SPECIAL ECONOMIC ZONE
ACT OF 1995
RA7916
Declaration of Policy
• "The State recognizes the indispensible role of
the private sector, encourages private
enterprise, and provides incentives to needed
investments.“
• "The State shall promote the preferential use
of Filipino labor, domestic materials and
locally produced goods, and adopt measures
that help make them competitive."
Purposes, Intents and Objectives
a)To establish the legal framework and mechanisms for the
integration, coordination, planning and monitoring of special
economic zones, industrial estates/parks, export processing zones
and other economic zones;
b)To transform selected areas in the country into highly developed
agro-industrial, commercial, tourist, banking investment, and
financial centers, where highly trained workers and efficient
services will be available to commercial enterprises;
c)To promote the flow of investors, both foreign and local, into
special economic zones which would generate employment
opportunities and establish backward and forward linkages among
industries in and around the economic zones;
Purposes, Intents and Objectives
d)To stimulate the repatriation of Filipino capital by providing
attractive climate and incentives for business activity;
e)To promote financial and industrial cooperation between
the Philippines and industrialized countries through
technology-intensive industries that will modernize the
country's industrial sector and improve productivity levels by
utilizing new technological and managerial know-how; and
f)To vest the special economic zones on certain areas thereof
with the status of a separate customs territory within the
framework of the Constitution and the national sovereignty
and territorial integrity of the Philippines.
Ecozones
• These are areas designated by the government for
development into balanced agricultural, industrial,
commercial, and tourist/recreational regions.
• Each Ecozone is to be developed as an independent
community with minimum government interference. It
shall administer its own economic, financial, industrial and
tourism development without help from the national
government. It shall also provide adequate facilities to
establish linkages with surrounding communities and other
entities within the country.
Types of Ecozones
• Industrial Estates (IEs) are tracts of land developed for the use of
industries. They have basic infrastructure such as roads, water and sewage
systems, pre-built factory buildings, and residential housing for the use of
the community.
• Export Processing Zones (EPZs) are special IEs whose locator companies
are mainly export-oriented. EPZ incentives include tax- and duty-free
importation of capital equipment, raw materials and spare parts. The
government has designated 4 EPZs; Bataan, Cavite, Baguio City and
Mactan Island in the Visayas. There are about 250 registered companies in
the EPZs, most of which are involved in the manufacture and export of
electronics, garments, rubber products, fabricated metals, plastics,
electrical machinery, transport equipment and industrial chemicals.
Types of Ecozones
• Free Trade Zones are areas nearby ports of entry, such as seaports
and airports. Imported goods may be unloaded, repacked, sorted
and manipulated without being subjected to import duties.
However, if these goods are moved into a non-free trade zone, they
will be subjected to customs duties. ASEAN has agreed to create an
Free Trade Zones by 2003.
• Tourist & Recreational Centers contain establishments that cater to
both local and foreign visitors to the Ecozones. Such businesses
include hotels, resorts, apartments and sports facilities.
Ecozone Enterprise
• Export Enterprise - manufactures, assembles, or processes
products which are 100% exported, unless a lower percentage
is approved by PEZA.
• Free Trade Enterprise - imports and markets tax- and dutyfree goods within the free trade area in the Ecozone. Goods
brought outside the free trade area will be subject to customs
and tariff duties.
• Service Enterprise - is engaged in any one or a combination of
the following activities :
customs brokerage, trucking/forwarding, janitorial, security,
insurance and/or banking, consulting or any such service
approved by PEZA
Ecozone Enterprise
• Domestic Market Enterprise - manufacturer, assembler or
processor if goods that cannot export at least 50% of their output
for a period of three years if majority-owned by Filipinos and at
least 70% if majority-owned by foreign nationals.
• Pioneer Enterprise - with any of the following conditions
- manufactures, processes or produces goods not produced in a
commercial scale in the country;
- uses a design, formula, scheme, method or process which is new
and untried in the Philippines;
- produces non-conventional fuels or manufactures equipment that
utilises non-conventional sources of energy;
- develops areas for agri-export processing development; or
- given such a status under the Investment Priorities Plan.
Ecozone Enterprise
• Utilities Enterprise - contracted to provide light and power,
water supply and distribution, communications and
transportation systems in the Ecozone.
• Facilities Enterprise - contracted to build and maintain
necessary infrastructure such as warehouses, buildings, road
networks, ports, sewerage and drainage systems, and other
facilities considered as necessary by PEZA in the development
and operations of the Ecozone.
• Tourism Enterprise - operates tourist accommodation
facilities, restaurants, and sports and recreational facilities in
the Ecozone.
Ecozone Enterprise
• Ecozone Developer/Operator - develops, operates, and
maintains the Ecozone, all component sectors (i.e. IEs, EPZs,
Free Trade Zones, and Tourist/Recreational Centers) and all
related infrastructure (roads, light and power systems,
drainage facilities, etc.)
Incentives to Ecozone Enterprises
• Incentives granted by PEZA shall apply only to registered
Ecozone companies and only during the period of their
registration with PEZA. Export enterprises registered under
the Export Processing Zone Authority shall continue to enjoy
their current incentives. However, PEZA enterprises whose
Income Tax Holiday has already expired will be subject to the
special 5% tax rate as provided in the Act.
Export & Free Trade Enterprises
Export & Free trade Enterprises registered with PEZA can avail of the
following fiscal and non-fiscal incentives :
• Tax- and duty-free importation of capital equipment, raw materials, spare
parts, supplies, breeding stocks and genetic materials;
• Income tax holiday of 4 to a maximum of 8 years for non-pioneer and
pioneer projects respectively;
• A special tax rate of 5% of gross income in lieu of all national and local
taxes after the income tax holiday;
• Tax credit for import substitution;
• Exemption from wharf dues, export tax and import fees;
• Tax credit on domestic capital equipment, breeding stocks, and genetic
materials;
Export & Free Trade Enterprises
• Unrestricted use of consigned equipment
• Permanent resident status for foreign investors and immediate family
• Employment of foreign nationals;
• Remittance of earnings without prior approval from the Bangko Sentral ng
Filipinas.
Other Incentives
• A special tax rate of 5% of gross income in lieu of national and
local taxes;
• Additional deduction for training expenses;
• Permanent resident status for foreign investors and
immediate family;
• Incentives under RA No. 6957 as amended by RA No. 7718,
otherwise known as the Revised Build-Operate-Transfer Law;
and
• Other incentives available under Executive Order No. 226, as
may be determined by the PEZA Board.
Special 5% Tax Rate
on Gross Income
• In lieu of national and local taxes, all Ecozone
enterprises, except service enterprises, shall pay only
5% final tax on gross income.
• Gross income shall mean gross revenues of any
business activity less sales discounts, sales returns
and allowances, and allowable deductions.
Administrative expenses and incidental losses are not
deductible from gross revenues.
Investment and Operating Costs
• Registration and filing fees with the PEZA amount to
$300 while registration with the SEC costs 1/10 of 1%
of the authorised capital.
• The minimal daily wage rate for non-agricultural
workers is approximately $5.30/day.
• Rental rates for industrial land range from $0.27$0.45 per sq m per month.
• Construction costs for a self-designed factory
building is about $200 per sq m.