INCENTIVES AND BENEFITS GRANTED UNDER THE SPECIAL RESIDENT RETIREMENT VISA (SRRV) AS PROVIDED FOR IN EXECUTIVE ORDER

NO. 1037 IN RELATION TO REPUBLIC ACT NO. 9225 (CITIZENSHIP RETENTION AND RE-ACQUISITION ACT OF 2003)

REPORT OF GROUP NO. 2

Submitted By:

Submitted To:

Elizabeth Joie G. Cruz Chiara Angela LB. Blanco Bethel Ed Castro Jan Michael de la Cruz Rhodalyn de la Cruz Gerard Dimalaluan

Atty. Minda Gapuz

I. Introduction The Philippine Retirement Authority (PRA) is a government owned and controlled corporation which was created by virtue of Executive Order (EO) No. 1037, which was signed by then President Ferdinand E. Marcos, on 04 July 1985.1 During those times, the Philippine economy is at a slump. The countrys foreign exchange position is at its weakest. Inflation is sky-rocketing. Motivated by the desire to accelerate the social and economic development of the country and strengthen its foreign exchange position, the government introduced the concept of retirement program in the Philippines. Moreover, the establishment of retirement parks aims to generate employment opportunities, promote the country's image abroad, support the tourism industry and assist in making fully operational the idle assets of the government and the private sector such as hotels, resorts, etc.

II. The Special Resident Retirees Visa (SRRVisa) The Special Resident Retirees Visa (SRRVisa) is a special non-immigrant resident visa that provides its holders with multiple-entry and indefinite stay status in the Philippines. It also grants Tax-Free incentives and privileges as well as value-added services and benefits that they can avail of from our partner establishments such as hotels, resorts, retirement facilities, and restaurants. It is a lifestyle visa for those who enjoy perks and privileges, a hassle -free visa for the frequent business traveler, and a retirement visa for the elderly who need special care for their special needs. III. SRRVisa Benefits and Features 1. Foreigners can live in the Philippines a. The option to reside permanently. The Special non-immigrant visa gives the right to have another home away from home. b. The SRRVisa provides a Multiple-Entry Privileges Allowing the holder to go in or out of the country anytime at any Philippine port of entry. c. The SRRVisa exempts the holder from securing the Exit & Re-Entry Clearances from the Bureau of Immigration Makes your Multiple-entry status more convenient and comfortable and likewise beneficial for businessman and frequent travelers. d. No need for Travel Taxes! Exemption from Travel Tax, provided that the SRRVisa holder has not stayed in the Philippines for more than a year from date of last entry

2. Business and Pleasure a. The holder work here Upon issuance of the Alien Employment Permit (AEP). b. Or start a business! Convert the deposit into an active investment! 3. New Home for your Family a. SRRVisa entitles the holder to bring two (2) of the holdersdependents Possiblythe holders spouse and a child, 20 years of age and below, and unmarried, without having to remit an additional dollar investment. b. Easy access to Quality Education for the holders Children WithSRRVisa, no need for a Special Study Permit or Students Visa!

c. Build your very own Home! With your deposit, the holder can purchase and own a condominium unit or lease a parcel of land anywhere in the Philippines. d. Bring belongings to your new home! Tax-free importation of household goods/personal effects worth US$7,000.00 (i.e, Furniture and Appliances) 4. Other SRRVisa Features a. Conversion of the holdersTime Deposit Requirements into Active Investment b. Convert the holdersTime Dollar Deposit into Philippine Peso Time Deposit or Euro Money after the issuance of the SRRVisa c. Get your money back! Guaranteed repatriation of the Dollar Time Deposit once the visa holder withdraws from the Program. 5. Requirements a. PRINCIPAL APPLICANT i. Duly accomplished Philippine Retirement Authority Application Form ii. Original Passport with Valid Entry Status (i.e. Tourist Visa) iii. Medical Examination Clearance from any local licensed physician in the Philippines or from a PRA-accredited clinic in Manila. iv. National Bureau of Investigation (NBI) Clearance from the Philippines or police clearance from the applicants country of origin. v. Bank Certification of Dollar Time Deposit Inward Remittance to PRA Accredited Banks b. SPOUSE i. Duly accomplished Philippine Retirement Authority Application Form ii. Original Passport with Valid Entry Status (i.e. Tourist Visa) iii. Medical Examination Clearance from any local licensed physician in the Philippines or from a PRA-accredited clinic in Manila. iv. National Bureau of Investigation (NBI) Clearance from the Philippines or police clearance from the applicants country of origin. c. DEPENDENT/S i. Duly accomplished Philippine Retirement Authority Application Form ii. Original Passport with Valid Entry Status (i.e. Tourist Visa) iii. Medical Examination Clearance from any local licensed physician in the Philippines or from a PRA-accredited clinic in Manila. iv. National Bureau of Investigation (NBI) Clearance from the Philippines or police clearance from the applicants country of origin. IV. SRRV Implementing Rules

V.

Correlation These incentives and benefits may be availed of by the targeted retirees over and above the entitlement, if applicable, of any enterprise invested in by said foreign nationals and overseas Filipinos, to the incentives and benefits under the Omnibus Investment Code (P.D. 1978), the Tourism Incentives Program of 1974 (P.D. 535) and the Investments Promotion Act in Less Developed Areas (B.P. 44). Foreigners availing of the SRRV can apply for Philippine Citizenship. In accordance with the Naturalization Law of the Philippines. One of the basic requirements for naturalization is the continuous residency in the Philippines for a period of ten (10) years. The period may be reduced to five (5) years if the applicant has any of the following qualifications: Has honorably held office under the Government of the Philippines or under that of any of the provinces, cities, municipalities or political subdivision thereof; Has established a new industry or introduced a useful invention in the Philippines; Has been married to a Filipino citizen; Has been engaged as a teacher in the Philippines for a period of at least two (2) years; Has been born in the Philippines. Former Filipino citizens, the Citizenship Retention and Reacquisition Act of 2003 apply. Republic Act No. 9225 provides: Section 3. Retention of Philippine Citizenship - Any provision of law to the contrary notwithstanding, naturalborn citizenship by reason of their naturalization as citizens of a foreign country are hereby deemed to have reacquired Philippine citizenship upon taking the following oath of allegiance to the Republic: "I _____________________, solemny swear (or affrim) that I will support and defend the Constitution of the Republic of the Philippines and obey the laws and legal orders promulgated by the duly constituted authorities of the Philippines; and I hereby declare that I recognize and accept the supreme authority of the Philippines and will maintain true faith and allegiance thereto; and that I imposed this obligation upon myself voluntarily without mental reservation or purpose of evasion." Natural born citizens of the Philippines who, after the effectivity of this Act, become citizens of a foreign country shall retain their Philippine citizenship upon taking the aforesaid oath

VI.

References:

http://www.pra.gov.ph/main/srrv_program?page=1 http://www.lawphil.net/statutes/repacts/ra2003/ra_9225_2003.html www.philippine-embassy.de/.../VisaServices -Special Investor and Resident Retirees Visa (SIRRV)

INTRODUCTION One way to represent a countrys culture, tradition and heritage is through handicrafts. These are an expression of a location's distinct lifestyle. It reminds anyone - both locals and tourists - of a nations history. Handicrafts are produced from raw materials made by hand or with the help of small tools.2 It can be coconut shell craft3, rattan craft4, leather craft5 and coconut shell craft6. Handicraft materials are one of the products that give a boost in the Philippines' economy. Even more, foreign countries are also becoming very much familiar with the various products that are being produced in this country7. These affordable yet good-quality Philippine products were competitive especially considering the rising production costs in traditional export sources.8 Today Filipinos are engaged in handicraft businesses. Handicraft-making has become a means of livelihood for them, especially now that many handicraft owners are exporting their products to Japan, United states, Canada, Australia, Hong Kong, Singapore, and other countries around the world; and now, Philippines is the second largest world producer of handicrafts, mainly baskets out of indigenous materials. This industry continues to provide a respectable contribution to foreign exchange earning of the country (US$71.9M in 2000) while many handicraft items are also sold on the local market. All together, the sector is providing livelihood to more than 1 million Filipinos. Although the industry has experienced some setbacks over the last ten years, it has kept the respect of the high-end markets in the United States, European Union, and Japan and has only lost a great part of the low-end market to China, our main competitor.9 Because of this emergence in the handicraft business in the Philippines, many foreign investors are becoming more interested to invest in the Philippines. The question will now arise: How can nonPhilippine nations engage in the handicraft business? Are they authorized or allowed by law to invest in the export business? These are the queries than can be resolved by referring to the Philippine laws on investment.

FOREIGN INVESTMENT IN THE PHILIPPINES EXPORT BUSINESS OF HANDICRAFT PRODUCTS

2http://www.pchi.com.ph/why-supporting-handicrafts-for-export-is-necessary-for-a-nation-s-growth.htm

Coconut is one of the tropical trees in the Philippines that has abundant supply. You can grow this tree at almost any part of the country. Because coconut is known for its wide variety of uses, some people created various products out of the goods that can be produced from this tree. Coconut shell is a raw material used in making many products such as pendants, brooches, buckles and lamps. (http://www.pchi.com.ph/handicraft-industry-in-the-philippines.htm)
3

Furniture made out of Rattan are often bought because of the raw material's flexibility. If you're planning to purchase things like picture frames, cabinets, sofa sets and baskets with top of the line quality, buying these things made out of Rattan is advisable. If there's one word that will define Rattan, it's durability. (id.)
4

Who wouldn't like leather products when these are really made out of strong and top quality raw materials, right? Leather materials like shoes, jackets, wallets and bags are proven to be durable no matter how weathered these are. (id.)
5

Now you might have mistaken Rattan for a Bamboo, didn't you? These two materials have a lot in common, except for one thing bamboo is even stronger. This kind of grass is being used in making harder products like furniture and even houses. The good thing about bamboo is it's cheap. You can buy a lot of these at a great deal of prices.
6 7

http://www.pchi.com.ph/handicraft-industry-in-the-philippines.htm http://business.inquirer.net/?p=87886

Philippine Handicraft Industry:Their Benefits and Importance, http://beth811.hubpages.com/hub/Philippine-Handicraft-IndustryTheir-Benefits-and-Importance

9

Interested person, who would like to set up an export company, has to register with the Department of Trade and Industry (DTI) or the Securities and Exchange Commission (SEC); with the city or the municipality where the business intends to operate; and with the Bureau of Internal Revenue (BIR). But before that, we have to determine the following in order to familiarize ourselves with the business: a. Whether or not any person, whether a Philippine national or non-Philippine national who is interested to engage in export business, may be allowed or authorized by the Philippine laws to engage in such activity; b. The process of entering into an export business; c. Whether there is an incentive that can be granted to investors; and d. The procedures in exportation

APPLICABLE LAWS 1. REPUBLIC ACT NO. 7042 The Foreign Investment Act of 1991 was enacted to promote foreign investments, prescribe the procedures for registering enterprises doing business in the Philippines and for other purposes. Section 2 of RA No. 7042 provides for a Declaration of Policy which states that, It is the policy of the State to attract, promote and welcome productive investments from foreign individuals, partnerships, corporations, and governments, including their political subdivisions, in activities which significantly contribute to national industrialization and socio-economic development to the extent that foreign investment is allowed in such activity by the Constitution and relevant laws. Foreign investments10 shall be encouraged in the enterprises that significantly expand livelihood and employment opportunities for Filipinos; enhance economic value of farm products; promote the welfare of Filipino consumers; expand the scope, quality and volume of exports and their access to foreign markets; and/or transfer relevant technologies in agriculture, industry and support services. Foreign investments shall be welcome as a supplement to Filipino capital and technology in those enterprises serving mainly the domestic market. It also provides that as a general rule, there are no restrictions on extent of foreign ownership of export enterprises11. In domestic market enterprises, foreigners can invest as much as one hundred percent [100%] equity except in areas included in the negative list. The term "Foreign Investments Negative List" or "Negative List" shall mean a list of areas of economic activity whose foreign ownership is limited to a maximum of forty percent (40%) of the equity capital of the enterprises engaged therein.12 Foreign investment in export enterprises whose products and services do not fall within Lists A and B of the Foreign Investment Negative List is allowed up to one hundred percent [100%] ownership.

2. EXECUTIVE ORDER NO. 858 Republic Act No. 7042 also known as the Foreign Investments Act of 1991, as amended by RA 8179, provides for the formulation of a Regular Foreign Investment Negative List covering investment areas/activities which may be opened to foreign investors and/or reserved to Filipino nationals; Thus, a need to formulate the Eighth Regular Foreign
10

The term "foreign investment" shall mean an equity investment made by non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange (Section 3(c) of Foreign Investment Act of 1991).
11

The term "export enterprise" shall mean an enterprise wherein a manufacturer, processor or service [including tourism] enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty per cent (60%) or more of such purchases; the term "domestic market enterprise" shall mean an enterprise which produces goods for sale, or renders services to the domestic market entirely or if exporting a portion of its output fails to consistency export at least sixty percent (60%) thereof (Section 3(e) of Foreign Investment Act of 1991).
12

Section 3(f) of Foreign Investment Act of 1991.

Investment Negative List, replacing the 7th Regular Foreign Investment Negative List, to reflect changes to List A and B, as recommended by concerned agencies. (See Annex A) In the said Foreign Investment Negative List, business of exporting handicrafts is not included in the Foreign Investment Negative List. Therefore, non-Philippine nationals are not prohibited by the Constitution and the laws to engage in the export business. 3. PHILIPPINE GOVERNMENT AGENCIES RULES AND REGULATIONS Government agencies issue rules and regulations regarding foreign investments. For example, the Philippine Economic Zone Authority provides for Fiscal Incentives to PEZARegistered Economic Zone Enterprises; the Board of Investments which is the lead government agency responsible for the promotion of investments in the Philippines; and the Securities and Exchange Commission, and Bureau of Internal Revenue which provides for the guidelines relating to trade and business registration, and taxation.

REGISTRATION REQUIREMENTS13 Foreign Investment Act of 1991 pertinent provisions: SEC. 5. Registration of Investments of Non-Philippine Nationals. - Without need of prior approval, a nonPhilippine national, as that term is defined in Section 3 [a], and not otherwise disqualified by law may, upon registration with the Securities and Exchange Commission [SEC], or with the Bureau of Trade Regulation and Consumer Protection [BTRCP] of the Department of Trade and Industry in the case of single proprietorships, do business as defined in Section 3 [d] of this Act or invest in a domestic enterprise up to one hundred percent (100%) of its capital, unless participation of nonPhilippine nationals in the enterprise is prohibited or limited to a smaller percentage by existing law and/or under the provisions of this Act. The SEC or BTRCP, as the case may be, shall not impose any limitations on the extent of foreign ownership in an enterprise additional to those provided in this Act: Provided, however, That any enterprise seeking to avail of incentives under the Omnibus Investment Code of 1987 must apply for registration with the Board of Investments [BOI], which shall process such application for registration in accordance with the criteria for evaluation prescribed in said Code: Provided, finally,That a non-Philippine national intending to engage in the same line of business as an existing joint venture, in which he or his majority shareholder is a substantial partner, must disclose the fact and the names and addresses of the partners in the existing joint venture in his application for registration with the SEC. During the transitory period as provided in Section 15 hereof, SEC shall disallow registration of the applying non-Philippine national if the existing joint venture enterprise, particularly the Filipino partners therein, can reasonably prove they are capable to make the investment needed for the domestic market activities to be undertaken by the competing applicant. Upon effectivity of this Act, SEC shall effect registration of any enterprise applying under this Act within fifteen [15] days upon submission of completed requirements.chanrobles virtual law library SEC. 6. Foreign Investments in Export Enterprises. - Export enterprises which are non-Philippine nationals shall register with BOI and submit the reports that may be required to ensure continuing compliance of the export enterprise with its export requirement. BOI shall advise SEC or BTRCP, as the case may be, of any export enterprise that fails to meet the export ratio requirement. The SEC or BTRCP shall thereupon order the non-complying export enterprise to reduce its sales to the domestic market to not more than forty percent [40%] of its total production; failure to comply with such SEC or BTRCP order, without justifiable reason, shall subject the enterprise to cancellation of SEC or BTRCP registration, and/or the penalties provided in Section 14 hereof. Documentation A. BIR REGISTRATION Registration and Application for Tax Identification Number (TIN) For Corporations/ Partnerships
13

http://www.boi.gov.ph, http://www.dti.gov.ph, http://www.bir.gov.ph, http://www.sec.gov.ph

Corporation/Gen. Partnership BIR Form1903 (Application Form) BIR Form 0605 (payment for Registration Fee) BIR Form 2000 (payment of Documentary Stamps) Photocopy of SEC Registration & Articles of Incorporation/Articles of Partnerships Photocopy of the DTI Registration of business trade name (if applicable) Photocopy of the Mayors Permit or or duly received Application for Mayors Business Permit, if the former is still in process with the LGU Sketch of Business Address Leased Contract (if applicable)

After complying with all the requirements for registration, what document will be issued to the taxpayer as proof of registration? Certificate of Registration (BIR Form 2303) for newly registered taxpayer and validated Payment Form (BIR Form 0605) for every renewal

New taxpayers shall apply for registration and pay the registration fee before commencing their business. Thereafter, taxpayers should pay the annual registration fee not later than January 31 every year. All taxpayers are required to register with the RDO having jurisdiction over the head office, branch office, place of production or storage place where inventory of goods for sale or use in business are kept. B. SECURITIES AND EXCHANGE COMMISSION Registration/Recording of Partnership Basic Requirements 1. Name Verification Slip; 2. Articles of Partnership; and 3. Joint affidavit of two partners undertaking to change partnership name, provided in its Articles of Partnership or as amended thereafter, immediately upon receipt of notice or directive from the Securities and Exchange Commission that another corporation, partnership, or person has acquired a prior right to the use of that name or that name has been declared misleading, deceptive, confusingly, similar to a registered name, or contrary to public morals, good customs, or public policy (not required if Articles of Partnership has provision on this commitment). Additional requirements 1. Endorsement/clearance from other government agencies, if applicable 2. For partnership with foreign partners a. SEC Form No. F- 105 b. Bank certificate on the capital contribution of the partners c. For foreign partners who want to register their investments with the BSP: Proof of remittance Note: If it is a limited partnership, the word Limited or Ltd should be added to the partnership name. Articles of Partnership of limited partnerships should be under oath only and not acknowledged before a notary public. In a memorandum, the Securities and Exchange Commission (SEC) said it will require the tax identification number (TIN) on foreign investors in a local company. No application for incorporation of a corporation or registration of a partnership shall be accepted unless the TIN or passport number of all its foreign investors is indicated in its registration documents like Articles of Incorporation. All documents to be filed with the SEC by corporations and partnerships after their incorporation like General Information Sheets shall not be accepted unless the TIN of all its foreign investors are indicated therein C. BANGKO SENTRAL NG PILIPINAS Registration of Foreign Investments

The Foreign Investment Act of 1991 (FIA) defines the term foreign investment as an equity investment made by a non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines xxx. Section 3.c. of the FIA). If the foreign exchange requirement needed to service the repatriation of capital and remittance of cash dividends/profits/earnings accruing on foreign investments will be sourced from authorized agent banks (AABs) or their affiliate/ subsidiary foreign exchange corporations (AAB-forex corps), registration of the foreign investment with the Bangko Sentral ng Pilipinas (BSP) is required. Documentary Requirements for Registration of Foreign Investments 1. Foreign Direct Investments (FDIs) - may be in cash or in kind, where in kind assets include: (1) machinery and equipment; (2) raw materials, supplies, spare parts and other items including intangible assets necessary for the operations of the investee firm. The value of these investments in kind shall be assessed and appraised by the BSP before their registration. Expenses incurred by foreign firms pursuant to government-approved service contracts/other contracts for oil, gas, and geothermal energy exploration/developments may be capitalized and registered as foreign direct investment with the BSP. FDIs are directly registered by the BSP pursuant to Section 34 of the The Manual of Regulations on Foreign Exchange Transaction (FX Manual) issued under Circular No. 645 dated 13 February 2009. The application shall be filed directly with BSP, through the International Operations Department* together with the following supporting documents: a. For cash investments - Certificate of Inward Remittance (CIR) of foreign exchange and its conversion to pesos through an AAB (except for investments in banks where conversion to pesos is not required) in the prescribed format (Sample CIR and Guide/Instructions for Filling-Out CIR Form available at BSP); and - Sworn certification (BSP-suggested format) of the officer of the investee firm concerned attesting to the number of shares issued and amount paid for the investment. b. For investments in kind Copies of shipping documents; Copies of Bureau of Customs Import Entry and Internal Revenue Declaration (IEIRD); and Sworn certification of the officer of the investee firm concerned attesting to the number of shares and amount paid for the investment (BSP-suggested format) The value of investments in kind shall be assessed/appraised by the BSP before registration.

Visas Foreign nationals seeking to work, do business and/or invest in the Philippines may apply for work authorization and or the appropriate visa provided for under the Philippine Immigration Act, as amended (Commonwealth Act No. 603) or some other special law. An alien investor is entitled to enter the Philippines as a treaty trader pursuant to Sec. 9(d) of the Philippine Immigration Act, only if he is a national of a country with which the Philippines has concluded a reciprocal agreement for the admission of treaty traders or investors. At present, only nationals of the United States, Japan and Germany are entitled to treaty trader visas. The term treaty trader includes a treaty investor or an alien employed by a treaty investor in a supervisory or executive capacity. The alien employee must be of the same nationality as the majority shareholder of the sponsoring firm. Investor s Visa Special Investors Resident Visa The Special Investor Resident Visa (SIRV) entitles the holder to indefinitely stay in the Philippines, with multiple entry privileges, so long as his investments subsist. The SIRV is issued by the Bureau of Immigration upon indorsement of the Board of Investments pursuant to Book V of Executive Order

No. 226. The SIRV program requires investors to remit at least US$75,000 into the country and invest subject capital in viable economic activities. The SIRV holder can bring with him, without any additional deposit, his spouse and unmarried children below 21 years old, if any. If dependents are joining the applicant, originals or certified copies(duly authenticated) of their Marriage and/or Birth Certificates or Household Register shall be presented. Allowable Forms Of Investment For purposes of securing the SIRV, the proposed investor must invest in any of the following: (1) Publicly-listed corporations; (2) Companies engaged in areas listed in the Investment Priorities Plan (IPP); and/or (3) Companies engaged in the manufacturing and service sectors. All investors and enterprises are entitled to the basic rights and guarantees provided in the Philippine Constitution, such as the right to repatriation of investments, remittance of earnings, foreign loans and contracts, freedom from expropriation and non-requisition of investment. Enterprises may remit profits and dividends or repatriate its capital abroad thru remittances with the Bangko Sentral ng Pilipinas (BSP) after registration with the SEC or BTRCP. For this purpose, BSP rules and regulations covering procedures for registration of foreign investments are observed. Tax Payments Taxable income of a partnership (except general professional partnership) is computed in the same manner as in a corporation. Partners' shares in taxable partnerships profits are treated like dividends. Resident foreign corporations engaged in trade or business in the Philippines is taxed at the same rates as domestic corporations. The corporation income tax rate is currently 30%. Under the Tax Reform Act, the Philippines has also established a Minimum Corporate Income Tax. Subsequent to the fourth taxable year after a corporation has started its business, a minimum corporate income tax of 2% of the gross income is imposed if this amount is greater than the regularly computed tax. This amount can be carried forward and credited against the normal income tax for the three immediately succeeding taxable years. Revenue Regulation 7-2012 or the Amended Consolidated Revenue Regulations on Primary Registration, Updates and Cancellation Under the revenue regulation, non-resident aliens not engaged in trade or business or nonresident foreign corporations will be issued TIN for the purpose of withholding taxes on their income from sources within the Philippines. INCENTIVES TO INVESTORS 1. RP-JAPAN TAX TREATY Amendments to the RP-Japan tax treaty The protocol amending certain provisions of the RP-Japan Tax Treaty that originally took effect in 1981 has been approved. The following amendments will take effect on income earned beginning January 1, 2009: The general rate applicable on dividends was reduced from 25% to 15%. The 10% rate on dividends paid to big shareholders and those paid by Board of Investments (BOI) firms was retained. In addition, the ownership threshold for big shareholders to avail of the 10% tax rate was also reduced from 25% to 10% of voting shares or total shares issued. (Article 10) The general rate applicable on interest was reduced from 15% to 10%. Previously, the 10% rate applied only on interest paid in respect of government securities, or bonds or debentures and those paid by BOI-registered firms. The distinction has been removed. (Article 11) The general rate applicable on royalties was reduced from 25% to 10%. The protocol retained the 15% rate on royalties paid for the use of, or the right to use, cinematograph

films and films or tapes for radio or television broadcasting and the 10% applicable on royalties paid by BOI firms. (Article 12) Under Article 23, Philippine tax payable in respect of income derived from the Philippines shall be allowed as a credit against Japanese tax payable in respect of that income. For this purpose, the Philippine tax shall always be considered as having been paid at the rate of 20% in the case of dividends, and 15% in the case of interest and royalties. The coverage of the tax credit was expanded to cover all payments of dividends, interest and royalties. Prior to the Protocol, this covers only dividends, interest and royalties paid by BOI firms, as well as interest paid for government securities. This provision, however, will only be effective for a period of ten years. A new provision was added under Article 9 in relation to the treatment of intercompany transactions. If an entity in a contracting state is charged additional tax representing a transfer pricing adjustment arising from inter-company transactions, and the other contracting state agreed to such an adjustment, the other contracting state should also allow a corresponding tax adjustment to the other party in the intercompany transaction that is domiciled in its jurisdiction.

2. Tax Incentive Program To avail of tax incentives, enterprises must be registered with the appropriate Investment Promotion Agency (IPA) depending upon the location of the project. a. For projects outside the Economic or Freeport Zones - Board of Investments (BOI) b. For projects located in Economic or Freeport Zones, these are the options: - Aurora Special Economic Zone Authority (ASEZA) - Bases Conversion Development Authority (BCDA) - Cagayan Economic Zone Authority (CEZA) - Clark Development Authority (CDC) - Phividec Industrial Authority (PIA) - Philippine Economic Zone Authority (PEZA) - Regional Board of Investments-Autonomous Region in Muslim Mindanao (RBOIARMM) - Subic Bay Metropolitan Authority (SBMA) - Zamboanga Economic Zone Authority (ZEZA) Incentives offered are both fiscal or non-fiscal such as income tax holidays, wage-based deductions from taxable income and/or infrastructure, exemption from duties or grant of tax credits from certain importation, easement from wharf dues and export taxes, employment of foreign nationals, and other varied site-specific incentives.

EXPORT PROCEDURES14 1. Upon receipt of a purchase order from a foreign buyer, immediately send him a pro forma invoice for confirmation. An order is confirmed when the pro forma invoice is signed and returned to you by the buyer. 2. Payment for exports is normally made through the banks. The foreign buyers interest in the Philippines is represented by a local authorized agent bank, which is designated by the foreign buyers bank. The local Authorized Agent Bank (AAB) will assist you in negotiating the collection of the payment for your exports. 3. The AAB will explain to you all the instructions concerning your shipment to ensure its acceptability for payment. Make sure that you understand all the instructions provided by the bank. If the instructions are written in a non-English language, ask the bank to give you an official translation in English or to officially recognize a translation of the instructions, if the translation was made by someone other than the bank.

14

Export Procedures, Department of Trade and Industry, http://www.dti.gov.ph/dti/index.php?p=223

4. Exporters may be paid through banks by means letters of credit (L/C), documents against payment (D/P), documents against acceptance (D/A), open account (O/A), cash against documents (CAD), prepayment/export advance, inter-company open account, offset arrangement, consignment, or telegraphic transfer. 5. You may or may not need outside financing to produce export products ordered by the buyer. Should you, however, find the need for outside financing? You can either tap the assistance of government or non-government financial institutions. Export Documentation 1. When you are ready to ship, fill up an Export Declaration (ED) form. Sample ED forms are available at BETP, DTI Provincial offices, BOC Processing Units, OSEDCs and PHILEXPORT offices. 2. Secure an export commodity clearance/export permit from the proper government commodity office, if your product is included in the list of regulated products for exportation or if the buyer requires. 3. With the required supporting documents, submit the accomplished ED form to the BOC Processing Unit for the approval of the Authority to Load (AL). Sending Sample Shipments Follow steps 1, 2, and 3 of Export Documentation. Loading in Manila Cargo to be transported by air are inspected by the Bureau of Cusotms (BoC) at the Ninoy Aquino International Airport (NAIA). Conventional cargo, whether containerized or non-containerized, to be transported by ship are inspected by the Customs Container Control Division and the Piers and Inspection division, respectively, after payment of the wharfage fee and arrastre charges. Wharfage fee and arrastre services may be paid at South Harbor or MICP. However, for Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA)registered companies, stamping or exemption from payment of wharfage fee may be done at the PPA Unit of OSEDC-Manila at Roxas Boulevard. Loading can either be at the North or South Harbor. Loading at Provincial Ports Documentation (steps 1-3) may be done in Manila. After approval of the Authority to Load, the BoC sends message to BoC staff at the Port of Loading. You can also process documents and secure Authority to Load from the local OSEDC (now in Clark, Davao, Baguio, General Santos, Iloilo, Cebu, Cagayan de Oro, and Subic Bay Special Economic Freeport Zone). After loading, the BoC issues the following documents upon request: Certificate of Origin, Form A for export products covered by the Generalized System of Preferences (GSP); you can inquire about the GSP from DTI-Bureau of International Trade Relations (BITR) or BoC. General Certificate of Origin for export products not availing of preferences under GSP Certificate of Origin, Form D for export products covered by the Association of Southeast Asian Nations (ASEAN) Common Effective Preferential Tariff Scheme Certificate of Shipment Furnish the AAB, for record purposes, a copy of the duly accomplished ED form together with other shipping documents, if export negotiation or payment is coursed through them. For prepaid shipments, send the original commercial and shipping documents to the buyer.

Special economic zones (SEZ) or ECOZONES, are selected areas with highly developed or which have the potential to be developed into agri-industrial, industrial, tourist/recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamation. It is a geographical area, governed by one oversight management body that offer special trade incentives to firms who choose to physically locate within them. Despite the differences in nomenclature, each SEZ operates to increase trade throughout its respective region by offering special trade incentives to stimulate local and foreign investment within the region. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones, and tourist/recreational centers. Enterprises within the ECOZONE are granted preferential tax treatment and immigration laws are more lenient. (sec. 4, Chapter 1, RA 7916)

An Industrial Estate (IE) refers to a tract of land subdivided and developed according to a comprehensive plan under a unified continuous management and with provisions for basic infrastructure and utilities, with or without pre-built standard factory buildings and community facilities for the use of the community of industries. An Export Processing Zone (EPZ) is a specialized industrial estate located physically and/or administratively outside customs territory, predominantly oriented to export production. Enterprises located in export processing zones are allowed to import capital equipment and raw materials free from duties, taxes and other import restrictions. A Free Trade Zone is an isolated policed area adjacent to a port of entry (as a seaport) and/or airport where imported goods may be unloaded for immediate transshipment or stored, repacked, sorted, mixed, or otherwise manipulated without being subject to import duties. However, movement of these imported goods from the free trade area to a non-free-trade area in the country shall be subject to import duties. A Tourist/Recreational Center refers to an area within the ECOZONE where tourist accommodation facilities such as hotels, apartelles, tourist inns, pension houses, resorts, sports and / or recreational facilities are provided to render tourism services for both local and foreign tourists, travellers and investors in accordance with the guidelines issued by the PEZA.

ECOZONES are established as a separate customs territory to promote flow of local and foreign investments that will generate employment opportunities, stimulate the repatriation of Filipino capital by providing attractive climate and incentives for business activity, and other similar purposes. (sec. 3, Chapter 1, RA 7916) Special Economic Zones are generally implemented to meet fiscal, social, and infrastructure policy rationales. The most important fiscal goal of an SEZ is to facilitate economic growth through the use of reduced tariffs and more efficient customs controls. They are also essential tools for companies seeking to cut costs and improve inventory efficiency, and they help developing nations rework poor, inefficient trade policies and dilapidated or non-existent infrastructure.

The Implementing Rules and Regulations of RA 7916 provide specific general criteria in establishing an ECOZONE in the Philippines. Those areas or places applying for such status must conform to the following general criteria to ensure their viability and geographic dispersal: a) Identification of the proposed area as a regional growth center in the Medium-Term Philippine Development Plan or by the Regional Development Council; b) The existence of required infrastructure in the proposed ECOZONE, such as roads, railways, telephones, ports, airports, etc., and the suitability and capacity of the proposed site to absorb such improvements; c) The availability of water source and electric power supply for use of the ECOZONE; d) The extent of vacant lands available for industrial and commercial development and future expansion of the ECOZONE as well as of lands adjacent to the ECOZONE available for development of residential areas for the ECOZONE workers; e) The availability of water source and electric power supply for use of the ECOZONE; f) The area must have a significant incremental advantage over the existing ECOZONES and its potential profitability can be established; g) The area must be strategically located; and h) The area must be situated where controls can easily be established to curtail smuggling activities.

The Philippine Economic Zone Authority (PEZA) is attached to the Department of Trade and Industry and is tasked to promote investments, extend assistance, register, grant incentives to and facilitate the business operations of investors in export-oriented manufacturing and service facilities inside selected areas throughout the country proclaimed by the President of the Philippines as PEZA Special Economic Zones. It oversees and administers incentives to developers/operators of and locators in world-class, ready-to-occupy, environment-friendly secured and competitively priced Special Economic Zones. It aims to reinforce the Philippine governments efforts on Investment Promotion, Employment Creation, and Export Generation.

Some of the Investment Priority Areas are: Export Manufacturing IT (Information Technology) Service Export

Tourism Agro-industrial Export Manufacturing Agro-industrial Bio-Fuel Manufacturing Logistics and Warehousing Services Economic Zone Development and Operation: a. Manufacturing Economic Zone Development / Operation b. IT Park Development / Operation c. Tourism Economic Zone Development / Operation d. Medical Tourism Economic Zone Development / Operation e. Agro-Industrial Economic Zone Development / Operation f. Retirement Economic Zone Development /Operation Facilities Providers : a. Facilities for Manufacturing Enterprises b. Facilities for IT Enterprises c. Retirement Facilities Utilities

Mechanisms and Assistance given by the Local Governments

Philippine Ecozones are generally administered by the Philippine Economic Zone Authority through a Board (PEZA Board), attached to the Department of Trade and Industry. The PEZA Board sets the general policies on the establishment and operations of the Ecozones, industrial estates, export processing zones, free trade zones, and the like. They also review proposals for the establishment of Ecozones, which they subsequently endorse to the President of the Republic of the Philippines. In addition, the PEZA Board regulates and undertakes the establishment, operation and maintenance of utilities, other services and infrastructure in the Ecozone, such as heat, light and power, water supply, telecommunications, transport, toll roads and bridges, port services, and the like.

Although designed to operate separately from the political and economic milieu of surrounding communities, Philippine economic zones do in fact interact with their neighbors. As of 31 May 2010, there were more than 200 Ecozones in the Philippines. Of these more than 200 Ecozones, seven (7) are Agro-Industrial Economic Zones, 134 are Information Technology Parks and Centers, 65 are Manufacturing Ecozones, two (2) are Medical Tourism Parks/Centers, and nine (9) are Tourism Economic Zones. Of the 41 private economic zones, the biggest exporter is Gateway Business Park in General Trias, Cavite and the second biggest private ecozone is Laguna Technopark Inc. The four governmentally owned are Cavite Economic Zone, Bataan Economic Zone, Mactan Economic Zone and Baguio City Economic Zone. Some of the more well-known Economic zones are the Clark Special Economic Zone, and Subic Economic Zone, former military bases of the United States of America.

The regulatory procedures of SEZs have changed since their original inception. For example, government regulation of SEZs originally mandated that most zones be located in remote locations or clearly delineated with fences or physical boundaries. Difficulties in attracting businesses to isolated areas prompted host country governments to establish more flexible boundary regulations that treated SEZs more like large scale, inter-city property developments rather than isolated trade zones. Original zones were also mostly restricted to export-based industries, whereas newer regulations allow SEZs to emphasize both imports and exports.

Some of the incentives now offered by many SEZ programs include provisions for commercial and professional activities, allow zone developers to supply utilities to the zone, allow for private instead of public development, and relax minimum export requirements and labor and environmental laws. In contrast, older regulations only provided incentives for government-developed SEZs that focused on traditional manufacturing activities. Even though the benefits of these more lenient regulations have helped to draw global corporations looking for cost-effective ways to grow businesses and improve a host countrys total foreign trade revenue, they sometimes come at the expense of government control and oversight over economic development. For example, once private development of SEZs was allowed, host governments lost a certain amount of day-to-day control over SEZ operations.

SEZ approval processes have also changed over time. Many SEZs were originally approved by a single government board using an arduous approval process that cost a great deal of time and money. The burdensome process frustrated investors and often thwarted plans to bring new business to the host country. Today, many SEZs are approved by a more streamlined registration process in which applications meeting specified criteria are generally approved systematically. Like other aspects of special zones, each zone has its own unique regulatory body. Some zones, like the Philippines, use one governing board like the Philippine Economic Zone Authority to oversee all activities within the

zone. Other zones use multiple bodies to oversee unique aspects of regulation, planning, and promotion of SEZs in a three-tier administration consisting of a Board of Approval, a Unit Approval Committee, and a Zone Development Commissioner to oversee the SEZ Act and ensure its proper implementation. There are advantages and disadvantages to both systems. Single governing boards overseeing every aspect of an SEZ have ultimate authority, as there is no other body to endorse its decisions. These circumstances provide no other authority check or idea generation. On the other hand, governing bodies with multiple boards can help balance control and decisions, but can run into differing points of views and conflicts of interest that slow down or totally obstruct an SEZ proposal, or frustrate successful SEZ operations.

These SEZ benefits do not come without costs, however. The host government or private operator of the zone usually incurs its own costs of oversight and administration of the zone. Costs of ensuring that those outside the zone do not use the SEZs economic or regulatory benefits is also a high cost of oversight for any SEZ. The developer of the SEZ also has the enormous task and cost of developing the infrastructure needed to attract foreign investors, because insufficient means of transporting SEZ-processed goods to their destinations dilutes the SEZs overall economic benefits. Often, the high costs of infrastructure development are absorbed by a host government desperate to attract foreign investment. The government might subsidize the cost of development in order to lure a developer into the region. Therefore, before a host country approves an SEZ development, it must weigh the benefits that an SEZ might bring to the country in trade revenues against the total costs of SEZ implementation, including the cost of construction and long-term operation.

Private/Public Nature of SEZs

Initially, SEZs were government-sponsored projects intended to promote foreign investment that would only benefit the country at the governmental level. In the 1980s, the first privately-developed SEZs were created in the Caribbean and Central America to compete with government trade zones that were often fraught with inefficiencies and cumbersome regulations. By the end of the 1980s, approximately 25 percent of all SEZs were privately run. More recently, about 62 percent of SEZs are run by private developers seeking to capitalize on the enormous economic benefits of foreign trade and investment. These new private zones created their own problems, however, because they were largely unregulated and their rapid growth strained infrastructure, facilities, and services. In the Dominican Republic, sudden and unexpected growth of privately-developed SEZs wreaked havoc on local infrastructure and prompted bans on new SEZ development. Modern private SEZs in the country are required to locate close to existing infrastructure and facilities to reduce excessive government outlays. Despite initial problems, the privatization of SEZs has been beneficial to their global acceptance and economic effectiveness. Private developers have used their vast resources to create higher-end SEZs than many host countries could create with their governmental budgetary restrictions and operational constraints. Private developers can also command higher rental rates because many investors prefer to locate in efficiently configured, privately-run zones that have better social and environmental facilities than those of their public counterparts, which are often crowded, poorly designed, and have inadequately maintained facilities. For example, rental rates in the privately-run zones of the Dominican Republic are as much as three times the rental rates of the publically-run zones in the country, a phenomenon largely attributed to the superior quality of the private facilities.

The fact that government-run SEZs are often cost-inefficient does not necessarily mean that government involvement is completely unnecessary. Public-private partnerships have become increasingly important in SEZ implementation because such a joint enterprise provides the best attributes of both parties. Private investors bring coveted development expertise, contracts for private management and leasing, and financing, while host country governments bring public funds for infrastructure development (roads, utilities, etc.), local country expertise, and additional financial support. Local governments also aid in assembling the large land acreages needed to create a geographically-based SEZ. For example, the Pomeranian Special Economic Zone is a unique SEZ development in Poland that has been created using an assemblage of public land and existing infrastructure along with new private construction by global investors.

This kind of public-private partnership helps reduce costs for both parties and improves the economic returns of the SEZ. Both parties benefit from the initial resources each provides to the development, and also from the others long term involvement in SEZ. The developer earns the right to market and use the SEZs tax incentives and regulatory benefits to grow its investment, while the government attracts international businesses that provide FDI revenue and investing expertise to the host country.

In the past, there have indeed been disputes on this matter between PEZA-registered enterprises and some local government units (LGUs) in areas where the PEZA zones are located. Also, some PEZA-registered enterprises are uncertain whether or not they qualify for exemption from local taxes. For companies paying the 5% tax on gross income, no less than the Special Economic Zone Act of 1995 or the PEZA Law has declared that no taxes, both local and national,

shall be imposed on business establishments operating within the ECOZONE. The 5% tax is in lieu of all taxes, including local taxes. It is clear therefore that PEZA-registered enterprises paying the 5% tax on gross income are not liable for local business taxes and other charges normally due to the local government units. However, this exemption only covers companies under the 5% tax regime.

What about the PEZA-registered entities enjoying income tax holiday? Income tax holiday incentives imply exemption from income tax. This would mean that an entity entitled to it enjoys exemption from income tax only, unless also expressly exempted from other taxes. This is not so for enterprises registered with PEZA and operating within a PEZA zone. As mentioned earlier, a PEZA-registered entity may opt to be subjected directly to the 5% tax on gross income or avail of the income tax holiday incentives first. This income tax holiday incentive is based on Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987. EO 226 exempts zone registered enterprises, to the extent of their construction, operation or production inside the zone, from the payment of any and all local government imposts, fees, licenses or taxes except real property taxes. There is, therefore, no distinction between a PEZA-registered entity enjoying an income tax holiday or subject to the 5% tax on gross income in so far as local taxation is concerned. Both are exempt from the payment of any and all local government imposts, fees, licenses or taxes.

The PEZA itself clarified in its Memorandum Circular No. 2004-024, dated September 24, 2004, that PEZAregistered enterprises including those availing of the income tax holiday incentives, are exempted from payment of all local taxes, licenses, imposts, and fees, except real estate taxes. The said circular even exempts PEZA-registered companies from securing the required local government permits. Despite this pronouncement though, there are still some cities and municipalities requiring PEZA-registered entities to obtain local government permits and pay the corresponding permit fees. If you are a locator within these cities and municipalities, you would still be required to obtain business permits and pay the corresponding permit fees, but not the local business tax.

While local business tax rates are insignificant when compared with the national taxes, the amounts could also be substantial considering that they are based on the gross sales/receipts. Local business taxes should also be considered by these companies in evaluating whether or not to locate in a PEZA zone. On the part of the local government units, while they have the power to create their sources of revenue, they should grant the PEZA locators the incentives accorded under the law and free these locators from the dilemma of paying or not paying local taxes, fees and charges.

In 2002, the DOT entered into a Memorandum of Agreement (MOA) with PEZA that will grant Special Economic Zone status to tourism development zones and tourism estates upon registration with PEZA subject to the issuance of the required Presidential Proclamation. The PEZA shall consider for registration tourist-oriented enterprises to be located in PEZA-registered tourism development zones/tourism estates which are enclosed by the DOT as enterprises that will be established and operated with foreign tourists as primary clientele.

PEZA grants fiscal and non-fiscal incentives to developers of economic zones, - export producers and IT service exporters. PEZA offers ready-to-occupy locations to foreign investors who are export producers or IT service exporters in world class and environment friendly Economic Zones and IT parks/buildings. Recently, tourism has been included as a priority investment sector opening the way for the designation of tourism economic zones.

FISCAL INCENTIVES

First. Under Sec 23 of RA 7916 as amended by RA 8748 Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under: Presidential Decree No. 66, the law creating the Export Processing Zone Authority which provides:

Section 17. Tax Treatment of Merchandise in the Zone. (1) Except as otherwise provided in this Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the Zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity, shall not be subject to Customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding.

(2) Merchandise purchased by a registered zone enterprise from the customs territory, if paid for in the United States dollar or in any convertible foreign currency and subsequently brought into the zone, shall be considered as exported, and the exporter thereof shall be entitled to the benefits allowed by law for such transaction. (3) Domestic merchandise sent from the zone to the customs territory shall, whether or not combined with or made part of other articles likewise the growth, product or manufacture of the Philippines while in the zone, be subject to internal revenue laws of the Philippines as domestic goods sold, transferred or disposed of for local consumption. (4) Merchandise sent from the zone to the customs territory shall, whether or not combined with or made part of other articles while in the zone, be subject to laws and regulations governing imported merchandise. The duties and taxes shall be assessed on the value of imported materials (except when the final product is exempt) and the internal revenue taxes on the value added. (5) Domestic merchandise on which all internal revenue taxes have been paid, if subject thereto, and foreign merchandise previously imported on which duty or tax has been paid, or which have been admitted free of duty and tax, may be taken into the zone from the customs territory of the Philippines and be brought back thereto free of quotas, duty or tax. (6) Subject to such regulations respecting identity and the safeguarding of the revenue as the Authority may deem necessary when the identity of an article entered into the zone has been lost, such article when removed from the zone and taken to the customs territory shall be treated as foreign merchandise entering the country for the first time, under the provisions of the Tariff and Customs Code. (7) Articles produced or manufactured in the zone and exported therefrom shall, on subsequent importation into the customs territory, be subject to the import laws applicable to like articles manufactured in a foreign country. (8) Unless the contrary is shown, merchandise taken out of the zone shall be considered for tax purposes to have been sent to customs territory.

Section 18. Additional Incentives. A zone registered enterprise shall also enjoy the following incentives benefits; (a) Net-Operating Loss Carry Over. A net-operating loss incurred in any of the first five years of operation inside the zone may be carried over as a deduction from taxable income derived in such zone during the five years immediately following the year of such loss. The entire amount of the loss and any portion of such loss which exceeds the taxable income of such first year shall be deducted in like manner from the taxable income of the next remaining four years. The net-operating loss shall be computed in accordance with the provisions of the National Internal Revenue Code, any provision of this Decree to the contrary notwithstanding, except that income not taxable either in whole or in part under this Decree or other laws shall be included in gross income. (b) Accelerated Depreciation. Fixed assets may be (1) depreciated to the extent of not more than twice the normal rate of depreciation or depreciated at the normal rate of depreciation if the expected life is ten years or less; or (2) depreciated over any number of years between five years and expected life if the latter is more than ten years; and the depreciation thereon allowed as a deduction from taxable income: Provided, That the taxpayer notifies the Bureau of Internal Revenue at the beginning of the depreciation period which depreciation rate allowed by this subsection will be used by it. (c) Exemption from Export Tax. The provisions of law to the contrary notwithstanding, foreign merchandise transhipped through the zone or any article which has been processed, manufactured or manipulated in said zone and exported therefrom, shall be exempt from any export tax, imposts or fee, including the stabilization tax imposed by Republic Act Numbered Sixty-one hundred twenty-five. (d) Foreign Exchange Assistance. The Central Bank of the Philippines or any of its authorized agent banks shall extend to zone registered enterprises, priority in the allocation of foreign exchange and in the availment of the assistance and resources of the Central Bank in a manner that would encourage and accelerate investment in the zone. (e) Financial Assistance. Notwithstanding any provisions of law to the contrary, zone registered enterprises shall be entitled to at least the same privileges accorded to enterprises approved by and registered with the Board of Investments under Republic Act Numbered Four thousand eight hundred sixty, as amended by Republic Act Numbered Six thousand one hundred forty-two, or under any existing law, executive order, rule or regulation or which may hereafter be enacted or promulgated, insofar as obtaining financial assistance by way of loans, credits, guarantees or other forms of financial accommodations from government financial institutions, whether directly or indirectly through the medium of private banking or non-banking financial institutions: Provided, That the proceeds derived from or through such financial assistance shall be used in undertaking projects approved by the Authority: Provided, further, That in order to facilitate the payment of the foreign loans, credits and indebtedness contracted by zone registered enterprises for such projects approved by the Authority, the Central Bank shall, under such rules and regulations as it may promulgate upon recommendation of the Authority, allow the deduction of such portion of the foreign exchange earnings of said enterprises sufficient to meet the foreign exchange requirements for servicing foreign indebtedness incurred by them.

(f) Exemption from Local Taxes and Licenses. Notwithstanding the provisions of law to the contrary, any business enterprise engaged in the production, processing, packaging, or manipulation of export products shall, to the extent of their construction, operation or production inside the zone, be exempt from the payment of any and all local government imposts, fees, licenses or taxes, except real estate taxes imposed under Commonwealth Act Numbered Four Hundred seventy and Republic Act Numbered Fifty-four hundred forty-seven: Provided, That said business enterprise shall pay in the municipality where the zone is located real estate taxes on all its real properties located therein.

And Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, also provides: ART .69. Tax Treatment of Imported Articles in the Regional Warehouse. (a) Tax Incentives for Qualified Goods Destined for Re-exportation to the Asia-Pacific and other Foreign Markets. - Except as otherwise provided in this Code, imported spare parts or manufactured components, raw materials and other items including any packages, coverings, brands and labels and warehouse equipment as may be allowed by the Board of Investments for use exclusively on the goods stored, except those prohibited by law, brought into the regional warehouse from to be kept, stored and/or deposited or used therein and re-exported directly therefrom under the supervision of the Regional Collector of Customs for distribution to its Asia-Pacific and other foreign markets in accordance with the guidelines implementing Book IV of this Code including to a bonded manufacturing warehouse in the Philippines and eventually re-exported shall not be subject to customs duty, internal revenue tax, export tax nor to local taxes, the provisions of law to the contrary notwithstanding. (b) Payment of Applicable Duties and Taxes on Qualified Goods subject to Laws and Regulations Covering Imported Merchandise if destined for the Local Market. - Any spare parts, manufactured components, raw materials and other items sent, delivered, released or taken from the regional warehouse to the local market in accordance with the guidelines implementing Book IV of this Code shall be subject to the payment of customs duties, taxes and other charges and for which purpose, the proper commercial invoice of the head offices or parent companies shall be submitted to the Regional Collector of Customs; and shall be subject to laws and regulations governing imported merchandise, Provided, that in case any of the foregoing items are sold, bartered, hired or used for purposes other than they were intended for without prior compliance with the guidelines implementing Book IV of this Code and without prior payment of the duty, due and payable at the time of entry if the articles had been entered without the benefit of this decree, shall be subject to forfeiture and the importation shall constitute a fraudulent practice against customs revenue punishable under Section 3602, as amended, of the Tariff and Customs Code of the Philippines; Provided, further, that a sale pursuant to a judicial order shall not be subject to the preceding proviso without prejudice to the payment of duties, taxes and other charges. ART. 70. Exemption from the Maximum Storage Period under the Tariff and Customs Code; Period of Storage in the Regional Warehouse. - The provision of the law in Section 1908 of the Tariff and Customs Code of the Philippines, as amended, to the contrary notwithstanding, articles duly entered for warehousing may remain in the regional warehouses for a period of two (2) years from the time of their transfer to the regional warehouse, which period may be extended with the approval of the Board of Investments for an additional period of one (1) year upon payment of the corresponding storage fee on the unexported articles, as provided for under Article 68 paragraph (c) for each extension until they are re-exported in accordance with the guidelines implementing Book IV of this Code. Any article withdrawn, released or removed contrary to the provisions of said guidelines shall be forfeited pursuant to the provisions of Article 69, paragraph (b) hereof.

Second. Under Section 24 RA 7916 as amended by RA 8748 that except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: a. Three percent (3%) to the National Government; b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurers office of the municipality or city where the enterprise is located.

Third. Under Section 28 RA 7916 as amended by RA 8748 that without prior Bangko Sentral approval, after tax profits and other earnings of foreign investments in enterprises in the ECOZONE may be remitted outward in the equivalent foreign exchange through any of the banks licensed by the Bangko Sentral ng Pilipinas in the ECOZONE: Provided, however, That such foreign investments in said enterprises have been previously registered with the Bangko Sentral.

Fourth. Under Section 42 RA 7916 as amended by RA 8748, An additional deduction equivalent to one- half (1/2) of the value of training expenses incurred In developing skilled or unskilled labor or for managerial or other management development programs incurred by enterprises In the ECOZONE can be deducted from the national government's share of three percent (3%) as provided for in Section 24.

NON-FISCAL INCENTIVES

First. Special Non-Immigrant Visa with Multiple Entry Privileges for the following non-resident Foreign Nationals in a PEZA-registered Economic Zone Enterprise: Investor/s, officers, and employees in supervisory, technical or advisory position, and their spouses and unmarried children under twenty-one years of age. PEZA extends Visa Facilitation Assistance to foreign nationals their spouses and dependents.

Any investor within the ECOZONE whose initial investment shall not be less than One hundred fifty thousand dollars ($150,000), may be granted by permanent resident status within the ECOZONE extended to his/her spouse and dependent children under twenty-one (21) years of age have freedom of ingress and egress to and from the ECOZONE without any need of special authorization from the Bureau of Immigration.

Second. Non-resident Foreign Nationals may be employed by PEZA-registered Economic Zone Enterprises in supervisory, technical or advisory positions. Employment of foreign nationals hired by ECOZONE enterprises in a supervisory, technical or advisory capacity shall not exceed five percent (5%) of its workforce without the express authorization of the Secretary of Labor and Employment.

The PEZA shall issue working visas renewable every two (2) years to foreign executives and other aliens, possessing highly-technical skills which no Filipino within the ECOZONE possesses, as certified by the Department of Labor and Employment. The names of aliens granted permanent resident status and working visas by the PEZA shall be reported to the Bureau of Immigration within thirty (30) days after issuance thereof.

Third. Lands and buildings in each ECOZONE may be leased to foreign investors for a period not exceeding fifty (50) years, renewable once for a period of not more than twenty-five (25) years. The leasehold right acquired under long-term contracts may be sold, transferred or assigned, subject to the conditions set forth under Republic Act No. 7652.

Fourth. Simplified Import Export and Procedures through the utilization of Electronic Import Permit System and Automated Export Documentation System. Private shipping and related business including private container terminals may operate freely in the ECOZONE, subject only to such minimum reasonable regulations of local application which the PEZA may prescribe. The PEZA shall, in coordination with the Department of Transportation and Communications, maintain a shipping register for each ECOZONE as a business register of convenience for ocean-going vessels and issue related certification.

Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the ECOZONE, subject only to such reasonable requirements as may be prescribed by the PEZA in coordination with the appropriate agencies of the national government.

Fifth. The PEZA shall establish a one stop shop center for the purpose of facilitating the registration of new enterprises in the ECOZONE. Thus, all appropriate government agencies that are involved in registering, licensing or issuing permits to investors shall assign their representatives to the ECOZONE to attend to investors requirements.

MID TERM REPORT SUBMITTED BY GROUP 2

Elizabeth Joie G. Cruz ______________ Chiara Angela LB. Blanco ______________ Jan Michael de la Cruz Rhodalyn de la Cruz ______________ ______________

Bethel Ed Castro

______________

Gerard Dimalaluan

______________

SALIENT FEATURES OF REPUBLIC ACT NO. 7916 OTHERWISE KNOWN AS THE SPECIAL ECONOMIC ZONE ACT OF 1995

Declaration of Policy: Translating into practical realities the State policies and mandates in Sec. 20, Art. II and Sec.12, Art. XII of the 1987 Constitution in order to effectively attract legitimate and productive foreign investments. Purposes of the Act: To establish the legal framework and mechanisms for the integration, coordination, planning and monitoring of special economic zones, transform selected areas in the country into highly developed centers, promote the flow of investors, both foreign and local, into special economic zones which would generate employment opportunities, stimulate the repatriation of Filipino capital by providing attractive climate and incentives for business activity, To promote financial and industrial cooperation between the Philippines and industrialized countries through technology-intensive industries, and vest the special economic zones on certain areas thereof with the status of a separate customs territory. Establishment of ECOZONES: ECOZONES shall be established ensuring the viability and geographic dispersal, complying with the criteria set forth under Section 6 including location, required infrastructure, availability of utilities, labor force, and existence of controls to prevent smuggling. The ECOZONE shall ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial/Trading, Tourist, Investment and Financial Community (Section 7) and shall be operated be and managed as separate customs territory (Section 8). Development Strategy of the ECOZONE: The strategy and priority of development of each ECOZONE established pursuant to this Act shall be formulated by the PEZA, in coordination with the Department of Trade and Industry and the National Economic and Development Authority: Provided, That such development strategy is consistent with the priorities of the national government as outlined in the medium-term Philippine development plan. It shall be the policy of the government and the PEZA to encourage and provide incentives and facilitate private sector participation in the construction and operation of public utilities and infrastructure in the ECOZONE, using any of the schemes allowed in Republic Act. No. 6957 (the build-operate-transfer law). REGISTRATION OF BUSINESS ENTERPRISES IN THE ECOZONE Registration of Business Enterprises: Business enterprises within a designated ECOZONE shall register with the PEZA to avail of all incentives and benefits provided for in this Act (Section 35). One Stop Shop Center: Establishment of a one stop shop center for the purpose of facilitating the registration of new enterprises in the ECOZONE. All appropriate government agencies that are involved in registering, licensing or issuing permits to investors shall assign their representatives to the ECOZONE to attend to investors requirements (Section 36). LEASES OF LANDS AND BUILDINGS WITHIN EACH ECOZONE Foreign investors may lease lands and buildings within each ECOZONE for a period not exceeding fifty 50 years, renewable once for a period of not more than 25 years (Republic Act No. 7652) (Section 30).

NON-FISCAL INCENTIVES Immigration (Section 10): A. Grant of permanent resident status within the ECOZONE to any investors whose initial investment are not less than $150,000, including his/her spouse and dependent children under 21 years of age B. Issuance of working visas renewable every two (2) years to foreign executives and other aliens, possessing highly-technical skills which no Filipino within the ECOZONE possesses, as certified by the Department of Labor and Employment.

FISCAL INCENTIVES A. Business establishments operating within the ECOZONES B. Tax credits for exporters using local materials as inputs shall enjoy the same benefits provided for in the Export Development Act of 1994. (Section 23). Exemption from Taxes: No taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, 5% of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government (Section 24). After Tax Profits: Without prior Bangko Sentral approval, after tax profits and other earnings of foreign investments (previously registered with the Bangko Sentral) in enterprises in the ECOZONE may be remitted outward in the equivalent foreign exchange through any of the banks licensed by the Bangko Sentral ng Pilipinas in the ECOZONE (Section 24). Applicability of VAT law: Entities registered with PEZA as an ecozone may be covered by the VAT system. Sections 23 of RA 7916, as amended, gives a PEZA-registered enterprise the option to choose between two fiscal incentives: a.) 5% preferential tax rate as mentioned above; or b.) an income tax holiday provided under the E.O 226 or the Omnibus Investment Code of 1987, as amended. If the entity avails of option (a) it is exempt from all taxes including VAT; under option (b) it is exempt from income taxes but not from other internal revenue taxes like the VAT. By choosing option B, it will be able to take advantage of the tax credit method. Since most if not all products in an ecozone were exported, they are entitled to the 0 rated VAT which will allow them to claim for refund based on the input taxes they paid. APPLICABLE TAXES AND LAWS National Taxes: All income derived by persons and all service establishments in the ECOZONE shall be subject to taxes under the National Internal Revenue Code (Section 25). Applicability of Banking Laws and Regulations: Existing banking laws and Bangko Sentral ng Pilipinas (BSP) rules and regulations shall apply to banks and financial institutions to be established in the ECOZONE and to other ECOZONE-registered enterprises, specifically on foreign exchange and other current account, transactions (trade and non-trade) local and foreign borrowings, foreign investments, establishment and operation of local and foreign banks, foreign currency deposit units, offshore banking units and other financial institutions under the supervision of the BSP. PROTECTION TO DOMESTIC INDUSTRY Domestic Sales: There shall be a negative list of industries that will be drawn up by the PEZA. Enterprises engaged in the industries included in the negative list shall not be allowed to sell their products locally. Said negative list shall be regularly updated by the PEZA (Section 25). TERMINATION OF BUSINESS Termination of Business: Investors in the ECOZONE who desire to terminate business or operations shall comply with such requirements and procedures which the PEZA shall set, particularly those relating to the clearing of debts. The assets of the closed enterprises can be transferred and the funds can be remitted out of the ECOZONE subject to the rules, guidelines and procedures prescribed jointly by the Bangko Sentral ng Pilipinas, the Department of Finance and the PEZA (Section 24).

ARTICLES OF PARTNERSHIP of Arte, LTD.

KNOW ALL MEN BY THESE PRESENTS:

That we, the undersigned, all of legal age and residents of the Republic of the Philippines have agreed to amend a limited partnership under the terms and conditions herein set forth and subject to the provisions of existing laws of the Republic of the Philippines.

AND WE HEREBY CERTIFY:

ARTICLE I. That the name of the partnership shall be: Arte, Ltd. ARTICLE II. That the principal office of the Partnership shall be located at Unit 24, 44th floor, #5223 Triangle Dragon Building, Scout Borromeo St, Quezon City, Philippines.

ARTICLE III. That the names, citizenship, residence and designation of the partners of said partnership are as follows: Name Citizenship Filipino Residence San Jose del Monte, Bulacan Montville Place, Don Antonio Heights, Quezon City Makati City Bulacan Bulacan No. 5 Unit E. Sta. Isabel St. Kapitolyo, Pasig City Designation General Manager Industrial Partner Partner Partner Partner Partner

Elizabeth Joie G. Cruz

Chiara Angela LB. Blanco Filipino Bethel Ed Castro Jan Micheal de la Cruz Lynne de la Cruz Gerard Dimalaluan Filipino Filipino Filipino Filipino

ARTICLE IV. That the term for which said partnership is to exist is 30 years from the original recording of said partnership by the Securities and Exchange Commission.

ARTICLE V. That the purpose for which said partnership is formed are as follows: To conduct business related to graphics design and layouting including business promotion and advertising; To conduct photography and videography services for all occasions; and To engage in business related to computer buying and selling as well as computer repair services. ARTICLE VI. That the capital of the partnership shall be six hundred thousand, Philippine Currency contributed in cash by the partners as follows:

Name Elizabeth Joie G. Cruz Chiara Angela LB. Blanco Bethel Ed Castro Jan Micheal de la Cruz Lynne de la Cruz Gerard Dimalaluan

Amount Contributed 2,000,000.00 None 2,000,000.00 2,000,000.00 2,000,000.00 2,000,000.00

Article VI. That no transfer will reduce the ownership of Filipinos citizens to less than the required percentage of capital shall be recorded in the paper books of the partnership.

ARTICLE VII. That the profits and losses shall be divided pro-rata among the partners.

ARTICLE VIII. That should there be any additional contribution made by a limited partner, such must be agreed upon by all the partners in writing and duly recorded at least two (2) days after signing of same agreement. Such contribution shall amend of the Articles of Partnership and in no case shall such amendment be done less than one (1) year after the original recording of said partnership by the Securities and Exchange Commission.

ARTICLE IX. That the contribution of each limited partner may be returned to him/ her three (3) years after the original recording of said partnership by the Securities and Exchange Commission. ARTICLE X. That the limited partner may be given the right to substitute an assignee as contributor in his place, provided that he has duly notified his partners in writing, stating the reasons therefor, five (5) days before effectivity of said substitution. Provided further that such limited partner has already settled his obligations to the partnership prior to the notification of substitution. ARTICLE XI. That a partner may admit an additional limited partner, provided that the other partners have been duly notified in writing five (5) days before effectivity of admission and duly concurred by all the partners in writing. ARTICLE XII. That the remaining general partner or partners shall have the right to continue the business in cases of death, retirement, civil interdiction, insanity or insolvency of a general partner. ARTICLE XIII. That the firm shall be under the management of Norhanna P. Paporo, as General Manager and as such she shall be in charge of the management of the affairs of the partnership. ARTICLE XIV. That the partners willingly undertake to change the name of the partnership immediately upon receipt of notice/ directive from the Securities and Exchange Commission that another partnership, corporation, or person has been declare misleading, deceptive, confusingly similar to a registered name or contrary to public morals, good customs or public policy. IN WITNESS WHEREOF, we have hereunto set our hands this 8th day of July 2013 at Quezon City, Phlippines.

ELIZABETH JOIE G. CRUZ TIN: BETHEL ED CASTRO TIN: LYNNE DE LA CRUZ TIN:

CHIARA ANGELA LB. BLANCO TIN: JAN MICHEAL DE LA CRUZ TIN: GERARD DIMALALUAN TIN:

ACKNOWLEDGEMENT

Republic of the Philippines } City of Quezon} S. S.

BEFORE ME, a Notary Public, for and in Quezon City, Philippines, this 7th day of July, 2013, personally came and personally appeared the following persons with their Community Tax Certificates as follows:

Name Elizabeth Joie G. Cruz

CTC #

Date / Place Issued Bulacan Quezon City Makati City Bulacan Bulacan Pasig City

Chiara Angela LB. Blanco Bethel Ed Castro Jan Micheal de la Cruz Lynne de la Cruz Gerard Dimalaluan

Known to me to be the same persons who executed the FOREGOING ARTICLES OF PARTNERSHIP, and they acknowledged to me that the same is their voluntary act and deed. WITNESS MY HAND AND SEAL on the date first above written.

Atty. Daniel T. Borromeo Name of legal Counsel Notary Public Valid Until December 31, 2013 PTR. No. 7263442; 1-08-2013; Q.C. IBP No. Lifetime Member 34345 Roll of Attorney No. 52132 TIN 12315523 Quezon City Doc. No.:1 Page No.:1 Book No.:3 Series of 2013