ECOZONE Developers/Operators shall be entitled to the following incentives:
Exemption from National and Local Taxes and Licenses
Except for real property taxes on land, an ECOZONE Developer/Operator shall be exempt from payment of all national and local taxes.
In lieu thereof, the ECOZONE Developer/Operator shall pay a five percent (5%) final tax on gross income.
Additional Deduction for Training Expenses
An additional equivalent to one-half (1/2) of the value of training expenses incurred in developing skilled or unskilled labor or foe managerial or other management development programs incurred by enterprises in the ECOZONE can be deducted from the national governments share of three percent (3%) of the five percent (5%) final tax on gross income.
ECOZONE Developers/Operators registered with PEZA before the effectivity of Republic Act No. 8748 on June 20, 1999 shall continue to be entitled to incentives under the terms and conditions provided in their registered agreement.
Incentives To Ecozone Export and Free Trade Enterprises
Exemption from Duties and Taxes on Merchandise
Merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description brought into the ECOZONE Restricted Area by an ECOZONE Export or Free Trade Enterprise to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufacture, mixed with foreign or domestic merchandise whether directly or indirectly related in such acitivity, shall not be subject to customs and internal revenue laws and regulations on the Philippines nor to local tax ordinances. Importations of certain goods or merchandise under this paragraph shall be subject to the following conditions:
Importation of Capital Equipment
Conditions for Duty and Tax Free Importation – An ECOZONE Export or Free Trade Enterprise may import machineries, equipment and spare parts exempt from payment of any and all tariff duties and internal revenue taxes due thereon subject to the following conditions:
- The machinery and equipment are directly and actually needed and will be used exclusively by the ECOZONE Export or Free Trade Enterprise in its registered activity;
- The importation of spare parts shall be restricted only to component spare parts for the specific machinery and/or equipment authorized to be imported; and
- Subject to reasonable allowances, the rated capacity of the capital equipment to be imported must be within the registered capacity of the ECOZONE Export or Free Trade Enterprise.
Sale or Disposition of Capital Equipment – Any sale, transfer, assignment, donation or other form of disposition of originally imported capital equipment/machinery including spare parts, brought into the ECOZONE duly and tax-free, within five (5) years from date of acquisition shall require prior approval of the Board.
Importation of Construction materials
ECOZONE Export or Free Trade Enterprises entitled to tax and duty free importation of goods or merchandise may import construction materials and other articles that shall form part of its factory, warehouse or office building, including fixtures thereof, enclosures, driveways and auxillary structures, subject to the following conditions:
- The factory, warehouse or office building shall be constructed at the expense of the ECOZONE Export or Free Trade Enterprise;
- The construction materials to be imported are not manufactured domestically in sufficient quantity, not of comparable quality and not sold locally at reasonable prices. Construction materials shall not be considered available in sufficient quantity if they cannot be made available to the ECOZONE Export or Free Trade Enterprise at the time of need or within a reasonable period.
- The construction materials to be imported are reasonably needed and will be used exclusively in the construction of the factory, warehouse or office building to be used by the ECOZONE Export or Free Trade Enterprise solely for its registered operations;
- The approval of PEZA is obtained by the ECOZONE Export or Free Trade Enterprise before the purchase order is made or before the corresponding letters of credit are opened; and
- The construction materials shall be brought directly and physically inside the ECOZONE restricted area or such area as may be designated by PEZA for this purpose and in no instance shall these be sold, transferred, assigned, donated or be disposed of in any manner in the customs territory.
Importation of Specialized Office Equipment and Furniture
Specialized office equipment and furniture such as computers, antistatic chairs, tables and others of similar nature may be imported by ECOZONE Export or Free Trade Enterprise exempt from customs duties and taxes payable thereon, if the said equipment is not manufactured domestically in sufficient quantity, not of comparable quality and not sold at reasonable price. Otherwise, ordinary office equipment and furniture, whenever applicable shall be procured locally.
Importation of Professional Instruments and Household Effects
The professional instruments and implements, tools and trade, occupation or employment, wearing apparel and personal household effects of foreign nationals who shall settle in the Philippines in connection with their registered activity, may be imported exempt from the payment of import duties and taxes: Provided, (a) That the foreign national is an executive or is employed in an ECOZONE Export or Free Trade Enterprise; and (b) That the above-mentioned articles shall not be in commercial quantities nor for hire; and (c) That the approval of PEZA is obtained by the ECOZONE Export or Free Trade Enterprise before the purchase order is made or before the corresponding letters or credit are opened.
Exemption from National and Local Taxes and Licenses
Tax Credit for Import Substitution
Entitlement – ECOZONE Export or Free Trade Enterprises exporting non-traditional products which use or substitute locally produced raw materials, capital equipment and/or spare parts shall be granted a tax credit equivalent to twenty-five percent (25%) of the duties that would have been paid had these inputs been imported: Provided, That this incentive shall be available until December 31, 1977, unless extended by the President of the Philippines.
To be eligible for tax credit, the ECOZONE Export or Free Trade Enterprise exporting a non-traditional product must have used locally produced raw materials, capital equipment and/or spare parts or has substituted locally produced raw materials, capital equipment and/or spare parts for similar articles previously imported.
Determination of Whether Products is Traditional or Non-Traditional – The determination of whether an export product is traditional or non-traditional shall be governed by the criteria to be jointly issued by the Secretary of Finance, Secretary of Trade and Industry and Export Development Council.
Exemption from Wharfage Dues, Export Tax, Impost or Fee
An ECOZONE Export or Free Trade Enterprise shall be exempt from payment of wharfage dues and any export tax, impost or fee on the exportation of its registered export products or, in the case of an ECOZONE Free Trade Enterprise, on foreign merchandise transshipped through its ECOZONE facilities.
Income Tax Holiday
Period of Availment– New ECOZONE Export or Free Trade Enterprises shall be fully exempt from income taxes levied by the National Government for the period as follows:
– New registered pioneer firms – Six (6) years from commercial operations.
– New registered non-pioneer firms – four (4) years from commercial operations.
– Expanding firms – Three (3) years from commercial operation of the expansion.
Entitlement for new expansion projects
New projects – In exceptional cases, ECOZONE Export or Free Trade Enterprise undertaking new activities disctinct from their registered operations may qualify as new projects subjects to the setting up of separate books of accounts. In such cases, the income tax holiday shall only to sales of the new products.
Expansion projects – The income tax holiday for expansion projects
Expansion may include modernization or rehabilitation which, to be registrable, may or may not result in increased 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:
(i) substantial reduction of production cost,
(ii) significant increase in production efficiency including debottlenecking;
(iii) meaningful upgrading of product quality;
(iv) keeping abreast with the state of the art in the production of the registered product.
Additional Period of Availment
For ECOZONE Export and 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:
– 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;
– 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;
– 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 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 subtitution in the firms approved project proposal.
– For the purposes 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.
Source: The Special Economic Zone Act of 1995, Philippine Export Zone Authority