The Philippine Board of Investments (BOI), the lead industry and investment promotion agency in the country, is eyeing South Korean electric vehicle (EV)/EV parts and semiconductor firms to further grow their businesses and Make it Happen in the Philippines.
Trade Undersecretary and BOI Managing Head Ceferino Rodolfo made this statement during an online briefing with South Korean companies last April 22, 2021 on the recently-enacted Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and the Strategic Investment Priority Plan (SIPP).
The briefing was jointly organized by BOI, the Embassy of the Republic of Korea in the Philippines, Embassy of the Republic of the Philippines in South Korea, and DTI-Foreign Trade Service Corps via Zoom.
“With CREATE in place, we are encouraging South Korean firms, especially those engaged in strategic activities like EV/EV parts and semiconductor manufacturing to invest or expand in the country and take full advantage of this landmark legislation. We are strongly optimistic of a resilient post-pandemic recovery as the fundamental structure and strength of our economy remain intact. We positively respond to the easing of quarantine restrictions,” Undersecretary Rodolfo said.
Chargé d’ Affaires Christian De Jesus of the Philippine Embassy in South Korea echoed the call of Undersecretary Rodolfo. “There are more opportunities for the Philippines to host the different manufacturing companies of Korea and help make these companies more competitive through international expansion. Some of these leading sectors in Korea are in Vehicle and Vehicle parts including EV and EV batteries, Electronics and Semiconductors, Life Sciences and Medical products and supplies, Chemical Products, Heavy Industries, and Food Processing,” CDA De Jesus said.
“Our Philippine economic diplomacy is grounded on the pursuit of sustainable economic development through globally-oriented, open, and inclusive economic policies for stakeholders. With the incentives tied to CREATE law, we can encourage more Korean companies in these manufacturing sectors to seriously consider the Philippines as their investment destination,” CDA De Jesus added.
Undersecretary Rodolfo cited the most recent indicators that the Philippine economy is back on track with the latest data on employment, Manufacturing Purchasing Managers’ Index (PMI), and inflation. He also shared Central Bank’s latest report on the 41.5 percent increase in foreign direct investments (FDIs) into the country in January of this year, compared with the same month of last year.
“This mirrors our experience at the BOI. Last year, even with the Pandemic, we reached the second-highest level of project approvals of the BOI’s history with a total of approved investments of US$20.55 billion (PhP1.02 trillion). And in the first three months (January-March) of this year, our project approvals surged by 66 percent compared to the same period in 2020,” Rodolfo emphasized.
“We also have access to key markets through our bilateral and regional Free Trade Agreements (FTAs)—for instance with Japan thru the JPEPA and the members of the EFTA; and to ASEAN, of course, and ASEAN’s FTA partners—Australia and New Zealand, China, India, and South Korea; and then Generalized System of Preferences of the Canada, the EU, the UK, and Russia. We hope to conclude negotiations on our FTA with Korea this year,” he added.
Rodolfo said that South Korean companies are among the top producers of semiconductors, including Samsung Electronics and Daeduck. “Should they decide to put up another facility or expand production operations, they may avail of the following incentives under CREATE with at least four years of Income Tax Holiday (ITH) or even up to seven years because of the level of technology and location. And equally important, after this ITH, both of these export-oriented companies can enjoy 10 years of—at their choice—either Enhanced Deductions or the Special Corporate Income Tax (SCIT) of five percent on Gross Income Earned,” he cited them as examples.
“Another example – if Hyundai decides to assemble the Hyundai Ioniq in the Philippines and say THN Autoparts or Bolim decides to add another wiring harness facility dedicated to EV, both Hyundai and THN/Bolim will get to enjoy the same incentives as the semiconductor firms. After the ITH period, purchases of Hyundai of Wiring Harness from THN or Bolim will be allowed an additional 50 percent deduction from taxable income. And so with power and labor costs. Hyundai can also enjoy 100 percent additional deduction for training the workers in their factory,” Rodolfo continued.
He also clarified that Korean companies who will invest in food manufacturing and sell primarily to the domestic market can also now enjoy incentives as CREATE treats local and foreign companies the same without any distinction. “I just used semiconductors and automotive/auto parts such as wiring harness as examples but the situations are also applicable for other manufacturing and non-manufacturing projects,” he said.
South Korean Ambassador Kim Inchul lauded the Philippine government’s efforts for economic reform like the CREATE Act. “I believe that the CREATE Act will play a key role to improve business environment and stimulate foreign investments to the Philippines including investments from Korean corporations through lowering corporate income tax rates,” he said.
He also remarked on the further development of South Korea’s bilateral relationship with the Philippines. “Once RCEP comes into effect in the near future and the Korea-Philippine FTA is signed, our bilateral economic and trade partnership will further leap forward,” the South Korean ambassador continued.
Trade Undersecretary Rafaelita Aldaba and BOI Director Elyjean Portoza complemented Undersecretary Rodolfo on explaining the crafting of the SIPP – a list of preferred investment activities that may qualify for investment incentives under CREATE – and the salient features of CREATE, respectively.
South Korea is considered among the country’s major sources of foreign investments. Last year, it ranked as the eighth (8th) top investing country with pledges amounting to PhP4.16 billion (US$83.8 million). Bilateral trade between the Philippines and South Korea, on the other hand, amounted to US$9.2 billion in 2020, which makes the latter as our fifth (5th) biggest trading partner.
