Unlocking Opportunities: Your Guide to PEZA Accreditation and Industry Eligibility

In the second quarter of 2024, foreign investments in the Philippines skyrocketed to PhP 189.50 billion—a massive 220.7% surge from PhP 59.09 billion in the same period last year.

This growth is largely driven by incentives through the Philippine Economic Zone Authority (PEZA) and other agencies promoting investments in the country.

This agency offers businesses numerous benefits, including tax holidays, duty-free importation, and access to infrastructure. But for you to reap these benefits, your business should be eligible to have a PEZA accreditation.

Discover essential information on the benefits of getting accredited, compliance requirements, and strategies to mitigate non-compliance risks in this blog.

PEZA accreditation is a certification granted by the Philippine Economic Zone Authority, a government agency that promotes investments in the Philippines. This accreditation is given to businesses operating within specialized economic zones or ecozones in the country. These zones offer various incentives, particularly for export-oriented activities.

This accreditation provides benefits like tax holidays, duty-free importation, and access to advanced infrastructure, promoting investment, job creation, and economic growth.

The accreditation process involves a thorough evaluation to ensure businesses meet the criteria and development goals set by the agency.

Operating within a PEZA-accredited economic zone offers strategic advantages authorized by both the  Special Economic Zone Act of 1995 (RA 7916) and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act (RA 11534).

These advantages include:

• State-of-the-Art Infrastructure: Access to the latest technologies and facilities that enhance productivity and innovation.
• Efficient Business Processes: Streamlined operations that reduce costs and improve service delivery.
• Robust Government Support: Strong policies, initiatives, and incentives that foster growth and stability in the business environment.

PEZA holds the decision-making power for granting incentives to registered projects with an investment capital of P1 billion or less. The following are included in the fiscal incentives or special benefits given to businesses or individuals by the government to encourage specific economic activities:

1. Income Tax Holiday (ITH)

Export companies can enjoy a tax break on their income for a period of 4 to 7 years, depending on their location and industry priority.

2. Post-ITH Options

After the ITH period, companies can choose one of two options:

• Special Corporate Income Tax (SCIT): Pay a reduced corporate income tax rate of 5% on their gross income where 3% goes to the national government and 2% goes to the local government unit where the company operates.
• Enhanced Deductions: Take advantage of increased deductions from their taxable income for a period of 10 years.

Tax Break Duration (Varies by Location & Industry)

The agency assigns different tiers to industries based on their contribution to the Philippine economy:

• Tier I: These industries prioritize job creation, address market gaps, and generate high value through innovation like BPO, agriculture and agri-business.
• Tier II: This tier focuses on manufacturing essential components and intermediate services to support import substitution and local development like manufacturing.
• Tier III: Tier III industries involve high-tech manufacturing, research and development, and intellectual property generation that drives economic growth like Biotechnology and Aerospace Engineering.

Sunset Provision

Companies already receiving incentives before the CREATE Act are granted a 10-year transition period to adjust to the new regulations.

3. Import Savings

Import capital equipment, raw materials, spare parts, and accessories duty-free, reducing your business production costs.

4. Streamlined VAT

Benefit from VAT exemption on imported goods and VAT zero-rating on local purchases directly related to your registered export activity. This simplifies your tax compliance.

5. Domestic Sales Flexibility

Sell up to 30% of your total production domestically while still enjoying benefits. This allows you to tap into the local market while focusing on exports.

6. Reduced Local Taxes

While availing of the 5% SCIT, you’ll be exempt from certain local government taxes and fees, further reducing your operating costs.

There are also non-fiscal incentives that you can enjoy, as listed below:

1.  Visas for Investors and Families

The agency offers special visas with multiple entries for foreign investors, their spouses, and unmarried children under 21. This simplifies your relocation and allows your family to join you. (They can even assist with the visa application process!)

2. Work Opportunities for Foreign Experts

Registered companies can hire foreign nationals for supervisory, technical, or advisory positions. This allows you to access a wider talent pool.

3. Long-Term Stability

Secure your business operations with long-term land leases of up to 75 years. This provides peace of mind and allows you to focus on long-term growth plans.

The accreditation is specifically aimed at businesses involved in export-oriented manufacturing, processing, or assembly, as well as those supporting exports. It is also open for businesses that wish to operate within designated economic zones.

But you have to take note that your business should fall under the following eligible activities:

• Export Manufacturing
• Information Technology Export
• Medical Tourism
• Tourism
• Agro-industrial Bio-Fuel Manufacturing
• Agro-industrial Export Manufacturing
• Economic Zone Development Operations
  • Manufacturing Economic Zone Development/Operation
  • Agro-industrial Economic Zone Development/Operation
  • IT Park Development/Operation
  • Tourism Economic Zone Development/Operation
  • Medical Tourism Economic Zone Development/Operation
  • Retirement Economic Zone Development/Operation
• Logistics and Warehouse Services
• Facilities Providers
  • Facilities for Manufacturing Enterprises
  • Facilities for IT Enterprises
  • Retirement Facilities
• Utilities

Note: Businesses outside these economic zones are not required to obtain an accreditation. However, for businesses that do want to take advantage of incentives and operate within the economic zones, obtaining an accreditation and ensuring compliance with its regulations is necessary.

Below is a step-by-step guide on how to comply with PEZA regulations and secure accreditation easily:

Step 1: Identify Your Industry Eligibility

The first step is to confirm if your industry falls under PEZA’s registration scope. You can find a list of eligible industries on their website, consult with one of their representatives or seek help from compliance experts like Sprout Solutions for guidance and clarification.

Step 2: Gather Requirements

Once you’ve confirmed your business eligibility, meticulously gather all the necessary documents as outlined by the agency. These typically include company registration documents, business plans, financial statements, and project proposals.

Step 3: Submit Your Application

Fill out all the necessary application forms accurately. These forms are available on their website or at their offices. Follow the prescribed submission process, which may include submitting your application online or in person. You may also need to pay any applicable fees associated with the application process.

Step 4: Application Review and Evaluation

Once submitted, your application will be reviewed by the agency. They will evaluate your business plan, financial viability, and compliance with regulations. A site inspection may also be conducted to verify the information provided in your application.

Be prepared to respond promptly to any queries or requests for additional information.

Step 5: Approval and Accreditation

If your application is approved, the agency will notify you of your accreditation status. This notification will include details of the benefits and obligations associated with the accreditation. You may need to sign various agreements, such as a lease agreement for space within a PEZA economic zone.

Step 6: Post-Accreditation Compliance

Maintain compliance with PEZA regulations by submitting regular reports on your business operations, financial performance, and other required information. Always keep track of renewal deadlines and make updates to any significant changes to your business operations or structure.

Always remember to ensure compliance with local government regulations to maintain your accredited status!

Failing to comply with PEZA regulations can have serious financial consequences.

Non-compliance may result in escalating fines: Php 500 for the first violation, Php 1,000 for the second, and Php 2,000 for the third. Additionally, daily fines are imposed: Php 50 per day for the first violation, Php 150 for the second, and Php 200 for the third.

Moreover, non-compliance means missing out on significant financial benefits like tax breaks and duty-free imports, putting you at a disadvantage. This can also restrict your company’s growth and long-term success.

By understanding and navigating the PEZA accreditation process, you can position your company for growth, profitability, and competitiveness.

For comprehensive information on the accreditation and its potential to boost your business success, visit their official website .

Ensure your business stays compliant and stress-free with Sprout’s HR and Legal Compliance Service. Our expert team helps you navigate complex regulations, avoid costly penalties, and streamline your HR processes—so you can focus on growing your business.

To stay updated with the latest government regulations and insights on business growth, visit our blog page.