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Philippine
Investment
Outlook 2014-2015
12 November 2014
Agenda
Trends in Key Sectors and/or Industries
Key Cities and Municipalities
General Philippine Tax Rules and Principles
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Trends in key
sectors and/or
industries
Key Economic Trends
1
Strong GDP Growth %
2
Investment Grade Rating
3
↑Global Competitiveness Index
4
World’s 16th Largest Economy
Source: IBPAP-Tholons Report
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
4
Business Opportunities
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
5
Outsourcing
Headcount Split in ‘000 & annual growth rates
(100% = 1020k)
 Generates USD 18.4 billion in revenues
 Employs ~1 million FTEs and is the largest private
sector job creator
 Serves as an operating platform for more than 1100
organizations worldwide
 Has expanded from servicing the US, to being a
destination for other key global markets including
Europe, New Zealand and Australia and Asia
 Increasing growth in non-voice services
 Growth in SSCs. Currently ~130 GICs with over 65+
Fortune 1000 companies
 Employable talent
Large English speaking population
Steady supply of labor
− Medical, Natural Sciences and Allied Fields
− Business, Accounting and Finance
− Engineering and Architecture
Cost advantage
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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\Energy
Projected Demand vs Supply for Power in the Philippines
 Primarily coal fire plants, hydroelectric and
2030
geothermal
Deficit:
 Energy participants are gearing up to make
3,530MW
investments to fill increasing demand in electricity
 Current deficiency in energy supply in Mindanao
and nearing full capacity in Luzon
2014
Surplus:
1,473MW
2030
Capacity:
25,800MW
2014
Demand:
29,330MW
 Meeting the increasing capacity (expansion and
improvements to existing power plants,
privatization of remaining gov’t power resources)
 Bringing electricity to remote areas
2014
Capacity:
15,092MW
 Gap between what local players can accomplish
within the next few years with the rapid increase
in demand
2014
Demand:
13,619MW
2014
 Opportunities:
 PPP Projects
2030
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Energy - Major Energy Generation Players
Top Power Producers with foreign ownership
% of foreign
ownership
Foreign owner
23.5%
Nominee Corporation
99%
JGP CBK Power B.V.
Netherlands
KEPCO Philippines
Corp.
100%
KEPCO Int’l Hong Kong Ltd.
Hong Kong
AES Transpower Pte.
Ltd.
100%
AES Phil. Investment Pte. Ltd.
Singapore
Thailand
Quezon Power Phils.
97.8%
Electricity Generating Public
Co.(EGCO);
Global Power Investments;
Covanta Energy Corporation
STEAG State Power
51%
STEAG GmbH
Germany
Company
Energy Dev’t Corp.
CBK Power Co., Ltd.
Country
USA
USA
Source: Philippine Securities Exchange Commission, December 2013
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
228
Infrastructure
 The major gaps in the country’s infrastructure
have been the cumulative result of years of
underinvestment and delays in implementing public
capital expenditures, fiscal constraints, and weak
institutions of governance
 According to the latest survey in the WEF Global
Competitiveness Report, the PH ranks 98 in
infrastructure. SG is the highest ranking Asian
country at 5th place
 PH ranking has been improving over the last few
years but still ranks low among the 144 countries
 Emphasis is being given to PPP strategy
 Foreign investors are allowed to participate up to
40% of project consortiums for most projects and up
to 100% for energy generation projects
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
9
Infrastructure
Projects Aw arded
Projects for Aw arding
Project Under Procurem ent
Project for Roll-out
Mactan-Cebu International Airport New Passenger LRT Line 1 Cavite Extension and Operation and
Terminal Project
Maintenance
Integrated Transport System (ITS) - Southw est
Terminal
Enhanced Operation and Maintenance of the New
Bohol (Panglao) Airport Development
School Infrastructure Project (Phase I)
Integrated Transport System (ITS) - South Terminal Operation and Maintenance of Laguindingan
Airport
Cavite-Laguna (CALAX) Expressw ay Project
School Infrastructure Project (Phase II)
Bulacan Bulk Water Supply Project
Operation and maintenance of LRT2
Modernization of Philippine Orthopedic Center
Laguna Lakeshore Expressw ay-Dike Project
New Centennial Water Source Project
Automated Fare Collection System (AFCS) Project
Daang Hari-SLEX Link Road Project
NAIA Expressw ay Project
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Financial Services
Banking
 73% of Filipinos are unbanked and have limited access to financial products and services such as
debit cards and bank accounts
 Republic Act 10641 or the Act Allowing the Full Entry of Foreign Banks in the Philippines has been
signed allowing 100% foreign bank ownership into the Philippines in time for 2015 ASEAN regional
economic integration.
Insurance
 Expected consolidation in the insurance industry given the amendment in the insurance code.
Based on new regulations, capital adequacy is based on statutory net worth, which is defined as the
sum of paid-up capital, retained earnings, unimparied surplus and revaluation of assets.
Net w orth requirem ent for Philippine insurance com panies
Im plem entation date
June 2013
June 2016
June 2019
June 2022
PHP/USD
in PHP'm
250
550
900
1,300
in USD'm
6
13
21
30
43.50
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
11
Key cities and
municipalities
Overview of Key Cities and Municipalities
The Cities and Municipalities Competitiveness Index (CMCI)
The quality and
reliability of
government
services and
support for
effective and
sustainable
productive
expansion.
Infrastructure
Activities that
create stable
expansion of
businesses and
industries and
higher
employment.
Government Efficiency
Economic Dynamism
 National Competitiveness Council (NCC) with the United States Agency for
International Development (USAID)
 Annual ranking of PH cities and municipalities based on:
The physical
building blocks
that connect,
expand, and
sustain a locality
and its
surroundings to
enable the
provision of
goods and
services.
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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TOP 10 CITIES
Overview of Key Cities and Municipalities
1
2
3
4
5
6
7
8
9
Luzon – Makati City
10
Luzon – Paranaque City
Mindanao – Cagayan de Oro City
Luzon – Naga City
Mindanao – Davao City
Luzon – Marikina City
Visayas – Iloilo City
Visayas – Cebu City
Luzon – Manila City
Luzon – Valenzuela City
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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General Philippine
Tax Rules and
Principles
R.G. Manabat & Co.
Maria Myla S. Maralit
12 November 2014
Income Tax
 30% Regular Corporate Income Tax (RCIT)
• Domestic corporations are subject to 30% RCIT on taxable income (gross
income less allowable deductions) derived from sources within and outside the
Philippines
• Branch offices are subject to 30% RCIT on taxable income derived from sources
within the Philippines
 2% minimum corporate income tax (MCIT)
• 2% MCIT on gross income (gross revenue less cost of sales/service) is imposed
on domestic corporations and branch offices beginning on the fourth year from
registration with the tax authority, if MCIT is greater than RCIT
 Regional Operating Headquarters (ROHQ) are subject to preferential income tax
rate of 10% of net income
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Income Tax
 Dividends received by domestic corporations and branch offices from domestic
corporations are not taxed
 Profits remitted by branch offices and ROHQs to the head office/parent company
are subject to 15% branch profits remittance tax
 10% Improperly Accumulated Earnings Tax (IAET)
• 10% IAET is imposed on improperly accumulated taxable income of domestic
corporations
 32% Fringe Benefits Tax (FBT)
• 32% FBT is imposed on the grossed up monetary value of fringe benefits
granted to employees (except rank and file employees)
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Income Tax
 Nonresident foreign corporations (not engaged in business in the Philippines) are
generally subject to 30% final withholding tax on the gross amount of Philippinesourced income, such as interests, dividends, rents, royalties
 Income tax exemption on business profits or lower tax rates on dividends, interest
and royalties may be availed of under applicable double tax treaties and a tax
treaty relief application (TTRA) is timely filed with the tax authority
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Income Tax: Withholding Tax
 Final Withholding Tax
• Tax withheld is constituted as a full and final payment of the income tax due from
the payee
• Payee is not required to file an income tax return for the particular income
subjected to final withholding tax
 Expanded Withholding Tax
• Taxes withheld on certain income payments to local/resident suppliers are
intended to equal or at least approximate the tax due of the payee on said
income
• Creditable in nature
• Income recipient is still required to pay the difference between the tax withheld
and the tax due on the income, if applicable, and file the required income tax
return
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Income Tax: Withholding Tax
 Withholding Tax on Compensation
• Method of collecting the income tax at source upon receipt of the income
• Applies to all employed individuals, whether citizens or aliens, deriving income
from compensation for services rendered in the Philippines
• Tax withheld on compensation is intended to equal or at least approximate the
tax due of the employee
• Creditable in nature
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Value-Added Tax (VAT)
 12% VAT is imposed on sales of goods and services, leases of goods or
properties, as well as on importation of goods
 VAT is an indirect tax which may be passed on to the buyer, transferee or lessee of
the goods or services
 VAT payer may use the VAT on its purchases (input VAT) as a credit against its
VAT liabilities from sale of goods or services (output VAT)
 Certain transactions are subject to 0% VAT (zero rated) or are exempt from VAT
 If the transaction is zero rated, the VAT-registered taxpayer may apply for a refund
of any input VAT paid on purchases related to the zero rated transaction
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Value-Added Tax (VAT)
 If the transaction is VAT exempt, the seller has no output VAT liability but may not
refund any input VAT paid from purchases related to the VAT exempt transaction;
thus, the input VAT paid becomes part of cost of purchases
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Other Taxes
 Local Business Tax (LBT)
• Imposed by local government units (LGU) such as cities and municipalities
based on gross receipts
• LBT rates vary depending on the tax ordinance of the city or municipality where
the business is located
• ROHQs are exempt from LBT, fees, or charges imposed by a LGU
 Real Property Tax (RPT)
• Tax imposed by LGU of the place where real property (land, building, machinery
and equipment classified as real property) is located based on the assessed
value of the property
• RPT rates may vary depending on the tax ordinance of the LGU
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Tax and Fiscal Incentives
 Income Tax Holiday (ITH) for 4 years for non-pioneer IT enterprises, or 6 years for
pioneer IT enterprises; exemption may be extended subject to certain conditions
 5% special tax on gross income earned, in lieu of all national and local taxes, after
the ITH period
 Tax and duty free importation of raw materials, capital equipment, machinery and
spare parts
 Additional deduction for incremental labor and training
 VAT zero-rating of local purchases of goods and services
 Exemption from LBT
 Exemption from wharfage dues, impost and fees
© 2014 RG Manabat & Co., CPA’s, a professional partnership established under Philippine law, is a member of the KPMG network of independent member firms affiliated
with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the Philippines.
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Thank you!
Maria Myla S. Maralit
Partner, Tax Division
[email protected]
+63 2 885 7000x477
Hazel Ann C. Co
Senior Manager, Advisory Services
[email protected]
+63 2 885 7000x409
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information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2014 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client
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