The Foreign Direct Investment Landscape in the Philippines (InCorp Global)

Business Opportunities
April 13, 2022 - InCorp Global Pte Ltd

This is a thought leadership article on foreign direct investment opportunities in the Philippines from PrimeGlobal member firm InCorp Global in Singapore. 

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Its strategic regional location, high-end business districts, and highly qualified labor force make the Philippines an ideal investment destination for foreign enterprises seeking to penetrate Asia-Pacific. With efforts from the public and private sectors to ease the business environment in the country, foreign investments have remained steady throughout the years.

To give you insight into the country’s investment scene, this article will discuss the Philippine foreign direct investment (FDI) landscape and how you can take advantage of its resources to help boost your business in Asia-Pacific.

Foreign Direct Investment Landscape in the Philippines

The Philippines is recognized as an ideal investment hub for many foreign entrepreneurs. Its robust consumer population allows businesses, both large enterprises and micro, small, and medium-sized enterprises (MSMEs), to grow and thrive within the archipelagic country.

Efforts from the public and private sectors also contribute to supporting its investment scene. Business-friendly regulations such as the Build Build Build Program, CREATE Law, Foreign Investments Act, and tax incentives from investment promotion agencies (IPA) opens the Philippines to numerous foreign investments within its market.

Foreign Investments Act of 1991

Republic Act (RA) No. 7042, more commonly known as the Foreign Investments Act (FIA) of 1991, was introduced to address the increasing growth of FDIs in the Philippines. The act aims to attract, promote, and welcome foreign investors to participate in the industrialization and socio-economic development of the country, providing both fiscal and non-fiscal incentives to eligible investors.

 The salient features of the FIA are as follows:

  • Opens the domestic market to 100% foreign investment
  • Provides restrictions to foreign ownership limited only to sectors covered by existing laws or identified under the Foreign Investments Negative List (FINL)
  • Allows 100% foreign ownership of business activities not covered in FINL
  • Redefines "export enterprise" to refer to any company that exports at least 60% of its production

The act enables foreign investors to claim incentives such as tax exemptions, tax deductions, deductions on labor expenses, and employment of foreign nationals. It also allows them to have 100% ownership of domestic corporations, given that the industry they engage in is excluded from the Foreign Investments Negative List (FINL).

Build, Build, Build Program

 In 2017, the government initiated the Build, Build, Build (BBB) program to accelerate infrastructure and development in the Philippines. The program consists of over 20,000 infrastructure projects nationwide, involving roads, highways, farm-to-market roads, airports, seaports, terminals, evacuation centers, lighthouses, hospitals, schools, government centers, and similar. It is one of the top-priority programs within the public sector, with a budget allocating to ₱8 trillion (US$164.7 billion) for six years, from 2017-2022.

Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act

The Philippines has been aggressively reforming its taxation system to provide a simpler and more efficient tax system to local and foreign enterprises. Passed into law on March 26, 2021, the Corporate Recovery and Tax Incentives for Enterprises(CREATE) Act significantly reduced the corporate income tax (CIT) rate from 30% to 25%, with a yearly deduction of 1% until 2027.

 Other salient features under CREATE Act include:

  • Reduction of CIT rate to 25%, from the previous 30%, for large corporations. For small and medium-sized enterprises with net taxable income not exceeding ₱5 million, and total assets not exceeding ₱100 million (excluding land), the CIT rate is reduced to 20%
  • Reduction of minimum CIT (MCIT) rate from 2% to 1%
  • Reduction of percentage tax from 3% to 1%

 CIT reductions will vary depending on the type of taxpayer your business falls under.

 Tax Incentives for Economic Zones

 The Philippines also provides numerous tax incentive schemes to increase FDIs in the country. The government agencies that administer incentives to qualified enterprises are:

  • Philippine Economic Zone Authority (PEZA)
  • Board of Investments (BOI)
  • Cagayan Economic Zone Authority (CEZA)
  • Tourism Infrastructure and Enterprise Zone Authority (TIEZA)

The incentive programs seek to encourage exports, local and foreign businesses critical to growth, and businesses located in economic zones (ecozones) to stimulate job growth and industry.

Other Investment Campaigns in the Philippines

In November 2020, the Board of Investments (BOI) and the Department of Trade and Industry (DTI) launched their Make it Happen in the Philippines campaign to entice foreign investors to do business in the country.

Initially, the campaign was launched in Australia and New Zealand, showcasing six sectors in the Philippines, namely electronics, automotive, aerospace, copper, information technology, and business process management as the contributing majority to the country’s economic growth.

Additionally, the campaign highlights its domestic market of 110 million and its strategic regional location, providing businesses with favorable access to its neighboring countries in the ASEAN region. At present, the Philippines is home to 49 million workers and produces approximately 750,000 college graduates annually.

FDI Behavior in the Philippines Amid COVID-19

The emergence of COVID-19 pushed the Philippine government to focus its efforts towards economic recovery, realigning and relaxing its foreign investment regulations to alleviate distress placed by the pandemic.

In the 38th Global Investment Trends Monitor, they noted that the Philippines gained an increase of 29% of FDIs in comparison to other countries in the ASEAN region amid COVID-19. These investments focused on industries such as information and communication, electricity, gas, steam and air conditioning supply, manufacturing, and administrative and support service activities.

Government reports claimed a total of ₱22.5billion (US$444 million) worth of approved FDIs for the 2nd Quarter of 2021, tallying a total of US$4.3 billion worth of FDIs, an increase of 40.7% in comparison to the previous year.

The Philippine Department of Finance (DOF) economic bulletin noted a promising and positive recovery to FDIs in the Philippines for the rest of 2021. Under the economic bulletin, over 7.7% year-on-year (YOY) rise of reinvested earnings and the 86.5% rise in net debt instruments countered the 8.9% drop in net equity capital investments for the six-month period (January-June 2021).

Among these, the investment pledges stretch across six different investment promotion agencies (IPA) namely, the Board of Investments (BOI), Clark Development Corporation (CDC), Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB), and Cagayan Economic Zone Authority (CEZA).

Why Should You Invest in the Philippine Market?

The Philippines offers a high-growth economy, allowing foreign and local entrepreneurs to take advantage of its platform to boost their business goals and expand further into Asia-Pacific. Efforts from the private and public sectors to ease doing business in the country provides an efficient, seamless, and cost-effective procedure for business incorporation and expansion.

Moreover, the Philippines houses numerous industries that contribute significantly to its growing economy such as:

The Philippine market provides many investment opportunities across many emerging industries. Its expanding infrastructure, educated talent pool, strategic location, and solid regional presence allow investors to take advantage of the resources available in the country.

Choose The Philippines as Your Next Investment Destination

The Philippines is known to be one of the fastest-growing economies in Southeast Asia, attracting numerous FDIs across various industries. Investing in these high-performing sectors opens you to multiple business opportunities, while its business-friendly regulations and tax incentives programs increase your chances at securing a successful business venture.

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InCorp Global Pte Ltd

Headquartered in Singapore, InCorp Global is a leading corporate services provider, with an established regional presence across seven Asian countries, including Indonesia, India, Hong Kong, Philippines, Vietnam, and Malaysia. The group services more than 12,000 corporate clients across various industries, including asset / fund managers, as well as family offices. They are official partners with key government authorities in the region, such as Singapore’s Economic Development Board, a government agency that is tasked with bringing in foreign direct investments into Singapore.

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