The Philippine Economic Zone Authority (PEZA)


Special Economic Zones in Philippines

Special Economic Zone Act of 1995

Special Economic Zones/Ecozones

Export Development Aact (EDA) of 1994

Special Economic Zones

SBF Enterprises

Clark Special Economic Zone (CSEZ)

Other Special Economic Zones

Useful Address

 

I. Special Economic Zone Act of 1995

Republic Act (RA) No. 7916 or the Special Economic Zone Act of 1995 (the "Act") was signed into law on 24 Feb 1995. The law was created to encourage economic growth through the development of special economic zones called Ecozones.

The PEZA was also created out of the EPZA.

The PEZA is a government corporation under a director general. The PEZA's mission is to contribute to the national effort of accelerating employment generation, particularly in the countryside.

II. Special Economic Zones/Ecozones

A. 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.

Source: Project Evaluation and Review Dept.
Corporate Planning and Management Office
PEZA (as of Aug 31, 1996)

Selected Investment Locations

. Zone Area
(ha)
Location
(A) Baguio City Export Processing Zone 114 Loakan Road, Baguio City
(B) Luisita Industrial Park 29 San Miguel, Tarlac
(C) Angeles Industrial Park 32 Bacolor, Pampanga
(D) Subic Shipyard Special Zone 52 Subic, Zambales
(E) Bataan export Processing Zone 1,600 Mariveles, Bataan
(F) Cavite Export Processing Zone 276 Rosario, Cavite
(G) Tabangao SEPZ 86 Tabangao, Batangas
(H) Victoria Wave Industrial Estate 50 Bo Malaria, Tala
(I) First Cavite Industrial Estate - SEPZ 54 Dasmarinas, Cavite
  Gateway Business Park - SEPZ 100 Gen Trias, Cavite
  Laguna Technopark - SEPZ 71 Sta Rosa, Laguna
  Toyota Sta. Rosa (Laguna) - SEPZ Industrial Complex 25 Sta Rosa, Laguna
  Laguna Int'l Industrial Park - SEPZ 32 Binan, Laguna
  Carmelray Industrial Park - SEPZ 44 Canlubang, Laguna
. Light Industry & Science Park I 67 Cabuyao, Laguna
. Light Industry & Science Park II 54 65 Calamba, Laguna
(J) Mactan Export Processing Zone 119 Lapu-lapu, Cebu City
. Mactan Export Processing Zone II 63 Lapu-lapu, Cebu City
(K) Leyte Industrial Dev. Estate 425 Isabel, Leyte

Ecozones are divided into the following types

1. 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.
2. 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.
3. 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.
4. 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.

B. Ecozone Enterprises

Brief descriptions of each type of 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.

- 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.

- 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 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.)

C. 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.

D. 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;
- Additional deduction for incremental labour expenses and training expenses;
- 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.

E. Ecozone Developers and Operators; Facilities, Utilities and Tourism Enterprises; and Domestic Market Enterprises can avail of the following 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.

F. 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.

The following are additional allowable deductions specific to Ecozone Export, Free Trade, and Domestic Market Enterprises :
- Production supervision salaries
- Raw materials used in manufacturing

The following, on the other hand, are additional deductions applicable to Ecozone Facilities, Utilities and Tourism Enterprises :
- Service supervision salaries
- Direct materials, supplies

G. 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.

III. EXPORT DEVELOPMENT ACT (EDA) OF 1994

The Act was promulgated to provide a macro-economic policy framework to support the development of the export market and the activities undertaken by exporters. Exporters are generally defined as those earning at least 50% of their normal operating revenue from the sale of products or services abroad.
To qualify for EDA incentives, exporters must earn at least 50% of their normal operating revenue from the sale of products or services abroad. Additionally, exporters are required to secure EDA accreditation.

Agencies/Institutions Granting EDA Accreditation :
Bureau of Export Trade Promotion (BETP) of the Department of Trade and Industry

Authorised by BETP :
Philippine Economic Zone Authority (PEZA)
Board of Investments (BOI)
Garments and Textile Export Board
Subic Bay Metropolitan Authority (SBMA)
Clark Development Corporation (CDC)
Philippine Exporters Confederation, Inc. (Philexport)
Philippine Chamber of Commerce and Industry

Once registered under the EDA, exporters are entitled to incentives (EDA incentives are in addition to the existing incentives granted by the different government agencies) :
- Exemption from Presidential Decree No. 1853, or Advanced Payment of Customs Duties;
- Duty-free importation of machinery and equipment and accompanying spare parts until Dec 31, 1997;
- Tax credit until Dec 31, 1997 for imported inputs and raw materials used primarily for the production and packaging of export goods and which are not readily available locally;
- Tax credit for increase in current year's export revenues, computed as follows:

Increase in Annual Export Revenue Tax Credit (in %)
First 5 %
Next 5%
Next 5%
In excess of 15%
2.5
5.0
7.5
10.0

IV. Special Economic Zones

The Bases Conversion & Development Act of 1992 has designated the following areas as Special Economic Zones :

- Subic Naval Base
- Clark Air Base
- Camp John Hay (Baguio City)
- The Wallace Air Station (San Fernando, La Union)
- The O'Donnell Transmitter Station
- The San Miguel Naval Communications Station
- The Mt. Sta. Rita Station (Hermosa, Bataan)

A. Subic Special Economic & Free Port Zone

The zone has been established by the Philippine Government with the aim of developing the area into a self-sustaining industrial, commercial, financial and investment centre in the Philippines.

Subic Bay is located 80 km northwest of Manila, in the province of Zambales, and a short distance north of the entrance to Manila Bay. It is strategically located near major international shipping lanes in the South China Sea. It offers a natural harbour that is protected on 3 sides by mountains and is only a three-hour drive from manila. The site has a land area of 16,200 ha and an estimated English-speaking work force of 66,000.

Facts and Statistics
Labour
The labour force is engaged mostly in the following industries :
- shipbuilding and repair services
- electrical works
- metal working
- engineering services
- electronics equipment
- marine equipment
- utilities
- air-conditioning and refrigeration
- construction
- recreation
Prevalent skills are in shipbuilding and repairs, electrical and machine works, construction, machine maintenance, marine machinery repair, and power plant repair.

Power
Total Power Generating Capacity: 147.5 MW

Water Treatment
Filtering Capacity: 11.5 m gallons per day

Airport
Subic Bay International Airport is not only a multi-purpose airport but is also the Asian hub of Federal Express. Air Philippines has been authorised to operate scheduled flights between Subic, Manila, Iloilo, Bacolod and Tacloban.

Seaport
Subic General Cargo Port
The depot covers 41 ha and has one movable pier, one fixed pier and two berths, a cold storage facility, 22 warehouses, two open storage areas, and a container stacking yard.

Subic Bay Taiwanese Industrial Park
The Subic Bay Development and Management Corporation (SBDMC) is a joint venture between the SBMA and Taiwanese developers China Development Corporation and Century Development Corporation. The first 12 ha are being developed as Phase I. 46 companies have approval to locate at the Industrial Park. The Industrial Park is open to any light to medium, non-polluting businesses engaged in exports. Electronics manufacturing and assembly, vehicle assembly, pharmaceutical manufacturing, software development and data processing, jewellery, garments, footwear, industrial and electrical equipment and toys manufacturing are some of the categories of industrial activities found there.

Subic Ship Repair Facility
The Facility occupies an area of 30 ha, with the capability of berthing 12 ships at a time. It also has facilities to accommodate three floating dry docks, four portal cranes, five floating cranes, and 36 service crafts. Permanent structures including welding, mechanical and electrical shops, foundry and more than 2,000 pieces of plant equipment, all enable it to service 20 different types of ships.

Note !
One-Stop Export Shop : Exporters, especially in Central Luzon, may document their export papers in Subic. This procedure has helped shorten the time exporters need to ship their goods to all destinations since documentation is done at the point of shipment.

Roads
A Memorandum of Understanding concerning the Subic-Clark Expressway Project linking Subic, Clark and Metro Manila, was signed in Feb 1994.

Petroleum Storage
One important reason why Coastal Petroleum chose Subic Bay as its Asian hub, is the strategic location of Subic Bay and also the deep harbour that it possesses.

Telecommunications
Subic Telecommunications Co., Inc. (Subic Telecom). Plans to provide 100,000 lines.

B. Opportunities For Investors

The SBMA offers various incentives to local and foreign investors locating within Industrial Estates in the Subic Bay Freeport (see Incentives offered to an SBF Enterprise). The investors must export at least 70% of their production.
- A proposed Multi-use Zone (148 ha) will be a convention centre to attract business from neighbouring Asian countries. There are also plans for effective conversion and/or urban renewal of Olongapo City into commercial or trade areas.
- Investment opportunities are also offered in any of the planned tourist areas within the Subic Bay Area. Areas include the Peninsula Area, Grande Island, Pegueńa/Mayanga Island and Subic Bay Olongapo.
- The following areas of infrastructure development are also opportunities for investors:

- Upgrading of existing airport to handle both domestic and international flights
- Bullet and sky trains, and railways within and outside the Subic Bay Area
- Construction of suspension bridge - Subic Bay/Olongapo to the Peninsula
- Construction and maintenance of cable cars
- Various highways: East-West Expressway; highway linking airport to city; Manila to Subic Bay
- Port terminal for passengers or for commerce use
- Ferry service to and from Manila, Subic Bay and other areas in the SBF
- Power plants
- Water supply

- Construction of condominiums, villas near recreational areas, executive housing and low-cost housing near industrial areas.

V. SBF Enterprises

A. SBF Enterprises

A business enterprise may register as an SBF Enterprise, and a natural person as an SBF Resident with the SBMA.

An SBF Enterprise is any business entity or concern within the SBF, duly registered with and/or licensed by the SBMA to operate any lawful economic activity within the SBF. Registration as an SBF Enterprise is open to any business enterprise in any area of economic activity, subject only to limitations in the Philippine Constitution.

B. Incentives offered to an SBF Enterprise

- Right to freely engage in any business, trade, manufacturing, financial or service activity and to import and export freely all types of goods into and out of SBF, subject to certain laws and regulations;
- Right to employ foreign nationals subject to evidence of unavailability of comparably-skilled Filipinos within the Philippines;
- Exemption from all national and local taxes, in lieu of which a final tax of 5% of gross income must be paid.

An SBF Enterprise which operates facilities or services within the SBF (SBF Facilities Operator) is entitled to the following additional incentives :

- Right to manage the facilities on the real property it owns, has acquired or has leased within the SBF;
- Right to lease out real property it owns or has leased within the SBF, and to acquire and lease land and sell or lease out facilities to SBF Enterprises, subject to certain guidelines;
- Right to make improvements on buildings and other facilities, and develop infrastructure necessary to enhance the SBF's efficient operation, or grants contracts or concessions to other private or public parties for the construction or provision of any of the said facilities, subject to certain guidelines.

C. Top 20 Investors in Subic Bay Freeport & Special Economic Zones (as of Sep 15, 1996)

Company Name Project Country Project Cost
(in million $)
Mabuhav Philippines Satellite Corp. Tracking & telemetry center for satellite Philippines/China/ Indonesia 205.7
Biwater International Limited Water Privatisation Philippines/Britain 120.0
Enron Subic Power Corp. Electric power USA 115.4
Coastal Subic Bay Terminal Petroleum products USA 105.8
Federal Express Corp. Air/land freight services USA 100.0
SBDMC Taiwan industrial park development Philippines/Taiwan 100.0
Subic Bay Resort & Casino Inc. Casino/hotel & restaurant Malaysia 96.2
Subic Bay Waterfront Devt Corporation Inc. Marina development Philippines/Australia 80.0
Thomson Audio (Phils) Inc. Audio & communication products France 72.8
Acer, Inc. Motherboards & add-on cards Taiwan 50.0
Universal International Group Golf course privatisation Taiwan 48.0
Air Philippines Corporation Air passage cargo/freight transport service with maintenance & handling operations Philippines 42.3
Acer, Inc. Personal computers & other related peripherals Taiwan 34.0
TECO Electric & Machinery co. Ltd. Motors Taiwan 24.3
Subic Technopark Corporation Japan techno park management Philippines/Japan 22.0
EliteGroup Computer System Co. PC board/computer Taiwan 20.6
GVC Corporation Motherboards Taiwan 20.0
Subic Telecommunications Company, Inc. (AT&T, PLDT, SBMA) Telecommunications U.S.A/Philippines 20.0
Dialer & Business Ele Co, Ltd. Telephone sets Taiwan 18.6
BICC Brands Rex Data cables & accessories Britain 16.0

VI. Clark Special Economic Zone (CSEZ)

The Philippine government aims to develop the CSEZ as a new industrial town site and as a major civil aviation complex for international passengers and cargo. Clark Field, located in the CSEZ, has been designated as the site of a premier international airport.

The territory of the CSEZ includes the former U.S. Clark Air Base and its extensions located within Angeles City, municipalities of Mabalacat and Porac in Pampanga and the municipality of Capas in Tarlac. The CSEZ covers a total area of approximately 28,041 ha.

Certain incentives also follow for enterprises located within the CSEZ Main Zone, encompassing Clark Air Base proper. Limited incentives are available to enterprises which are located within the rest of the area of the CSEZ.

Top 20 Investors in the Clark Special Economic Zone (as of Sep 30, 1996)

Firm Project Country Investment CommitmentWithin 5 Years
UTILITY PROJECT
Philippine Long Distance & Telephone Co Water Privatisation Philippines/Britain P2.00 billion
TOURISM ESTATE PROJECT
Mondragon Leisure & Corporation Hotel resort complex (Holiday Inn, championship golf course, Hyatt Regency casino, a new hotel, water theme park, botanical garden, shopping arcade) Philippines P1.99 billion
HOUSING PROJECT
RN Development Corporation Development, operation & management of fully integrated housing community Philippines P1.46 billion
INDUSTRIAL PROJECT
Yokohama Tire Phils, Inc. Manufacture of automobile, truck & aircraft tires Japan P1.40 billion
UTILITY PROJECT
Clark Water & Sewerage Co. Inc. Water distribution & sewerage system Philippines /Malaysia [Joint venture of CDC, Kemaman Terminal One Sdn. Bhd. (of Malaysia) and Ciriaco Corp.] Philippines/Malaysia P1.30 billion
TOURISM ESTATE PROJECTS
Hacienda Golf Company Tourism resort complex composed of a 36-hole golf course, clubhouse, luxury villas, casino, hotel, restaurants, shopping mall, etc. U.S.A P1.00 billion
Fun Avenue Development Tourism and recreational theme park, hotels, condominiums, convention hall, business center, commercial shopping center Philippines P1.00 billion
INDUSTRIAL PROJECTS
Kita Corporation Manufacturing & assembly of consumer electronics products Philippines/Britain P743.00 million
Doojin Corporation Korean industrial park Philippines/Korea P455.00 million
Linaheim Properties, Inc. Industrial estate Philippines P450.00 million
SERVICE-ORIENTED PROJECT
Transpacific Broadcast Group, Inc. Satellite facilities Philippines P280.00 million
COMMERCIAL PROJECT
Puregold Duty Free, Inc. Shopping mall Philippines P250.00 million
INDUSTRIAL PROJECTS
Sampo Technology (Phils), Inc. Assembly of computer monitors and other electronic products Taiwan P220.00 million
Horex Motorcycle Phils., Inc. Motorcycle assembly & distribution Philippines P208.00 million
Jacinto Container Corp. Cylinder & drum manufacturing Philippines P200.00 million
COMMERCIAL PROJECTS
Fort Stotsenburg Development Corp. Shopping center; restaurant, etc. Philippines P200.00million
Amari Duty Free, Inc. Commercial shopping center Philippines P160.00 million
Clark Trading Corporation Commercial shopping complex Philippines P160.00 million
International Freeport Traders, Inc. Entertainment & amusement center; shopping mall Philippines P156.00 million
Duty-Free Philippines DFP duty-free shop Philippines P154.00 million

VII. Other Special Economic Zones

Subject to the concurrence by the local government units directly affected, the President may create other Special Economic Zones in the Wallace Air Station and Camp John Hay.

Upon recommendation of the Bases Conversion and Development Authority, the President may likewise create Special Economic Zones in the municipalities of Morong, Hermosa, Dinalupihan, Castillejos and San Marcelino.

Southern Mindanao : Abundance of natural and agricultural resources in this area, together with its location (which makes it East Indonesia's gateway to the world), make this an area where major international agricultural companies such as Dole, Del Monte, Cargill, General Milling and Coca-Cola are beginning to invest. Southern Mindanao is emerging as a major trading corridor for the ASEAN region.

There are also ongoing special development programmes designed to revitalise communities so that the social, industrial and public infrastructure networks can all work together for the economic well-being of the community. The 5 major projects are the Calabarzon project, the Samar Island Special Development Project, the Panay-Negros Agro-Industrial Development Project, the South Cotabato-General Santos City Area Development Project and the Illigan-Cagayan de Oro Industrial Corridor.


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