The Special Economic Zone Act of 1995 as amended, mandates the PEZA to operate, administer, manage and develop Special Economic Zones or Ecozones. Enterprises that may qualify for registration with PEZA are those that will manufacture and export most, if not some, of their production. Permission has to be sought if the enterprise located within the zone will export below 100% and in most cases PEZA has allowed 30% of production in the domestic market.
- Corporate Income Tax Exemption
- Exemption from duties and Taxes on imported Capital Equipment, Spare Parts, Materials and Supplies
- After the lapse of Income Tax Holiday (ITH), Exemption from National and Local Taxes, in lieu thereof, Special 5% Tax Rate on Gross Income.
- Tax Credit for Import Substitution.
- Exemption from Wharfage Dues, Export Tax Rate on Gross Income.
- Exemption Credit on Domestic Capital Equipment.
- Tax and Duty-Free Importation of Breeding Stocks and Genetic Materials.
- Tax Credit on Domestic Breeding Stocks and Genetic Materials.
- Additional Deduction for Training Expenses (Labor and Management).
- Permanent Resident Status for Foreign Investors and Immediate Member of the Family.
- Employment of Foreign Nationals.
- Additional Deduction for Labor Expense (50% of wages corresponding to increment, in number of direct labor subject to certain conditions).
- Exemption form SGS inspection.
- Simplified import-export procedures.
Sample Comparisson of Tax Implications for PEZA Enterprises vs Regular Exporter
| Local Exporter | PEZA Enterprise | |
|---|---|---|
| Estimated Annual Taxes charged on Net Income of PHP1M* | 360,000.00 | tax free |
| VAT Charged on purchased goods of Php100,000.00 | 1,200.00 | tax free |
| Importation Tax of Raw Materials | 12,000.00 | tax free |
To qualify for registration with the BOI, an enterprise may register its activity with the BOI if the proposed activity is listed in the current Investments Priorities Plan (IPP). If not listed, the enterprise may also be entitled to BOI incentives if the following conditions are met:
- At least 50% of the production is for export (for enterprises with 60% Filipino/40% foreign ownership); or
- At least 70% of production is for export (for enterprises more than 40% of which is foreign-owned
Foreign-owned firms, whose ownership exceeds 40% of the outstanding capital stock and which proposes to engage in domestic-oriented activities, may be entitled to incentives if the proposed activity is listed in the current IPP and qualifies as Pioneer.
Philippine Economic Zone Authority (PEZA)
The Special Economic Zone Act of 1995 as amended, mandates the PEZA to operate, administer, manage and develop Special Economic Zones or Ecozones.
Enterprises that may qualify for registration with PEZA are those that will manufacture and export 100% of their production. Permission has to be sought if the enterprise located within the zone will export below 100% and in most cases PEZA has allowed 30% of production in the domestic market.
There are 98 operating proclaimed Special Economic Zones in the country.
What requirements must be complied with before an enterprise can enjoy tax benefits?
For a proposed activity of a domestically incorporated enterprise to qualify for incentives, the firm may file its application with the appropriate investment promotion agencies depending on the project's location, as follows:
Location outside of Economic or Freeport Zones
- Board of Investments (BOI)
Located in Economic or Freeport Zones
- Cagayan Economic Zone Authority (CEZA)
- Clark Development Authority (CDC)
- Phividec Industrial Authority (PIA)
- Philippine Economic Zone Authority (PEZA)
- Subic Bay Metropolitan Authority (SBMA)
- Zamboanga Economic Zone Authority (ZEZA)