Four Features of Economic Zones under PEZA Philippines

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Take a look around your local area. Have you noticed towering buildings and business establishments taking root recently? If you have, then know that you are not alone in noticing these. 

Currently, there has been a vast abundance of these companies in the Philippines that the business sphere in the Philippines is massively different to how it is today than it was years ago.  Foreign business conglomerates have recently been cropping up in the country, and if the business owner possesses the right industrial and economic acumen, he or she would have enough foresight to utilize the many benefits proffered by being registered under a PEZA zone in the Philippines. In the year 1995, the Philippine Economic Zone Authority under Republic Act No. 7915 otherwise known as “The Special Economic Zone Act of 1995” was created. The inception of this law enables multinational and other foreign investors to relocate and establish a business presence in the Philippines. Similarly, the local government may utilize them as their foreign investment mechanism as it allows for the creation of local jobs and labor for the labor capital in the country. Additionally, it improves the country’s foreign relations through various business and economic ventures and endeavors. Lastly, it generates revenue from the operations of these ecozones within the defined economic zones in the country.  

Considering that the Philippines is a customs territory, sales going outside of the country are considered as exportations while merchandise purchased abroad are considered as importations. If an entity is registered under an economic zone (ecozone for brevity), they are viewed as a separate customs territory despite being located in the same country. As a result, the sales of these registered entities from outside of it are exportation to a non-ecozone within the Philippines and purchases are an importation. In order to set a distinction of these items from the normal import and export transactions, they are considered as “technical exportations” and “Technical importations”. To know about the features of ecozones under PEZA, read on below. 

NOT ALL BUSINESS ENTITIES ARE REGISTRABLE 

The Philippine government still has the final discerning power of whether or not a particular business entity is eligible for registration. It would choose a select number of business operations or undertaking it would consider best for registration under the Philippine Economic Zone Authority (PEZA) as an ecozone. Activities eligible for PEZA registration are export manufacturing (Economic Zone Export Manufacturing Enterprise), Information Technology Service Export (Economic Zone IT enterprise or IT Parks and Buildings), Tourism (Tourism Economic Zone Developers or Operators and Locators), Economic zone development and operation, utilities (economic zone utilities enterprise), agro-industrial bio-fuel manufacturing (Agro-Industrial Economic Zone Developers or Operators and Locators) and facilities providers. 

PRIOR REGISTRATION IS ESSENTIAL TO AVAIL OF BENEFITS AND INCENTIVES 

Being in the above business operations does not immediately grant you incentives as prior registration is required. New businesses can file their application papers during the incorporation stage with the Securities and Exchange Commission (SEC) or after they get approved by the SEC. Documentary requirements are different depending on the particular type of activity that is to be registered. To qualify, PEZA locators should be located in an ecozone. An ecozone is an area specifically registered by the PEZA or a building accredited as an IT building. 

INCENTIVES FOR REGISTERED ACTIVITIES

Business activities engaged by various entities are registered. This means that if a corporation will engage in more than just one business activity, the registration of one business activity does not automatically register all activities. So, in essence, some non-registered activities are not qualified for tax and other incentives.  

THERE ARE FISCAL AND NON-FISCAL INCENTIVES 

There are various fiscal and non-fiscal incentives offered by being registered under PEZA.  Fiscal incentives include income tax holiday of a specific duration (4, 6 or 3 years) and is subject to extension under certain conditions. This means that a PEZA registered company will not be liable to pay 30 percent income tax. Additionally, there is a 5% special income tax upon expiration of the income tax holiday, tax and duty free importation, zero percent value added tax on purchases of goods and services ONLY for use in the registered activity, exemption from withholding taxes on payments of local buyers from customs territory and exemption from payment of any and all local government fees, taxes, imposes or licenses.  Non-fiscal incentives include a simplified import and export procedures, special non-immigrant VISA to certain officers and employees and the employment of non-resident foreign nationals in supervisory, technical or advisory positions.