance bond or bank guarantee equivalent to the duties and taxes waived.

What happens if the equipment is later sold or transferred

The same provisions impose a five-year horizon. If the tax and duty-free capital equipment is used for a non-registered project or activity within the first five years from importation, the registered business enterprise must first secure prior approval of the Investment Promotion Agency and pay the taxes and customs duties that were not paid upon importation.

No taxes and duties are imposed on a subsequent sale, transfer, or disposition within that five-year period where the transfer is made to another enterprise availing of customs duty exemption on imported capital equipment, where the items are exported, or where they are donated to the Government of the Philippines or specified educational institutions. Where the transfer is made to an enterprise not availing of the exemption, or where technical obsolescence is proven, taxes and duties are assessed based on the net book value of the items.

If the registered business enterprise sells, transfers, or disposes of the items without prior approval, the registered business enterprise and the vendee, transferee, or assignee are solidarily liable to pay twice the amount of the duty exemption that should have been paid during importation. Sales made after five years from importation require prior notice to the Investment Promotion Agency.

Frequently asked questions

Do I have to pay customs duties when importing machinery into the Philippines? Yes, by default. The CMTA subjects all imported goods to duty upon importation unless a law or regulation provides an exemption. An exemption may be available if the importer is a registered business enterprise with an approved certificate of authority to import.

What is a certificate of authority to import? Under the National Internal Revenue Code, as amended by Republic Act No. 12066, it is the document issued by the Investment Promotion Agency as proof of entitlement to exemption from value-added tax and/or duty-free importation. It contains a list of the capital equipment, raw materials, spare parts, or accessories to be imported that are directly attributable to the production of goods and services, including goods used for administrative purposes.

Can I import machinery tax-free inside a PEZA or freeport zone? Free zones are special economic zones registered with the Philippine Economic Zone Authority and other chartered freeports, as defined in the CMTA. Incentives inside these zones depend on registration with the relevant Investment Promotion Agency under the tax incentives regime, so the specific entitlement should be confirmed with the agency before importation.

Practical takeaways

• All imported machinery is dutiable on importation under the CMTA unless an exemption applies; the applicable rate is the rate in force at the date of importation.
• Unpaid duties and taxes carry twenty percent (20%) legal interest per annum from the date of final assessment.
• Duty exemption on capital equipment under the National Internal Revenue Code, as amended by Republic Act No. 12066, requires that the equipment be directly attributable to the registered project or activity and that Investment Promotion Agency approval be obtained before importation.
• Importation may be authorized pending issuance of the certificate of registration, but only against a performance bond or bank guarantee equivalent to the duties and taxes waived.
• Selling or transferring tax and duty-free equipment within five years of importation requires prior approval, and unauthorized disposition makes the seller and buyer solidarily liable for twice the duty exemption.

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. 10863 - AN ACT MODERNIZING THE CUSTOMS AND TARIFF ADMINISTRATION

• 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.