Question & AnswerQ&A (DOF DEPARTMENT ORDER NO. 03-08)
The purpose of these rules is to implement Republic Act No. 9400, which amends RA No. 7227, known as the Bases Conversion and Development Act of 1992, particularly for the proper operation, management, and administration of tax incentives in designated economic zones and freeport zones in the Philippines.
Ecozones refer to Special Economic Zones that are selected areas identified under RA 7227 that are either highly developed or have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment, and financial centers. These zones are fenced in and governed under specific provisions of the law.
The Subic Bay Metropolitan Authority (SBMA) is the Zone Management Authority and Incentives Administration Authority for the Subic Freeport Zone (SFZ).
It is a special tax regime where Ecozone and Freeport Enterprises pay 5% of their gross income earned as a tax in lieu of national and local taxes. This gross income is computed based on gross sales or revenues net of discounts and certain allowable cost of sales or direct costs related to the enterprise's registered activities.
The enterprise may generate income from sources outside the Ecozone or Freeport Zone or within the customs territory up to 30% of its total income from all sources. If the income exceeds 30%, all income will be subject to the regular internal revenue taxes under the National Internal Revenue Code.
Any enterprise found by final judgment to be involved in smuggling will be perpetually barred from doing business in any Freeport and special economic zone and will face penalties and sanctions under existing laws.
Goods of domestic origin brought out of Ecozones or Freeport Zones into the customs territory are treated as imports and subject to VAT and other applicable taxes. Buyers in the customs territory are treated as importers and must comply with all relevant taxation and customs regulations.
For Ecozone and Freeport Enterprises in zones like SSEZ and SFZ, 3% of the tax is remitted to the National Government, and 2% is distributed to concerned local government units based on population, land area, and equal sharing. In other zones like MSEZ, JHSEZ, CFZ, and PPFZ, the 3% goes to the National Government, and the 2% share goes directly to the LGUs where the enterprise is located.
They are required to keep regular and accurate records of transactions including importations, maintain books of accounts per Bureau of Internal Revenue rules, and allow authorized officers to inspect and verify these. Annual and quarterly reports on tax incentives granted, importations, sales, and tax payments must also be submitted to the Department of Finance.
No, except where expressly stated, PEZA Ecozones and PEZA Enterprises are governed by Republic Act No. 7916, its implementing rules, and other related issuances, not by the provisions of RA No. 9400 and its implementing rules.