Export Processing Zone Authority Establishment

Purposes and core powers

Section 4 authorizes the Authority to operate, administer, and manage the export processing zone established in the Port of Mariveles, Bataan, and such other export processing zones as may be established under the Decree.
Section 4 empowers the Authority to construct, acquire, own, lease, operate, and maintain infrastructure and facilities needed for commerce and the Decree’s purposes, including factory buildings, warehouses, dams, reservoirs, water distribution, electric light and power systems, telecommunications, transportation, and other necessary facilities or services.
Section 4 authorizes the Authority to take water from public water sources in the Philippines and to alter/straighten/obstruct/increase the flow of water in relevant streams or water channels connected or contiguous to its works; it also authorizes land reclamation.
Section 4 allows the Authority to acquire and hold agricultural lands in excess of areas permitted to private corporations or associations by the Constitution.
Section 4 grants the Authority power to determine and regulate enterprises inside an export processing zone to prevent adverse effects on existing domestic industries outside the zone, and to operate the zone as a public utility with fair and reasonable rates and charges determined solely by the Authority; it must also afford uniform treatment under like conditions to all applicants, subject to treaties or commercial conventions enforced or made by the Philippines with any foreign government.
Section 4 authorizes the Authority, upon application and for consideration, to grant the use or rent/lease/let port facilities (including stevedoring and port terminal services) and concessions incident thereto, for the handling and transfer in transit of goods and related activities.
Section 4 limits private ownership of port terminal facilities by requiring that if port terminal facilities are owned and operated by private persons, the Authority’s levied fees and charges must not exceed those collected by the Government for similar services.
Section 4 authorizes the Authority to grant franchises or permissions to operate and maintain exclusively within the zone certain utility services and facilities (including electric light/heat/power systems, transportation, communication, warehousing, ice plants, or cold storage) and permits use of the zone and its facilities or permission to erect structures within the zone under uniform and reasonable rates and regulations.
Section 4 provides that any franchise or permission:
- does not constitute a vested right against the Government;
- cannot interfere with or complicate revocation of the grant; and
- cannot be granted on terms conflicting with the public use of the zone as set forth in the Decree.
Section 4 authorizes the Authority to fix, assess, and collect storage charges and fees (including rentals for lease/use/occupancy of Authority-owned lands, buildings, structures, warehouses, facilities, and other properties) and to fix and collect fees and charges for permits/licenses and services not enumerated, notwithstanding contrary provisions of law.
Section 4 grants the Authority exclusive jurisdiction and sole police authority over areas owned or administered by the Authority and requires supervision/control over the bringing in or taking out of the zone and the movement within the zone of all cargoes, wares, articles, machinery, equipment, supplies, and merchandise of every description.
Section 4 authorizes the Authority, when essential for corporate affairs or necessary for business or Decree purposes, to contract indebtedness and issue bonds, subject to conditions in Section 19.
Section 4 empowers the Authority to create and operate, or contract to operate, agencies/functional units/offices/departments needed for Decree purposes, and to adopt a corporate seal, make contracts, lease, own or dispose of property, and sue and be sued, and do other necessary acts to carry out Decree purposes.

Capital and governance board structure

Section 5 provides that the Authority’s capital consists of: (1) its existing assets and additional government properties contributed to form part of capital; (2) all capitalized surplus; and (3) cash contribution by the Government of PHP 200,000,000, appropriated from the National Treasury not otherwise appropriated.
Section 5 states the PHP 200,000,000 government cash contribution shall be programmed and released by the Budget Commission based on the schedule of development and expenditure prepared and submitted by the Authority.
Section 5 requires that any budgetary outlay allocated and released in favor of the Export Processing Zone Authority and/or Foreign Trade Zone Authority must be correspondingly credited to the authorized capitalization under the Decree.
Section 6 vests the Authority’s corporate powers in a Board of Commissioners composed of seven members: (i) the Deputy Governor of the Central Bank of the Philippines; (ii) the Vice-Chairman of the Board of Investments; (iii) the Undersecretary of Finance; and (iv) the Undersecretary of the Department of Trade and Tourism as ex officio members; and (v) the remaining members appointed by the President with the consent of the Commission on Appointments.
Section 6 requires the President to designate from among Board members its Chairman, who at the same time serves as the Authority’s Administrator.

Commissioner qualifications and Board acts

Section 7 requires Board members to be Philippine citizens, of good moral character and unquestionable integrity and responsibility, and of recognized competence in fields such as finance, economics, law, taxation, commerce, industry, engineering, management, or the like.
Section 7 prohibits Board members from directly or indirectly engaging in partisan political activities, practicing a profession or engaging in a business dealing with or related to the exercise of the Authority’s functions and powers, or being financially interested in any contract entered into by the Authority.
Section 8 sets the tenure of office of non-ex officio Board members at six years.
Section 8 fixes the initial staggered terms for the first appointees: the Chairman for six years, one member for four years, and the last member for two years.
Section 8 provides that vacancies must be filled only for the unexpired portion of the term, and authorizes the President to suspend or remove Board members for cause.
Section 9 mandates Board meetings regularly once a month and as often as exigencies demand; it sets quorum at the presence of at least four members, and requires the vote of four members for adoption of any rule, resolution, decision, or other Board act.
Section 10 sets compensation:
- the Chairman/Administrator receives PHP 50,000 annual salary and a monthly commutable allowance of PHP 1,000;
- members receive per diem not to exceed PHP 200 for each Board meeting actually attended; and per diem shall not exceed PHP 1,000 during any month for each member;
- no other allowances or compensation are payable except actual traveling expenses from residences to attend Board meetings.

Board powers; Administrator; staffing rules

Section 11 authorizes the Board to promulgate policies and prescribe rules and regulations implementing the Decree; such rules take effect 30 days after publication in two (2) newspapers of general circulation in the Philippines.
Section 11 requires the Board to recommend other export processing zones and to recommend to the President proclamations to fix and delimit zones that must remain owned by the Authority.
Section 11 requires that the site delimited by Presidential proclamation be surveyed by the Bureau of Lands and conveyed to the Authority in absolute ownership by the President for a nominal sum of one peso for each parcel of land; it further requires registration by the proper Register of Deeds and issuance of the original certificate of title to the Authority.
Section 11 gives the Board authority to approve the annual budget and supplemental budgets submitted by the Chairman.
Section 11 authorizes the Board, upon recommendation of the Administrator, to organize/reorganize and determine staffing pattern, and to fix salaries and define powers and duties.
Section 11 authorizes the Board to enter into contracts by itself despite contrary laws/rules/regulations.
Section 11 requires the Board, upon recommendation, to address labor disputes by recommending compulsory arbitration; if the President believes a labor dispute would seriously impair zone operation, the President must certify it to the National Labor Relations Commission or the Court of Industrial Relations for immediate compulsory arbitration.
Section 11 authorizes the Board to recommend to the Commissioner of Immigration the entry of foreign nationals for employment authorized under Section 16.
Section 11 requires the Board to render annual reports to the President and special reports as requested, and to exercise generally all powers necessary or incidental to attain Decree purposes.
Section 12 establishes that the Chairman (Administrator) shall be assisted by two Deputy Administrators selected and removable by the Board upon the Chairman’s recommendation; both the Administrator and Deputy Administrators must work full time.
Section 12 sets deputy compensation at PHP 30,000 annual salary and monthly commutable allowance of PHP 500 for each Deputy Administrator.
Section 12 authorizes the Administrator to direct and manage Authority affairs in accordance with Board policies, assist registered zone enterprises and investors to have papers processed with dispatch by government offices/agencies/financial and banking institutions, prepare Board agendas and submit policies/measures for approval, submit an annual report within 30 days after the close of each fiscal year and other reports, submit the annual budget and supplemental budgets for Board approval, establish internal organization subject to Board approval for major reorganizations, and perform other duties assigned by the Board.
Section 13 exempts Authority officials and employees from the Wage and Position Classification Office regulations and requires personnel selection and appointment on a merit and fitness basis under a comprehensive and progressive merit system to be established by the Authority immediately upon organization and consistent with Civil Service rules.
Section 13 requires recruitment, transfer, promotion, dismissal, and handling of temporary workers to be governed by the Authority’s merit system.
Section 14 requires department heads and similar rank to be appointed by the Board upon recommendation of the Administrator.
Section 15 requires appointments of officials and employees below department head rank by the Administrator upon written recommendation of the concerned department head using standards in the Authority’s merit system; it also requires the Administrator to submit a quarterly report to the Board on personnel recruitment, placement, and training.
Section 27 imposes audit and oversight through the Auditor General as ex officio auditor in charge of the Authority’s auditing office, including appointment of a representative, semestral reporting to the Auditor General and Board, and annual reporting to the President and Congress with required financial condition and operations statements, subject to Authority opportunity to examine reports and make exceptions/answers prior to inclusion.

Foreign enterprises, labor limits, entry/residence

Section 16 authorizes the Authority, despite contrary law, to authorize an alien or an association/partnership/corporation/other business organization formed under laws other than Philippine laws or not a Philippine national, or whose working capital is fully owned or controlled by aliens, to do business or engage in an industry inside the zone, subject to Commonwealth Act No. 613 limitations referenced in the Decree.
Section 16 allows a zone enterprise (domestic or foreign) within five years from registration to employ foreign nationals in supervisory, technical, or advisory positions not exceeding 5% of its total personnel in each such category; it further provides that in no case may each foreign employment exceed five years.
Section 16 provides that foreign employment after five years from registration, or within the five-year period but beyond the proportion permitted, is governed by Section 20 of Commonwealth Act No. 613, as amended.
Section 16 allows retention by foreign nationals of the positions of president, treasurer and general manager (or equivalents) when the enterprise’s majority capital stock is owned by foreign investors.
Section 16 authorizes the Board in exceptional cases to allow foreign nationals in other positions that cannot be filled by Philippine nationals, subject to limits stated in Section 16.
Section 16 provides that foreign nationals under employment contracts covered by the Decree, plus their spouses and unmarried children under 21 years of age, who are not excluded by Section 29 of Commonwealth Act No. 613, may enter and reside in the Philippines during the period of employment.

Zone tax treatment and incentives

Section 17 provides that, except as otherwise provided in the Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts, and wares brought into the zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed/manipulated/manufactured/mixed with other merchandise, or used in such activities—except items prohibited by law—are not subject to customs and internal revenue laws and regulations and not subject to local tax ordinances, notwithstanding contrary provisions of law.
Section 17 treats merchandise purchased by a registered zone enterprise from the customs territory, paid for in United States dollars or any convertible foreign currency and subsequently brought into the zone, as exported, entitling the exporter to benefits allowed by law for such transactions.
Section 17 subjects domestic merchandise sent from the zone to the customs territory to internal revenue laws as domestic goods sold, transferred, or disposed of for local consumption, whether or not combined with or made part of other articles produced in the zone.
Section 17 subjects merchandise sent from the zone to the customs territory to laws and regulations governing imported merchandise; it provides that duties and taxes are assessed on the value of imported materials (except when the final product is exempt) and internal revenue taxes on value added.
Section 17 allows domestic merchandise on which all internal revenue taxes have been paid, and foreign merchandise previously imported on which duty or tax has been paid or admitted free of duty and tax, to be taken into the zone from the customs territory and brought back free of quotas, duty, or tax.
Section 17 provides that when the identity of an article entered into the zone has been lost (subject to regulations on identity and safeguarding of revenue), removal from the zone and taking to the customs territory is treated as foreign merchandise entering the country for the first time under the Tariff and Customs Code.
Section 17 provides that articles produced or manufactured in the zone and exported therefrom are, on subsequent importation into the customs territory, subject to import laws applicable to like articles manufactured in a foreign country.
Section 17 establishes a tax presumption: unless the contrary is shown, merchandise taken out of the zone is treated for tax purposes as having been sent to customs territory.
Section 18 grants zone registered enterprises additional incentives including:
- Net-Operating Loss Carry Over: a net-operating loss in any of the first five years of operation inside the zone may be carried over as a deduction from taxable income derived in the zone during the next five years; the entire loss amount or the portion exceeding taxable income in the loss year’s first year is deducted in like manner from taxable income of the remaining four years; net-operating loss computation follows National Internal Revenue Code rules, notwithstanding contrary provisions of the Decree, except that income not taxable wholly or in part under the Decree or other laws is included in gross income.
- Accelerated Depreciation: fixed assets may be depreciated to (1) not more than twice the normal rate if expected life is not more than 10 years, or at the normal rate if expected life is 10 years or less; or (2) depreciated over any number of years between 5 years and expected life if expected life is more than 10 years; depreciation allowed as a deduction from taxable income is subject to the taxpayer’s obligation to notify the Bureau of Internal Revenue at the beginning of the depreciation period of the depreciation rate to be used.
- Exemption from Export Tax: foreign merchandise transshipped through the zone or articles processed/manufactured/manipulated in the zone and exported therefrom are exempt from any export tax, imposts, or fee, including the stabilization tax imposed by Republic Act No. 6112.
- Foreign Exchange Assistance: the Central Bank of the Philippines or its authorized agent banks shall extend to zone registered enterprises priority in foreign exchange allocation and access to Central Bank assistance/resources to encourage and accelerate investment in the zone.
- Financial Assistance: zone registered enterprises are entitled to at least the same privileges accorded to enterprises approved and registered with the Board of Investments under Republic Act No. 4860 as amended by Republic Act No. 6142 or under existing laws/executive orders/rules/regulations or future enactments, insofar as obtaining financial assistance by loans/credits/guarantees/other accommodations from government financial institutions directly or indirectly through private or non-banking financial institutions; provided that proceeds must be used for projects approved by the Authority; provided further that to facilitate payment of foreign loans/credits/indebtedness for such approved projects, the Central Bank—upon rules/regulations upon recommendation of the Authority—must allow deduction of a portion of foreign exchange earnings sufficient to meet foreign exchange requirements for servicing foreign indebtedness incurred.
- Exemption from Local Taxes and Licenses: business enterprises engaged in production/processing/packaging/manipulation of export products are exempt from all local government imposts, fees, licenses, or taxes to the extent of their construction/operation/production inside the zone, except real estate taxes under Commonwealth Act No. 470 and Republic Act No. 5447; such enterprises must pay real estate taxes on their real properties in the municipality where the zone is located.

Bonds, indebtedness limits, sinking fund; operating exemptions

Section 19 authorizes the Board, by resolution approved by the President upon recommendation of the Secretary of Finance after consultation with the National Economic Development Authority and the Monetary Board of the Central Bank, to contract loans/credits/other indebtedness or issue bonds/notes/debentures/securities and other instruments of indebtedness for development and/or operation of the zone.
Section 19 requires the Board’s resolution to be valid only if passed with affirmative vote of at least four members, and it must state the purpose for the indebtedness and cite the project study devised for the purpose.
Section 19 limits total principal indebtedness of the Authority:
- domestic indebtedness payable in Philippine currency may not exceed PHP 300,000,000 at any one time; and
- foreign-currency principal indebtedness may not exceed USD 100,000,000 or its equivalent in other foreign currencies qualified to form part of the Central Bank’s international reserves.
Section 19 allows foreign indebtedness to be contracted from foreign governments, or public or private international banking/financial institutions or fund sources.
Section 19 provides tax treatment for bonds and instruments of indebtedness: bonds and instruments issued under Section 19 and any income derived therefrom are exempt from payment of all taxes of whatever kind and nature (including withholding taxes) imposed by the Philippines and its agencies/instrumentalities/political subdivisions, except those contracted with private international banking and financial institutions; it also states this exemption may be expressed on the face of the bond/instrument and that such bonds/instruments are eligible as collateral in transactions with national or local government (and their agencies/instrumentalities, including government-owned or controlled corporations and government banking/financial institutions) where collateral is required.
Section 19 requires Government guarantee as to principal and interest whenever the President deems it advisable and necessary; the President (or duly authorized representative) must execute and deliver the guarantee.
Section 19 directs that the Central Bank or authorized agent banks extend priority in foreign exchange allocation and assistance to facilitate contracting/issuance and repayment of foreign-currency loans/instruments; it grants the Authority the right to repurchase foreign currencies sold/surrendered to the Central Bank as needed to meet foreign debt service at the same sale rate(s), subject to foreign exchange premium/fees the Central Bank may deem reasonable.
Section 19 authorizes the President, when a condition by the foreign creditor requires it, to agree to waive laws granting preference or imposing restrictions on international competitive bidding (citing examples including Act No. 4239, Commonwealth Act No. 138, Commonwealth Act No. 541, Republic Act No. 912, Republic Act No. 5183).
Section 19 requires that when competitive bidding is agreed upon in the purchase of machineries, equipment, materials, and supplies financed out of proceeds of such loans/credits/instruments, preference may be granted in favor of machineries/equipment/materials/supplies produced, processed, or manufactured in the Philippines at a rate and in a manner agreed upon with the financing entity/institution.
Section 20 authorizes the Authority to pay maturities out of appropriations, operating income, proceeds from borrowings/bonds/instruments, and other funds; it allows a sinking fund in the Central Bank under a special account to match aggregate maturing obligations/amortization as of each due date, under Central Bank custody, with investments approved by the Monetary Board, expenses charged to the sinking fund, and investment income credited to the sinking fund.
Section 20 makes a standing appropriation out of the National Treasury to meet Government obligations under its guarantees executed pursuant to the Decree if the sinking fund is insufficient or if the Authority fails to fully pay by other means.

Non-profit character, tax exemptions; roads and eminent domain

Section 21 declares the Authority non-profit and requires it to use returns on capital investment and excess revenues for development, improvement, maintenance, payment of indebtedness/obligations, and effective implementation of the Decree’s policy.
Section 21 provides Authority exemption from:
- all taxes, duties, fees, imposts, charges, costs, and service fees in any court or administrative proceeding where it is a party to the Republic of the Philippines and its political subdivisions and other government agencies/instrumentalities;
- all income taxes, franchise taxes, realty taxes, and all other kinds of taxes and licenses to be paid to the National Government and its political subdivisions and other government agencies/instrumentalities; and
- all tariff and customs duties and advance sales tax on import of capital goods required for its operations.
Section 21 authorizes the President to lift these exemptions entirely or partially upon recommendation of the Secretary of Finance, but not earlier than five years from approval of the Decree, if the President finds the Authority self-sustaining and financially capable to pay the taxes/customs duties/fees/charges after providing for debt service and projected capital and operating expenditures.
Section 22 declares the road network within the export processing zone as national roads, eligible for allocation from the Highway Special Fund for construction, repair, or maintenance within the zone, notwithstanding contrary provisions of law/executive orders/rules/regulations.
Section 23 grants the Authority the right and power to acquire rights of way or property for establishing export processing zones or low-cost housing projects for zone employees, for protecting watershed areas, or for construction of dams/reservoirs/wharves/pier/docks/quays/warehouses and other terminal facilities and their approaches/structures, by purchase, negotiation, or condemnation proceedings.
Section 23 requires that if eminent domain is exercised, condemnation proceedings must be maintained by and in the name of the Authority and pursued in the manner provided by law.

Real property titles; relocation; procurement rules

Section 24 requires Bureau of Lands surveying of public lands fixed and delimited as site of the foreign trade zone under Proclamation No. 629 (series of 1969) and Proclamation Nos. 899 and 939 (series of 1971), followed by conveyance in absolute ownership to the Authority by the President for a nominal sum of one peso for each parcel; it further requires Register of Deeds registration and issuance of original certificate of title to the Authority.
Section 24 similarly requires surveying and conveyance of public lands fixed and delimited as the site of a low-cost housing project under Proclamation No. 740 (series of 1970) as amended by Proclamation No. 900 (series of 1971), in absolute ownership by the President to the Government Service Insurance System (GSIS) and/or Social Security System (SSS), with immediate registration and issuance of original certificates of title to the appropriate beneficiaries.
Section 24 provides that the public land covered shall be disposed of as follows: 60 hectares to the Authority upon payment of one peso, and the balance to GSIS/SSS for development of standard housing units and/or condominium houses; GSIS/SSS must sell and convey to bona fide residents of Barrio Nassco and Barrio Camaya in Mariveles, Bataan, as certified by the Authority, together with the title or interest over the land as it appears upon conveyance.
Section 24 prohibits inclusion of site development costs in the price paid by those bona fide residents for the housing units.
Section 24 requires GSIS and/or SSS to undertake complete development of the residual area, including the area allotted to the Authority, into modern communities, taking into account low-cost housing policy.
Section 24 requires that land/housing units be sold to regular workers in the zone who have worked continuously for at least five years, as certified by the Authority.
Section 24 authorizes GSIS/SSS to hold the properties for as long as they are not sold or disposed of where no persons are qualified to own them, notwithstanding contrary law.
Section 24 requires coordination with GSIS/SSS for administration, management, and operation of the housing project, and authorizes the Authority to issue rules and regulations for proper management and operation, including land and housing utilization and disposition.
Section 25 requires relocation of residents of Barrio Nassco and Barrio Camaya in the Municipality of Mariveles, located within the export processing zone, to the low-cost housing area described in Section 24.
Section 25 grants compensation only to residential houses/buildings within Barrio Nassco constructed as of April 15, 1972, based on their fair market value at that time, less recoverable value, if any.
Section 26 requires the Authority to conduct all purchases of supplies or contracts for services (except personal services) through competitive public bidding.
Section 26 exempts bidding where:
- an emergency certified by the Chairman requires immediate delivery of supplies or performance of services; and
- the aggregate amount involved in any one purchase/procurement does