The FDI Landscape in the Philippines and Its Implications for 2022
Despite the onslaught of the COVID-19 pandemic, the Philippine government has been actively improving its ability to cater to more foreign direct investments (FDIs) to help boost and recover the country’s economy.
With the year coming to an end, we can reflect on the constant push of both public and private sectors in enlarging and improving the Philippine economy with the help of international and external investors.
Government Initiatives on Improving FDIs in the Philippines
The Philippine government continuously pushes for measures to improve the influx of foreign investments in the country. From passing new regulations, amending provisions to existing laws, to pushing international partners to invest in the market, the Philippines is able to maximize and open its economy to more extensive and competitive investors.
As part of improving the economy, the government tackled its taxation system to streamline and optimize its effectiveness to promote safety, accessibility, transparency, and ease of doing business in the Philippines.
Enacted into law on March 26, 2021, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act was passed to significantly lower the corporate income tax (CIT) rate from 30% to 25%. The measure was made to provide fiscal relief to local and foreign enterprises in the Philippines during the COVID-19 pandemic, while at the same time, increasing the attractiveness of foreign investments in the country.
- The CIT rate is reduced to 25%, from the previous 30%, for large corporations. For small and medium-sized enterprises with net taxable income not exceeding ₱5 million, and total assets not exceeding ₱100 million (excluding land), the CIT rate is reduced to 20%.
- The minimum CIT (MCIT) rate is reduced from 2% to 1%.
- The percentage Tax is reduced from 3% to 1%
On September 15, the Philippine Senate approved Senate Bill (SB) No. 1156 providing the amendment on the Foreign Investments Act (FIA) to further promote FDIs in the country.
Under the bill, the following provisions in the FIA will be amended:
- Direct hires for foreign companies will be reduced to 15 persons, from the previous 50.
- Allows foreign investors 100% equity on domestic market enterprises, except those listed under the Foreign Investments Negative List (FINL)
- Allows foreign investors to own 100% of micro, small, and medium-sized enterprises (MSMEs)
On December 7, the House of Representatives ratified the bicameral committee report on the amendments of FIA’s final version, reconciling differences between the congress and senate versions.
Along with the FIA, several business groups are also urging the government to amend the Retail Trade Liberalization Act (RTLA), and Public Service Act (PSA).
FDI Performance in the Philippines for 2021
With such efforts in place, the FDI landscape in the Philippines steadily grew with a promising outlook towards the upcoming years.
In its first quarter, the Philippines received over ₱19.5 billion worth of approved FDIs, approximately ₱10 billion less in comparison to the previous year. Data from the Philippine Statistics Authority (PSA) shows that such investments came mainly from Japan (54.8%), the Cayman Islands (5.8%), and South Korea (3%).
The investments focused mainly on the manufacturing, information and communications, and real estate sectors, targeted mostly within the National Capital Region (NCR), Calabarzon, and Central Visayas.
The Philippines surpassed the amount approved FDI in its second quarter, accumulating over ₱22.5 billion in comparison to the ₱15.46 billion accumulated in 2020. Most of its investments centered around western countries such as the United Kingdom (UK) with 55.6% and the United States of America (USA) with 9.5% contribution to the overall foreign investment.
South Korea remained as one of the top investing countries in the Philippines in Q2 of 2021, contributing over 10% of its foreign investments.
Industries such as information and communications, construction, and manufacturing were the top industries to receive the highest amount of foreign investments. Such focused around Central Luzon, Calabarzon, and Davao regions.
During the third quarter of 2021, the Philippines garnered over ₱16 billion worth of approved FDIs from investing countries within Asia-Pacific and Europe.
The total approved FDIs in Q3 amounted to ₱16.82 billion. Countries such as Japan, the Netherlands, and the British Virgin Islands were the largest contributors to FDIs in the country, each committing over ₱11.16 billion, ₱1.56 billion, and ₱693.32 million, respectively.
These investment pledges came from four investment promotion agencies (IPAs) in the Philippines, namely, the Board of Investments (BOI), Clark Development Corporation (CDC), the Philippine Economic Zone Authority (PEZA), and Subic Bay Metropolitan Authority (SBMA).
Additionally, the industries to receive the highest investments in this quarter were manufacturing (65.5%), real estate (16%), and administrative and business process outsourcing (BPO) services (14.2%).
Current trends suggest that foreign investments in the Philippines are likely to grow in a steady manner. New and updated regulations and laws provide insurance in the efforts to expand and promote an easier and robust foreign investment system in the country.
As shown in the data provided by PSA, the leading industries that receive the highest number of foreign investments center around manufacturing, information and communications, real estate, and construction. Such industries are focused in key economic zones located in NCR, Calabarzon, Central Luzon, the Ilocos Region, Central Visayas, and the Davao region.
Investment agencies such as PEZA, BOI, CDC, and SBMA, are a few of the many IPAs in the country that cater to FDIs in their respective regions.
Countries such as Japan, the UK, and South Korea were among the highest to invest in the Philippines over the course of the year.
Secure a Successful Investment Venture in the Philippines
With continuous efforts from both the private and public sectors, the Philippines is an ideal market to invest in as it provides numerous incentives and measures to ensure safety, transparency, efficiency, and ease of doing business in the country.