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The Philippines: Market Profile

Picture: Philippines factsheet
Picture: Philippines factsheet

1. Overview

The Philippines is one of the most dynamic economies in the East Asia and the Pacific region. With increasing urbanisation, a growing middle-income class, and a large and young population, the Philippines’ economic dynamism is rooted in strong consumer demand supported by improving real incomes and robust remittances. Business activities are buoyant with notable performance in the services sector including the Business Process Outsourcing, real estate, and finance and insurance industries.

Source: World Bank

2. Major Economic/Political Events and Upcoming Elections

June 2016
Populist former mayor Rodrigo Duterte elected president, announces hard-line crackdown on drugs and suggests he might pivot from the US to China.

May 2017
Martial law imposed on the island of Mindanao after fighting erupts between security forces and Islamic State-linked militants of the Maute group and Isnilon Hapilon.

October 2018
Local elections to be held in Q318.

Sources: BBC country profile – Timeline, BMI Political Risk Analysis

3. Major Economic Indicators

Graph: Philippines real GDP and inflation
Graph: Philippines real GDP and inflation
Graph: Philippines GDP by sector (2016)
Graph: Philippines GDP by sector (2016)
Graph: Philippines unemployment rate
Graph: Philippines unemployment rate
Graph: Philippines current account balance
Graph: Philippines current account balance

Note: e = estimate, f = forecast
Sources: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Philippines merchandise trade
Graph: Philippines merchandise trade
Graph: Philippines major export commodities (2016)
Graph: Philippines major export commodities (2016)
Graph: Philippines major export markets (2016)
Graph: Philippines major export markets (2016)
Graph: Philippines major import commodities (2016)
Graph: Philippines major import commodities (2016)
Graph: Philippines major import markets (2016)
Graph: Philippines major import markets (2016)

Sources: WTO, World Bank WITS database

4.2 Trade in Services

Graph: Philippines trade in services
Graph: Philippines trade in services

5. Trade Policies

  • The Philippines has been a member of WTO since 1 January 1995.

  • Department of Trade and Industry is responsible for implementation and coordination of trade and investment policies, as well as promoting and facilitating trade and investment.

  • The Philippines grants at least MFN treatment to all WTO Members. The Philippines’ simple average most favored nation (MFN) tariff was 7.1 percent in 2016. Six percent of its applied tariffs are 20 percent or higher. All agricultural tariffs and about 60 percent of non-agricultural tariff lines are bound under the Philippines’ WTO commitments. The simple average bound tariff in the Philippines is 23.5 percent.

  • Imported manufactured goods competing with locally produced goods face higher tariffs than those without local competition. The Philippine Government cites domestic and global economic developments to justify the modification of applied rates of duty for certain products to protect local producers in the agriculture and manufacturing sectors.

  • The Philippines eliminated tariffs on approximately 99 percent of all goods from ASEAN trading partners as a commitment under the ASEAN Free Trade Area (AFTA) agreement. The Philippines has been a member of ASEAN since 1967.

  • The Philippines' tariff comprises 10,813 lines at the HS 2017 eight-digit level (compared to 8,299 in 2011), with rates ranging from zero to 65%. All tariffs are ad valorem. The average applied MFN tariff is 7.6%, up from 6.4% in 2011. The increase in the average tariff is mainly due to transposition to HS 2017 and the splitting of lines carrying high tariffs. Tariff rate quotas apply on 77 tariff lines. 65% of tariff lines (including all agricultural lines) are bound. The simple average bound rate is 25.7%. A wide range of tariff and tax exemptions are provided under specific laws. Revenue forgone under tariff and tax concessions is considerable, amounting to PHP 549 billion in customs duties and PHP 301 billion in VAT in 2016.

  • Standard VAT rate of 12%.

  • Food products and agricultural inputs are exempt from VAT. Excise taxes are levied on alcoholic beverages, tobacco products, automobiles, petroleum products, minerals, perfumes and jewellery.

  • A vast range of goods are subject to licences or permits when imported. For certain products, multiple permits or licences are required, and informal payments have been reported by the business community.

  • About 80% of standards are aligned to international standards. There are 72 mandatory technical regulations, covering a wide range of goods. The Philippines Accreditation Bureau has accredited 243 conformity assessment bodies. The Philippines has reformed its food safety regime based on a "farm-to-fork" approach to enhance food safety. A new Food Safety Act was promulgated in 2013; its implementing legislation entered into force in 2015. However, the Philippines' SPS-related import requirements for food, which appear to be complex, remain largely unchanged. During the period under review, the Philippines submitted 46 TBT notifications and over 200 SPS notifications. Members have not raised any Specific Trade Concerns regarding its SPS and TBT measures.

  • Philippine marking and labeling requirements are specified in the Consumer Act of the Philippines (Republic Act No. 7394) and Philippine National Standards (PNS). The Department of Trade and Industry's Bureau of Philippine Standards (BPS) is the national standards body that develops and implements the PNS. All consumer products sold domestically, whether manufactured locally or imported, must contain the following information on their labels: Correct and registered trade name or brand name; Registered trademark; Registered business name and address of the manufacturer, importer, or repacker of the consumer product in the Philippines; General make or active ingredients; Net quality of contents, in terms of weight; and, Country of manufacture, if imported.

  • The BPS implements a product certification mark scheme to verify conformity of products to PNS and other international standards. This includes critical products such as electrical equipment and electronics, as well as consumer, chemical and construction and building materials. Products manufactured locally must bear a Philippine Standard (PS) mark, while imported products must bear Import Commodity Clearance (ICC) certification marks duly issued by the BPS.

Source: WTO – Trade Policy Review

6. Trade Agreement

6.1 Trade Updates

The government is actively seeking new FTAs with key trade partners such as the EU and remains committed to reducing current tariff lines for certain products in order to boost competitiveness and ease the trading process for businesses.

6.2 Multinational Trade Agreements

Active

  1. Philippines is a member of WTO (Effective date: 1995).

  2. Association of South East Asian Nations (ASEAN), comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam: From 2015, almost all tariffs between member states have been removed. The rewards of lower tariffs within the area will foster intra-regional trade, and most member states are already significant trading partners of the Philippines.

  3. ASEAN-Australia-New Zealand FTA

  4. ASEAN-China FTA: China is a key export market, particularly electronic products and machinery. It is also the largest source of imports to the Philippines. A shift in the Philippines' foreign policy toward China will further reduce tariffs, therefore offering significant benefits in easing the trading process.

  5. ASEAN-South Korea FTA: South Korea is a large trade partner, with removal of tariffs particularly benefiting importers of Korean goods.

  6. ASEAN-Japan FTA: Japan provides a huge market for a wide range of goods, with tariff-free trade, therefore benefiting a number of important sectors, including manufacturing, agriculture, mining and chemicals production.

  7. ASEAN-India FTA

  8. European Free Trade Association-Philippines FTA: The FTA covers trade in goods, services, investment, competition, the protection of intellectual property rights, government procurement, and trade and sustainable development. All customs duties on industrial products are abolished, and the Philippines will gradually lower or abolish duties on the vast majority of such products.

  9. EU-Philippines FTA: Negotiations are underway to further increase trade flows between the EU and the Philippines under an FTA. The issues of high tariffs for EU automotive exports remain high on the agenda.

  10. ASEAN member states and Hong Kong signed a free trade agreement in November 2017 (expected to enter into force on 1 January 2019 the earliest).

Source: WTO Regional Trade Agreements database

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Philippines FDI stock
Graph: Philippines FDI stock
Graph: Philippines FDI flow
Graph: Philippines FDI flow

7.2 Foreign Direct Investment Policy

  1. The Philippines Board of Investment is responsible for implementation and coordination of investment policies.

  2. Foreign enterprises are treated equally under law with their domestic counterparts.

  3. Corporations wishing to invest in the Philippines must register with the Securities and Exchange Commission, while individually owned enterprises must register with the Bureau of Trade Regulation and Consumer Protection in the Department of Trade and Industry. Investors must also register with the relevant agency in order to qualify for incentives.

  4. An enterprise registered with the Board of Investment (BOI) – pursuant to the 1987 Omnibus Investments Code – is entitled to a range of incentives, provided they meet the requirements listed. Projects that may be eligible for incentives under the BOI include investments in manufacturing of goods not yet produced in the Philippines, manufacturing that uses new methods or designs, agriculture, forestry, mining, services, nonconventional fuels, enterprises exporting at least 70% of output, and projects in less developed areas. The same incentives are also available to businesses that set up operations in one of the numerous special economic zones which operate outside of the Philippines customs area and offer substantial fiscal and non-fiscal advantages to businesses.

  5. At present, the government has a mandated 'negative list' of sectors (the Foreign Investment Negative List – FINL) in which foreign participation is capped at a certain level. The list consists of two parts: Part A lists sectors in which foreign ownership is restricted (such as mass-media and private security) and Part B lists sectors in which foreign ownership is limited (such as educational institutions and advertising) for reasons such as national security and public health. The government publishes regular updates to the negative list, where restrictions have gradually been reduced on a number of sectors; for example, as of 2014, the government has allowed 100% foreign equity in local subsidiaries of banks; furthermore, a law signed in 2014 allows foreign banks to enter the Philippine market, where they can establish branches, but cannot open more than six branch offices each.

  6. Foreigners are banned from fully owning land, although foreign investors can lease a contiguous parcel of up to 1,000 hectares for 50 years, renewable one time for an additional 25 years.

  7. Philippine law allows expropriation of private property for public use or in the interest of national welfare or defence and offers fair market value compensation. In the case of expropriation, foreign investors have the right to receive compensation in the currency in which the investment was originally made and to remit it at the equivalent exchange rate.

Sources: WTO – Trade Policy Review, The International Trade Administration (ITA), U.S. Department of Commerce

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Philippines Economic Zones Authority (PEZA) - 300 zones managed privately and by the government, mainly in the manufacturing, IT, tourism, medical tourism, logistics/warehousing, and agro-industrial sectorsCompanies established under PEZA receive the same incentives as listed below as well as a 5% tax rate on gross income following the expiration of the income tax holiday. Businesses under PEZA-designated zones operate outside of the customs area and enjoy reduced trade bureaucracy and costs.
Philippines Board of Investment (BOI) Incentives- Income tax holidays of four to six years
- Customs duty exemption on capital goods, raw materials and intermediate inputs
- Exemption from export duties and taxes
- Simplifed customs procedures
- Foreign nationals may be employed in supervisory, technical or advisory positions for up to five years
- Guaranteed repatriation of earnings

8. Taxation – 2017

  • Value Added Tax: 12%
  • Corporate Income Tax: 30%

Source: PwC Taxes at a Glance 2017

8.1 Important Updates to Taxation Information

New procedure for claiming tax treaty benefits for dividend, interest and royalty income: The Revenue Memorandum Order No. 8-2017 has been issued to provide new procedures in claiming preferential tax treaty benefits on dividends, interest, and royalty income of non-residents pursuant to effective tax treaties of the Philippines.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax30% on profits for resident and non-resident companies
Capital Gains Tax6% on disposal of real property
Value Added Tax12% on sale of goods and services
Social security contributionsMaximum contribution of PHP1,208.70 per employee
Property Tax3% on property value
Branch Remittance Tax15% on sale price
Withholding Tax30% on dividends paid to foreign non-resident corporations
20% on interest from peso-denominated deposits
20% on royalties made to a domestic or resident foreign corporation

9. Foreign Worker Requirements

9.1 Alien Employment Permit (AEP)

Authorises an individual to work in the country and as valid for either one year or for the length of time stipulated in the employee's contract (but no longer than three years). The AEP is only valid for the respective position and applicable company and, as such, a new AEP is required when an emplyee takes on a new position or joins a different company. The aplication may be made by either the employee or the employer. The AEP is issued by the Department of Labour and Employment (DOLE).

Documents required for applying for an AEP:

  • Application form
  • Photocopy of employee’s passport with valid visa
  • All documents related to the contract of employment
  • Photocopy of current AEP (in cases of reissue)
  • Photocopy of mayor’s permit or photocopy of business permit

People exempted from obtaining an AEP:

  • All members of the diplomatic service and foreign government officials
  • Owners and representatives of foreign principals whose companies are accredited by Philippines Overseas
  • Employment Administration (POEA)
  • Permanent resident foreign nationals and probationary or temporary resident visa holders under the Philippines’ immigration law

9.2 9(G) Visa

The AEP is required before obtaining the 9(G) Visa. The 9(G) Visa, or the pre-arranged employment visa, allows for the employment of individuals wilth skills/qualifications which are not available with the Philippines itself. The issuing of the visa falls under the auspices of the Bureau of Immigration (BI) and requires that the candidate in question has secured a job with a company based in the country. A holder of a 9(G) Visa may only work for the employer specified by the visa. If the individual changes emplyers, the 9(G) visa automatically downgrades to a tourist visa, requiring the individual to reapply for the 9(G) visa. TA 9(G) is valid for an initial period of one, two, or three years, and can be extended up to three years at a time, depending on the duration of the employment contract and may be renewed multiple times.

Documents required for applying for a 9(G) Visa:

  • A Notarised Certification of Number of Foreign and Filipino Employees of the employer
  • Application form
  • Photocopy of employment contract, Securities and Exchange Commission (SEC) certification, and Articles of Incorporation (AOI)
  • A certified true copy of AEP from DOLE
  • Original newspaper clipping showing publication of AEP application by DOLE
  • BI clearance certificate
  • Alien certificate of registration
  • Applicant’s passport
  • Other documents supporting the employment of the applicant

9.3 9(D) Visa

The 9(D) Visa - also known as the Treaty Trader's Visa - only applies to nationals from Japan, Germany and the US.

To qualify, foreign nationals must prove that:

  • They or their employers are engaged in substantial trade, involving investment of at least USD120,000 between the Philippines and their country of origin
  • They intend to leave the Philippines upon the completion or termination of their work contract
  • They hold the same nationality as their employer or company’s major shareholder
  • They hold a position of a supervisor or executive in the company
  • The Treaty Trader’s Visa is valid for up to two years

9.4 Provisionary Work Permit (PWP)

The Provisionary Work Permit may be obtained while their work visa - 9(G) or 9(D) - is being issued. The AEP is needed for a PWP. The permit is valid for six months.

9.5 Special Work Permit (SWP)

Suitable for short-term contracts (less than three months) and is issued by the BI. The SWP allows a foreign national to work under a tourist visa - 9(A). May be extended by an additional three months if needed.

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Baa2 (Stable)
11/12/2014
Standard & Poor'sBBB (Positive)
26/04/2018
FitchBBB (Stable)
10/12/2017

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
111/190
110/190
113/190
Ease of Paying Taxes Index
122/189
114/190105/190
Logistics Performance Index
71/160
N/AN/A
Corruption Perception Index
101/176
111/180N/A
IMD World Competitiveness46/6346/63N/A

Sources: World Bank, IMD, Transparency International

10.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index Rank31/202
Short-Term Economic Risk Score74
 73.871.3
Long-Term Economic Risk Score 71.2 73.3 71.6
Political Risk Index Rank88/202
Short-Term Political Risk Score 64.6 63.1 63.1
Long-Term Political Risk Score 71.2 73.3 65.4
Operational Risk Index Rank98/201106/201123/201
Operational Risk Score 48.544.8
44.3

Source: BMI Research

10.4 BMI Risk Summary

ECONOMIC RISK
Ongoing political and economic reforms, as well as increasing foreign investor interest, will help to speed up investment growth in the Philippines. This will in turn enable the country to sustain its strong growth trajectory over the coming years.

OPERATIONAL RISK
The Philippines has a large labour market and strong trade connectivity. Meanwhile, there are a number of key risks in certain areas, such as transport networks and labor costs, which may pose a challenging environment.

Graph: Philippines short term political risk index
Graph: Philippines short term political risk index
Graph: Philippines long term political risk index
Graph: Philippines long term political risk index
Graph: Philippines short term economic risk index
Graph: Philippines short term economic risk index
Graph: Philippines long term economic risk index
Graph: Philippines long term economic risk index

10.5 BMI Operational Risk Index


Operational RiskLabour Market RiskLogistics RiskTrade and Investment RiskCrime and Security Risk
Philippines Score44.151.3
44.647.333.4
East and Southeast Asia Average55.356.554.457.754.7
East and Southeast Asia Position (out of 18)1313121316
Asia Average48.950.647.147.750
Asia Position (out of 35)2015161729
Global Average49.849.849.35049.9
Global Position (out of 201)12194113
114153

Note: 100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Philippines vs global and regional averages
Graph: Philippines vs global and regional averages
Country
Operational Risk
Labour Market RiskLogistics RiskTrade and Investment RiskCrime and Security Risk
Singapore82.977.8
74.7
89.9
89.3
Hong Kong81.271.2
75.9
88.589
Taiwan74.866.477.974.3
80.7
South Korea70.363.578.167.572
Malaysia68.361.675.473.562.5
Macau62.264.250.566.967.3
Brunei
60.262.85357.267.7
Thailand59.156.768.265.246.2
China56.653.965.852.254.3
Vietnam53.752.654.555.552.1
Indonesia52.751.557.653.947.8
Mongolia51.557.841.952.453.7
Philippines44.151.344.647.333.4
Cambodia42.646.737.94640
Laos39.244.2363838.3
North Korea32.749.629.620.331.2
Timor-Leste32.240.52826.633.8
Myanmar32.145.529.528.225.4
Regional Averages55.356.554.455.754.7
Emerging Markets Averages46.84845.847.546.1
Global Markets Averages49.849.849.350
49.9

Note: Higher score = Lower risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Philippines


2017
Growth rate (%)
Number of Philippine residents visiting Hong Kong640,31915.4
Number of Philippine residents in Hong Kong215,276N/A

Sources: Hong Kong Tourism Board, Hong Kong Immigration Department


2017
Growth rate (%)
Number of East Asia and South Asia residents visiting Hong KongN/AN/A
Number of East Asia and South Asia residents in Hong Kong2,784,870
N/A

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of Philippine companies in Hong Kong39N/A
- Regional headquartersN/A
- Regional offices
- Local offices

Source: Hong Kong Census & Statistics Department

11.3 Treaties and agreements between Hong Kong and Philippines

  • Air Services Transit Agreement
  • Mutual Legal Assistance Agreement
  • Surrender of Fugitive Offenders Agreement
  • Transfer of Sentenced Persons Agreement
  • Consular Agreements

Source: Hong Kong Department of Justice

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Hong Kong Chamber of Commerce of the Philippines Inc.
Address: Room 1601, World Trade Exchange Building, 215 Juan Luna St., Binondo Manila, 1006 Philippines
Email: hongkongccpi@gmail.com
Chairman: Mr. Antony Cheung Shing Chan
Tel: 63 (2) 242 9176

Source: Directory of Hong Kong Trade and Industrial Organisations, Hong Kong Trade and Industry Department

Philippines Consulate in Hong Kong
Address: Fourteenth Floor, United Centre, 95 Queensway, Admiralty, Hong Kong
Website: http://hongkongpcg.dfa.gov.ph
Hours of Business: Sunday to Thursday, 9:00 a.m. - 4:00 p.m.
Honorary Consul: Antonio A. Morales
Tel: (852) 2823 8500
Fax: (852) 2866 9885

Source: Hong Kong Protocol Division of Government Secretariat

11.5 Visa Requirements for Hong Kong Residents

Hong Kong SAR passport holders have been granted visa-free or visa-on-arrival for the Philippines. This visa-free arrangement is valid for 14 days from entering into the country.

Source: Visa on Demand

Content provided by Picture: BMI Research