PEZA Economic Incentives – Part 2 of PEZA Series: Perks of Being a PEZA-Registered Business

All PEZA-registered Economic Enterprises are granted the following Non-Fiscal Incentives:

1. Simplified Import-Export Procedures via Electronic Import Permit System and Automated Export Documentation System;

2. Non-resident foreign nationals may be employed in supervisory, technical, or advisory positions;

3. Special Non-Immigrant Visa with Multiple Entry Privileges for the following non-resident foreign nationals in a PEZA-registered Economic Zone Enterprise:

   • Investor/s

   • Officers and Employees in supervisory, technical, or advisory position

   • And their spouses and unmarried children under 21 years of age

The following are the Tax and other Fiscal Incentives provided to PEZA-registered businesses:

1. Economic Zone Export Manufacturing Enterprise

   • Income Tax Holiday (ITH) – 100% exemption from Corporate Income Tax up to a period of:

     • 4 years for Non-pioneer Project

     • 6 years for Pioneer Project
       (ITH Extensions may be granted, subject to compliance with certain criteria, and not in excess of 8 years)

     • 3 years for Expansion Project

   • 5% Special Tax on Gross Income, and exemption from all national and local taxes, upon expiration of the ITH period;

   • Tax and duty-free importation of raw materials, capital equipment, machineries and spare parts;

   • Exemption from wharfage dues and export tax, impost or fees;

   • VAT zero-rating of local purchases, subject to compliance with BIR and PEZA requirements;

   • Exemption from all local government imposts, fees, licenses or taxes, except real estate tax while still under ITH;

   • Machineries installed and operated within the zone for manufacturing, processing or for industrial purposes are exempt from real estate taxes for the first (3) years of operation of such machineries. Production equipment not attached to real estate are exempt from real property taxes;

   • Exemption from expanded withholding tax.

2. Information Technology Enterprise

   • Income Tax Holiday (ITH) – 100% exemption from Corporate Income Tax up to a period of:

     • 4 years for Non-pioneer Project

     • 6 years for Pioneer Project
       (ITH Extensions may be granted, subject to compliance with certain criteria, and not in excess of 8 years)

     • 3 years for Expansion Project

   • 5% Special Tax on Gross Income, and exemption from all national and local taxes, upon expiration of the ITH period;

   • Tax and duty-free importation of equipment and parts;

   • Exemption from wharfage dues and export tax, impost or fees;

   • VAT zero-rating of local purchases, including land-based telecommunications, electrical power, water bills, and lease on the building, subject to compliance with BIR and PEZA requirements;

   • Exemption from all local government imposts, fees, licenses or taxes, except real estate tax while still under ITH;

   • Machineries installed and operated within the zone for manufacturing, processing or for industrial purposes are exempt from real estate taxes for the first (3) years of operation of such machineries. Production equipment not attached to real estate are exempt from real property taxes;

   • Exemption from expanded withholding tax.

3. Tourism Economic Zone Locator Enterprise

   • 4 years of Income Tax Holiday (ITH);

   • 5% Special Tax on Gross Income, and exemption from all national and local taxes, upon expiration of the ITH period;

   • Tax and duty-free importation of capital equipment;

   • VAT zero-rating on local purchases of goods and services, including land-based telecommunications, electric power, and water bills;

   • E xemption from expanded withholding tax.

4. Medical tourism Enterprise

   • 4 years of Income Tax Holiday (ITH);

   • 5% Special Tax on Gross Income, and exemption from all national and local taxes, upon expiration of the ITH period;

   • Tax and duty-free importation of medical equipment, including spare parts and equipment supplies, required for the technical viability and operation of the registered activities of the enterprise;

   • VAT zero-rating on local purchases of goods and services, including land-based telecommunications, electric power, and water bills;

   • Exemption from expanded withholding tax.

5. Agro-Industrial Economic Zone Enterprise

   • 4 years of Income Tax Holiday (ITH);

   • 5% Special Tax on Gross Income, and exemption from all national and local taxes, upon expiration of the ITH period;

   • Tax and duty-free importation of production equipment and machineries, breeding stocks, farm implements including spare parts and supplies of the equipment and machineries;

   • Exempti on from export taxes, wharfage dues, impost and fees;

   • VAT zero-rating on local purchases of goods and services, including land-based telecommunications, electric power, and water bills;

   • Exemption from payment of local government fees such as Mayor’s Permit, Business Permit, Permit on the Exercise of Profession/Occupation/Calling, Health Certificate Fee, Sanitary Inspection Fee, and Garbage Fee.

6. Economic Zone Logistics Enterprise

   • Exemption from duties and taxes on raw materials, semi-finished goods for re-sale to, or for packing/covering, cutting, altering for subsequent sale to PEZA-registered Export Manufacturing Enterprises, for direct export or for consignment to PEZA-registered export enterprise;

   • VAT zero-rating on raw materials for checking, packing, visual inspection, storage, and shipping to be sourced locally.

7. Economic Zone Developer/Operator

   • 5% Special Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by the Economic Zone Developer;

   • VAT zero-rating of local purchases;

   • Exemption from expanded withholding tax.

8. Facilities Enterprises

   • 5% Special Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by developers;

   • VAT zero-rating of local purchases;

   • Exemption from expanded withholding tax.

9. Economic Zone Utilities Enterprise

   • 5% Special Tax on Gross Income and exemption from all national and local taxes, except real property tax on land owned by developers;

   • VAT zero-rating of local purchases;

   • Exemption from expanded withholding tax.

Respicio & Co. Law Firm can help you evaluate your investment, locate your operation in an ideal zone, building or park, and fully maximise your PEZA incentives.

Previous: PEZA Areas of Investment – Part 1 of PEZA Series: Perks of Being a PEZA-Registered Business

Next: PEZA Guidelines of Registration – Part 3 of PEZA Series: Perks of Being a PEZA-Registered Business

PEZA Areas of Investment – Part 1 of PEZA Series: Perks of Being a PEZA-Registered Business

The Philippine Economic Zone Authority, created by R.A. 7915, “The Special Economic Zone Act of 1995”, is the government agency tasked with the promotion and regulation of foreign investments on Philippine soil, in Special Economic Zones.

These zones provide tax incentives and other economic benefits to foreign investors setting up certain types of businesses within these areas:

1. Export Manufacturing – Economic Zone Export Manufacturing Enterprise engaged in processing, assembly, and manufacturing of goods where 70% of the production is to be exported.

2. Information Technology Service Export – Economic Zone IT Enterprise or IT Parks and Buildings of which 70% of IT service activities are rendered to clients abroad, such as: BPOs, call centers, data encoding, software development and application, content development for multi-media or internet purposes; and others.

3. Tourism – Tourism Economic Zone Developers or Operators and Locators establishing and operating sports and recreation centers, accommodation, convention, and cultural facilities and their special interest attraction activities/establishments, with foreign tourists as primary clientele.

4. Medical Tourism – Medical Tourism Enterprise providing medical health services, duly endorsed by the Department of Health, primarily rendering services to foreign patients.

5. Agro-industrial Export Manufacturing – Agro-industrial Economic Zone Developers or Operators and Locators, engaged in the processing and/or manufacturing of agricultural products resulting in the exportation of its production.

6. Agro-industrial Bio-Fuel Manufacturing – Enterprise engaged in specialized manufacturing of agricultural crops and eventual commercial processing which shall result in the production of clean energy such as bio-fuels and the like.

7. Logistics and Warehousing Services – Enterprise engaged in:

   • Warehousing for storage, deposit, and safekeeping of goods for PEZA-registered Economic Zone Export Manufacturing Enterprises; and/or

   • Importation or local sourcing of raw materials, semi-finished goods for resale to, or for packing, covering (marking/labeling), cutting, or altering to customer specification, mounting and/or packaging into kits or marketable lots for subsequent sale to PEZA-registered Export Manufacturing Enterprises for use in their export activities, or for direct export, or for consignment to PEZA-registered Export Manufacturing Enterprises and eventual export.

8. Economic Zone Development and Operation – Enterprise engaged in the development, operation and maintenance of:

   • Manufacturing Economic Zone Development/Operation – infrastructure, facilities and utilites as light and power system, water supply and distribution system, sewerage and drainage system, pollution control devices, communication facilities, paved road network, administration building.

   • IT Park Development/Operation – infrastructures and other support facilities required by IT Enterprises, as well as amenities or easy access thereto, required by IT professionals and workers.

   • Tourism Economic Zone Development/Operation – integrated resort complex, with prescribed carrying capacities of tourist facilities and activities.

   • Medical Tourism Economic Zone Development/Operation – Medical Tourism Park or Medical Tourism Center, planned and designed in accordance with the standards of the Department of Health and the Department of Tourism to have support facilities and services required for health and wellness, and provided with required infrastructure facilities and utilities.

   • Agro-industrial Economic Zone Development/Operation – Agro-industrial economic zone planned and designed to have support facilities and services required for processing and agro-based manufacturing facilities, and provided with the required infrastructure facilities and utilities.

   • Retirement Economic Zone Development/Operation – Retirement Economic Zone Park or Center, planned and designed in accor dance with the accreditation standards of the Philippine Retirement Authority, and provided with the required infrastructure facilities and utilities.

9. Facilities Providers – Enterprise engaged in:

   • Facilities for Manufacturing Enterprises – construction as owner/operator of factory buildings inside special economic zone, for lease to PEZA-registered Export Manufacturing Enterprises.

   • Facilities for IT Enterprises – construction as owner/operator of buildings and other facilities inside IT Parks which are leased to PEZA-registered IT Enterprises.

   • Retirement Facilities – establishment, operation and management of retirement facilities and other related activities, with foreign retirees as primary clientele, duly endorsed by the Philippine Retirement Authority, and located in a Retirement Economic Zone.

10. Utilities – Enterprise engaged in the establishment, operation and maintenance of light and power systems, water supply and distribution systems inside Special Economic Zones.

Respicio & Co. Law Firm can help you determine your eligibility for PEZA-registration, and process the registration.

Next: PEZA Economic Incentives – Part 2 of PEZA Series: Perks of Being a PEZA-Registered Business

Public-Private Partnership in the Philippines

Public-Private Partnership (PPP) in the Philippines was institutionalized through R.A. No. 6957, entitled “An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for the Other Purposes”. It was meant to recognize the indispensable role of the private sector as the main engine for national growth and development. In 1994, R.A. No. No. 7718 amended R.A. 6957 in to expand the modalities of partnership between the government and the private sector.

In 2010, the Office of the President issued Executive Order No. 8, entitled “Reorganizing and Renaming the Build-Operate and Transfer Center to the Public-Private Partnership Center of the Philippines and Transferring its Attachment from the Department of Trade and Industry to the National Economic and Development Authority and for Other Purposes”, which designates the PPP Center as the central coordinating body for all PPP projects.

It must be noted that despite the creation of the PPP Center, National Government Agencies (NGA), Government-Owned and -Controlled Corporations (GOCC), and Local Government Units (LGU) with infrastructure and development projects remain to be the owners and implementing agencies of the PPP projects.

Example of awarded projects under the PPP include the DaangHari – SLEX Link Road, PPP for School Infrastructure Project (Phase I), NAIA Expressway Project, PPP for School Infrastructure Project (Phase II), Modernization of the Philippine Orthopedic Center (MPOC), Automatic Fare Collection System (AFCS), and Mactan-Cebu International Airport Passenger Terminal Building.

The following projects are currently in the pipeline:

1. Manila Heritage and Urban Renewal Project

2. Clark Green City Food Processing Terminal

3. Central Spine Roll-on/Roll-off (RoRo)

4. Manila-East Rail Transit System Project

5. R1-R10 Link Mass Transport System Development Project

6. LRT Line 4 Project

7. Central Luzon Link Expressway (CLLEX) Phase II, Cabanatuan-San Jose Section and Operation and Maintenance of Phases I (Tarlac- Cabanatuan, Nueva Ecija) and II Project

8. Improvement and Operation & Maintenance of Kennon Road and Marcos Highway

9. Rehabilitation of National Center for Mental Health

10. NLEX East Expressway

11. Camarines Sur Expressway Project

12. PPP for School Infrastructure Project (PSIP) Phase III

13. Sucat Gas Power Plant

14. Duty Free Retail Development Project

15. Motor Vehicle Inspection System

16. Laguna Lakeshore Expressway-Dike Project

17. Clark International Airport Project

18. San Ramon Newport Project

Respicio & Co. can help interested investors participate in the bidding of these projects.

Foreign Equity Limitations

Foreign equity limitations provide the maximum percentage shareholding by foreign stockholders in corporations engaged in partially nationalized economic activities, such as public utilities. Section 2 of SEC Memorandum Circular No. 8 series of 2013 states that “the required percentage of Filipino ownership shall be applied to BOTH (a) the total outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.”

To illustrate, a telecommunications company is allowed to have a maximum of 40% of its capital owned by foreign stockholders. However, capital can be in the form of voting or common shares and non-voting or preferred shares. To comply with the foreign equity limitation, the 40% maximum must be observed not only on the basis of total outstanding shares—i.e., both voting and non-voting shares—but also on the basis of voting or common shares.

Hence, a company with 35% foreign equity on the basis of total outstanding shares, but with 41% foreign equity on the basis of voting shares, violates the 1987 Constitution on the 60-40 maximum equity allocation between Filipino and foreign stockholders in public utility corporations.

The Supreme Court in Gamboa vs. Teves articulated the rationale for this rule, as follows:

The Constitution expressly declares as State policy the development of an economy “effectively controlled” by Filipinos. […] [T]he right to vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letter and intent of the Constitution. Any other meaning of the term “capital” openly invites alien domination of economic activities reserved exclusively to Philippine nationals

Respicio & Co. Law Firm can help you establish your business in the Philippines.

Foreigners Doing Business in the Philippines

A foreign corporation must be licensed by the Securities and Exchange Commission (SEC) to do business in the Philippines. Section 133 of the Corporation Code of the Philippines (B.P. No. 68) provides the adverse legal effect of doing business without license, as follows:

No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

In other words, an unlicensed foreign corporation shall have no recourse in the courts to enforce its rights against other persons and corporations in the country. Section 3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) provides examples constituting the act of “doing business”, as follows:

1. Soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches;

2. Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more;

3. Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and

4. Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

The same Section also defines what shall not be deemed as “doing business”, as follows:

1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor

2. Having a nominee director or officer to represent its interests in such corporation; and

3. Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.

Respicio & Co. Law Firm can help you establish your business in the Philippines.