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The Investor’s Guide to Philippines’ Special Economic Zones: Opportunities and Advantages

  • The Philippines’ Special Economic Zones (SEZs) offer foreign investors a lucrative gateway to the country’s vibrant economy and the wider Asian market, backed by enticing tax incentives, streamlined business operations, and a skilled workforce.  
  • These zones simplify the investment journey with benefits like tax breaks, easy visa and work permit procedures, and comprehensive support services, making them an attractive proposition for companies looking to expand globally.  

The Philippines’ Special Economic Zones (SEZs) present a golden opportunity for foreign investors looking to thrive in an increasingly global market. These zones, strategically located across the country, offer a lot of benefits that attract foreign capital and expertise.  

From significant tax incentives to streamlined business processes, SEZs provide an ideal platform for companies seeking to leverage the Philippines’ robust economic growth and strategic location in Asia.  

By setting up their companies in these zones, foreign investors can enjoy a competitive edge, tapping into a business-friendly environment that’s ripe for innovation and growth. 

To delve deeper into the potential of investing in SEZs in the Philippines and to explore the specific incentives and opportunities available, continue reading below. 

Understanding Philippines’ Special Economic Zones

The Philippines’ Special Economic Zones (SEZs), also known as ecozones, are designated areas in the Philippines that come with attractive economic regulations and benefits. Their purpose is to entice foreign investors and stimulate economic growth.  

These zones are a product of legislative measures by the Philippine Congress under Republic Act No. 7916 and they include a mix of general SEZs, free trade zones, and free ports. They are overseen either by the Philippine Economic Zone Authority (PEZA) or private entities and cater to a diverse range of industries. 

Presently, there are 422 ecozones nationwide, with the largest ones located in Metro Manila, Calabarzon, Central Visayas, Central Luzon, and Western Visayas. Within these ecozones, 4,372 locator companies are thriving and contributing to the Philippines’ economic landscape. 

SEZs in the Philippines present a wide range of advantages for foreign investors, especially in specialized sectors such as manufacturing, IT, BPO, and tourism.  

 Here are some of the key perks awaiting investors in these zones: 

1. Tax-related Advantages 

One of the major advantages for foreign investors in SEZs involves fiscal or tax-related incentives.  

Under the Republic Act No. 11534 Corporate Recovery and Tax Incentives for Enterprises Act or CREATE Law, export-oriented enterprises and domestic enterprises engaged in activities outlined in the Strategic Investment Priority Plan (SIPP) are entitled to various incentives, including: 

  • Income Tax Holiday (ITH) lasting four to seven years, determined by the combination of location and industry priorities specified in the SIPP. 
  • A ten-year 5% special Corporate Income Tax (CIT) on gross income instead of all national and local taxes, or enhanced deductions for qualified exporters. For qualified domestic market enterprises, there are five-year enhanced deductions. 
  • Additional deductions or enhanced deductions include depreciation of qualified capital expenditure, labor expense, research and development, training expense, domestic input expense, and power expense, among others. 
  • Reinvestment allowance for the manufacturing industry, providing a maximum of 50% deduction over five years. 
  • Net operating loss carryover for five consecutive years following the first three years from the start of commercial operations. 
  • Customs duty exemption for importations of capital equipment, raw materials, spare parts, or accessories, as well as VAT exemption on importation and VAT zero-rating on domestic purchases used directly and exclusively in the registered activities of a Registered Enterprise. 
  • Entities that are already enjoying incentives before the CREATE Law’s effectivity are allowed to continue their availment based on specific rules and conditions. 

Moreover, qualified expansions or entirely new projects or activities may also qualify for incentives, subject to SIPP qualifications and performance review by the Fiscal Incentives Review Board. 

2. Ease of Doing Business 

Philippines’ Special Economic Zones (SEZs) offer businesses a streamlined and efficient operating environment, addressing the common challenges related to bureaucratic processes.  

By providing dedicated personnel and specialized infrastructure within the zone, SEZs facilitate expedited customs procedures, simplified application processes, and overall government support.  

For instance, the presence of customs clearance facilities within certain SEZs ensures that imports and materials from abroad can smoothly navigate through customs, preventing costly delays for businesses operating within the zone. 

3. Simplified Visa and Work Permit Procedures for Foreign Employees  

PEZA recently introduced a new work visa for foreigners sponsored by PEZA-registered companies in the Philippines. This entails obtaining a PEZA visa through a quicker process, taking only 10 business days, compared to the previous one-month processing time.  

The PEZA visa is valid for up to two years, extendable for another two years, allowing for a maximum of four years’ validity. 

For those currently holding a 47(a)(2) visa through a PEZA-registered company, they can continue using it until it expires. After that, they must apply for a PEZA visa, unless they are no longer eligible for work in the Philippines.  

Moreover, those transitioning from an expired 47(a)(2) visa to a PEZA visa will be treated as new applicants. 

4. Access to One-Stop Shop Services 

The One-Stop Shop Center in the ecozones brings valuable benefits for foreign investors. It simplifies the business setup process within the area by offering a single location for completing all essential registration, licensing, and permit procedures.  

Dedicated representatives from government agencies are available at the ecozones to assist investors every step of the way, making the entire process more efficient and investor-friendly. 

5. Access to Diverse Talent Pools  

The country’s educated and versatile workforce provides quality talent across various sectors, with the added benefit of cost-effective labor.  

Moreover, you can benefit from hardworking talents with high English proficiency, and adaptability to diverse cultures. This skilled workforce encourages innovation and creativity while also reducing recruitment challenges, facilitating smoother establishment and expansion within SEZs. 

Things You Need to Know 

Before investing in the Philippines’ Special Economic Zones, foreign investors should carefully consider the following factors: 

  • Legal and regulatory framework: Understanding the Foreign Investment Act, the Retail Trade Liberalization Act, and other relevant laws and regulations is crucial when you want to put up business in the Philippines. 
  • Infrastructure: You need to assess the state of transportation, telecommunications, and utilities in the Philippines as it is important before you invest. 
  • Labor force: Evaluating the availability and quality of the labor force in the Philippines is crucial for you to have informed decision-making. 
  • Market assessment: It is important to consider the size of the market, the purchasing power of consumers, and the competitive landscape in the Philippines. 
  • Costs: When assessing business costs in the Philippines, it’s essential to consider labor, land, and utilities. Labor costs, influenced by minimum wages and benefits, are significant considerations you need to know. 
  • Culture and language: Understanding the business culture and potential language barriers is essential for effective operations. 

Furthermore, there are certain challenges that foreign investors may face when investing in SEZs in the Philippines, including: 

  • Bureaucracy: Navigating the complex and time-consuming bureaucratic processes in the Philippines can pose a challenge. 
  • Market access: Overcoming competition and gaining access to the market in the Philippines may require strategic insights and planning. 

For a comprehensive understanding of the specific factors and challenges involved in investing in SEZs in the Philippines, consulting with Investment Promotion Agencies is highly recommended. 

Final Thoughts 

The Philippines’ Special Economic Zones (SEZs) present abundant opportunities for foreign investors. These zones offer an entry point to the country’s thriving economy and provide access to the broader Asian market.  

Equipped with enticing incentives such as tax breaks, simplified business processes, and streamlined visa and work permit procedures, these zones create an environment conducive to business growth and global competition. 

Moreover, apart from fiscal benefits, SEZs offer operational efficiency, access to a skilled workforce, and comprehensive support services through One-Stop Shop Centers, fostering an environment conducive to foreign investment. 

While exploring investment opportunities in SEZs, it’s crucial for investors to carefully consider factors such as legal and regulatory frameworks, infrastructure quality, labor force availability, market dynamics, costs, and cultural aspects.  

Despite potential challenges like bureaucratic hurdles and market access barriers, strategic planning and local insights can help navigate these obstacles effectively. 

Explore how Manila Bookkeepers can support your specific legal needs regarding foreign ownership in the Philippines with our tailored advice and extensive experience to assist your investment journey.

Manila Bookkeepers

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