By Bradley Dunseith

The Philippines is an archipelago comprising of 7,641 islands. The country shares maritime borders with China, Indonesia, Japan, Malaysia, Taiwan, Vietnam, and the island nation of Palau. In 2015, the Philippines exported goods valued at US$77.9 billion and imported products worth US$76.8 billion. The Philippines’ top export destinations are China, Japan, the United States, and Singapore; and the country’s top import partners are China, Japan, Korea, the United States, and Thailand. In this article we explain best practices for importing into and exporting out of the Philippines.

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Registration

For importers

To register as an importer, businesses first need an Import Clearance Certificate from the Bureau of Internal Revenue. Importers then register with the Bureau of Customs (BOC) and set up an account with the Client Profile Registration System (CPRS). The Import Clearance Certificate is valid for three years while the Customs Client Profile Accreditation must be updated annually. The CPRS accreditation costs P1000 (US$20) and typically takes 15 working days to process.

For exporters

First time exporters need to register with the CPRS through the Philippine Exporters Confederation. As with importers, the CPRS accreditation must be renewed annually, costs P1000 and takes approximately 15 business days. For certain types of exporters, the Philippines requires additional registration. For instance, coffee exporters must register with the Export Marketing Bureau. Exporters operating out of a special economic zone (SEZ) must register with the Philippine Economic Zone Authority (PEZA) while companies exporting out of free port zones must register with the specific free port.  Once registered, exporters will receive a Unique Registration Number, necessary for all export activity.

Required documents

For importers

Businesses importing into the Philippines must provide the following documents when their goods arrive:

• Packing list;
• Invoice;
• Bill of lading;
• Import Permit;
• Customs Import Declaration; and
• Certificate of Origin.

Additional documents for certain imports

Importers bringing in animals, plants, foodstuff, medicine or chemicals must additionally obtain a Certificate of Product Registration from the Philippines’ Food and Drug Administration.

For exporters

Businesses exporting out of the Philippines must provide the following documents before their goods depart:

• Packing List;
• Invoice;
• Bill of Lading;
• Export License;
• Customs Export Declaration; and
• Certificate of Origin.

Additional documents for certain exports

Certain products require government permission to be exported. Below is a detailed list of products requiring additional permission as well as the concerned government authority:

• Endangered species of flora and fauna (Bureau of Biodiversity Management);
• Animals and animal products (Bureau of Animal Industry);
• Fish and fish products (Bureau of Fisheries and Aquatic Resources);
• Plants (Bureau of Plant Industry);
• Rice (National Food Authority);
• Radioactive materials (Philippine Nuclear Research Institute) and;
• Sugar and molasses (Sugar Regulatory Administration).

Tariffs and Taxes

For importers

The Philippines follows the United Nation’s Standard International Trade Classification (SITC). Import tariffs can range from 0 to 65 percent. Imported goods in sectors which have high domestic production typically incur higher tariffs. For non-agricultural goods, tariffs average at 6.7 percent.

The Philippines Tariff Commission has launched a ‘tariff finder’ web portal to help importers, which can be accessed here.

The Philippines Customs apply a value added tax (VAT) for imported goods at 12 percent. The Philippines’ customs levy no tariff or tax for goods worth less than P10,000 (US$200).

For exporters

The only exported good which incur a tariff are logs at 20 percent.

Special Economic Zones

Businesses operating in Special Economic Zones (SEZs) or free port zones are exempted from paying taxes and tariffs on imported raw material and manufacturing equipment. As stipulated in the Customs Modernization and Tariff Act, 2015, the main SEZs in the Philippines include:

• Clark Freeport Zone;
• Poro Point Freeport Zone;
• John Hay Special Economic Zone;
• Subic Bay Freeport Zone;
• Cagayan Special Economic Zone;
• Zamboanga City Special Economic Zone and;
• Freeport Area of Bataan.

As mentioned earlier, exporters and importers operating in SEZs or free port zones must register with either PEZA or the specific free port regulator.

Free trade agreements

The Philippines is a member of six regional free trade agreements (FTAs) as well as one bilateral FTA with Japan. As a member of the Association of Southeast Asian Nations (ASEAN), the Philippines is naturally a participant in the ASEAN Trade in Goods Agreement (ATIGA). The country enjoys significantly reduced tariff rates within ASEAN though some tariff lines on sensitive food products still remain. The Philippines, by virtue of its membership in ASEAN, is also a party to the five FTAs that ASEAN has signed with the following countries or group of countries:

• Australia and New Zealand;
• China;
• India;
• Japan; and
• Korea

The Philippines government offers a breakdown of each FTA and the applicable preferential tariff rates here.

RELATED: The Philippine Economic Zone Authority – Incentives and Assistance

Conclusion

The Philippines is a dynamic and strategic trading location. As the country continues to comply with ASEAN-wide economic integration, opportunities for both importers and exporters will continue to grow. Utilizing experts with up-to-date local knowledge can help exporters and importers to not only avoid customs-related delays and frustrations but also ensure import and export activity occurs quickly and remains profitable. Local experts at Dezan Shira & Associates possess years of experience supporting the establishment and growth of businesses across ASEAN, and are well situated to guide companies through the Philippines’ constantly evolving regulatory landscape.

By Alexander Chipman Koty and Zhou Qian 

China’s State Council released an updated foreign investment negative list for its 11 free trade zones (FTZs) on June 16, 2017, removing a number of restrictions on foreign investment.

The new negative list, which comes into effect on July 10, 2017, cuts 10 items and 27 special administrative measures from the previous negative list released in 2015. The lifted restrictions on foreign investment apply to a number of industries, including mining, manufacturing, transportation, information, commercial service, finance, scientific research, and culture.

The updated negative list presents new opportunities for investment in China’s growing number of FTZs, and provides a glimpse into future economic reforms.

FTZ negative list explained

China’s negative list specifies the industries where foreign investment is prohibited or restricted in the country’s FTZs.

For prohibited industries – such as those relating to national security – foreign investment is not allowed. For restricted industries, foreign investors may need to acquire special approval or enter into a joint venture (JV) with a Chinese partner. Foreign investors enjoy domestic treatment in industries not listed on the negative list.

China currently has 11 FTZs, with the seven latest in Chongqing, Henan, Hubei, Liaoning, Shaanxi, Sichuan, and Zhejiang. The Shanghai Pilot FTZ was China’s first FTZ, launched in 2013, while FTZs in Fujian, Guangdong, and Tianjin were opened in 2015.

Changes in the new negative list

Of the 27 special administrative measures removed from the 2015 list, 10 are related to manufacturing, four to finance, and four to other services.

Overall, the new negative list reduces restrictions in over 20 industries, including railway transport equipment, pharmaceuticals, road transport, insurance, accounting and audit, and other commercial services.

Foreign investors are no longer be obligated to enter into a JV when engaging in rail transport equipment or civilian satellite manufacturing, as well as certain types of civilian helicopter design and production, for instance. The full list of removed special administrative measures can be found at the end of this article.

 RELATED: Made in China 2025: Implications for Foreign Businesses

Notably, restrictions may still apply for items removed from the negative list. An industry’s absence on the negative list simply means that foreign investors will be treated the same as Chinese investors in that industry.

For example, though military, police, political, and Chinese Communist Party special training institutions were removed from the negative list, those industries are blocked for Chinese investors as well, meaning that there is no effective change for foreign investors.

The 95 special administrative measures remaining are exactly half as many as there were in the first negative list introduced in the Shanghai Pilot FTZ in 2013. In 2015, the total number of measures were reduced to 139, and then to 122 in late 2015.

Evaluating the new negative list

The updated negative list comes as Premier Li Keqiang reiterated China’s commitment to trade and globalization at the World Economic Forum currently being held in Dalian, echoing the remarks President Xi Jinping made earlier in the year at Davos.

It is part of another round of economic liberalization, which includes the new Catalogue for the Guidance of Foreign Investment Industries, soon to be released by the Ministry of Commerce and the National Development and Reform Commission.

 RELATED: Pre-Investment and Entry Strategy Advisory from Dezan Shira & Associates

The updated Catalogue is expected to introduce a similar style of negative list for the rest of China, effective in 2018, and to ease restrictions in similar industries as the FTZ negative list, including rail transport equipment and mining. FTZs are often treated as grounds for experimental reform in China, making it unsurprising that policies tested since the Shanghai Pilot FTZ opened in 2013 are now being carried over to the rest of China.

Many of the newly liberalized industries, however, are sectors in which Chinese companies are already dominant. China is known for its high-speed rail development, for example, a strength it hopes to export through the One Belt, One Road project.

Further, foreign investors in China’s FTZs may still be subject to national security reviews when participating in sensitive industries. Although the updated negative list provides new areas for investment, foreign investors should carefully study the opportunities and challenges that may arise in practice prior to entry.

By Shirley Chu
Editor: Jake Liddle

Most MNCs will charge for services provided to other entities within the same company or business. These are classed as intercompany service fees. Often, while trying to protect its tax base, China’s tax authorities will regularly encounter inconsistencies in transfer pricing for intercompany services, such as lack of access to necessary information due to opaque business structures, unclear rules under Enterprise Income Tax (EIT) laws, and difficulty determining whether selected transfer pricing methods for services comply with the arm’s length principle. Companies found guilty of these inconsistencies can be penalized by China’s tax authorities, making it essential to understand the country’s regulations connected to intercompany services.

Transfer pricing analysis of intra-group services

While China’s transfer pricing regulations do make provision for a selection of intercompany services, guidance is limited to a select amount of company structures, and lacks a wider analysis for services provided by the Chinese subsidiaries of MNCs. Tax authorities have also traditionally upheld that fees charged for intercompany services by parent companies are not deductible for CIT under EIT law.

By Ines Liu

Hong Kong entered into a Double Taxation Arrangement (DTA) with China in 2006. The treaty acts as a way to avoid double taxation and clamp down on tax evasion, improving ties between both jurisdictions by reinforcing their respective tax laws, encouraging competition, and promoting investment. A fourth protocol was signed on April 1, 2015, amending four key aspects of the DTA. One of those aspects was tax exemption for capital gains derived by foreign investors that sell shares of a China based company, which we explore in detail below.

Scenario

A global high profile venture capital holding company has a subsidiary incorporated in Hong Kong (Company A). Company A holds an aggregate of shares (above 25 million) of a China listed company (Company B). After a 12-month restricted stock trade period, Company A looks to sell shares of Company B, but wants to know how to meet the requirements for capital gains tax exemption under the tax treaty.

Analysis

Overall, withholding tax applies to capital gains derived from transferring Company B’s shares. However, the DTA states that:

• “Income or gains derived by a resident of a Contracting Party from the alienation of shares or comparable interests in a company, the assets [Asset value] of which consist wholly or principally [No less than 50 percent] of real property in the other Contracting Party, may be taxed in that other Party.”