Taxation: 8. Special Economic Zone Act
Taxation: 8. Special Economic Zone Act
Taxation: 8. Special Economic Zone Act
Definition of ECOZONES
ECOZONES or "Specific Economic Zones" (SEZ) shall refer to selected areas with highly developed or which have the
potential to be developed into agri-industrial, industrial, tourist, recreational, commercial, banking, investment and
financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations.
An ECOZONE may contain any or all of the following: Industrial estates (IEs), export processing zones (EPZ), free
trade zones and tourist/recreational centers.
Start of Commercial Operations
For purposes of the income tax holiday shall be the date specified in the Registration Agreement or the date when the
particular ECOZONE export enterprise actually begins production of the registered product for commercial purposes,
whichever comes first, irrespective of phases or modules or schedule of development.
Policy and the Philippine Economic Zone Authority (PEZA)
The state recognizes the indispensible role of the private sector, encourages private enterprise, and provide 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.
In pursuance of these policies the government shall actively encourage, promote, induce and accelerate a sound and
balance industrial, economic and social development of the country in order to provide jobs to the people especially
those in the rural areas, increase their productivity and their individual and family income, and thereby improve the
level and quality of their living condition through the establishment, among others, of special economic zones in
suitable and strategic locations in the country and through measures that shall effectively attract legitimate and
productive foreign investments.
Registration of Investment
Applying and registration of Investment with the Board of Investments requires submission of a notarized application
indicating the type of projects, how the activities relates to those listed in the Investment Priorities Plan, the
production capacity geared to export, the capital structure of the enterprise, and the nationality of its investors. In
addition, the company must submit a feasibility report, containing five-year projected financial statements.
Fiscal incentives to PEZA-registered economic zone enterprises
The rate of exemption from Income Tax of expansion projects shall be computed as follows:
Incremental Sales of the Registered Product
Rate of Exemption = -----------------------------------------------
Total Sales of the Registered Product
The term “Sales” as indicated in the above formula shall be expressed in volume in case of
homogenous products and value in case of heterogeneous products.
3. In general, modernization and rehabilitation shall not be entitled to income tax holiday.
4. Where the start of commercial operations does not coincide with the first month of the taxable year
of the ECOZONE Enterprise, the rate of exemption from income tax shall be computed in the
following manner:
a. Get the total sales for the whole taxable year.
b. Deduct the base figure from the total sales (a) to get the incremental sale
c. The rate of exemption is determined by dividing the incremental sales (b) by the total sales (a).
d. The rate of exemption shall apply only to the total income tax due arising from sales of the registered
product.
e. For this purpose, the base figure shall mean the highest attained sales in volume in case of homogenous
products or of value in case of heterogeneous products of the ECOZONE Export or Free Trade Enterprise for
any one (1) year within the last three (3) years prior to the year of expansion.
f. The rate of exemption shall be further computed in proportion to the number of months of the expanding
firms commercial operations during a given year.
g. The rate of exemption for the last taxable year of availment shall be computed in the same manner as above-
mentioned: Provided, However, That the rate of exemption shall be applied on the income tax due on sales
during the months that the ECOZONE Export or Free Trade Enterprise is entitled to income tax holiday.
5. Additional Period of Availment – For ECOZONE Export or Free Trade enterprises, the income tax
holiday incentive may be extended for an extra year in each of the following cases but in no case to
exceed a total period eight (8) years for pioneer registered enterprises:
a. If the ratio of the total imported and domestic capital equipment to the number of workers for the project
does not exceed US$10,000.00 to one worker, or as prescribed by the Board;
b. If the average cost of indigenous raw materials used in the manufacture of the registered product is at least
fifty percent (50%) of the total cost of raw materials for the preceding years prior to the extension unless the
Board prescribes a higher percentage;
c. If the net foreign exchange savings or earnings amount to at least US$ 500,000.00 average annually during
the first three (3) years of operations to be determined by the Board at the end of such three-year period:
Provided, That the foregoing foreign exchange savings criterion shall apply, as a general rule, to ECOZONE
Export or Free Trade Enterprises whose products are totally imported into the country at the time of
registration and duly indicated as Imports substation in firm’s approved project proposal.
For the purpose of availment of this incentive, the ECOZONE Export or Free Trade Enterprise shall apply in writing
to PEZA for the additional period and shall submit proof of compliance with the criteria above-mentioned.
The period of availment of this incentive shall be determined in accordance with Section 3 and 5 Rule XIII of
these Rules.
MULTIPLE CHOICE
1. The short title of Republic Act 7916 is
a. The Special Economic Zone Act of 1995
b. The Special Economic Zone Act of 2005
c. The Philippine Economic Zone Act of 1995
d. The Export Processing Zone Authority Act of 1995
3. It is the Philippine government agency tasked to promote investments extend assistance, register, grant incentives
to and facilitate the business operations of investors in export-oriented manufacturing and service facilities
a. Board of Investments
b. Bureau of Customs
c. Philippine Economic Zone Authority
d. National Economic Development Authority
7. Upon the expiration of income tax holiday, a PEZA registered enterprise may avail of the following fiscal incentive,
except
a. 5% Special tax on Gross Income and exemption from all national and local taxes
b. VAT- zero-rating of local purchases subject to compliance with BIR and PEZA requirements
c. Exemption from wharfage dues and export tax, and impost or fees
d. Four (4) years of exemption from income tax for non-pioneer project
8. Which option is wrong? To avail of tax breaks and incentives being offered by PEZA, an enterprise
a. Must register with PEZA and locate their operation in one of the PEZA zones, buildings, IT Parks, or Technology
Parks
b. Must be export-oriented
c. Located inside the zones are required to export at least 30% of their production.
d. Maybe 100% foreign ownership, provided they are not engaged in activities that appear on the Foreign Investment
Negative List
9. Which document is not required to be submitted in applying for registration with the PEZA?
a. Mayor’s Permit
b. Project feasibility study
c. Project brief
d. Articles of Incorporation and By-laws
10. The system launched for on-line application and registration with the PEZA is known as
a. eddaps@peza.gov.ph
b. e-ARS
c. erddaps@peza.gov.ph
d. www.peza.gov.ph
11. ABC Corporation secured an income tax holiday for 4 years as a pioneer enterprise. On the third year of the tax
holiday, ABC Corporation declared and paid cash dividends to its stockholders, all of whom are individual. Are the
dividends taxable?
a. The dividends are tax exempt because of ABC Corporation's income tax holiday.
b. The dividends are taxable if they exceeded 50% of ABC Corporation's retained earnings.
c. The dividends are exempt if paid before the end of ABC Corporation's fiscal year.
d. The dividends are taxable, the tax exemption of ABC does not extend to its stockholders.
12.
Statement 1: ECOZONES or "Special Economic Zones" (SEZ) shall refer to selected areas with highly developed
or which have the potential to be developed into agri-industrial, industrial, tourist, recreational, commercial,
banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential
Proclamations.
Statement 3: For purposes of the income tax holiday, it shall be the date specified in the Registration Agreement
or the date when the particular ECOZONE export enterprise actually begins production of the registered product for
commercial purposes, whichever comes first, irrespective of phases or modules or schedule of development.
Statement 4: The State recognizes the indispensable role of the private sector, encourages private enterprise,
and provides incentives to needed investments.
a. True;True;True;True b True;False;False:True c. True;False;False;False d. True;True;False;False
13.
Statement 1: The State shall promote the preferential use of Filipino labor, domestic materials and locally
produced goods and adopt measures that help make them competitive.
Statement 2: Applying and registration of investment with the Board of Investments requires submission of
notarized application indicating the type of projects, how the activity relates to those listed in the Investment
Priorities Plan, the production capacity geared to export, the capital structure of the enterprise, and the nationality
of its investors.
Statement 3:In addition, the company must submit a feasibility report, containing five-year projected financial
statements.
Statement 4: PEZA-registered economic zone enterprise shall enjoy exemption from duties and taxes on
importation of merchandize as well from national taxes and local taxes and licenses, among other fiscal incentives.
a. True;True;True;True b True;False;False:True c. True;False;False;False d. True;True;False;False
14.
Statement 1: Newly-registered pioneer firms shall enjoy income tax holiday for six (6) years from commercial
operations.
Statement 2: Newly-registered non-pioneer firms shall enjoy income tax holiday for four (4) years from
commercial operations.
Statement 3: Expanding firms shall enjoy income tax holiday for three (3) years from commercial operation of
the expansion.
Statement 4: In exceptional cases, ECOZONE Export or Free Trade Enterprises undertaking new activities distinct
from their registered operations may qualify as new projects subject to the setting up of separate books of
accounts.
a. True;True;True;True b True;False;False:True c. True;False;False;False d. True;True;False;False
15.
Statement 1: In cases where an enterprise is undertaking new activities distinct from their registered operations,
the income tax holiday shall apply only to sales of the new products.
Statement 2: The income tax holiday for expansion projects, shall apply only to the extent of the actual increase
in production.
Statement 3: In general, modernization and rehabilitation shall not be entitled to income tax holiday.
Statement 4: For ECOZONE Export or Free Trade Enterprises, the income tax holiday incentive may be extended
for an extra year in certain cases but in no case to exceed a total period of eight (8) years for pioneer registered
enterprises.
a. True;True;True;True b True;False;False:True c. True;False;False;False d. True;True;False;False
16.
Statement 1: As a general policy, the basis for determining whether an area of economic activity may be
considered pioneer or non-pioneer shall be the Investment Priorities Plan prepared yearly by the Board of
Investments.
Statement 2: An area of activity shall be accorded non-pioneer status if it may be determined categorically as
falling in such classification using the Investment Priorities Plan (IPP).
Statement 3: The approval of the application for registration as an ECOZONE Export of Free Trade Enterprise
shall indicate such status and the corresponding incentives the ECOZONE Export of Free Trade Enterprise may avail
of under the Act.
17.
Statement 1: A tax credit equivalent to one hundred percent (100%) of the value of national internal
revenue taxes and custom duties that would have been waived on the machinery, equipment and spare parts, had
these items been imported shall be given to the new or expanding ECOZONE Export or Free Trade Enterprise which
purchases machinery, equipment and spare parts from a domestic manufacture.
Statement 2: The importation of breeding stocks and genetic materials by an ECOZONE Export Enterprise shall
be exempt to taxes and duties.
Statement 3: For the first five (5) years from registration, a qualified ECOZONE Export or Free Trade Enterprise
shall be allowed to deduct from its taxable income an amount equivalent to fifty percent (50%) of the wages
corresponding to the increment in the number of direct labor for skilled and unskilled workers subject to certain
conditions.
Statement 4: The use of consigned machinery, equipment and spare parts which are reasonably needed in the
registered operations and the exclusive use the ECOZONE Export or Free Trade Enterprise beyond the period
permitted under other laws, rules and regulations may be permitted by PEZA is another fiscal incentive given to
PEZA-registered economic zone enterprises.
Statement 5: An ECOZONE Export or Free Trade Enterprise not availing of the incentives under Section 6 herein
may avail of the incentives under the Decree subject to the regulations that shall be prescribed by the Board of
Investment and by the Department of Finance / Bureau of Internal Revenue.
a. True;True;True;True;True
b. True;False;False:True;True
c. True;False;False;False;False
d.True;True;False;False;False