To set up a company in export-oriented industries, even in IT-BPO and tourism, establishing your company in Special Economic Zones (SEZs) can have plenty of advantages. Under PEZA, you can use incentives to ease tax burden, get Zero-rated VAT, import privileges, and obtain special foreign visas for you and your employees.
But, what is PEZA? What are its benefits and how can you use it as a business? In this article, we will explore who is eligible for PEZA registration, what documents do you need, and how you can apply.
What is PEZA?
PEZA is the regulatory and administrative body responsible for managing special economic zones (SEZs) in the Philippines under Republic Act No. 7916 (SEZA Law). These zones are designated areas that offer fiscal and non-fiscal incentives to businesses operating within them. Its primary role is to attract and facilitate businesses in the following sectors:
- Export Manufacturing Firms: Businesses exporting at least 70% of total production.
- Information Technology and Business Process Outsourcing (IT-BPO): Including call centers, animation, software development, and other IT-enabled services.
- Tourism and Medical Tourism Enterprises: Hotels and tourism-related facilities located within PEZA-designated tourism zones.
- Agro-Industrial Businesses: Exporters engaged in agricultural processing and production.
- Logistics and Warehousing: Firms providing support services within economic zones.
- Economic Zone Developers and Operators: Entities managing PEZA-designated Special Economic Zones.
Fiscal and Non-fiscal Benefits of a PEZA Registration
Under the SEZA Law, you can operate within PEZA-accredited zones and access both fiscal and non-fiscal incentives to help your business grow. As a PEZA-registered company, you can enjoy tax holidays, simplified customs procedures, and visa facilitation for your foreign staff.
Here are fiscal and non-fiscal benefits of a PEZA registration:
Fiscal Incentives
- Income Tax Holiday (ITH): Exemption from corporate income tax for a period of 4 to 7 years depending on the registered activity and location.
- 5% Special Corporate Income Tax (SCIT): After the ITH period, a 5% tax rate on gross income is charged instead of all national and local taxes.
- Tax and Duty-Free Importation: Capital equipment, raw materials, spare parts, and accessories imported for export production are exempt from import duties and taxes.
- VAT Zero-Rating: Local purchases of goods and services directly used for registered activities are zero-rated for VAT.
- Exemption from Expanded Withholding Tax: Certain withholding tax exemptions apply.
- Additional Deductions: Enhanced deductions are provided for labor expenses.
Non-fiscal Incetives
- Simplified Import-Export Procedures: Streamlined customs and clearance processes to reduce transaction times.
- Employment of Foreign Nationals: Facilitation to employ foreign nationals in supervisory, technical, or advisory roles.
- Special PEZA Visas: Issuance of visas with multiple-entry privileges and assistance for foreign employees and their dependents.
- Long-Term Land Lease: Lease agreements for up to 75 years within economic zones.
- Domestic Sales Allowance: Permitted domestic sales of up to 30% of total sales.
- Exemption from National and Local Taxes: During the period of 5% SCIT, exemption from other national and local taxes and fees.
Who is Eligible for PEZA Registration?
To enjoy these benefits, you must align your business with specific criteria in terms of location, industry, and capital requirements. To be eligible, you must meet the following criteria:
- Must be located or willing to operate inside designated PEZA Special Economic Zones (SEZs) or develop their own economic zone.
- Must be within export-oriented sectors and enterprises involved in IT, tourism, manufacturing, agro-industry, logistics, and more.
- Must comply with the Foreign Investments Negative List but PEZA generally allows up to 100% foreign ownership within these zones.
- Can be a new or existing entity but must not have started operations outside the PEZA zone prior to registration.
- Minimum capital investment requirements may apply, typically around US$2 million depending on industry and project type.
PEZA vs BOI (Board of Investment) Company
So, how is PEZA different from other IPAs (Investment Promotion Agency)? One similar program is the Board of Investment (BOI) promotion in the Philippines. BOI incentives apply to businesses operating nationwide and covering a broader array of industries. BOI-promoted companies can operate outside of SEZs meanwhile PEZA is much more specialized for export-focused sectors. Companies under PEZA must establish their operations within SEZs.
Ultimately, choosing between BOI and PEZA is determined by your business strategy and sector. Here’s an overview on how a BOI-promotion is different from PEZA registration:
PEZA
- Requires you to be located within a PEZA-accredited Special Economic Zone (SEZ) or IT park.
- Primarily targets export-oriented companies, requiring at least 70% of production or services to be for export.
- Income tax holidays (ITH) of 4 to 6 years and exemption from import duties on capital equipment.
- 5% SCIT on gross income after the ITH period in lieu of all national and local taxes, along with VAT zero-rating on local purchases.
- Duty-free importation of raw materials and capital goods.
- Provides integrated customs facilitation and streamlined import/export operations within zones, giving investors logistical benefits.
BOI
- Can apply to businesses operating anywhere in the Philippines without geographic restrictions.
- Supports a broader range of priority sectors, including manufacturing, IT-BPO, infrastructure, green energy, and projects in less developed areas.
- Foreign ownership caps and other requirements under BOI are generally more flexible ( typically 40% cap on foreign equity).
- Income tax holidays (ITH) of 4 to 6 years and exemption from import duties on capital equipment.
No 5% SCIT but provide enhanced deductions and are not tied to location inside economic zones. - Follow standard customs procedures and have more operational location flexibility.
PEZA Registration Process in the Philippines
PEZA Registration Requirements
Under the PEZA’s Implementing Rules and Regulations (IRR), you must submit an application with supporting documents to prove that you are eligible for PEZA registration. Here are documents that you need:
- Business registration papers issued by the Securities and Exchange Commission (SEC), Department of Trade and Industry (DTI), or Cooperative Development Authority (CDA).
- Company profile and organizational structure documentation.
- Detailed project description and feasibility study, particularly for new projects.
- Proof of physical office premises or facility located inside a PEZA special economic zone.
- Environmental compliance certificates following the Department of Environment and Natural Resources (DENR) guidelines.
- Audited financial statements (if applicable).
- Other permits and clearances specific to business activity (e.g., FDA, DOT accreditation).
Step-by-step Process on How to Register for PEZA
Once you have all the needed documents together with the application form, you can submit your application through the Electronic Application Registration System (eARS). The process typically takes 4 to 6 weeks depending on the completeness of your documents and complexity of your business or projects.
Here’s how you register for PEZA in the Philippines:
- Pre-Screening: Present your application package to the PEZA office for an initial review.
- Pay Application Fee: The standard application fee is PHP3,600. Secure an official receipt as proof of payment.
- Submit Application Form with Documents: Complete the official PEZA application forms and submit them alongside your documents.
- PEZA Board Resolution and Conditional Registration: The PEZA Board reviews applications and issues resolutions granting conditional registration.
- Submit Pre-Registration Requirements: Comply with additional requirements specified in the Board resolution.
- Pay Registration Fee: A registration fee of PHP6,000 is payable upon approval. You would need to pay PHP6,000 annually as franchise fee.
- Sign PEZA Registration Agreement: Formalize your participation by signing the PEZA Registration Agreement to adhere to regulations and incentives program rules.
- Await Final Registration and Certificate Issuance: After full compliance, receive the PEZA Certificate of Registration authorizing your incentive benefits.
Compliance and Reporting Obligations Under PEZA
PEZA will conduct regular audits and inspections to ensure that you adhere to the standards and continue to qualify for incentives. You must comply with ongoing PEZA requirements to enjoy fiscal and non-fiscal incentives:
- Submit periodic reports such as quarterly and annual compliance reports about operations, production, exports, and employment.
- Renew registration as required and maintain full compliance with all environmental, labor, and operational standards.
- PEZA may impose penalties, fines, or revoke incentives for violations or misuse of the registration benefits.
To help guide you through the process, Emerhub’s team of local business experts can help assess your eligibility and prepare all the necessary documentation to liaise with PEZA authorities. Leverage our deep expertise in PEZA compliance and regulation in the Philippines and simplify intricate regulatory procedures.
Find out how we can help you expedite the PEZA registration process! Fill out the form below for a free consultation with our local experts in the Philippines.
Frequently asked questions
Can businesses outside PEZA zones apply for incentives?
Businesses outside PEZA zones are generally not eligible to apply for PEZA incentives. PEZA incentives are exclusively granted to companies operating within PEZA-registered SEZs or PEZA-accredited IT parks and tourism zones. For businesses outside these zones, alternative incentives may be available through other government agencies such as the Board of Investments (BOI).
Can 100% foreign ownership be applied for under PEZA?
Yes, 100% foreign ownership can be applied for under PEZA, but with some conditions. Enterprises that are fully foreign-owned and operate within PEZA zones but are still subject under the Philippine Foreign Investments Negative List (FINL). You can enjoy full foreign ownership when registered with PEZA, provided you operate within accredited economic zones and comply with PEZA requirements.
How long does the entire registration process take?
The entire PEZA registration process typically takes about 4 to 6 weeks. The timeline can vary depending on the completeness and accuracy of the submitted documents, the nature of the business, and PEZA’s processing capacity at the time. Delays may occur if additional clarifications or supplemental documents are required by PEZA during their review.
What happens after PEZA registration approval?
After PEZA registration approval, you will receive a Certificate of Registration and enter into a Registration Agreement with PEZA. This formalizes your eligibility for incentives and privileges. You must comply with ongoing post-registration obligations, including submitting annual reports on export performance, investment commitments, and employment generation to PEZA. You are also subject to compliance monitoring and inspections, and must renew its PEZA registration as required to continue enjoying tax incentives and other benefits. You must secure other necessary permits and registrations such as tax registration, business permits with the local government unit (LGU), and social security and health insurance registrations for employees.