Why foreign investors are bypassing the PHL

The Philippines is not attractive to foreign investors because its incentive scheme, which was designed to attract capital, has since become uncompetitive compared to those of other countries.

The National Foreign Trade Council (NFTC) flagged inconsistencies in the Philippines’ incentive policies, which are making the country a less appealing investment destination.

The American council  said different laws in the country impose conflicting and burdensome regulatory requirements on companies operating in special economic zones (SEZs) that provide government incentives.

While it did not identify specific laws, the trade group said inconsistencies in the country’s investment scheme are primarily affecting companies involved in the business process outsourcing (BPO) sector.

“The BPO and related services industries are often subjected to the same obligations as export manufacturing firms, ignoring the fundamental operational differences between them,” NFTC said.

The group said this regulatory mismatch is leaving the Philippines behind other outsourcing locations that have more consistent regulatory frameworks for incentives.

The country’s incentive policies within SEZs are implemented by investment promotion agencies (IPAs) and cover fiscal and non-fiscal incentives, streamlined business processes, and other benefits.

Apart from this, NFTC noted that the country’s investment scheme has become outdated compared to those of countries that offer incentive packages designed to keep companies competitive even as business conditions evolve.

“[These issues] create regulatory risk and uncertainty for foreign investors, making the Philippines a less attractive investment destination compared to other outsourcing locations,” it said.

The industry group also said that taxation of cross-border services is another major concern for foreign investors in the Philippines, particularly Revenue Memorandum Circular (RMC) No. 5-2024 issued by the Bureau of Internal Revenue (BIR) two years ago.

Under RMC 5-2024, certain cross-border service transactions, including non-resident digital services, are subject to both 25-percent final withholding tax (FWT) and 12-percent value-added tax (VAT).