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

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.

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.

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.

�  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.

RA 7227 approved Economic Zones

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

Current Business Incentives of the Freeport Zones

Evaluation Parameters of Enterprise Approval (Phase 1)

Business Registration Requirements Matrix

RA 7196 APPROVED PEZA AREAS

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:

� > 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)

� 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)

� 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

�  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.

�  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