For 2023, foreign direct investment net inflows in the Philippines reached USD 8.9 billion, a 6.6% decrease from last year’s USD 9.5 billion but was nevertheless higher than the BSP’s target of USD 8 billion. These foreign direct investments are important for developing countries like the Philippines as these investments trigger economic growth and development.
The government continues to strive toward attracting more foreign investments by passing laws that enhance the incentives regime and improve the ease of doing business in the country. The Philippines also has existing systems in place that make investment in the country attractive, and one of these existing systems are economic zones.
The term “ecozone” is one of the more common terms that gets thrown around when talking foreign investments. First established under the Special Economic Zones Act, these special economic zones – or, as they are more commonly, ecozones – pertain to selected areas that the government wants to develop into agro-industrial, intrustrial, tourist/recreational, commercial, banking, investment and financial centers. The main administrative body governing these ecozones is the Philippine Economic Zone Authority (PEZA).
These ecozones often confer benefits, such as fiscal and non-fiscal incentives, on those enterprises that are located therein.
Fiscal Incentives
The main fiscal incentives that PEZA offers are income tax holidays, special corporate income tax rate, and enhanced deductions. Income tax holidays mean that the eligible enterprise is exempt from income tax for a certain period ranging from four to seven years depending on the nature of business and where such business is located. After the expiration of income tax holidays, business enterprises may be entitled to a special corporate income tax or enhanced deductions.
The special corporate income tax incentive allows a business to be taxed at a lower rate (5%) than the regular corporate income tax rate (25%) but is only available for export-oriented enterprises. On the other hand, enhanced deductions make the business eligible to claim better tax deductions. This incentive is available for both export-oriented enterprises and domestic market enterprises.
There are also other fiscal incentives such as tax and duty-free importation, VAT exemptions, etc.
Non-Fiscal Incentives
Aside from fiscal incentives, PEZA also offers non-fiscal incentives that may make it more attractive to invest. A non-resident citizen in a PEZA-registered economic zone is entitled to a special non-immigrant visa that has multiple entry privileges and can be extended to the immediate family members. PEZA locators may also enter into long-term leases for up to 75 years, which is longer than regular businesses.
Improved Ease of Doing Business
“No red tape, only red carpet,” claims PEZA, and this is something that can be observed. The agency prides itself in offering improved ease of doing business policies for enterprises located therein. It has a One-Stop Shop, which means that PEZA locators need only go to one place for all its licensing and registration needs. Moreover, ecozone locators have to go through significantly less red tape compared to regular enterprises. And finally, PEZA also has online systems in place, which make transacting with the agency much more accessible and convenient. Through the Electronic Application for Registration System (eARS), anyone looking to register as an ecozone locator can fill in the details required by the online platform and it will already be processed by PEZA.
PEZA’s Achievements
Through a combination of these incentives, PEZA has continued to attract more foreign investments for the Philippines. For 2023 alone, PEZA was lauded for drawing in PHP175.7 billion in approved investments, an increase of 25% from 2022’s PHP140.7 billion.
In 2023, PEZA Director-General Tereso Panga outlined the agency’s priorities, which were incorporating townships, leveraging leading sectors (e.g., BPO, semiconductor and electronics), attracting high-tech industries, approving more ecozones, and improving the regulatory framework.
For 2024, PEZA will hopefully continue to prioritize these pillars and further increase their contribution to the Philippines’ foreign investment inflows. In fact, recently, PEZA has signed a Memorandum of Understanding with the Asian Consulting Group in order to reflect their joint vision of attracting foreign investments in the Philippines.
PEZA is only one of the government agencies that an aspiring investor can potentially transact with when starting a business in the Philippines, and the benefits that PEZA offers are not the only reasons for investing in the Philippines. The recently-published book “WHY INVEST IN THE PHILIPPINES?” provides an overview of the reasons why the Philippines has developed into an ideal investment destination, which includes discussions on the Philippine economic situation, the state of the ease of doing business in the country, what incentives are being offered, and ongoing tax policy reforms.
ACG continues its dedication to guiding investors by providing full support from business registration, tax matters to other regulatory compliance, allowing them to focus on handling their business while we take care of their tax and other compliance requirements.
For more information, you may visit https://acg.ph/ to CONSULT ACG or send email to consult@acg.ph.