Special Economic Zone Registration in the Philippines: A Step-by-Step Guide

Registering in a special economic zone in the Philippines means applying to the authority that governs the zone — principally the Philippine Economic Zone Authority (PEZA) — so your enterprise can operate inside the zone and avail of its fiscal incentives. Under the Special Economic Zone Act of 1995 (Republic Act No. 7916), business enterprises within a designated ecozone must register with the PEZA to avail of all incentives and benefits provided for in the Act. Registration is not automatic: you must first locate your project in a proclaimed ecozone, then apply, then comply with the zone's operational requirements.

What a special economic zone is

Under Section 4 of Republic Act No. 7916, special economic zones, or 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 industrial estates, export processing zones, free trade zones, and tourist or recreational centers.

The law also makes each ecozone a separate customs territory. Section 8 of Republic Act No. 7916 states that the ECOZONES shall be managed and operated by the PEZA as separate customs territory.

Step 1: Choose the right ecozone

The Philippines does not have a single ecozone; it has many, established by law and by presidential proclamation. Section 5 of Republic Act No. 7916 identifies initial ecozone areas across the country, including portions of Bataan, Batangas, Cagayan de Oro, Iligan, Saranggani, Laoag, Davao, Aurora, Camarines Sur and Albay, Batanes, Cebu, Tacloban, Leyte, Guimaras, Antique, Northern Samar, Cavite, Maguindanao, Marinduque, Zamboanga, Camiguin, Quezon, Agusan del Norte, Capiz, Pangasinan, Zambales, Palawan, South Cotabato, Negros Oriental, Ilocos Sur, La Union, Laguna, and Rizal. All existing export processing zones and government-owned industrial estates are likewise ecozones, and any private industrial estate may voluntarily apply for conversion into an ecozone.

Section 6 of the same law allows other areas to be established as ecozones by presidential proclamation, upon PEZA evaluation and recommendation, based on a detailed feasibility and engineering study meeting criteria such as identification as a regional growth center, available infrastructure, water and power supply, vacant land, labor force, strategic location, and ease of controlling smuggling.

Some zones are governed by their own charters. The Aurora Pacific Economic Zone and Freeport, for instance, was established under Republic Act No. 9490, as amended by Republic Act No. 10083, and is managed by the Aurora Pacific Economic Zone and Freeport Authority (APECO) under Section 4 of that law.

Step 2: Prepare your project and apply for registration

Section 35 of Republic Act No. 7916 requires business enterprises within a designated ecozone to register with the PEZA. To make this practical, the same law directs the PEZA to establish a one stop shop center for the purpose of facilitating the registration of new enterprises in the ecozone. All appropriate government agencies involved in registering, licensing or issuing permits to investors are required to assign their representatives to the ecozone to attend to investors' requirements.

The PEZA is also empowered under Section 13 of Republic Act No. 7916 to register, regulate and supervise the enterprises in the ecozone in an efficient and decentralized manner. Its Board, under Section 12, sets general policies on the establishment and operations of ecozones, industrial estates, export processing zones and free trade zones.

Step 3: Understand the incentives you are registering for

Registration is the gateway to the fiscal incentives. Section 23 of Republic Act No. 7916 provides that business establishments operating within the ECOZONES shall be entitled to the fiscal incentives under Presidential Decree No. 66 or under Book VI of Executive Order No. 226, the Omnibus Investment Code of 1987, and that tax credits for exporters using local materials as inputs enjoy the same benefits under the Export Development Act of 1994.

Section 24 provides the core tax treatment: no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE; in lieu of paying taxes, five percent (5%) of gross income earned is remitted to the national government, shared as three percent (3%) to the national government, one percent (1%) to the affected local government units, and one percent (1%) for a development fund for municipalities outside and contiguous to each ecozone.

For zones with their own charters, the incentive structure may be set out in that charter. Under Republic Act No. 9490, as amended, registered enterprises in the Aurora Ecozone are subject to a five percent (5%) tax on gross income earned in lieu of national and local taxes, with three percent (3%) to the national government, one percent (1%) shared by the province and municipality, and one percent (1%) to APECO.

Step 4: Operate within the rules of the zone

Registration carries continuing obligations. Section 26 of Republic Act No. 7916 allows goods manufactured by an ecozone enterprise to be made available for immediate retail sale in the domestic market, subject to payment of corresponding taxes on raw materials and other regulations adopted by the PEZA Board — but enterprises in industries on the negative list may not sell their products locally. Section 25 provides that all income derived by persons and all service establishments in the ecozone shall be subject to taxes under the National Internal Revenue Code.

On labor, Republic Act No. 7916 provides that labor and management relations in the ecozone shall be governed by the existing Labor Code of the Philippines, and that personnel in ecozone enterprises shall receive salaries and benefits and enjoy working conditions not less than those provided under the Philippine Labor Code and other relevant laws, issuances, rules and regulations of the Philippine government and the Department of Labor and Employment. The same law also provides that employment of foreign nationals hired by ecozone enterprises in a supervisory, technical or advisory capacity shall not exceed five percent (5%) of its workforce without the express authorization of the Secretary of Labor and Employment. The specific article numbers of the Labor Code on these points are not reproduced in the library copy of Republic Act No. 7916, so the rule is stated here as the ecozone law itself expresses it.

Frequently asked questions

Do I need to register with PEZA to operate in an ecozone? Yes. Section 35 of Republic Act No. 7916 states that business enterprises within a designated ECOZONE shall register with the PEZA to avail of all incentives and benefits provided for in the Act.

What tax do ecozone enterprises pay? Under Section 24 of Republic Act No. 7916, no local or national taxes are imposed on business establishments operating within the ecozone; instead, five percent (5%) of gross income earned is remitted, shared among the national government, local government units, and a development fund.

Can a foreign company set up inside an ecozone? Yes. Section 7 of Republic Act No. 7916 provides that foreign citizens and companies owned by non-Filipinos in whatever proportion may set up enterprises in the ECOZONE, either by themselves or in joint venture with Filipinos in any sector of industry, international trade and commerce within the ECOZONE.

Practical takeaways

• Registration with the PEZA is the legal condition for availing of ecozone incentives under Republic Act No. 7916.
• The PEZA operates a one stop shop center to consolidate registration, licensing and permitting for new enterprises.
• The standard ecozone tax model is a five percent (5%) tax on gross income earned in lieu of national and local taxes.
• Domestic sales are allowed but subject to taxes on raw materials and to the PEZA negative list of industries.
• Zones created by their own charters, such as the Aurora Ecozone under Republic Act No. 9490 as amended, may have their own governing authority and incentive rules.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 10083 - AN ACT AMENDING REPUBLIC ACT NO. 9490, OTHERWISE KNOWN AS THE "AURORA SPECIAL ECONOMIC ZONE ACT OF 2007"

• REPUBLIC ACT NO. 7916 - AN ACT PROVIDING FOR THE LEGAL FRAMEWORK AND MECHANISMS FOR THE CREATION, OPERATION, ADMINISTRATION, AND COORDINATION OF SPECIAL ECONOMIC ZONES IN THE PHILIPPINES, CREATING FOR THIS PURPOSE, THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), AND FOR OTHER PURPOSES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.