Philippines free zones
The Philippines authorities provide special economic zones (SEZs) where large foreign investment projects can be registered to benefit from numerous incentives. Investment projects are vetted by the Philippines Economic Zone Authority (PEZA), according to multiple criteria including i) the nature of business ii) export orientation iii) extent of technology transfers and iv) the size of the project in terms of capital investment and job creation.
Key industries eligible for PEZA registration include i) export manufacturing, ii) information technology service export iii) tourism iv) agro-industrial export manufacturing and v) logistics and warehousing services.
Main benefits of registering a company in a Philippines free zone
- Exemption from corporate income tax for up to 6 years. Exemption can be extended to 8 years if i) average net foreign exchange earnings is at least US$500,000 for the first 3 years, ii) average cost of indigenous raw materials is at least 50% of total raw materials and iii) capital equipment to labour ratio does not exceed US$10,000 to 1;
- Corporate income tax of 5% upon exemption expiry;
- Exemption from expanded withholding tax;
- Tax and duty free import of raw materials and capital equipment;
- Exemption from wharfage dues and export tax;
- 0% VAT for local purchase compliant with PEZA requirements;
- Exemption from local government imposts, fees and licenses.
Additional benefits of Philippines SEZ
- Simplified import/export procedures;
- Ease of employment of foreign nationals in supervisory and technical positions;
- Visa facilitation assistance to foreign nationals’ dependents.
Requirements to register business within a Philippines free zone
- Investment projects are assessed on a case by case basis by PEZA (or another relevant free zone authority when applicable). While there is no official investment threshold, Healy Consultants recommends our Clients to seek registration only if their investment project is likely to reach a minimum investment level of US$250,000;
- See also PEZA webpage for additional information regarding eligible activities.
Comparison of free zones
Subic Shipyard Special Economic Zone
- Subic Bay Shipyard Free Zone is located in region 3 of Philippines. It is the largest free port in Luzon in terms of asset size.
- The zone currently employs over 100,000 employees and has attracted over US$6 billion worth of investment;
- The investment priority areas in Subic Shipyard are: i) shipbuilding and marine ii) manufacturing and iii) tourism and services;
- Subic Bay Metropolitan Authority is the regulating authority of this free zone.
Cagayan Economic Zone
- The Cagayan Special Economic zone (region 2) is situated in the northeastern tip of the Philippines, surrounded by the Balintang Channel, China sea and the Pacific Ocean. Consequently, it enjoys proximity to the lucrative markets of Taiwan, China, Japan and Korea;
- The freeport operates as a separate customs territory with access to international shipping routes;
- Its key industries are in: i) trans-shipment ii) agro-industrial and iii) tourism and leisure;
- This free zone is regulated by Cagayan economic zone authority.
Clark Special Economic Zone
- Clark SEZ is an inland economic zone in Luzon with a total land area (including subzone) of 29,365 hectares. It is located just 80 km north of Manila, reachable by land and air transport;
- The vast land area allows for a wide range of business activities including i) IT enabled industries ii) retirement villages iii) medical tourism iv) aviation and v) logistic related enterprises;
- The free zone boost i) modern infrastructure, ii) vast road networks and iii) excellent telecommunication facilities;
- Clark Development Corporation is the regulator of this free zone.
|Special Economic Zone||Subay Bay Freeport Zone||Clark Freeport Zone||Zamboanga Ecozone and Free Port||Cagayan Economic Zone|
|Average annual Industrial space rent per 1000 sq. m.||US$2,800||US$3,600||US$2,500||US$4,800|
|Timelines for company formation?||8 weeks||8 weeks||8 weeks||8 weeks|
|How long to open company bank account?||4 weeks||4 weeks||4 weeks||4 weeks|
|Quality of utilities?||Fair||Excellent||Excellent||Good|
|Allowed to sign sales contracts with Philippines Clients?||Yes||Yes||Yes||Yes|
|Allowed to invoice Philippines Clients?||Yes||Yes||Yes||Yes|
|Corporate tax payable in Philippines?||Yes||Yes||Yes||Yes|
|Corporate bank account?||Maybank Philippines||Standard Chartered||Deutsche Bank||JP Morgan Chase|
|Physical office space required?||Yes||Yes||Yes||Yes|
|Industrial space availability?||Many||Limited||Many||Many|
|Allowed to import raw materials?||Yes||Yes||Yes||Yes|
|Allowed to export goods?||Yes||Yes||Yes||Yes|
|Wholly foreign owned?||Yes||Yes||Yes||Yes|
|Can the entity hire expatriate staff in Philippines?||Yes||Yes||Yes||Yes|
|Do you visit Philippines for company incorporation?||No||No||No||No|
|Minimum number of directors?||5||5||5||5|
|Resident director required?||Yes, 3||Yes, 3||Yes, 3||Yes, 3|
|Minimum number of shareholders?||5||5||5||5|
|Tax registration required?||Yes||Yes||Yes||Yes|
|Individual shareholders allowed?||Yes||Yes||Yes||Yes|
|Corporate shareholders allowed?||Yes||Yes||Yes||Yes|
|Public register of shareholders and directors?||Yes||Yes||Yes||Yes|
|LLC company allowed?||Yes||Yes||Yes||Yes|
|Can apply for immigration visas?||Yes||Yes||Yes||Yes|
|Annual audited financial statements?||Yes||Yes||Yes||Yes|
|Annual tax return to be submitted?||Yes||Yes||Yes||Yes|
Frequently asked questions
Will I need a resident director for business incorporation in Philippines free zone?Yes, our Clients will need resident directors to setup a business in Philippines’ free zones.
Why incorporate in Philippines free zone?There are several incentives for companies in Philippines free zones including i) 100% corporate tax exemption for 4-8 years ii) custom duties exemption iii) no foreign exchange controls iv) simplified import-export procedures.
What are the investment priority areas for free trade zones in the Philippines?The priority investment areas include i) export manufacturing ii) IT service export iii) tourism iv) agro-industrial export manufacturing v) logistics and warehousing services vi) economic zone development and operation vii) facilities providers and viii) utilities.