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Kish
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Tourist
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Shopping Centers
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Kish Industry
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Investment
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Free Trade
Zones
The Special Economic Zone Act (R.A. 7916, 1995) grants
preferential tax treatment to enterprises located in special economic
zones (also referred to as ecozones). Pursuant to R.A. 7916, ecozones
may contain any or all of the following: export processing zones, free
trade zones, and certain industrial estates. The Philippine Economic
Zone Authority (PEZA) manages four government-owned export-processing
zones and administers incentives available to firms located in some 40
privately-owned and operated zones. Any person, partnership,
corporation, or business organization, regardless of nationality,
control and/or ownership, may register as an export processing zone
enterprise with PEZA.
Enterprises located in ecozones that are designated export processing
zones are considered to be outside the customs territory of the
Philippines and are allowed to import capital equipment and raw material
free from customs duties, taxes, and other import restrictions. Goods
imported into free trade zones may be stored, repacked, mixed, or
otherwise manipulated without being subject to import duties. Goods
imported into both export processing zones and free trade zones are
exempt from the government's Selective Preshipment Advance
Classification Scheme (SPACS). An ecozone may simultaneously be
registered as both an export processing zone and a free trade zone,
although the registered enterprise cannot receive incentives under both
categories. A developer may register his project as an ecozone, and at
the same time locate inside that ecozone as an enterprise, but under
separate names.
Incentives for firms in export processing and free trade zones include:
exemption from corporate income tax (four years for nonpioneer and six
years for pioneer, renewable up to an additional two years); after the
expiration of the income tax exemption, a special five percent tax rate
in lieu of national and local income taxes (with the exception of land
owned by developers, which are subject to real property tax); tax
credits for import substitution; exemptions from wharfage dues, export
taxes and other fees; a tax credit on domestic capital equipment; tax
and duty-free importation of breeding stocks and genetic materials; tax
credits on domestic breeding stocks and genetic materials; additional
deductions for labor costs and training expenses; domestic sales
allowance equivalent to 30 percent of total export sales; permanent
resident status for foreign investors and immediate family members;
permission to hire foreign nationals; and simplified import procedures.
PEZA Board Resolution No. 99-264 provides for the registration as
ecozones of information technology (IT) parks with a minimum area of
five hectares. Upon registration, IT park developers, locators and
utilities enterprises are eligible to receive the same package of
investment incentives PEZA extends to registered economic zones. PEZA's
Guidelines for the Establishment and Operation of Information Technology
(IT) Parks defines IT as a collective term for various technologies
involved in processing and transmitting information, which include
computing, multimedia, telecommunications, and microelectronics. IT
parks located in the National Capital Region (Metropolitan Manila) may
serve only as locations for service-type activities, with no
manufacturing operations.
Two other privately-owned ecozones are independent of PEZA oversight:
the Zamboanga City Economic Zone and Freeport, located in Zamboanga
City, Mindanao; and the Cagayan Special Economic Zone and Freeport,
covering the city of Santa Ana, Cagayan Province, and adjacent islands.
The incentives available to investors in these zones are provided for by
R.A. 7903 and 7922, respectively, and are very similar to those provided
by PEZA under R.A. 7916.
In addition, the special economic zones located inside the two principal
former U.S. military bases in the Philippines are also independent of
PEZA and subject to separate legislation under the Bases Conversion
Development Authority (created under R.A. 7227). These are the Subic Bay
Freeport Zone (SBFZ) in Subic Bay, Zambales, and the Clark Special
Economic Zone (CSEZ) in Angeles City, Pampanga. Firms operating inside
the SBFZ and CSEZ are exempt from import duties and national taxes on
imports of capital equipment and raw materials needed for their
operations within the zone. Both the SBFZ and the CSEZ are managed as
separate customs territories. Products imported into the zones are
exempt from the government's Selective Preshipment Advance
Classification Scheme, with the exception of products imported for sale
at duty-free retail establishments within the zones. Firms operating in
the zones are required to pay only a 5 percent tax based on their gross
income. Both zones boast of their own international airports, power
plants, telecom networks, housing complexes, and tourist facilities.
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