Declaration of Policy.

– It is the declared policy of the government to

translate into practical realities the following State policies and
mandates in the 1987 Constitution, namely:

(a) "The State recognizes the indispensible role of the private sector,
encourages private enterprise, and provides incentives to needed
investments." (Sec. 20, Art II)

(b) "The State shall promote the preferential use of Filipino labor,
domestic materials and locally produced goods and adopt measures
that help make them competitive." (Sec. 12, Art XII)
In pursuance of these policies, the government shall actively
encourage, promote, induce and accelerate a sound and balanced
industrial, economic and social development of the country in order to
provide jobs to the people specially 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.
Purposes, Intents and Objectives. – It is the purpose, intent and objective of this Act:

(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,
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;

(d) To stimulate the repatriation of Filipino capital by providing attractive climate

and incentives for business activity;
Purposes, Intents and Objectives. – It is the purpose, intent and objective of this Act:

(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.
Definition of Terms. – For purposes of this Act, the following definitions shall apply
to the following terms:

(a) "Special Economic Zones (SEZ)" – hereinafter referred to as the ECOZONES, are
selected areas with highly developed or which have the potential to be developed
into agro-industrial, Industrial tourist/recreational, commercial, banking, investment
and financial centers. An ECOZONE may contain any or all of the following:
Industrial Estates (IEs), Export Processing Zones (EPZs), Free Trade Zones, and
Tourist/Recreational Centers.

(b) "Industrial Estate (IE)" – refers to a tract of land subdivided and developed
according to a comprehensive plan under a unified continuous management and
with provisions for basic infrastructure and utilities, with or without pre-built
standard factory buildings and community facilities for the use of the community of
industries.
Definition of Terms. – For purposes of this Act, the following definitions shall apply
to the following terms:

(c) "Export Processing Zone (EPZ)" – a specialized industrial estate located physically
and/or administratively outside customs territory, predominantly oriented to export
production. Enterprises located in export processing zones are allowed to import
capital equipment and raw materials free from duties, taxes and other import
restrictions.

(d)"Free Trade Zone" - an isolated policed area adjacent to a port of entry (as a
seaport) and/or airport where imported goods may be unloaded for immediate
transshipment or stored, repacked, sorted, mixed, or otherwise manipulated without
being subject to import duties. However, movement of these imported goods from
the free-trade area to a non-free-trade area in the country shall be subject to import
duties.
“ECOZONE Domestic Market Enterprise” refers to an individual, association,
partnership, corporation or other form of business organization which has been
registered with the PEZA to engaged in manufacturing, assembling or processing
activity falling within the purview of the Act resulting in the sale of its finished
products in the customs territory or in the non-restricted or authorized areas within
the ECOZONE in its entirety or if exporting a portion of its production output, it
continually fails to export at least fifty percent (50%) thereof for a period of three (3)
years without any justifiable reason in case at least 60% of its working capital is
owned by Philippine nationals or in case more than 40% of its working capital is
owned by foreign nationals, it continually fails to export at least seventy percent
(70%) of its production output for a period of three (3) years without any justifiable
reason.
“ECOZONE Free Trade Enterprise” refers to an individual, association, partnership,
corporation or other form of business organization which has been registered with
the PEZA to engaged in the importation of goods or merchandise within the
restricted or free trade area in the ECOZONE tax and duty-free for immediate
transshipment or for storage, repacking, sorting, mixing or manipulation and
subsequent exportation unless the Board allows the sale thereof in the customs
territory subject to the payment of customs duties and internal revenue taxes to such
other terms and conditions as it may determine.

“ECOZONE Tourism Enterprise” shall refer to an individual, association,

partnership, corporation or other business organization duly registered with the
PEZA proposing to engaged in the establishment and operation of tourist-oriented
accommodations, restaurants operated as an integral part of a tourism facility (e.g.,
hotels, resorts, recreational centers), sports and recreational facilities within the
ECOZONE.
“ECOZONE Utilities Enterprise” shall refers to a business entity or concern within
the ECOZONE duly registered with and / or franchised / licensed by the PEZA with
or without the incentives provided under Republic Act No. 6957, as amended, (the
Build-Operate-Transfer Law) and / or with or without financial exposure on the part
of the PEZA, such as contractors/operators of light and power systems, water supply
and distribution systems, communications and transportation systems within the
ECOZONE and other similar or ancillary activities as may be determined by the
Board.

“ECOZONE Facilities Enterprise” shall refers to a business entity or concern within

the ECOZONE duly registered with and / or franchised / licensed by the PEZA with
or without incentives provided under Republic Act No. 6957, as amended, (the Build-
Operate-Transfer Law) and / or with or without financial exposure on t he part of the
PEZA such as contractors / operators of buildings, structures, warehouses, site
development and road network, ports, sewerage and drainage system and other
facilities for the development, operation and maintenance of the ECOZONE and
other similar or ancillary activities as may be determined by Board.
“ECOZONE Developer/Operator” refers to a business entity or concern duly registered with
and / or licensed by the PEZA to develop, operate and maintain an ECOZONE or nay or all
of the component IE, EPZ, Free Trade Zone or Tourist / Recreational Center and the required
infrastructure facilities and utilities such as light and power system, water supply and
distribution system, sewerage and drainage system, pollution control devices,
communication facilities, paved road network, administration building and other facilities
as may be required by the PEZA. The term shall include the PEZA and / or the Local
Government Unit when by the themselves or in joint venture with a qualified private entity,
shall act as the Developer / Operator of the ECOZONES. As such, they shall be entitled to
the same incentives under Rule XIV of these Rules in accordance with the pertinent
provisions of the Act and the Code.

“ECOZONE Service Enterprise” shall refers to a business entity or concern within the
ECOZONE such as but not limited to those engaged in customs brokerage, trucking /
forwarding services, parcel services, janitorial services, security services, insurance, and / or
banking services, consultancy services, restaurants or such other services within the
ECOZONE as may be determined by the Board, duly registered and/or licensed by the
PEZA whose income derived within the ECOZONE shall be subject to taxes under the
National Internal Revenue Code pursuant to Section 25 of the Act.
REGISTRATION OF ECOZONE ENTERPRISE
SECTION 1. Qualification of Applicants - any person, firm, association, partnership, corporation,
or any other form of business organization, regardless of nationality, control and / or ownership
of the working capital thereof may apply for registration as an Export or Free Trade Enterprise
within the ECOZONE in any sector of industry, international trade and commerce, except duty-
free retailing and wholesale trading of imported finished products for purposes of serving the
domestic market. Furthermore, if the area of investments of the said enterprises falls within Lists
A and B of the Foreign Investments Act of 1991, then the applicable nationality, ownership or
control requirements of the said law shall be observed.

Applications for ECOZONE Developer / Operator, Domestic Market, Utilities, Facilities, Tourism
or Service Enterprises shall comply with the applicable nationality, control and / or ownership
requirements of the working capital thereof in accordance with the pertinent provisions of the
Philippine Constitution, Foreign Investments Act of 1991 and other existing laws and
regulations.

However, applicants for Domestic Enterprise shall be limited to new or expanding business
entities subject to the guidelines that shall be promulgated by the Board in addition to the
nationality requirements under existing laws and regulations.
SECTION 2. Forms - All applications shall be made upon forms prescribed by the
PEZA duly accomplished in three (3) copies.
SECTION 3. Supporting Documents - The applicant for an ECOZONE Enterprise shall
submit the following documents:
a. Project feasibility study, unless dispensed with and in lieu thereof, the applicant shall
submit basic data / information on its technical, financial, marketing and management
capability / competence to undertake the proposed project or business within the
ECOZONE; *NO LONGER REQUIRED*
b. Copies of articles of incorporation and by-laws;

c. Resolution of the applicant's board of directors authorizing the filing of the application;
list of its directors, principal officers, and major stockholders, including their bio-data;

d. List of machinery and equipment to be used by the applicant with a statement of their
capacity, ownership and/or mode of procurement;

e. Company brochures and / or photographs of product(s); and

f. Other supporting documents / papers / clearances as may be required by the PEZA

depending upon the nature of the business and the type of business organization of the
applicant.
SECTION 4. Filing of Application - The application shall be filed with the PEZA upon
payment of the corresponding filing fee.

SECTION 5. Board Action - Approval of the application shall be by resolution of the

Board unless otherwise required by appropriate circulars and / or memoranda taking
into consideration the decentralization policy in the management, operation and
maintenance of each ECOZONE. The action taken thereon shall be communicated in
writing to the applicant.
SECTION 6. Certificate of Registration - The Certificate of Registration shall be issued
only upon the execution of the Registration Agreement by the PEZA and the applicant
and whenever it can be shown that the applicant has:

a. Complied with all the pre-registration requirements;

b. Submitted within twenty (20) calendar days from receipt of the notice of approval of
the application, a formal acceptance of the proposed terms and conditions of registration.
For good cause shown, said period may be extended if the request therefore is filed
before the expiration of the period sought to be extended; and

c. Paid the registration fee.

However, in appropriate cases as may be determined by the Board, the ECOZONE

management or the duly authorized offices of the PEZA shall be empowered to issue
business permits and / or licenses to ECOZONE Enterprises in lieu of the Certificate of
Registration after the proper evaluation of their application in accordance with the set of
criteria duly approved by the Board and upon payment of the corresponding fees.
SECTION 7. One Stop Shop Center - There shall be established in the ECOZONE a
one stop-shop center to facilitate the registration, licensing and issuance of permits to
ECOZONE Enterprises. All government agencies involved shall assign their
respective representatives in the ECOZONE for this purpose.
1. INCOME TAX HOLIDAY (Regular corporate income tax or RCIT; Minimum
corporate income tax or MCIT)

1. New projects with a pioneer status for 6 years

2. New projects with a non-pioneer status for 4 years
3. Expanding firms for 3 years

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 of eight (8) years for pioneer registered enterprises
Firm under ITH is not exempt from:

1. RCIT and MCIT on income from unregistered activities

2. Final income tax on passive income
3. Documentary Stamp Tax (DST). The PEZA registered entity is exempt, however,
the transacting party shall pay for the DST
4. Liability as withholding tax agent
5. Real estate tax (machineries are exempt for the first 3 years of operation
Entitlement for New Expansion Projects

a. New Projects - 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. In such cases, the
income tax holiday shall apply only to sales of the new products.

b. Expansion Projects - The income tax holiday for expansion projects, as defined in
Section 2(w), Rule I of these Rules shall apply only to the extent of the actual increase
in production.
Expansion - Expansion may include modernization or rehabilitation which, to be
registrable, may or may nor result in increase capacity but in any case, subject to the
following conditions:

a. Phases / stages of production sought to modernized / rehabilitated must be

identified; and

b. It must result in any of the following:

• substantial reduction of production cost; and

• significant increase in production efficiency including debottlenecking;
• meaningful upgrading of product quality;
• keeping abreast with the state of the art in the production of the registered
product.
Expansion - Expansion may include modernization or rehabilitation which, to be
registrable, may or may nor result in increase capacity but in any case, subject to the
following conditions:

a. Phases / stages of production sought to modernized / rehabilitated must be

identified; and

b. It must result in any of the following:

• substantial reduction of production cost; and

• significant increase in production efficiency including debottlenecking;
• meaningful upgrading of product quality;
• keeping abreast with the state of the art in the production of the registered
product.
“ECOZONE Pioneer Enterprise” shall mean an ECOZONE enterprise (1) engaged in
the manufacture, processing or production and not merely in the assembly of
packaging of goods, products, commodities or raw materials that have not been or
are not being produced in the Philippines on a commercial scale or (2) which uses a
design, formula, scheme, method, process or system or production of transformation
of any element, substance or raw materials into another raw material or finished
goods which is new and untried in the Philippines (3) which produces non-
conventional fuels or manufactures equipment which utilizes non-conventional
sources of energy or uses or converts to coal or other non-conventional fuels or
sources of energy in its production, manufacturing or processing operations: or (4)
engaged in the pursuit of agri-export processing zone development or (5) given such
status under the Investment Priorities Plan: Provided, That the final product in any of
the foregoing instances involves or will involve substantial use and processing of
domestic raw materials, whenever available, taking into account the risk and
magnitude of investment.
Determination of Pioneer / Non-Pioneer Status

a. Investment Priorities Plan - 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. In the
absence thereof, the applicable criteria shall be formulated by PEZA.

b. Non-Pioneer Status - 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). Accordingly, the approval of the application for registration as
an ECOZONE Export or Free Trade Enterprise shall indicate such status and the
corresponding incentives the ECOZONE Export or Free Trade Enterprise may avail
of under the Act.

c. Pioneer Status - Pioneer status may be extended to an ECOZONE Export or Free

Trade Enterprise only after the evaluation of their application for such status.
2. 5% Gross income Tax (GIT)

After the lapse of ITH period, PEZA registered enterprises are subject to 5% GIT and
IN LIEU of all taxes, national and local, except real property tax on land owned by
developers.

NATIONAL TAXES shall refer to all internal revenue taxes, such as:
1. RCIT
2. MCIT
3. Transfer taxes
4. VAT and other percentage taxes
5. Excise tax
6. Custom duties
7. Import charges under the Tariff Customs Code
Excluded, however, are the following:
1. Withholding tax on compensation
2. Withholding tax on income payments to persons other than a registered
ECOZONE enterprise, subject to withholding tax at source under Section 50 (b) of
the Tax Code, as amended.

PEZA registered companies are exempt from creditable withholding tax, except for
unregistered operations. However, PEZA registered companies are not exempt from
being a withholding agent.
3. VALUE ADDED TAX
OTHER FISCAL INCENTIVES
1. Exemption from duties and taxes
2. Tax credit for import substitution under Export Development Act
3. Additional deduction for training expenses
4. Additional labor expense deduction
5. Exemption from wharfage dues, export tax, imposts, and fees
6. Tax credit on domestic capital equipment
7. Tax and duty-free importation of breeding stocks and genetic materials
8. Tax credit on domestic breeding stocks and genetic materials