See - Implementing Rules and Regulations
Republic of the Philippines
PHILIPPINE ECONOMIC ZONE AUTHORITY
Roxas Boulevard corner San Luis Street
Pasay City, Metro Manila
RULES AND REGULATIONS TO IMPLEMENT
REPUBLIC ACT NO. 7916,
OTHERWISE KNOWN AS
“THE SPECIAL ECONOMIC ZONE ACT OF 1995”
Pursuant to Paragraph (e) of Section 12 and Section 55 of Republic Act No. 7916, the following are hereby promulgated:
PART I - GENERAL PROVISIONS
Rule I. Definition and Basic Guidelines
SECTION 1. Title - These rules shall be referred to as the “Rules and Regulations to Implement Republic Act No. 7916.”
SECTION 2. Definition of Terms - For purposes of these Rules and Regulations, the following definitions shall apply:
a. “Act” shall refer to Republic Act No. 791,6, otherwise known as The Special Economic Zone Act of 1995.
b. “Decree” shall refer to Presidential Decree No. 66, as amended.
c. “Code” shall refer to Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, as amended.
d. “PEZA” shall mean the Philippine Economic Zone Authority created under Section 11 of the Act.
e. “Board” shall refer to the PEZA Board of Directors.
f. ECOZONES or “Special Economic Zones” (SEZ) shall refer to selected areas with highly developed or which have the potential to be developed into agri-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZ), free trade zones and tourist / recreational centers.
f.1. “Industrial Estate (IE)” refers to a tract of land subdivided and developed according to a comprehensive plan under a unified continuous management and with provisions for basic infrastructure and utilities, with or without pre-built standard factory buildings and community facilities for the use of a community of industries.
f.2. “Export Processing Zone (EPZ)” refers to a specialized industrial estate located physically and / or administratively outside the customs territory and predominantly oriented to export production. Enterprises located in export processing zones are allowed to import capital equipment and raw materials free from duties, taxes and other import restrictions.
f.3. “Free Trade Zone” refers to an isolated policed area adjacent to a port of entry (such as a seaport) and / or airport where imported goods may be unloaded for immediate transhipment or stored, repacked, sorted, mixed, or otherwise manipulated. However, movement of these imported goods from the free-trade area to a non-free trade area in the country shall be subject to customs and internal revenue rules and regulations.
f.4. “Tourist / Recreational Center” refers to an area within the ECOZONE where tourist accommodation facilities such as hotels, apartelles, tourist inns, pension houses, resorts, sports and / or recreational facilities are provided to render tourism services for both local and foreign tourists, travellers and investors in accordance with the guidelines issued by the PEZA.
g. “Customs Territory” shall mean the national territory of the Philippines outside of the proclaimed boundaries of the ECOZONES except those areas specifically declared by other laws and/or presidential proclamations to have the status of special economic zones and / or free ports.
h. “Restricted Area” shall mean a specific area within the ECOZONE which has been classified and / or fenced-in as export processing zone, free trade zone or such other areas as may be declared by the Board.
i. “ECOZONE Export Enterprise” refers to an individual, association, partnership, corporation or other form of business organization which has been registered with the PEZA to engaged in manufacturing, assembling or processing activity falling within the purview the Act and resulting in the exportation of 100% of its production, unless a lower percentage of its production for exportation is prescribed by the Board subject to such terms and conditions as the latter may determine.
j. “ECOZONE Domestic Market Enterprise” refers to an individual, association, partnership, corporation or other form of business organization which has been registered with the PEZA to engaged in manufacturing, assembling or processing activity falling within the purview of the Act resulting in the sale of its finished products in the customs territory or in the non-restricted or authorized areas within the ECOZONE in its entirety or if exporting a portion of its production output, it continually fails to export at least fifty percent (50%) thereof for a period of three (3) years without any justifiable reason in case at least 60% of its working capital is owned by Philippine nationals or in case more than 40% of its working capital is owned by foreign nationals, it continually fails to export at least seventy percent (70%) of its production output for a period of three (3) years without any justifiable reason.
k. “ECOZONE Pioneer Enterprise” shall mean an ECOZONE enterprise (1) engaged in the manufacture, processing or production and not merely in the assembly of packaging of goods, products, commodities or raw materials that have not been or are not being produced in the Philippines on a commercial scale or (2) which uses a design, formula, scheme, method, process or system or production of transformation of any element, substance or raw materials into another raw material or finished goods which is new and untried in the Philippines (3) which produces non-conventional fuels or manufactures equipment which utilizes non-conventional sources of energy or uses or converts to coal or other non-conventional fuels or sources of energy in its production, manufacturing or processing operations: or (4) engaged in the pursuit of agri-export processing zone development or (5) given such status under the Investment Priorities Plan: Provided, That the final product in any of the foregoing instances involves or will involve substantial use and processing of domestic raw materials, whenever available, taking into account the risk and magnitude of investment.
l. “ECOZONE Free Trade Enterprise” refers to an individual, association, partnership, corporation or other form of business organization which has been registered with the PEZA to engaged in the importation of goods or merchandise within the restricted or free trade area in the ECOZONE tax and duty-free for immediate transshipment or for storage, repacking, sorting, mixing or manipulation and subsequent exportation unless the Board allows the sale thereof in the customs territory subject to the payment of customs duties and internal revenue taxes to such other terms and conditions as it may determine.
m. “ECOZONE Utilities Enterprise” shall refers to a business entity or concern within the ECOZONE duly registered with and / or franchised / licensed by the PEZA with or without the incentives provided under Republic Act No. 6957, as amended, (the Build-Operate-Transfer Law) and / or with or without financial exposure on the part of the PEZA, such as contractors/operators of light and power systems, water supply and distribution systems, communications and transportation systems within the ECOZONE and other similar or ancillary activities as may be determined by the Board.
n. “ECOZONE Facilities Enterprise” shall refers to a business entity or concern within the ECOZONE duly registered with and / or franchised / licensed by the PEZA with or without incentives provided under Republic Act No. 6957, as amended, (the Build-Operate-Transfer Law) and / or with or without financial exposure on t he part of the PEZA such as contractors / operators of buildings, structures, warehouses, site development and road network, ports, sewerage and drainage system and other facilities for the development, operation and maintenance of the ECOZONE and other similar or ancillary activities as may be determined by Board.
o. “ECOZONE Developer/Operator” refers to a business entity or concern duly registered with and / or licensed by the PEZA to develop, operate and maintain an ECOZONE or nay or all of the component IE, EPZ, Free Trade Zone or Tourist / Recreational Center and the required infrastructure facilities and utilities such as light and power system, water supply and distribution system, sewerage and drainage system, pollution control devices, communication facilities, paved road network, administration building and other facilities as may be required by the PEZA. The term shall include the PEZA and / or the Local Government Unit when by the themselves or in joint venture with a qualified private entity, shall act as the Developer / Operator of the ECOZONES. As such, they shall be entitled to the same incentives under Rule XIV of these Rules in accordance with the pertinent provisions of the Act and the Code.
p. “ECOZONE Service Enterprise” shall refers to a business entity or concern within the ECOZONE such as but not limited to those engaged in customs brokerage, trucking / forwarding services, parcel services, janitorial services, security services, insurance, and / or banking services, consultancy services, restaurants or such other services within the ECOZONE as may be determined by the Board, duly registered and/or licensed by the PEZA whose income derived within the ECOZONE shall be subject to taxes under the National Internal Revenue Code pursuant to Section 15 of the Act.
q. “ECOZONE Tourism Enterprise” shall refer to an individual, association, partnership, corporation or other business organization duly registered with the PEZA proposing to engaged in the establishment and operation of tourist-oriented accommodations, restaurants operated as an integral part of a tourism facility (e.g., hotels, resorts, recreational centers), sports and recreational facilities within the ECOZONE.
r. “Negative List” shall refer to the list of industries drawn up and regularly updated by the PEZA under which ECOZONE Enterprises engaged in any industry listed therein shall not be allowed to sell their products or any portion thereof in the custom territory.
s. “Certificate of Registration” shall mean the certificate issued by the PEZA to an ECOZONE Enterprise upon its registration.
t. “Date of Registration” shall refer to the date appearing in the certificate of registration.
u. “Registration Agreement” shall refer to the final agreement executed by the PEZA and the ECOZONE Enterprise setting forth the terms and conditions for the latter's operation of business or engaged of economic activity within the ECOZONE.
v. “Start of Commercial Operations” for purposes of the income tax holiday shall be the date specified in the Registration Agreement or the date when the particular ECOZONE export enterprise actually begins production of the registered product for commercial purposes, whichever comes first, irrespective of phases or modules or schedule of development.
w. “Expansion” shall mean installation of additional facilities and / or equipment that will result in the increase of production capacity. It may include modernization and rehabilitation.
Modernization or rehabilitation to be registrable may or may not result in increase in capacity but the following conditions should be met:
1. The area must be listed in the Investment Priorities Plan specifically for modernization or rehabilitation;
2. Phases / stages of production sought to be modernize / rehabilitated must be identified; and must result in any of the following:
a. substantial reduction of production cost; or
b. significant increase in productive efficiency including debottlenecking; or
c. meaningful upgrading of product quality; or
d. keeping abreast with the state of the art in the production of registered product.
x. “Prohibited Merchandise” shall refer to goods, wares, merchandise, equipment or machineries the importation of which are prohibited by law as enumerated in Section 102, Book 1 of the Republic Act No. 1937, otherwise known as the Tariff Customs Code of the Philippines, as amended by Presidential Decree No. 34, and such other goods or merchandise which may be prohibited by special laws or by the PEZA.
y. “Domestic Merchandise” shall mean those articles which are the growth, origin or manufacture of the Philippines.
z. “Foreign Merchandise” shall mean those articles imported into the Philippines, except those previously exported therefrom and returned having been advanced in value or improved in condition by any process of manufacture or other similarly artificial means or processes and upon which no drawback or bounty has been allowed.
aa. “Export Product” shall mean the manufacture, processed and/or assembled products, whether physical or non-physical, belonging to the class of products approved by the Board to be undertaken by the enterprise, including such packaging materials and containers as may be necessary to put the product into exportable form.
bb. “Rejects / Seconds” shall mean finished or semi-finished products or raw materials which are defective or inferior in quality, such that any further processing or manipulation thereof is not technically or economically feasible for the purpose for which they are originally intended.
cc. “Semi-Finished Product” shall mean an article, which is unfinished or incomplete but possesses the essential character of a finished product in relation to another and intended to be used as a direct input to the latter.
dd. “Raw Materials” refers to non-fabricated materials directly used in processing or manufacturing, during the course of which its nature or form is changed.
ee. “Spare Parts” shall mean usual components of machinery and / or equipment which are subject to wear and tear arising from normal use, utilization and operation.
ff. “Machinery and Equipment” shall refer to capital equipment, major components thereof, non-perishable tools, machines and other mechanical, chemical and or electrical apparatus, whether fixed or movable, needed in the registered operations of the ECOZONE Enterprise.
gg. “Packaging Materials” shall refer to wrapping materials, receptables and containers, tags, labels, and such other materials as are necessary to put the product in exportable form.
hh. “Construction Materials” shall refer to articles or materials that shall form part of the factory buildings whether built by the ECOZONE enterprise or leased from the PEZA, including fixtures thereof, enclosures, driveways and other auxiliary structures.
ii. “Merchandise or Goods” shall collectively refer to raw materials, supplies, equipment, machineries, spare parts, packaging materials, or wares of every description to be used in connection with the registered activity of an ECOZONE enterprise.
jj. “Assembly” shall mean the process by which semi-finished parts or materials are put together or combined to form a distinct product without substantially changing its physical or mechanical characteristics or electro-magnetic and / or chemical properties.
kk. “Manufacturing / Processing / Manipulation” shall mean the process by which raw or semi-finished materials are converted into a new product through a change in their physical, mechanical or electro-magnetic characteristics and / or chemical properties.
ll. “Packaging” shall mean the process by which raw materials, semi-finished products or finished products whether locally produced or not are placed without substantial alteration in a container or receptacle or wrapped in preparation for the market. It may include weighing and / or reduction of products to standard measurements and specifications and other similar packaging processes.
mm. “Export Sales” shall mean the Philippine port F.O.B. value, determined from invoices, bills or lading, inward letters of credit, landing certificates and other commercial documents of export products exported directly by an ECOZONE Export or Free Trade Enterprise or the net selling price of the export products sold by an ECOZONE Export or Free Trade Enterprise to another export producer or to an export trader that subsequently exports the same; Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by the landing certificate or similar commercial documents; Provided, further, That without actual exportation, the following shall be considered constructively exported:
1. sales to the bonded manufacturing warehouses of export-oriented manufacturers;
2. sales to registered ECOZONE Export or Free Trade Enterprises;
3. sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products; and
4. sales to diplomatic missions and other agencies and / or instrumentalities granted tax immunities of locally manufactured, assembled or repacked products, whether paid for in foreign currency or not.
n. “Gross Income” for purposes of computing the special tax due under Section 24 of the Act refers to gross sales or gross revenues derived from business activity within the ECOZONE, net of sales discounts, sales return and allowances and minus costs of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period. The allowable deductions from “gross income” are specifically enumerated under Section 2, Rule XX of these Rules.
o. “Value Added” is the difference between the selling price of merchandise and the value of the raw materials and manufacturing supplies used in the manufacture, processing or manipulation thereof, which were either imported directly by an ECOZONE Export or Free Trade Enterprise or imported through the customs territory.
p. “Net Foreign Exchange Earnings” shall mean the total foreign exchange proceeds from the export of the registered product minus the total foreign exchange expenses incurred in the production of the registered product and the depreciation of imported capital equipment.
q. “Net Foreign Exchange Savings” shall man the foreign exchange that would have been expended had the registered product been imported less the total foreign exchange expenses incurred in the production of the registered product and the depreciation of imported capital equipment.
r. “Fixed Assets” shall mean those assets subject to depreciation under the National Internal Revenue Code.
s. “Training Program” shall refer to an organized activity primarily designed for the systematic development of the attitude, knowledge, skill and behavior pattern of managerial or non-managerial employees required for the adequate performance of a given job or task conducted by a juridical or natural person or persons.
t. “Training Expense” refers to the direct, ordinary and necessary expenses incurred by an ECOZONE Service Enterprise (except by an ECOZONE Service Enterprise as defined under paragraph (p), Section 2, Rule I of these Rules) in training program or activity designed to develop skilled or unskilled labor or for managerial or other management development program within the purview of Section 42 of the Act. These shall include, among others, the following expenses or any combination of them:
1. Training materials, books and supplies;
2. Cost of raw materials and non-depreciable tools actually consumed and used during the training;
3. Honoraria for resource speakers and training coordinators and other fees;
4. Travelling expenses of resource speakers and training coordinators while away from home on account of the training program;
5. Salaries of trainees and training staff for the duration of training;
6. Travelling expenses of trainees and training staff while away from home on account of the training program;
7. Tuition, registration or similar fees paid for sponsored trainees;
8. Cost of repairs of training equipment facilities and other fixed assets used in the training program, if breakdown occurs as a result of training;
9. Others (not to exceed 5% of the total training cost)
a. foods
b. rental of venue (if held outside of the ECOZONE enterprise's factory / office building)
c. rental of equipment
d. work clothes for trainees and instructors
e. certificates of training
f. group insurance of trainees
u. “Unskilled Labor” shall refer to any person, employed or unemployed by the ECOZONE enterprise lacking the skill, training or experience required by or necessary for a particular production process in any industrial or manufacturing activity.
v. “Direct Labor Wage” shall refer to compensation for labor directly used in the production or manufacturing process up to and including the services of the production foreman, but shall exclude labor for maintenance of production, machinery and equipment. Compensation shall cover salaries and wages, including other payments such as bonuses and cost of living allowances which form part of the laborer's or employee's taxable earnings.
w. “Basic Skills Training” shall refer to the first stage of the learning process of a vocation or occupation aimed at developing the aptitude, technical character for a given job, task, knowledge, skill and behavior pattern to specific standards.
x. “Skills Upgrading” shall refer to training for supplementary skills and knowledge in order to increase the versatility and occupational mobility of a worker or to improve his standard of performance.
y. “Retraining” shall refer to the acquisition of skills and knowledge required in an occupation or other than the skills or knowledge for which the person was originally trained.
Rule II - Basic Rights and Guarantees
SECTION 1. Protection of Investment - Consistent with Section 7 of the Act, all investors and registered enterprises are entitled to the basic rights and guarantees provided in the Constitution. Among other rights recognized by the Government of the Philippines are the following:
a) Repatriation of Investments - In the case of foreign investments, the right to repatriate the entire proceeds of the liquidation of the investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of repatriation, subject to the applicable provisions of Republic Act No. 265 and Republic Act No. 7653 and the pertinent regulations issued pursuant thereto.
b) Remittance of Earnings - In accordance with Section 28 of the Act and Rule XIX of these Rules, after-tax profits and other earnings of foreign investments in the ECOZONE may be remitted outward without need of prior Bangko Sentral ng Pilipinas approval. The remittance shall be in the equivalent foreign exchange through any of the banks licensed by the Bangko Sentral ng Pilipinas in the ECOZONE: Provided, That such foreign investments in the registered enterprise have been previously registered with the Bangko Sentral ng Pilipinas.
c) Foreign Loans and Contracts - The right to remit at the exchange rate prevailing at the time of remittance such sums as may be necessary to meet the payments of interest and principal on foreign loans and foreign obligations arising from technological assistance contracts, subject to the applicable provisions of Republic Act No. 265 and Republic Act No. 7653 and the pertinent regulations issued pursuant thereto.
d) Freedom from Expropriation - These shall be no expropriation by the government of the property represented by investments or of the property of the enterprise except for public use or in the interest of national welfare or defense and upon payment of just compensation. In such cases, foreign investors or enterprises shall have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made at the exchange rate at the time of remittance, subject to the applicable provisions of Republic Act No. 265 and Republic Act No. 7653 and the pertinent regulations issued pursuant thereto.
e) Requisition of Investment - There shall no requisition of the property represented by the investment or of the property of the enterprise, except in the event of war or national emergency and only for the duration thereof. Just compensation shall be determined and paid either at the time of requisition or immediately after cessation of the state of war or national emergency. Payments received as compensation for the requisitioned property may be remitted in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance, subject to the applicable provisions of Republic Act No. 265 and Republic Act No. 7653 and the pertinent regulations issued pursuant thereto.
SECTION 2. Protection of Labor - Consistent with Section 2 of the Act, all workers within the ECOZONES shall be assured of their basic rights under the Constitution, including the right to security of tenure and humane conditions of work and right to self-organization.
PART II - REGISTRATION OF ECOZONE ENTERPRISE
Rule III - Application and Registration
SECTION 1. Qualification of Applicants - any person, firm, association, partnership, corporation, or any other form of business organization, regardless of nationality, control and / or ownership of the working capital thereof may apply for registration as an Export or Free Trade Enterprise within the ECOZONE in any sector of industry, international trade and commerce, except duty-free retailing and wholesale trading of imported finished products for purposes of serving the domestic market. Furthermore, if the area of investments of the said enterprises falls within Lists A and B of the Foreign Investments Act of 1991, then the applicable nationality, ownership or control requirements of the said law shall be observed.
Applications for ECOZONE Developer / Operator, Domestic Market, Utilities, Facilities, Tourism or Service Enterprises shall comply with the applicable nationality, control and / or ownership requirements of the working capital thereof in accordance with the pertinent provisions of the Philippine Constitution, Foreign Investments Act of 1991 and other existing laws and regulations.
However, applicants for Domestic Enterprise shall be limited to new or expanding business entities subject to the guidelines that shall be promulgated by the Board in addition to the nationality requirements under existing laws and regulations.
SECTION 2. Forms - All applications shall be made upon forms prescribed by the PEZA duly accomplished in three (3) copies.
SECTION 3. Supporting Documents - The applicant for an ECOZONE Enterprise shall submit the following documents:
a. Project feasibility study, unless dispensed with and in lieu thereof, the applicant shall submit basic data / information on its technical, financial, marketing and management capability / competence to undertake the proposed project or business within the ECOZONE; *NO LONGER REQUIRED*
b. Copies of articles of incorporation and by-laws;
c. Resolution of the applicant's board of directors authorizing the filing of the application; list of its directors, principal officers, and major stockholders, including their bio-data;
d. List of machinery and equipment to be used by the applicant with a statement of their capacity, ownership and/or mode of procurement;
e. Company brochures and / or photographs of product(s); and
f. Other supporting documents / papers / clearances as may be required by the PEZA depending upon the nature of the business and the type of business organization of the applicant.
SECTION 4. Filing of Application - The application shall be filed with the PEZA upon payment of the corresponding filing fee.
SECTION 5. Board Action - Approval of the application shall be by resolution of the Board unless otherwise required by appropriate circulars and / or memoranda taking into consideration the decentralization policy in the management, operation and maintenance of each ECOZONE. The action taken thereon shall be communicated in writing to the applicant.
SECTION 6. Certificate of Registration - The Certificate of Registration shall be issued only upon the execution of the Registration Agreement by the PEZA and the applicant and whenever it can be shown that the applicant has:
a. Complied with all the pre-registration requirements;
b. Submitted within twenty (20) calendar days from receipt of the notice of approval of the application, a formal acceptance of the proposed terms and conditions of registration. For good cause shown, said period may be extended if the request therefore is filed before the expiration of the period sought to be extended; and
c. Paid the registration fee.
However, in appropriate cases as may be determined by the Board, the ECOZONE management or the duly authorized offices of the PEZA shall be empowered to issue business permits and / or licenses to ECOZONE Enterprises in lieu of the Certificate of Registration after the proper evaluation of their application in accordance with the set of criteria duly approved by the Board and upon payment of the corresponding fees.
SECTION 7. One Stop Shop Center - There shall be established in the ECOZONE a one stop-shop center to facilitate the registration, licensing and issuance of permits to ECOZONE Enterprises. All government agencies involved shall assign their respective representatives in the ECOZONE for this purpose.
PART III - ESTABLISHMENT OF THE ECOZONES
Rule IV. Criteria For the Establishment of An Ecozone
SECTION 1. General Criteria - All areas initially identified under Section 5 of the Act as the sites of the ECOZONES and other areas where ECOZONES may be established shall conform to the following general criteria to ensure their viability and geographic dispersal.
a) Identification of the proposed area as a regional growth center in the Medium-Term Philippine Development Plan or by the Regional Development Council;
b) The existence of required infrastructure in the proposed ECOZONE, such as roads, railways, telephones, ports,