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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.









  Copyright By :  Kish Trade Promotion Center  2002