Policy, purpose, and declared intent
- The State shall actively encourage, promote, induce, and accelerate a sound and balanced industrial, economic and social development of the country.
- The State shall provide jobs to the people, especially those in rural areas.
- The State shall increase productivity and individual and family income, improving the level and quality of living condition.
- The State shall pursue these objectives through the establishment of special economic zones and through measures that attract legitimate and productive foreign investments.
Conversion and Freeport coverage area
- The existing Bataan Economic Zone (BEZ) in the Municipality of Mariveles, Province of Bataan is converted into a special economic zone and freeport called the Freeport Area of Bataan (FAB).
- The FAB covers the Municipality of Mariveles, Province of Bataan.
- The FAB shall function as a separate customs territory, ensuring the free flow or movement of goods and capital within, into, and out of its territory.
Governing principles and operational rules
- The FAB shall be managed and operated as a decentralized, self-reliant and self-sustaining industrial, commercial-trading, agro-industrial, tourist, banking, financial and investment center with suitable residential areas, within constitutional and Local Government Code limitations.
- The FAB shall continue to be provided with transportation, telecommunications, and other facilities needed to attract legitimate and productive investments, generate linkage industries, and create employment opportunities in Bataan and neighboring areas.
- The FAB may establish mutually beneficial economic relations with entities within the country or with foreign entities.
- Foreign citizens and companies owned by non-Filipinos may set up enterprises in the FAB either by themselves or in joint venture with Filipinos in any sector of industry, international trade and commerce within the FAB.
- The FAB shall provide incentives including tax- and duty-free importations of raw materials, capital, and equipment to registered enterprises located therein.
- Exportation or removal of goods from the FAB to the rest of the Philippine territory shall be subject to customs duties and taxes under the Tariff and Customs Code of the Philippines (as amended) and the National Internal Revenue Code (NIRC) of 1997 (as amended).
- The FAB areas may be expanded or reduced when necessary, with AFAB power—with the concurrence of LGUs—to acquire private lands by purchase, negotiation, or condemnation proceedings for: (1) consolidation of lands for FAB development; (2) acquisition of right of way; and (3) protection of watershed areas and maintenance/improvement of water yield and natural assets, and management of solid and water waste and their impacts.
- The LGU and the FAB shall provide a mechanism to address inappropriate exploitation of the natural environment and disruptive land use within FAB jurisdiction.
- Goods manufactured by FAB enterprises shall be available for immediate retail sale in the domestic market, subject to payment of corresponding taxes on raw materials and regulations set by the AFAB with PEZA, BSP, DOF, BOC, and DTI, consistent with the NIRC and the Tariff and Customs Code.
- To protect domestic industries, PEZA shall draw up and regularly update a negative list of industries; enterprises in industries on that negative list shall not be allowed to sell their products locally.
- Defense of the FAB and security of its perimeter fence shall be the responsibility of the National Government, coordinated with the AFAB and LGUs.
Fiscal incentives and the 5% final tax structure
- Registered enterprises operating within the FAB shall not be subject to no taxes, local and national, imposed on business establishments operating within the FAB.
- In lieu of such taxes, business establishments shall pay a five percent (5%) final tax on gross income earned, allocated as follows:
- One percent (1%) to the National Government;
- One percent (1%) to the Province of Bataan;
- One percent (1%) to the treasurer’s office of the Municipality of Mariveles;
- Two percent (2%) to the Authority of the Freeport Area of Bataan.
- Registered enterprises operating within the FAB may be entitled to existing pertinent fiscal incentives under Republic Act No. 7916, as amended by Republic Act No. 8748 (Special Economic Zone Act of 1995), or to those under Executive Order No. 226, as amended (Omnibus Investment Code of 1987).
Incentives for investors and tax administration
- Any foreign national who invests US$150,000.00—either in cash and/or equipment—in a registered enterprise shall be entitled to an investor’s visa.
- The foreign national investor must be at least eighteen (18) years of age.
- The foreign national investor must not have been convicted of a crime involving moral turpitude.
- The foreign national investor must not be afflicted with any loathsome, dangerous or contagious disease.
- The foreign national investor must not have been institutionalized for any mental disorder or disability.
- While the investment subsists, the alien investor holding an investor’s visa shall be entitled to reside in the Philippines.
- The alien investor shall submit an annual report in the form duly prescribed to prove continued maintenance of the investment.
- If the alien withdraws the investment from the Philippines, the investor’s visa automatically expires.
- The AFAB shall administer and implement incentives for its registered enterprises, including adopting and implementing systems and procedures affecting trade and customs policies.
- The BOC shall establish a customs controlled area outside the gate of the FAB to facilitate payment of taxes on goods entering the Philippine customs territory.
- The AFAB shall submit to the DOF its annual tax expenditures based on incentives granted to registered enterprises.
- The DOF shall create a single database of incentives provided by the governing authority and shall monitor incentives granted and submit an annual report to the President.
- The availment period of incentives may be extended by the AFAB where the registered enterprise suffered operational force majeure that impaired its viability.
Duration of incentives and related applicability
- Enterprises registered with AFAB may enjoy the income tax holiday (ITH) or the net operating loss carry over (NOLCO) granted by the authority prior to availment of the five percent (5%) gross income earned (GIE) regime.
- Fiscal incentives under this Act terminate after a cumulative period of twenty (20) years from the date of registration or start of commercial operation, whichever is applicable.
- The termination period may be extended for industries deemed indispensable to national development.
- The industries exempted from the twenty (20) years termination rule shall be determined by the AFAB.
- The provisions of Sections 30-41 of Republic Act No. 7916 (Special Economic Zone Act of 1995, as amended) apply to the FAB.
Authority creation, powers, governance, and officers
- The Act creates a body corporate known as the Authority of the Freeport Area of Bataan (AFAB) to manage and operate the FAB.
- The AFAB shall maintain its principal office in the Municipality of Mariveles, Province of Bataan, and may establish liaison offices within the Philippines as necessary.
- The AFAB’s powers and functions include:
- Adopting, altering, and using a corporate seal; contracting; leasing; buying; selling; acquiring; owning; disposing of properties of any nature.
- Suing and being sued and exercising eminent domain for public use and public purpose.
- Operating, administering, managing, and developing the FAB in accordance with Executive Order No. 525 (as amended) and coordinating with LGUs for FAB development plans and operations.
- Recommending to the President a proclamation to fix and delimit the site of the FAB.
- Registering, regulating, and supervising FAB enterprises efficiently and decentrally, subject to existing laws.
- Coordinating with LGUs and exercising general supervision over FAB development plans, activities, and operations.
- Authorizing and undertaking, or regulating others, in establishing and operating public utilities, services, and infrastructure in the FAB, including a broad list of transport, cargo-handling, port, power, water, sewerage, drainage, airport operations (in coordination with the Civil Aeronautics Board), and other services or concessions needed to accomplish the Act’s objectives.
- Giving private investors priority in awarding contracts, franchises, licenses, or permits for establishing and operating utilities, services, and infrastructure.
- Licensing; setting fees; regulating; and undertaking establishment and maintenance of utilities and services and infrastructure (including heat/light/power, water supply, telecommunications, mobile/internet/data facilities, transport, toll roads and bridges, and port services) and fixing just, reasonable and competitive rates, fares, charges, and prices.
- Constructing, acquiring, owning, leasing, operating, and maintaining public utilities and infrastructure, including through contracts, franchises, licenses, bulk purchase from the private sector, and build-operate-transfer or joint ventures with the private sector, in coordination with appropriate national and local authorities and in conformity with applicable laws.
- Operating tourism-related activities, including games, amusements, recreational and sports facilities, subject to approval and supervision of PAGCOR.
- Raising or borrowing within lawful limits and issuing bonds, promissory notes, and other securities, secured by guarantees, pledges, mortgages, deeds of trust, or assignment of property or assets.
- Providing security for the FAB in coordination with national and local governments, including establishing security forces and firefighting capability, and requesting military assistance when necessary without interfering in internal affairs except for needed security/defense; defense expenses are borne by the National Government.
- Protecting, preserving, maintaining and developing virgin forests, beaches, coral and coral reefs, and maintaining ecological balance using DENR and other agency rules implemented by AFAB.
- Creating and operating functional units or offices necessary for AFAB operations.
- Issuing certificates of origin for products manufactured or processed in the FAB.
- Issuing rules and regulations consistent with the Act to implement its purposes.
- Exercising powers essential and incidental to its granted authority, and powers enjoyed by other free port zone authorities.
- The AFAB’s powers are vested in and exercised by a Board of Directors.
- The Board consists of:
- A chairman who is also the administrator of the AFAB.
- A vice chairman from among Board members.
- Two (2) representatives from the National Government.
- One (1) representative from the Province of Bataan.
- One (1) representative from the district covering the site of the FAB.
- One (1) representative from the Municipality of Mariveles.
- One (1) representative from domestic investors.
- One (1) representative from foreign investors.
- One (1) representative from workers working in the FAB.
- The President appoints the chairman and Board members for a term of six (6) years, unless separated sooner due to death, voluntary resignation, or removal for cause; replacements serve only the unused portion of the term.
- Aside from business and labor sector representatives, Board membership requires being a Filipino citizen, of good moral character, with proven probity and integrity, holding a degree in economics, business, public administration, law, management or their equivalent, and having at least ten (10) years relevant working experience preferably in management or public administration.
- Board members receive per diem at rates determined by the Department of Budget and Management (DBM) under existing rules, but the total per diem collected each month shall not exceed the equivalent per diem for four (4) meetings.
- The chairman-administrator directs and manages AFAB affairs under Board policies; establishes internal organization under conditions prescribed by the Board; submits annual and supplemental budgets for Board approval; submits an annual report within thirty (30) days after each fiscal year; submits to the Board policies and systems essential to AFAB operations; creates a coordination mechanism for industrial peace, environmental protection, and quality of life advancement; and performs other duties assigned by the Board or required by the office.
- The AFAB Board provides organizational structure and appoints employees subject to civil service law.
- With the chairman-administrator’s recommendation and the Secretary of the DTI’s approval, the Board appoints and fixes remuneration and other emoluments of officers and employees according to existing compensation and classification laws.
- Officers and employees (including Board members) shall not engage in partisan activities or take part in elections except to vote.
- Officers and employees shall not be removed or suspended except for cause as provided by law.
Labor, banking, remittances, and governance controls
- A labor center shall be established within the FAB to study and amicably settle professional and labor relations and disputes, interpret employment contracts, and monitor work, hygiene and safety standards.
- The labor center comprises a labor office, an industrial health and safety office, and an inspection and disputes office.
- Existing banking laws and BSP rules apply to banks and financial institutions established in the FAB.
- Foreign investments through FAB registered enterprises shall have the right to remit earnings from the investment in the currency originally made at the exchange rate prevailing at remittance, subject to Section 74 of Republic Act No. 265 (as amended).
- The AFAB is under the direct control and supervision of the Office of the President of the Philippines for policy direction and coordination.
- The AFAB determines FAB development goals within national development plans, and submits FAB plans, programs, and projects to the Regional Development Council for inclusion and inputs after Board approval.
Relations with LGUs, legal counsel, audit, and capitalization
- The Municipality of Mariveles operates and functions according to the Local Government Code of 1991, except as provided in the Act.
- For matters affecting the FAB other than defense and security, when there is conflict between AFAB and LGUs and the National Government, the AFAB decision prevails.
- The AFAB shall have internal legal counsel under the supervision of the Government Corporate Counsel, and may engage outside counsel on a case-by-case basis or under fixed retainer.
- The Commission on Audit appoints a full-time auditor in the AFAB or assigns such personnel as necessary to perform its functions.
- The AFAB has an authorized capital stock of PHP 2,000,000,000.00, with option to increase capitalization at AFAB discretion.
- The capital stock is divided into 20,000 no-par shares fully subscribed and paid up by the Republic of the Philippines, including:
- All lands embraced and covered by the FAB and permanent improvements and fixtures not otherwise alienated, conveyed, transferred to another government agency, per proper inventory.
- All other assets the President transfers as government equity contribution.
- A government cash contribution of PHP 500,000,000.00 a year for the next five (5) years, appropriated out of any National Treasury fund not otherwise appropriated.
Transition, implementing rules, separability, repeal
- All properties, assets, funds, rights, obligations, and liabilities are transferred to the AFAB, except liabilities not properly accounted for in COA reports, which remain with PEZA.
- The AFAB is responsible for operations, administration, management, and development of the FAB.
- The transfer shall ensure least disruption of ongoing BEZ programs.
- Qualified and necessary BEZ personnel shall be transferred to and absorbed by the AFAB.
- Transferred personnel shall not have tenure, rank, salaries, or privileges reduced or adversely affected.
- Personnel not retained by the AFAB shall receive separation pay and retirement and other benefits under existing laws, but separation pay shall be not less than one (1) month for every year of service.
- Before AFAB assumes duties, BEZ officers and employees continue to exercise functions and discharge duties.
- BEZ is deemed abolished upon organization of AFAB.
- The DTI, DOF, LGU, and the Department of the Interior and Local Government shall formulate implementing rules and regulations within ninety (90) days after the Act’s approval.
- Implementing rules take effect fifteen (15) days after publication in a newspaper of general circulation in the Philippines.
- If any provision is held unconstitutional or invalid, other provisions not affected remain in full force and effect (separability clause).
- Republic Act No. 5490 and Presidential Decree No. 66 are amended; all inconsistent laws, executive orders, issuances, or parts are repealed or amended accordingly (repealing clause).