ORIGINAL

Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
Second Regular Session

House BILLNo,__5439

Introduced by Representative Antonio F. Lagdameo, Jr.

EXPLANATORY NOTE

This bill seeks the establishment of a special economic zone and in the Island
Garden City of Samal, Province of Davao del Norte.

Poverty of majority of Filipino is an issue of national concern, which the
government should immediately address. If government wants to minimize, if not
eradicate poverty and hasten economic recovery of the country, it should enact
measures to encourage the infusion of foreign investment to generate employment
for our people thereby improving their quality of life.

The establishment of an economic zone in the Island Garden City of Samal is
proffered as a vehicle that would contribute to the urgent national effort of curbing
poverty. As proposed, the zone will be a self-sustaining industrial, commercial,
tourist/recreational, banking, investment and financial center, introducing attractive
features of freeport commerce similar to Hongkong, Singapore and Labuan,
Malaysia, Customs duty and tariffree trade of imported goods, preferential tax
treatment for operators, lenient immigration laws and other forms of incentives
characterize the business climate within the economic zone to encourage potential
foreign investors

Likewise, the Samal Island Special Economic Zone Authority (SISEZA) is also
created to oversee the operation and management of the economic zone. The
proposed measure once enacted into law will bolster the realization of the country's
dream of becoming the “Economic Miracle of Asia.”

Hence, the early approval of this bill is earnestly sought.

7 -

ANTONIO F. LAGD) ), JR.


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

SIXTEENTH (16") CONGRESS
Second Regular Session

House BILLNo__ 5439

Introduced by: Representative Antonio F. Lagdameo, Jr.

AN ACT
ESTABLISHING A SPECIAL ECONOMIC ZONE IN THE ISLAND GARDEN
CITY OF SAMAL, CREATING FOR THAT PURPOSE THE SAMAL ISLAND
SPECIAL ECONOMIC ZONE AUTHORITY, APPROPRIATING FUNDS
THEREFOR AND FOR OTHER PURPOSES.

Be it enacted by the Senate and the House of Representatives of the
Philippines in Congress assembled:

CHAPTER I
GENERAL PROVISIONS

Section 1. Short Title. - "Samal Island Special Economic Zone Act of
2015."

Section 2. Declaration of Policy. - It is hereby declared the policy of
the State to actively encourage, promote, induce and accelerate a sound and
balanced industrial, economic and social development of the country in order
to provide jobs to the people especially those in the rural areas, increase
productivity, raise individual and family income, and thereby improve the level
and quality of living condition through the establishment, among others, of
special economic zones and freeport in suitable and strategic locations in the
country and through measures that will attract legitimate and productive

foreign investments.


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CHAPTER Il
CREATION OF THE ECOZONE,

Section 3. Creation of the Samal Island Special Economic Zone
and Freeport. - In pursuit of the foregoing declared policy and subject to the
concurrence of the concerned local government units (LGUs) of Ilocos Norte
affected by the zone, there is hereby established a special economic zone
and freeport in the Island Garden City of Samal in the Province of Davao del
Norte to be known as the Samal Island Special Economic Zone, hereinafter
referred to as the Samal Island Ecozone. The specific metes and bounds of
the Samal Island Ecozone shall be more particularly defined in a presidential
proclamation that shall be issued for this purpose.

Section 4. Governing Principles. - The Samal Island Ecozone shall
be managed and operated by the Samal Island Special Economic Zone
Authority, hereinafter referred to as the SISEZA created under Section 5 of
this Act, under the following principles:

(a) Within the framework and limitations of the Constitution and the

applicable provisions of the Local Government Code, the Samal
Island Ecozone shall be developed into and operated as a
decentralized, self-reliant and self-sustaining industrial,
commercial/trading, agro-industrial, tourism, banking, financial
and investment center with suitable residential areas;

(b) The Samal Island Ecozone shall be provided with transportation,
telecommunications and other facilities needed to attract
legitimate and productive investments, generate linkage
industries and employment opportunities for the people of the
Province of Davao del Norte and its neighboring towns and
cities;

(c) The Samal Island Ecozone may establish mutually beneficial
economic relations with other entities or enterprises within the
country or, subject to the administrative guidance of the
Department of Foreign Affairs (DFA), the Philippine Economic
Zone Authority (PEZA) and/or the Department of Trade and
Industry (DTI), with foreign entities or enterprises;

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(d)

(e)

(9)

(h)

Foreign citizens and companies owned by non-Filipinos in
whatever proportion may set up enterprises in the Samal Island
Ecozone, either by themselves or in joint venture with Filipinos
in any sector of industry, international trade and commerce
within the Samal Island Ecozone;
The Samal Island Ecozone shall be managed and operated as a
separate customs territory ensuring free flow or movement of
goods and capital within, into and out of its territory;
The Samal Island Ecozone may provide incentives such as tax
and duty-free importations of raw materials, capital equipment to
registered enterprises located therein. However, exportation or
removal of goods from the territory of the Samal Island Ecozone
to the other parts 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 areas comprising the Samal Island Ecozone may be
expanded or reduced when necessary. For this purpose, the
SISEZA, in consultation with the LGUs, shall have the power to
acquire either by purchase, negotiation or condemnation
proceedings, any private land within or adjacent to the Samal
Island Ecozone for the following purposes: (1) consolidation of
lands for Samal Island Ecozone development; (2) acquisition of
right of way to the Samal Island Ecozone; and (3) the protection
of watershed areas and natural assets valuable to the prosperity
of the Samal Island Ecozone;
Goods manufactured by Samal Island Ecozone enterprise shall
be made available for immediate retail sale in the domestic
market, subject to the payment of corresponding taxes on raw
materials and other regulations that may be formulated by the
SISEZA, in consultation with the PEZA, the Bureau of Customs
(BoC), and the DTI. However, in order to protect domestic
industries, a negative list of industries shall be drawn up and
regularly updated by the PEZA and the Board of Investments
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(BO!). Enterprises engaged in industries inclided in such
negative list shall not be allowed to sell their products locally;
and

() The defense of the Samal Island Ecozone and the security of its
perimeter fence shall be the responsibility of the national
government in coordination with the Samal Island Ecozone and
the LGUs concerned, For this purpose, a special defense team
shall be organized to define its power, duties and

responsibilities.

CHAPTER III
GOVERNING STRUCTURES

Section 5. Creation of the Samal Island Special Economic Zone
and Freeport Authority. - There is hereby created a body corporate to be
known as the Samal Island Special Economic Zone and Free ort Authority,
hereinafter referred to as the SISEZA, which shall manage ard operate the
Samal Island Ecozone in accordance with the provisions of this Act, This
Corporate franchise shall expire in fifty (50) years counted from the first year
atter the effectivity of this Act, unless otherwise extended by Congress. It shall
be organized within one hundred eighty (180) days after the ef ectivity of this
Act

Section 6, Capitalization. - The SISEZA shall have an authorized
capital stock of two billion (2,000,000,000) no-par shares with a minimum
issue of Ten Pesos (P10.00) each, the majority shares of which shall be
subscribed and paid for by the national government and the LGUs embracing
the Samal Island Ecozone. The Board of Directors of the SISEZA may, with
the written concurrence of the Secretary of Finance, sell shares, representing
not more than forty per centum (40%) of the capital stock of the SISEZA to the
general public under such policy as the Board and the Secretary of Finance
may determine, The national government and the LGUs shal, in no case,
own less than sixty per centum (60%) of the total issued and outstanding
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The amount necessary to subscribe and pay for the shares of the
national government to the capital stock of the SISEZA shall be included in
the annual General Appropriations Act. For LGUs, the funds shall be taken
from their internal revenue allotment and other local funds.

Section 7. Principal Office of the SISEZA. - The SISEZA shall
maintain its principal office at Samal District, Davao del Norte, but it may
establish liaison offices within the Philippines as may be necessary for the
proper conduct of its business

Section 8. Powers and Functions of the SISEZA. - The SISEZA
shall have the following functions:

(a) Recommend to the President of the Philippines the issuance of

a proclamation to fix and delimit the site of the Samal Island
Ecozone;

(b) Operate, administer, manage and develop the Samal Island
Ecozone according to the principles and provisions set forth in
this Act;

(c) Register, regulate and supervise the enterprises in the Samal
Island Ecozone in an efficient and decentralized manner, subject
to existing laws;

(d) Issue certificates of origin for products manufactured or
processed in the Samal Island Ecozone in accordance with
prevailing rules of origin, and the pertinent regulations of the
PEZA, the DTI and/or the Department of Finance (DOF);

(e) Authorize or undertake, on its own or through others, and
regulate the establishment, operation and maintenance of:

e.1. public utilities, services and infrastructure in the Samal
Island Ecozone such as shipping, barging, stevedoring,
cargo handling and storage, warehousing, port services
or concessions, piers, wharves, bulkheads, bulk
terminals, mooring areas, storage areas, roads, toll
roads, bridges, terminals, conveyors, sewerage,
drainage, and airport operations, in coordination with the

Civil Aviation Authority of the Philippines (CAAP),


(9)

(h)

(i)

0)

e.2. such other utilities or services such as, but not limited to
heat, light and power, water supply and storage,
telecommunications, and transport necessary or
incidental to the accomplishment of the objectives of this
Act, and fix just, reasonable and competitive rates, fares,
charges and prices thereof.

Provided, however, That the private investors in the Samal
Island Ecozone shall be given priority in the awarding of
contracts, franchises, licenses, or permits for the establishment,
operation and maintenance of utilities, services and
infrastructure in the Samal Island Ecozone;
Construct, acquire, own, lease, operate and maintain on its own
‘or through contracts, franchises, licenses, bulk purchase from
the private sector or permits under any of the schemes allowed
in Republic Act No. 6957 (the Build-Operate-Transfer Law, as
amended), or joint venture, adequate facilities and
infrastructures required or needed for the operation and
development of the Samal Island Ecozone, in coordination with
appropriate national and local government authorities and in
conformity with applicable laws thereon;

Operate on its own, either directly or through a subsidiary entity,

or concession or license to others, tourism-related activities and

sports facilities, such as golf courses and others under priorities
and standards set by SISEZA;

Protect, preserve, maintain and develop the virgin forests,

beaches, coral and coral reefs, and maintain ecological balance

within the Samal Island Ecozone;

Create, operate and/or contract to operate such functional units

or offices of the SISEZA as it may deem necessary;

Adopt, alter and use a corporate seal; contract, lease, buy,

acquire, own or otherwise dispose of personal and/or real

property of whatever nature; sue and be sued; and otherwise
carry out its functions and duties as provided for in this Act;


0)

(0)

(p)

Subject to the approval of the President of the Philippines and
the Monetary Board of the Bangko Sentral ng Pilipinas (BSP),
upon the recommendation of the DOF, to raise or borrow
adequate and necessary funds from local or foreign sources to
finance its projects and programs under this Act and for that
purpose, to issue bonds, promissory notes, and other forms of
securities, and to secure the same by a guarantee, pledge,
mortgage, deed of trust or an assignment of all or part of its
property or assets;

Issue working visas renewable every two (2) years to foreign
executives and foreign technicians with highly specialized skills
which no Filipino possesses, as certified by the Department of
Labor and Employment (DOLE);

Report to the Bureau of Immigration (BI) the names of the
foreigners who have been granted permanent resident status
and working visas within thirty (30) days after issuance of such
grant;

Provide security to the Samal Island Ecozone in coordination
with the national and local governments. Millitary forces sent by
the national government for the purpose of defense shall not
interfere in the internal affairs of the Samal Island Ecozone and
expenditures for these military forces shall be borne by the
national government, For this purpose, the SISEZA may
establish and maintain its security forces and firefighting
capability or hire others to provide the same;

Coordinate with LGUs and exercise general supervision over the
development plans, activities and operations of the Samal Island
Ecozone;

Exercise such powers as may be essential, necessary or
incidental to the powers granted to it hereunder, as well as those
that shall enable it to carry out, implement and accomplish the
purposes, objectives and policies of this Act; and


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(q) Issue rules and regulations consistent with the provisions of this
Act as may be necessary to accomplish and implement the
purposes, objectives and policies provided herein.

Section 9. Applicability Clause. - The provisions of sections 30 to 42
of Republic Act No, 7916, otherwise known as “The Special Economic Zone
Act of 1995”, as amended, on leases of lands and buildings, land conversion,
shipping and shipping register, protection of environment, termination of
business, registration of business enterprises, one-stop shop center and on
industrial harmony in the ecozones shall apply to the SISEZA

Section 10, Tax Exemptions. - The SISEZA is hereby declared
exempt from the payment of all taxes, duties, fees, imposts, charges, costs,
and service fees in any court or administrative proceedings in which it may be
a party.

The foregoing exemptions may, however, be entirely or partially lifted
by the President of the Philippines upon the recommendation of the Secretary
of Finance, not earlier than five (5) years from the effectivity of this Act, if the
President shall find the SISEZA to be self-sustaining and financially capable
by then to pay such taxes, customs duties, fees and other charges after
providing for debt service requirements of the SISEZA and of its projected
capital and operating expenditures.

Furthermore, all donations made by any person or entity in favor of the
SISEZA shall be exempt from the payment of the donor's tax and the same
shall be considered as deductible from the gross income of the donor,
pursuant to the NIRC of 1997, as amended

Section 11. Administration, Implementation and Monitoring of
Incentives. - The SISEZA shall be responsible for the administration and
implementation of the incentives granted to its respective registered
enterprises: Provided, That any incentive policy adopted by the BOI for
incentives common to all registered enterprises shall be uniformly applied by
the SISEZA.

The following are the duties and responsibilities of the SISEZA in the

administration of incentives:


Sexrvaaueon

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(a)

(b)

(co)

(a)

Adopt consistent procedures of administering incentives in
accordance with the guidelines established by the BOI and to
amend the same when necessary;

Adopt and implement systems and procedures affecting trade
and customs policies in accordance with the requirements
established by the DOF, BoC and the BOI and to amend the
same when necessary;

Submit data and information to the DOF and the BOI as required
by any of these agencies to ascertain consistency of investment
policies and incentives, including their implementation as
provided in (a) and to ensure proper implementation of systems
and procedures affecting trade and customs policies as provided
in (b); and

Perform all other duties and responsibilities as may be required
by the President of the Philippines,

For proper monitoring, the BO! shall create a single database of all
incentives provided by all incentives-granting agencies, including the SISEZA.
Section 12, Board of Directors. - The powers of the SISEZA shall be

vested in and exercised by a board of directors, hereinafter referred to as the
Board, which shall be composed of the following:

(a)

(b)

The Chairperson who shall, at the same time, be the

administrator of the SISEZA;

Vice Chairperson who shall come from among the members of

the Board;

The Members consisting of

(1) The Governor of the Province of Davao del Norte;

(2) _ The Congressional Representative of the district covering
the site of the SISEZA;

(3) The Mayor of the Island Garden City of Samal;

(4) One (1) representative from the domestic investors;

(5) One (1) representative from the foreign investors

(6) One (1) labor representative from the workers working in
the Samal Island Ecozone;


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The chairperson and the members of the Board shall be appointed by
the President of the Philippines to serve for a term of six (6) years unless
sooner separated from service due to death, voluntary resignation or removal
for cause. In case of death, resignation or removal fcr cause, the
replacement shall serve only the unexpired portion of the term.

Except for the representatives of the business and labor sectors, no
person shall be appointed by the President of the Philippines as: a member of
the Board unless he is a Filipino citizen, of good moral character, of proven
probity and integrity, and a degree holder in any of the following fields
economics, business, public administration, law, management or their

‘equivalent, and with at least ten (10) years relevant work experience

preferably in the field of management or public administration.

The members of the Board shall each receive per diem at rates to be
determined by the Department of Budget and Management (DBM) in
accordance with existing rules and regulations: Provided, howaver, That the
total per diem collected each month shall not exceed the equivalent per diem
for four (4) meetings. Unless and until the President of the Philippines has
fixed a higher per diem for the members of the Board, such per diem shall not
be more than Ten Thousand Pesos (P10,000.00) for every Board meeting

Section 13. Powers and Duties of the Chairperson-Administrator.

- The chairperson-administrator shall have the following powers and duties:

(a) _ Direct and manage the affairs of the SISEZA in accordance with
the policies of the Board;

(b) Establish the internal organization of the SISEZ under such
conditions that the Board may prescribe;

(c) Submit an annual budget and necessary supplemental budget to
the Board for its approval;

(4) Submit within thirty (30) days after the close of ezch fiscal year
an annual report to the Board and such other reperts as may be
required;

(e) Submit to the Board for its approval policies, systems,
procedures, rules and regulations that are essential to the

operation of the Samal Island Ecozone;

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(f Upon approval by the Board, submit the Samal Island Ecozone
plans, programs and projects to the Regional Development
Council for inclusion and inputs to the overall regional
development plan;

(9) Create a mechanism in coordination with relevant agencies for
the promotion of industrial peace, the protection of the
environment and the advancement of the quality of life; and

(h) Perform such other duties as may be assigned to him/her by the
Board or which are necessary or incidental to his/her office.

Section 14, Organization and Personnel. - The Board of Directors of
the SISEZA shall provide for its organization and staff. Upon the
recommendation of the chairperson-administrator, the Board shall appoint and
fix the remuneration and other emoluments of its officers and employees in
accordance with existing laws on compensation and position classification:
Provided, That the Board shall have exclusive and final authority to promote,
transfer, assign or reassign officers of the SISEZA, any provision of existing
law to the contrary notwithstanding: Provided, further, That the chairperson-
administrator may carry out removal of such officers and employees.

The officers and employees of the SISEZA, including all members of
the Board, shall not engage directly or indirectly in partisan activities nor take
part in any election, except to vote.

No officer or employee of the SISEZA, subject to civil service laws and
regulations, shall be removed or suspended except for cause, as provided by
law.

Section 15. Legal Counsel. - The SISEZA shall have its own internal
legal counsel under the supervision of the government corporate counsel.
When the exigencies of its businesses and operations demand it, the SISEZA
may engage the services of an outside counsel either on a case to case or on
a fixed retainer basis.

CHAPTER IV
INCENTIVES TO ECOZONE ENTERPRISES/INVESTORS

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Section 16. Incentives to Registered Enterprises. - The SISEZA
shall provide the following incentives to the registered enterprises located

therein to the extent of the activity/project:

(a)

Income Tax Holiday (ITH) - Registered enterprises shall be
entitled to an ITH from the start of their commercial operations to
the extent of their activity under the following categories:

(1) Category A - Registered domestic enterprises
producing/rendering new products/services or having
strong backward or forward linkages shall be entitled to a
six (6) year ITH; and

(2) Category B - Registered export enterprises shall be
entitled to a six (6)-year ITH: Provided, That an export
enterprise shall be entitled to an eight (8)-year ITH if it
complies with the following:

() Large capital investments or sizeable employment

generation; or

(ii) Use of high level technology.

Registered enterprises embarking on new investments
that are listed in the current Investment Priorities Plan (IPP)
shall be entitled to incentives provided herein pertaining to the
new investments and subject to such terms and conditions as
the Board of Investments may determine.

Additional investments in the project shall be entitled to
the ITH corresponding to such investments as may be
determined by the BOI. Additional ITH may be granted for as
long as the investment is made on the same project: Provided,
That the project is listed in the IPP at the same time the
additional investment in the project is made: Provided, further,
That the entitlement period for additional investments shall not
exceed three (3) times the period provided under this
subsection: Provided, however, That the total ITH period for an
export enterprise availing of an eight (8)-year ITH shall not
exceed twenty (20) years. Any unused incentive shall therefore
be deemed forfeited if not used during the incentive period.

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(b)

(c)

Enterprises registered with the SISEZA are required to
share in the special development fund of the BOI for investment
promotion projects of the government equivalent to one percent
(1%) of the ITH granted for every application.

The Bureau of Internal Revenue (BIR) shall require a
registered enterprise availing of the ITH or the net operating loss
carryover (NOLCO) to secure a certificate of eligibility from the
SISEZA before submitting its income tax return (ITR) with the
SISEZA for validation

Failure to secure certification and/or to file the ITH or the
NOLCO availment for validation by the SISEZA within forty-five
(45) days from the last day of statutory filing date for ITR shall
cause the forfeiture of the availment for the taxable period.
NOLCO - The net operating loss of the business or enterprise
during the first three (3) years from the start of commercial
operations which have not been previously offset as a deduction
from the gross income shall be carried over as a deduction from
the gross income for the next five (5) consecutive years
immediately following the year of such loss: Provided, however,
That operating loss resulting from the availment of incentives
provided in this Act shall not be entitled to NOLCO.

Registered enterprises availing of the ITH as herein
provided shall not be entitled to avail of the NOLCO.

Imposition of a Tax Rate of Five Percent (5%) on Gross Income
Earned (GIE) - No taxes, local and national, shall be imposed on
business establishments operating within the Samal Island
Ecozone. In lieu thereof, there shall be imposed a tax of five
percent (5%) of the gross income earned by all the business
enterprises within the SISEZA and remitted as follows:

(1) Two per centum (2%) to the National Government;

(2) One per centum (1%) for the Province of Davao del

Norte;
(3) One per centum (1%) to be shared by the city and
municipalities affected by the declaration of the
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(a)

Zone in proportion to their income from business
activities within the Zone; and

(4) One centum (1%) to the SISEZA which shall be
created under this Act.

All persons and service establishments in the Samal

Island Ecozone that are not covered by section 16 hereof shall
be subject to national and local taxes under the NIRC of 1997,
as amended, and the Local Government Code, as amended.

Accelerated Depreciation - Accelerated depreciation of plant,

machinery and equipment that are reasonably needed and
actually used for the production and transport of goods and
services may be allowed using a rate not exceeding twice the
rate which would have been used had the annual allowance
been computed in accordance with the rules and regulations
prescribed by the Secretary of Finance and the provisions of the
NIRC of 1997, as amended.

Capital Equipment
(e.1) Incentives
(e.1.1)

Waived Taxes and Customs Duties -
Importations of — machinery, capital
equipment and spare parts shall be
exempted to the extent of one hundred
percent (100%) of the taxes and customs
duties: Provided, That the importation
thereof shall comply with the following
conditions:

() These are not manufactured
domestically in sufficient quantity, of
comparable quality and at
reasonable prices;

(i) These are reasonably needed and
will be used exclusively by the
registered enterprise in__ its.
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(e.1.2)

(e.1.3)

approval of the SISEZA is secured
for the part-time utilization of said
equipment in a non-registered
activity; and
(iii) Approval of the SISEZA was
obtained by the —_registered
enterprise for the importation of
such machinery, equipment and
spare parts.
Subject to Zero Percent (0%) Value-Added
Tax - The purchase of machinery and
capital equipment and raw materials,
supplies, parts and semi-finished products
used in the fabrication of machinery and
capital equipment by a registered export-
oriented enterprise from a domestic
manufacturer shall be subject to zero
percent (0%) value-added tax.
Tax Credit on Domestic Capital Equipment -
The registered export-oriented enterprise
shall be granted a tax credit equivalent to
the amount of duties that would have been
waived on the machinery, capital equipment
and raw materials, supplies, parts and semi-
finished products used in the fabrication of
machinery and capital equipment, had
these items been imported, upon its
submission to the DOF of the bill of
materials evidencing the transaction value
of such and other pertinent documents, for
verification and proper endorsement.

The registered —_ export-oriented
enterprise availing of the incentives
provided under the immediately preceding

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(e.2)

two (2) paragraphs shall be subject to the
following: (i) that said capital equipment,
machinery and spare parts will be used
exclusively by the registered enterprise in
its registered activity; (il) that the capital
equipment or machinery where the raw
materials, supplies, parts and semi-finished
products were used would have qualified for
tax-and duty-free importation; and (iii) that
the approval of the SISEZA is obtained by
the registered enterprise. If the registered
enterprise sells, transfers or disposes of
these machineries, capital equipment and
spare parts, the provision in the preceding
paragraphs for such disposition shall apply,
This incentive shall be deemed
waived if application for tax credit under this
subsection was not filed within one (1) year

from the date of delivery.
Sale, Transfer or Disposition of Capital Equipment -
Approval of the SISEZA must be secured before any
sale, transfer or disposition of the imported capital
equipment, machinery or spare parts is made:
Provided, That if such sale, transfer or disposition is
made within the first five (5) years from the date of
importation, any of the following conditions must be

present:

(i) If made to another enterprise enjoying tax and
duty exemption on imported capital equipment;

(ii) If made to another enterprise not covered by

part (i), upon payment of the taxes and duties
on the net book value of the capital equipment
to be sold;

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(9)

(iii) Exportation of the capital equipment,
machinery, spare parts or source documents or
those required for pollution abatement and
control; and

(iv) For reasons of proven technical obsolescence.

When the aforementioned sale, transfer or
disposition is made under any of the conditions
provided for in the foregoing paragraphs other than
paragraph (i), the registered firm shall not pay the taxes
and duties waived on such items: Provided, further,

That if the registered enterprise sells, transfers or

disposes the aforementioned imported items without

prior approval within five (5) years from the date of
importation, the registered enterprise and the vendee,
transferee or assignee shall be solidarily liable to pay
twice the amount of the tax and duty exemption given it:
Provided, finally, That even if the sale, transfer or
disposition of the capital equipment, machinery or spare
parts is approved after five (5) years from the date of
importation, the registered enterprise is still liable to pay
the taxes and duties based on the net book value of the
capital equipment, machinery or spare parts if it has
violated any of its registration terms and conditions.

Otherwise, it shall no longer be subject to the payment

of the taxes and duties waived thereon.

Tax-and Duty-Free Importation - The importation of source
documents by information technology-registered enterprises
shall be eligible for tax- and duty-free importation.

Raw Material Incentives - Every registered export-oriented
enterprise shall enjoy a tax credit equivalent to the internal
revenue taxes and customs duties paid on the supplies, raw
materials and semi-manufactured products: Provided, That the
same are not sufficient in quantity, quality or are not
competitively priced which are used in the manufacture,

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(h)

(i)

10)

processing or production of its export products forming part
thereof, exported directly and indirectly by the registered export-
oriented enterprise based on the actual taxes and duties paid for
such materials/supplies/semi-manufactured products by the
registered enterprise.

This incentive shall be deemed waived if application for

tax credit under this subsection was not filed within one (1) year
from the date of exportation of the final product,
Incentives on Breeding Stocks and Genetic Materials -
Importation of breeding stocks and genetic materials within ten
(10) years from the date of registration of commercial operation
of the enterprise shall be exempt from all taxes and duties:
Provided, That such breeding stocks and genetic materials are
reasonably needed in the registered activity and approved by
the SISEZA.

The availment of the incentives by a registered enterprise
shall be subject to the following: (1) that said breeding stocks
and genetic materials would have been qualified for tax- and
duty-free importation under the preceding paragraph; (2) that the
breeding stocks and genetic materials are reasonably needed in
the registered activity; (3) that approval of the SISEZA has been
obtained by the registered enterprise; and (4) that the purchase
is made within ten (10) years from the date of registration of
commercial operation of the registered enterprise.

This incentive shall be deemed waived if application for
tax credit under this subsection is not filed within one (1) year
from the date of delivery.

Exemption From Wharfage Dues - The provisions of law to the
contrary notwithstanding, exports by a registered enterprise
shall be exempted from wharfage dues.

Deferred Imposition of the Minimum Corporate Income Tax -
The minimum corporate income tax (MCIT) of two percent (2%)
of the gross income as of the end of the taxable year shall be
imposed when the MCIT is greater than the income tax

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computed under the NIRC of 1997, as amended, for the taxable
year: Provided, however, That said MCIT shall be imposed only
after the enterprise's entitlement period to the income tax-based

incentives.

Tax Treatment of Goods and Services in the Samal Island

Ecozone - The treatment of goods and services in the SISEZA

shall be as follows:

(k.1)

Tax Treatment of Merchandise - The free trade/freeport
zone shall be operated and managed as a separate
customs territory ensuring free flow or movement of
goods within, into and exported out of the free
trade/freeport zone. Importations of raw materials and
capital equipment are tax- and duty-free, However,
exportations or removal of goods from the free
trade/freeport zone to the other parts of the Philippine
territory shall be subject to customs and internal revenue
regulations:

(i) Except as otherwise provided in this Act, foreign and
domestic merchandise, raw materials, supplies,
articles, equipment, machineries, spare parts and
wares of every description, except those prohibited
by law, brought into the Samal Island Ecozone to
be sold, stored, broken up, repacked, assembled,
installed, sorted, cleaned, graded or otherwise
processed, manufactured, mixed with foreign or
domestic merchandise, whether directly or
indirectly related in such activity, shall not be
subject to customs and internal revenue laws and
regulations nor to local tax ordinances, any
provision of law to the contrary notwithstanding;

(ii) Merchandise purchased by a registered Samal
Island Ecozone enterprise, from the customs
territory and subsequently brought into the export
processing zone, shall be considered as export

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(ii)

(iv)

0)

(vi)

sales and exportation thereof shall be entitled to
the benefits allowed by law for such transaction;
Domestic merchandise sent from the Samal Island
Ecozone to the customs territory shall, whether or
not combined with or made part of other articles
likewise of local origin or manufactured in the
Philippines while in the export processing zone, be
subject to internal revenue laws of the Philippines
as domestic goods sold, transferred or disposed of
for local consumption;

Merchandise sent from the Samal Island Ecozone
to the customs territory shall, whether or not
combined with or made part of other articles while
in the zone, be subject to rules and regulations
governing imported merchandise. The duties and
taxes shall be based on the value of said imported
materials (except when the final product is
exempt);

Domestic merchandise on which all internal revenue
taxes have been paid, if subject thereto, and
foreign merchandise previously imported on which
has been paid, or which have been admitted free
of duty and tax, may be taken into the Samal
Island Ecozone from the customs territory of the
Philippines and be brought back thereto free of
quotas, duty or tax;

Subject to such regulations respecting identity and
safeguarding of revenue as the SISEZA may deem
necessary, when the identity of an article entered
into the export processing zone under the
immediately preceding paragraph has been lost,
such article when removed from the zone and
taken to the customs territory shall be treated as
foreign merchandise entering the country for the

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0)

(m)

first time, under the provisions of the Tariff and
Customs Code of the Philippines, as amended;

(vii) Articles produced or manufactured in the Samal
Island Ecozone and exported therefrom shall, on
subsequent importation into the customs territory,
be subject to the import laws applicable to like
articles manufactured in a foreign country; and

(vill) Unless the contrary is shown, merchandise taken
out of the export processing zone shall be
considered for tax purposes to have been sent to
customs territory.

(k.2) Tax Treatment of Services - (i) Sale of service by an
entity from the customs territory to a registered ecozone
or free trade enterprise, or by a registered ecozone or
freeport enterprise to another ecozone or freeport
enterprise shall be treated as indirect export and, hence,
entitled to the benefits allowed by law for such
transaction; and (ii) Sale or service by a registered
ecozone or freeport enterprise to the customs territory
shall be subject to applicable internal revenue laws and
regulations.

Bonded Warehousing System - Registered export-oriented

enterprise shall have access to the utilization of the bonded

warehousing system in accordance with the rules and
regulations of the BoC

Employment of Foreign Nationals - Subject to the provisions of

section 29 of Commonwealth Act No. 613 otherwise known as

"The Philippine Immigration Act of 1940", as amended, a

registered enterprise may employ foreign nationals in

supervisory or technical positions for a period not exceeding ten

(10) years from its registration: Provided, That when the

majority of the capital stock of a registered enterprise is owned

by foreign investors, the positions of the president, treasurer and
general manager or their equivalents may be retained by foreign
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nationals beyond the period set forth herein and such officer is
the owner or a stockholder owning at least ten percent (10%) of
the outstanding capital stock of the registered enterprise and
he/she remains the owner or maintains his stockholdings
therein,

Foreign nationals under employment contract within the
purview of this incentive, their spouses and unmarried children
under twenty-one (21) years of age, who are not excluded by
section 29 of Commonwealth Act No. 613, as amended, shall be
permitted to enter and reside in the Philippines during the period
of employment of such foreign nationals. They shall be issued
multiple-entry visas, renewable every two (2) years, and shall be
allowed to enter and leave the Philippines without further
documentary requirements other than valid passports or other
travel documents in the nature of passports.

The foreign nationals admitted herein, as well as their
respective spouses and dependents, shall be exempt from: (1)
obtaining alien certificates of registration and immigration
clearance certificates; and (2) securing the alien employment
permits and all types of clearances, permits, licenses or their
equivalents required by any government department or agency.

Section 17. Extension of Period of Availment. - The availment
period of the incentives provided herein may be extended by the SISEZA in
the event that the registered enterprise suffers operational force majeure or
any event equivalent thereto, impairing its viability

Section 18. Duration of Incentives. - Enterprises registered with the
SISEZA may enjoy the ITH or NOLCO granted by the latter prior to the
availment of the five percent (5%) tax rates on Gross Income Earned

Fiscal incentives under this Act shall be terminated after a cumulative
period of twenty (20) years from the date of registration or the start of
commercial operation, whichever is applicable, except that it could be
extended with regard to industries deemed indispensable to national
development as determined by SISEZA.

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The industries exempted from this provision shall be recommended by
the BOI, with the concurrence of the secretaries of the DOF and the DTI

Section 19. Incentive to Investors. - Any foreign national covered
under subsection (m) of section 16 of this Act, who invests an amount of One
Hundred Fifty Thousand US Dollars (US$150,000.00), either in cash and/or
equipment, in a registered enterprise shall be entitled to an investor's visa:
Provided, That,

(a) He is at least eighteen (18) years of age;

(b) He has not been convicted of a crime involving moral turpitude;

(c) He is not afflicted with any loathsome, dangerous or contagious

disease; and

(4) He has not been institutionalized for any mental disorder or

disability: Provided, further, That in securing the investor's visa,
the alien-applicant shall be entitled to the same privileges
provided for under section 16(m), last paragraph

As a holder of an investor's visa, an alien shall be entitled to reside in
the Philippines while his investment subsists. For this purpose, he shall
submit an annual report, in the form duly prescribed for the purpose, to prove
that he has maintained his investment in the country. Should said alien
withdraw his investments from the Philippines, then the investor's visa issued
to him shall automatically expire

Section 20, Banking Rules and Regulations. - Existing banking laws
and rules/regulations of the BSP shall apply to banks and financial institutions
to be established in the Samal Island Ecozone, such as those governing
foreign exchange and other current account transactions (trade and
nontrade), local and foreign borrowings, foreign investments, establishment
and operation of local and foreign banks, foreign currency deposit units,
offshore banking units and other financial institutions under the supervision of
the BSP.

Section 21. Remittance of Earnings. - In the case of foreign
investments, a registered enterprise in the SISEZA shall have the right to
remit earnings from the investment in the currency in which the investment
was originally made and at the exchange rate prevailing at the time of

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Temittance, subject to the provisions of section 74 of Republic Act No. 7653
(The New Central Bank Act), as amended.

CHAPTER V
NATIONAL GOVERNMENT AND OTHER ENTITIES

Section 22, Interpretation/Construction. - The powers, authorities
and functions that are vested in the SISEZA are intended to decentralize
governmental functions and authority and promote an efficient and effective
working relationship among the Samal Island Ecozone, the national
government and the LGUs

Section 23, Supervision and Coordination of Development Plans.
- For purposes of policy direction and coordination, the Samal Island Special
Economic Zone and Freeport Authority shall be under the direct control and
supervision of the Office of the President of the Philippines,

Section 24, Authority of the Bureau of Customs to Examine the
Entry and Exit of Imported Articles in the Samal Island Special
Economic Zone and Freeport. - The BoC, in coordination with the
appropriate government agencies such as, but not limited to, the Departments
of Trade and Industry, Agriculture, Transportation and Communications, and
Health shall have the authority to examine the entry and exit of imported
articles in the Samal Island Special Economic Zone and Freeport for the
purpose of determining: (a) the quantity and description of subject imported
articles, and (b) the compliance with the sanitary and agricultural
requirements

Section 25. Relationship with the Regional Development Council.
- The SISEZA shall determine the development goals for the Samal Island
Ecozone within the framework of national development plans, policies and
goals, The administrator shall, upon approval by the Board, submit the Samal
Island Ecozone plans, programs and projects to the Regional Development
Council for inclusion and inputs to the overall regional development plan.

Section 26. Relationship with LGUs. - Except as herein provided,
the LGUs comprising the Samal Island Ecozone shall retain their basic
autonomy and identity. The Island Garden City of Samal shall operate and

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7

function in accordance with the Local Government Code of 1991, as
amended. In case of any conflict among the SISEZA and the Province of
Davao del Norte on matters affecting the Samal Island Ecozone other than
defense and security matters, the decision of the SISEZA shall prevail

CHAPTER VI.
MISCELLANEOUS

Section 27. Separability Clause. - If any provision of this Act shall be
held unconstitutional or invalid, the other provisions not otherwise affected
shall remain in full force and effect

Section 28. Repealing Clause. - All laws, executive orders or
issuances, or any part thereof which are inconsistent herewith are hereby
repealed or amended accordingly

Section 29. Effectivity Clause, - This Act shall take effect fifteen (15)
days after its publication in at least two (2) national newspapers of general
circulation.

Approved,

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