SPECIAL ECONOMIC ZONE ACT OF 1995

1. SPECIAL ECONOMIC ZONE ACT OF 1995 RA7916

2. 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."

3. 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;

4. 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.

5. 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.

6. 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.

7. 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.

8. 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 duty- free 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

9. 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.

10. 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.

11. 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.)

12. 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.

13. 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;

14. 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.

15. 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.

16. 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.

17. 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.