Differentiating US and Philiipine Bases converted to Economic Zones or Freeport Zones from PEZA designated areas in terms of published Legal and Fiscal Incentives and PHYSICAL ATTRIBUTES.

1. Incentives for
Outsourced
Businesses in the
Philippines PEZA
and Freeport Zones
HON. Mary Rose Magsaysay MPA

2. Legal Framework
Year Title Link Relevance Implementing
Agency
1967 Investment
Incentive Act
RA 5186 Creation of the Board
of Investment
NA
1987 Omnibus Investment
Code
EO 226 Defines the maximum
40% foreign
participation in
Philippine enterprise
and Income Tax
Holidays
Board of Investment
1991 Foreign Investment
Act
RA 7042 Defines the Foreign
investment negative
list.
SEC, DOLE, BIR, NEDA,
DOF, DFA, DOTC, DICT,
CB, DTI
1992 Bases Conversion
and development
Act 1992
RA 7227 Conversion of the US
Military bases and other
military reservations in
the Philippines into
Economic Zones and
defining the Fiscal and
non Fiscal incentives.
BCDA, and the
respective boards of
each converted base
coordinating with the
concerned National
Agencies.
1995 The Special
Economic Zone Act
of 1995
RA 7196 Creation of the PEZA
Zones and its’
Implementing Rules
and regulations
PEZA,DTI, DOLE, DILG,
NEDA, BSP, DBM, and
other govt. agencies.

3. Redefining the Foreign
Investment Negative List and
maximum threshold of
ownership
› Executive Order No. 184 2015 by President
Aquino further clarifies and discusses in
detail as to which industries may include
and exclude foreign participation and to
its extent not more than 40% ownership.

4. Reasons for Utilizing Special
Economic Zones for foreign
Investors
› For government priority growth sectors/industry the National
Economic Development Agency and its attached agency
the board of Investment with other government agencies
have time and again formulated investment packages for
foreign investors. Pls. Check newest. With this new
government they are still formulating a new one.
› Baker and McKenzie has a 2015 publication by their
Philippine counterpart Quisumbing Torres Law Offices came
out with a publication titled Outsourcing in the Philippines.
Pricewaterhouse Coopers also has a publication titled
Investment Incentives in the Philippines both detailing a
comparative between Board of Investment PEZA and
BCDA (Clark and Subic Freeport Zones) on Fiscal and non
Fiscal Incentives and more. But with the new government
much will be made and may in a few months become
different again.

5. › What is lacking in these 2 publications are the
physical attributes apparent to the United States
bases converted; Subic and Clark. These 2 huge vast
tracks of land are fully developed with forest
reservoirs (more than 13,000 hectares for Subic and
26,000 hectares for Clark). These are complete cities
within itself that has first class roads with no traffic,
reliable independent power plants, first class water
and sewage systems. Both have International airports
and but Subic has an International seaport as it is by
the bay. Most of all, both have unparalleled security
that all the other economic zones may not equal.
› These 2 types of Economic Zones vary with respect to
the mandate of its creation (supporting law). One is
conversion of US bases while the other is designating
specific areas as Economic/Industrial Zones to spur
Economy. But both have similar if not the same Fiscal
and non fiscal incentives.

6. RA 7227 approved Economic
Zones

7. FLOW DIAGRAM
100%
Foreign
owned
Submit the name
with Phase 1
requirements see
slide number 14
SBFZ Board will approve
submitted requirements
and issue endorsement
letter to the SEC to
continue incorporation
(15 working days)
Once incorporation
documents are
complete from the SEC
resubmitted to the
SBMA with the Phase 2
documents
SBFZ will have final
evaluation after
which certificate of
registration and tax
exempt will be issued
The Certificate of
Registration and
Tax Exempt will
be used as
requirement by
the PEZA, Board
of Investment,
Bureau of
Internal Revenue
and other
Government
agencies for
other incentives
in your choice of
either BOI or RA
7227 incentives.
The first Five Steps will take
90 working days to
complete presuming all
documents are complete

8. Current Business Incentives of the
Freeport Zones

9. Evaluation Parameters of Enterprise
Approval (Phase 1)

10. Business Registration Requirements
Matrix

11. RA 7196 APPROVED PEZA
AREAS

12. PEZA INCENTIVES FOR I.T.
› Income Tax Holiday (ITH) – 100% exemption
from corporate income tax:
› 4 years ITH for Non-pioneer project
› 6 years ITH for Pioneer project
› ITH Extension year may be granted
if Project complies with the following
criteria (one criterion is equivalent to one
ITH extension year,), provided that the total
ITH entitlement period shall not exceed
eight (8) years:

13. › > The average net foreign exchange
earnings of the project for the first three
(3) years of operations is at least US
$500,000.00 and,
› > The capital equipment to labor ratio of
the project does not exceed US$10,000.00
to 1 for the year immediately preceding
the ITH extension year being applied for.
› o 3 years ITH for Expansion project (ITH
applies to incremental sales)

14. › Upon expiry of the Income Tax Holiday -
5% Special Tax on Gross Income and
excemption from all national and local
taxes. (“Gross Income” refers to gross
sales or gross revenues derived from the
registered activity , net of sales discounts,
sales returns and allowances and minus
cost of sales or direct costs but before any
deduction is made for administrative
expenses or incidental losses during a
given taxable period)

15. › Tax and duty free importation of
equipment and parts.
› Exemption from wharfing dues on import
shipments of equipment.
› VAT zero-rating of local purchases of goods
and services, including land-based
telecommunications, electrical power,
water bills, and lease on the
building, subject to compliance with
Bureau of Internal Revenues and PEZA
requirements

16. › Exemption from payment of any and all local
government imposts, fees, licenses or taxes.
However, while under Income Tax Holiday, no
exemption from real estate tax,
but machineries installed and operated in
the economic zone for manufacturing,
processing or for industrial purposes shall not
be subject to payment of real estate taxes for
the first three (3) years of operation of such
machineries. Production equipment not
attached to the real estate shall be exempt
from real property taxes.
› Exemption from expanded withholding tax.

17. › Simplified Import – Export Procedures (Electronic
Import Permit System and Automated Export
Documentation System).
› Non-resident Foreign Nationals may be employed by
PEZA-registered Economic Zone Enterprises in
supervisory, technical or advisory positions.
› 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 twenty-one
years of age. PEZA extends Visa Facilitation
Assistance to foreign nationals their spouses and
dependents.
PEZA NON-FISCAL INCENTIVES