UNIVERSITY OF SAN JOSE- RECOLETOS

Corner P. Lopez and Magallanes St. Cebu City 6000, Philippines

GROUP 3
PEZA GROUP
ACTIVITY
(FINALS)

SUBMITTED BY:
BASAY, KRYSTELLE MARIE A.
ESCARRO, BLAS MIGUEL
LEGANIA, EMELY LAURENCE
ODTOHAN, PRINCESS REAMIE
REGONAS, REGINA KYLE M.

SUBMITTED TO:
MR. YENER CAPONDAG CABALIDA
 I. Overview of Philippine Economic Zone Authority (PEZA)

Establishment
The Philippine Economic Zone Authority (PEZA), also known as “The Special Economic Zone
Act of 1995” was signed on February 24, 1995. It is a government agency or organization created in order
to manage and govern the special economic zones’ (SEZs) development and management in the
Philippines and to encourage growth through it by creating opportunities in employment and also to
promote investments. PEZA has also been leading in the operation of economic growth and
industrialization within the country.

Mandate
The primary mandate of PEZA:
● Establishment and Development of Special Economic Zones (SEZs)
● Attraction of Investments
● Generation of Employment
● Promotion of Exports
● Fostering Industrialization and Technological Advancement

Objectives
● Attract Investments - to encourage both foreign and local investors to establish their business
within the economic zones
● Generate Employment - to create job opportunities for Filipinos by attracting companies that will
set up operations in the economic zones
● Promote Exports - to increase the export of goods and services that are produced in the economic
zones which contributes to our economic growth.
● Transform Selected Areas - in order to have highly developed agro-agricultural, industrial,
commercial, tourist, banking, investment, and financial centers in the country

Economic Zones
1. Industrial Estates - Focuses on dedicated zones for activities relating to industrial and
manufacturing and provides infrastructure that includes reliable power supply, transportation, and
logistics which are vital for electronics manufacturing.
1. Export Processing Zones - for the purpose of housing production facilities for several
manufacturing activities that includes electronics, automotive parts, and other goods.
Ex. Laguna Technopark in Santa Rosa, Laguna
2. Free Trade Zones - for the purpose of manufacturing, processing, and re-export of the imported
goods that are duty-free which makes them dominant in importing raw materials and components
as electronics manufacturers
Ex. Clark Freeport Zone in Pampanga
3. Tourist and Recreation Centers - focuses for the intent for developing hotels, resorts, and other
facilities. It may not be relevant to the manufacturing company but it can provide benefits
especially to the employees in enhancing the quality of life.
4. Domestic Market Enterprises - focuses on producing goods in the domestic market rather than
producing for export.
 5. Free Trade Enterprise - focuses on the benefit from tax incentives. This can reduce operational
costs through the imported goods that are duty-free
6. Utilities Enterprise - focuses on providing and development of utilities like telecommunications
and electricity. This is vital for the electronics industry as it helps for the operation of their
business effectively.
7. Facilities Enterprise - focuses on the necessary infrastructures and facilities needed in
manufacturing operations.
8. Developer/Operator - entities that are responsible for the development and management of the
zones. This provides the manufacturing industry with having a developer/operator that ensures the
quality of every infrastructure.
9. Service Enterprise - focuses on enterprises which offers services that includes logistics and
business process outsourcing and ensures the manufacturing operations.
10. Tourism Enterprise - (not directly related) focuses on activities relating to tourism that includes
tour operators, travel agencies, and other services. This may not be related to the electronics
industry but it can benefit employees by having a positive environment and enhancing the
attractiveness of the area.

PEZA Registered Enterprises (7,863 in total) as of May 15, 2024:

 II. Benefit Analysis

The Philippines offers a range of incentives designed to attract and support businesses,
particularly those registered with the Philippine Economic Zone Authority (PEZA). These incentives are
categorized into fiscal and non-fiscal benefits, each tailored to promote economic growth, enhance
competitiveness, and stimulate investments across various sectors. These comprehensive incentives not
only reduce operational costs but also encourage the diversification and expansion of business activities
within the country's ecozones.

Incentives that are directly related to the business:

Fiscal Incentives
A. Income Tax Holiday - PEZA registered entities may enjoy exemption from the payment of
income taxes which may range from 4-8 years.
Applicable to : Export/Free Trade Ecozone

B. 5% Gross Income Tax - After the ITH period, the company is subject to a 5% Special Tax on
Gross Income in lieu of all the national and local tax.
Applicable to : Developers/ Operators, Export/Free Trade, Domestic Market & Facilities,
Utilities, and Tourism Ecozones

C. Value Added Tax - Sales by a VAT registered entity to a PEZA registered enterprise shall be
subject to 0% vat
Applicable to : VAT-registered PEZA entities

D. Exemption from Wharfage Dues and Fees - Goods exported by PEZA-registered enterprises
are exempt from various export taxes, duties, fees, and charges.
Applicable to : Export/Free Trade Ecozone

E. Tax Credits for training Expenses - Registered enterprises may avail tax credit relevant to the
percentage of the expenses from their training of employees.
Applicable to : Developers/ Operators, Export/Free Trade, Domestic Market & Facilities,
Utilities, and Tourism Ecozones

F. Additional Deduction for Training Employees - Companies can claim an additional deduction
from taxable income for expenses incurred in training programs for employees which promotes
businesses to develop workforce.
Applicable to : Developers/Operators, Export/Free Trade, Domestic Market & Facilities, Utilities,
and Tourism Ecozones

G. Additional Labor Expense Deduction - PEZA-registered enterprises may avail of an additional

deduction of 50% of the wages of workers directly engaged in production. This incentive is
designed to support labor-intensive enterprises
Applicable to : Export/Free Trade Ecozone
 H. Tax Credit on Domestic Capital Equipment - Businesses that buy locally-made capital
equipment, spare parts, and accessories can get a tax credit equal to the national taxes and
customs duties they would have paid if they had imported these items.
Applicable to : Export/Free Trade Ecozone

I. Tax Credit For Import Substitution under Export Development Act - Exporting companies
can earn tax credits by using locally-made raw materials, components, and supplies instead of
imported ones. This boosts local industries and cuts down on import reliance.
Applicable to : Export/Free Trade Ecozone

2. Non Fiscal Incentives

A. Exemption from BIR Importer's Clearance Certificate - simplifies the importation process
for raw materials, equipment, and other goods.

B. Permanent Resident Status for Foreign Investors - Foreign Investors can apply for permanent
residency without the need for continuous visa renewals.

C. Employment of Foreign Nationals - PEZA allows the employment of foreign nationals in

supervisory, technical, or advisory positions, which can be essential for bringing in specialized
skills and expertise required for the operations.

D. Unrestricted Use of Consigned Goods - PEZA-registered enterprises can import consigned

equipment and machinery without restrictions, facilitating the use of technology and equipment
necessary for operating processes.

Incentives that may be enjoyed once business activities are diversified:

1. Tax and Duty-Free importation of breeding stocks and genetic materials

2. Tax credit on domestic breeding stocks and genetic materials.
 Foreign investors in the Philippines who prefer not to go through the Philippine Economic Zone
Authority (PEZA) have several other options available to them. These alternatives offer various
incentives and benefits aimed at attracting foreign investments.

Board of Investments (BOI) Registration:

● The BOI provides incentives to both foreign and local investors engaged in preferred areas of
economic activities listed in the Investment Priorities Plan (IPP).

PEZA vs. BOI

Incentives PEZA BOI

Income Tax Holiday

For Export-Oriented: Pioneer : Six (6) Years

Pioneer : Six (6) Years Non-Pioneer : Four (4) Years

Non-Pioneer : Four (4) Years Expansion : Three (3) Years

Expansion : Three (3) Years The exemption period may be

extended for another year in
A special tax rate of 5% of gross each of the following cases:
income earned in lieu of the
payment of all national and local 1. The project uses indigenous
taxes exempt real property tax raw materials
after the income tax holiday
2. The project meets the
BOO-prescribed ratio of capital
equipment to number of workers

3. The net foreign exchange

savings or earnings amount to at
least US$500,000.00 annually
during the first three(3) years of
the projects commercial
operations

Tax and Duty Free Available

Importation of Capital Incentives under E.O 528
Equipment
For BOI registered companies:
12% VAT, 0% Duty

Tax Credit on Domestic Available None

Capital Equipment
Additional Deduction for Same as EO 226 incentive : Available for the first five (5)
Labor Expense Available for the first five (5) years from registration,
years from registration, additional deduction from the
additional deduction from the taxable income of 50% of the
taxable income of 50% of the wages
wages.

Tax and Duty Exempt Available Available

Importation of Imported
Spare Parts

Exemption from Wharfage Available Available

Dues and Export Tax, Duty,
Impost and Fee

Additional Deduction on Equivalent to ½ of the value of None

Training Expenses the training expenses incurred

Exemption from Payment of Available None

Local and National taxes,
licenses

Tax and Duty Exempt Available None

Importation of Construction
Materials

Taxes and Duty Exempt Available

Importation of Specialized None
Office Equipment and
Furniture

Taxes and Duty exempt Available None

Importation of Specialized
Vehicles and Other
Transportation Equipment

Taxes and Duty exempt Available None

Importation of Professionals
Instruments and Household
effects

Exemption from Franchise, None None

common carrier or
value-added taxes and other
percentage taxes on public and
service utilities
NON-FISCAL

Business within may be 100%

foreign-owned

Unrestricted Use of Consigned Available Available (including exemption

Equipment from taxes and duties on
imported supplies and spare
parts for consigned equipment)

There are no restrictions on the

use by BOI-registered
enterprises of consigned
equipment provided a re-export
bond is posted. E. O. No. 226
provides further that if the
consigned equipment and spare
parts were imported tax and
duty-free, the re-export bond
may be waived

Treatment of the Zone as a Available None

separate customs territory

Permanent Resident Status Available Foreign personnel of regional

for Foreign Investors and For investments of US$ headquarters in the Philippines;
Immediate Family 150,000.00 their respective spouses and
(Special Investors Resident unmarried children below 21
Visa) years old may be issued multiple
entry visas.

For investments of US$

75,000.00

Employment of Foreign Foreign nationals may be Foreign nationals may be

Nationals employed in supervisory, employed in supervisory,
technical or advisory positions technical or advisory positions
within five (5) years from a within five (5) years from a
project's registration, extendible project's registration, extendible
for limited periods to be for limited periods to be
determined by the PEZA. The determined by the BOI. The
positions of president, general positions of president, general
manager, and treasurer or their manager, and treasurer or their
equivalents, of foreign-owned equivalents, of foreign-owned
registered firms may be retained registered firms may be retained
by foreign nationals for a longer by foreign nationals for a longer
period. period.

All foreign employees may All foreign employees may

bring with them their spouses bring with them their spouses
 and unmarried children under 21 and unmarried children under 21
years of age. years of age.

Special Investor's Resident Visa

may be issued to aliens investing
in at least US$ 75,000 in the
Philippines thereby allowing
them to reside in the Philippines
as long as their investment is
maintained.

Location on less-developed None Additional Incentives :

areas (whether proposed or in 1. The same set of incentives
an existing venture geared for given to a pioneer registered
expansion) enterprises;
2. A 100% deduction from its
taxable income representing the
necessary major infrastructure it
may have undertaken in the
course of its operation; and
3. An additional deduction from
taxable income of 100% of the
wages corresponding to the
increment in the number of
direct labor for skilled workers
in the year of availment as
against the previous year is
observed.

Unlimited purchase and None None

consumption of tax and
duty-free goods within the
Freeport zones.

Government Facilities for Extends assistance on major None

training laborers manpower training of laborers to
firms in the zones. The
Technical, Education, Skills
Development Authority
(TESDA) conducts manpower
training programs. In addition,
the Labor Code grants incentives
to firms engaged in labor
training activities.

Other incentives under the None None

Presidential Decree No. 66 o or
those provided under Book VI
of E.O. 226.
 Availment of inexpensive None None
electrical power rates

Availment of the lowest land None None

lease rates in the country

Regional or Area Headquarters (RHQ) and Regional Operating Headquarters (ROHQ)

RHQs and ROHQs are entities permitted to establish operations in the Philippines to oversee,
manage, and coordinate the activities of their subsidiaries, branches, or affiliates across the region. These
entities benefit from a range of incentives designed to make the Philippines an attractive regional base for
multinational companies. Key advantages include significant tax exemptions, such as vat exemption on
RHQ, which reduce the overall fiscal burden and enhance profitability. Additionally, RHQs and ROHQs
benefit from simplified regulatory requirements, which streamline administrative processes and reduce
compliance costs. These incentives collectively foster a conducive environment for efficient regional
management and strategic planning, making the Philippines a strategic hub for multinational corporate
operations in Asia.
 III. Challenges Evaluation

Despite playing a crucial role in promoting investments and supporting the growth of businesses
across various industries, PEZA, otherwise known as the Philippine Economic Zone Authority, is also
confronted with several challenges that may impede its effectiveness in achieving its goals. The
challenges include:

1. Infrastructure Limitations

Infrastructure development varies across different economic zones in the Philippines. While some
zones may have adequate infrastructure such as transportation networks, utilities, and industrial facilities,
others may face deficiencies. Issues such as power outages, inadequate road networks, and unreliable
telecommunications can affect operational efficiency and increase costs for businesses.

Impact on Operations and Expansion Plans:

● Operational Efficiency: Inadequate infrastructure can lead to production delays, higher

transportation costs, and reduced overall productivity.
● Expansion Constraints: Limited infrastructure may restrict the company's ability to expand
operations within the economic zone.
● Cost Considerations: Companies may need to invest in additional infrastructure or logistics
solutions to compensate for deficiencies, potentially impacting profitability.
Example: Infrastructure Bottleneck: out of the 13 new projects approved by the NEDA board aimed at
establishing physical connectivity, water resources, digital connectivity and health, only 1 was
accomplished during 2023.

2. Government Intervention and the Political Environment

Considering the impact of Government Intervention and the Political Environment on a multinational
electronic manufacturing company operating or considering operations in a PEZA-accredited economic
zone involves several key aspects:
A. Regulatory Stability and Predictability: One of the primary concerns for multinational
companies is the stability of regulations and policies governing business operations. In a
PEZA-accredited economic zone, there may be specific regulations and incentives provided by
the government to encourage investment and operations. Changes in these regulations due to
government intervention or shifts in the political environment can disrupt operations and impact
expansion plans.
B. Political Stability and Risk Management: Political instability or changes in the political
environment can introduce risks such as increased uncertainty, potential for policy reversals, or
even operational disruptions due to protests, strikes, or regulatory crackdowns.
C. Human Resources and Talent Management: The political environment and government
intervention can also impact human resource management. Changes in labor laws, immigration
policies, or government incentives related to employment can influence recruitment, retention,
and training of talent. Uncertainty in these areas can make it challenging to plan long-term
workforce strategies and development programs.
D. Investment and Expansion Decisions: Government intervention and political stability are
critical factors influencing investment decisions and expansion plans. Companies may hesitate to
invest further or expand operations in a PEZA-accredited economic zone if there are concerns
about the sustainability of government policies or the political climate. This can lead to delays in
capital expenditures and strategic projects.

Impact on Operations and Expansion Plans:

● Time to Market: Lengthy bureaucratic procedures can delay the start of operations or
the launch of new projects.
● Resource Allocation: Companies may need to allocate additional resources to manage
regulatory compliance and navigate administrative processes.
● Risk of Uncertainty: Changes in regulations or inconsistent enforcement can create
uncertainty for long-term planning and investment.

Example: Back in 2021, PEZA reported that investors have responded to the CREATE Act with reactions
ranging from indifference to concern.
3. Operational Threats

When a multinational electronic manufacturing company considers establishing a presence in the

Philippines, particularly in a PEZA accredited economic zone, it faces various operational threats that
could impact its efficiency and growth. These threats can be broadly classified into environmental,
infrastructure-related, and cybersecurity risks.

A. Environmental Threats:
● Natural Disasters: The Philippines is susceptible to typhoons, earthquakes, and floods, which
can cause significant damage to facilities, disrupt production schedules, and lead to costly
downtime and repairs.
Example: Back in 2021 when Odette hit the Philippines, the damages to agriculture and
infrastructure was estimated that it was around 23.4 billion Pesos.

B. Infrastructure-Related Threats:
● Power and Utility Reliability: Frequent power outages and inconsistent utility services can
interrupt manufacturing processes, decrease productivity, and result in higher operational costs
due to the need for backup systems and contingency planning.
● Logistical Challenges: Inadequate transportation infrastructure and traffic congestion can lead to
delays in the supply chain, affecting the timely delivery of raw materials and distribution of
finished products.

C. Cybersecurity Threats:
● Data Breaches and Cyber Attacks: Vulnerabilities in cybersecurity can lead to data breaches,
ransomware attacks, and intellectual property theft, compromising sensitive company
information, disrupting operations, and causing significant financial and reputational damage.

D. Labor- Related Threats:

● Skill Gaps and Turnover: Limited data on labor skills and high employee turnover can lead to
recruitment challenges, increased training costs, and disruptions in production continuity.
● Labor Strikes: Potential labor disputes and strikes can halt production and lead to significant
delays and financial losses.

Example: Back in 2021, the union workers from a garment company located at the Mactan
economic zone, sued the company instead of going on strike.
4. Incentives Limitation

Establishing operations in a PEZA accredited economic zone in the Philippines offers various
incentives such as tax holidays, duty-free importation of capital equipment, and simplified regulatory
processes. However, limitations on these incentives can significantly impact the operations and expansion
plans of a multinational electronic manufacturing company.

A. Time Limitation of Fiscal Incentives

The fiscal incentives for PEZA-accredited entities are subject to specific time limitations. Under
the Income Tax Holiday regime, pioneer enterprises can enjoy a tax exemption for six years, while
non-pioneer enterprises are granted a four-year exemption. Additionally, businesses undergoing expansion
are eligible for a three-year tax holiday. Following the expiration of the Income Tax Holiday period,
companies transition to the 5% Gross Income Tax regime, which offers a special tax rate of 5% on gross
income in lieu of all national and local taxes for a duration of ten years. These structured incentives are
designed to provide significant fiscal relief and encourage sustained investment and growth within the
economic zones.

B. Scope Limitation of incentives

The scope of fiscal incentives for PEZA-accredited entities is limited to transactions that are
officially registered with PEZA. Only these registered activities and operations can benefit from the
offered tax exemptions, income tax holidays, and other fiscal advantages. This means that any business
activities or transactions not registered with PEZA are excluded from these incentives, ensuring that only
compliant and formally recognized entities within the economic zones can take advantage of these fiscal
benefits. This scope limitation aims to maintain regulatory oversight and ensure that the incentives are
applied appropriately to support the intended economic activities.

Impact on Operations and Expansion Plans:

Financial Impact

● Increased Costs: Reduced or limited incentives can lead to higher operational costs, impacting
profitability and financial viability.
● Capital Investment: Limitations may deter or delay capital investments in advanced technology,
infrastructure upgrades, and expansion initiatives due to higher upfront expenses.

Operational Impact

● Competitiveness: Reduced incentives may affect the company's ability to compete effectively
against rivals operating in regions with more favorable tax and financial incentives.
● Resource Allocation: Limited incentives can constrain budget allocations for research and
development, employee training, and operational improvements, potentially hindering operational
efficiency and innovation.
Strategic Impact

● Expansion Planning: Incentive limitations can influence strategic decisions regarding the scale
and pace of expansion within the economic zone and across the Philippines.
● Long-term Commitment: Uncertainty over future incentives may affect the company's
long-term commitment to the economic zone, impacting investment plans and growth projections.

IV. Recommendation

Investing in a PEZA-accredited zone in the Philippines presents a compelling opportunity for

international electronic manufacturing companies due to a range of significant fiscal and non-fiscal
incentives. These benefits include tax holidays, duty-free importation of capital equipment, and regulatory
support. However, companies must also consider various challenges such as infrastructure limitations and
regulatory stability. Beyond these factors, it is crucial to take into account the broader economic trends
and market conditions.

Force Field Analysis

Economic Trend

● The global electronics manufacturing market is projected to grow significantly, driven by

advancements in technology and increasing demand for electronic products. According to a report
by Grand View Research, the global electronics manufacturing services (EMS) market size was
valued at USD 476.88 billion in 2020 and is expected to expand at a compound annual growth
rate (CAGR) of 8.5% from 2021 to 2028 .
● The Philippines, with its strategic location and skilled workforce, is well-positioned to benefit
from this growth. The country’s GDP growth rate is forecasted to remain positive, with the Asian
Development Bank projecting a GDP growth rate of 6% for the Philippines in 2024, supported by
robust domestic demand and government spending on infrastructure .

Trend of Foreign Manufacturing Investments

● The Philippines has seen a steady increase in manufacturing investments, particularly in PEZA
zones. This trend is supported by the country's competitive labor costs, strategic location, and
robust incentive packages offered by PEZA. For instance, as of May 2024, there were 7,863
PEZA-registered enterprises, indicating strong investor confidence in the economic zones.
Additionally, there are already over 424 electronic companies operating in the Philippines.

Based on the analysis of PEZA's incentives, the current economic trends, and the operational
challenges, it is recommended that the electronic manufacturing international company proceed with
investment in a PEZA-accredited zone in the Philippines. The comprehensive fiscal and non-fiscal
incentives offered by PEZA can significantly enhance the company's competitive edge and operational
efficiency. Although there are incentives available to foreign investors that are non-PEZA, such as BOI,
RHQ, RHOW, etc., PEZA offers a more comprehensive set of incentives, especially for export-oriented
businesses, while the other options like BOI incentives are focused on preferred economic activities listed
in the Investment Priorities Plan (IPP). However, it is crucial to conduct thorough due diligence on the
specific economic zone's infrastructure and regulatory stability to mitigate potential risks.

Investing in a PEZA-accredited zone offers substantial benefits, including tax incentives,

regulatory support, and a strategic location. Despite certain challenges, the overall advantages outweigh
the potential risks. By leveraging PEZA's incentives, taking advantage of the economic trend, and
addressing operational threats through strategic planning, the company can achieve sustained growth and
profitability in the Philippines' dynamic market.
References:
https://www.peza.gov.ph/special-economic-zone-act
https://webapps.peza.gov.ph/cpis/
https://www.peza.gov.ph/mandate-and-functions
https://www.philstar.com/business/2024/06/02/2359645/philippines-urged-address-infrastructure-challeng
es
https://www.philstar.com/business/2021/05/12/2097746/pledges-up-peza-says-investors-left-either-unfaze
d-or-worried-create
https://reliefweb.int/report/philippines/powerful-earthquake-hits-philippines
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6
https://www.philstar.com/business/2024/07/05/2367767/digital-attacks-target-mostly-government-schools
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https://industry.gov.ph/industry/electronics/