a
ZEPRE,
Republic of the Philippines VA % RON

HOUSE OF REPRESENTATIVES

ali Jf RLEENVED
Quezon City, Metro Manila of UL og

Dh
SIXTEENTH (16™) CONGRESS
First Regular Session
& 5
House Bill No. 15

Introduced by: Honorable Ronald V. Singson

EXPLANATORY NOTE

This bill seeks to establish the Special Economic Zone and Freeport in the
Municipalities of San Juan and Cabugao, all in the province of Ilocos Sur.

If there is anything clear in the world market of investments and to the community
of investors, itis this; a country must look beyond the traditional way of doing things. It
must innovate to create opportunities where and by which it can give investors-the
maximum value of their investments.

is bill seeks to achieve this by establishing the Salomague Freeport-which shall
cover the entire Salomague Cove and area embraced by the barangays of Dardarat,
Solotsolot, Surgit and Refaro in the municipality of San Juan as well as Dardarat, Pila,
Sagadayen, Salomague, Sabang, Namruangan, Salapasap, Daclapan, Pug-os, Turod and
in the Municipality of Cabugao, all in the province of locos Sur. The concept and
objective is to develop the Freeport area into a self-sustaining industrial, commercial and
investment center that will; put in place a wide reaching employment and investment
generation mechanism, all to strengthen the trading and foreign exchange position of the
country. On the whole, it is looking at effectively complementing an announced
aggressive export-oriented thrust of the country, thus, enhancing the country’s global
competitiveness.

As envisioned, the Salomague Freeport shall be operated as a separate customs
territory that will basically provide incentives to ensure the free flow and movement of
goods and commodities within the Freeport area and their exportation therefrom.
Likewise it shall provide tax based incentives for business activities and concerns
locating and operating within the Freeport premises, not to mention other non-tax
benefits like liberal exchange policies and the grant of permanent resident status to
investors.



This bill does away with an authority-type of office to run the Freeport but
directly tasks a governing body composed of the elected chief executives of the localities
involved and the private sector to do the job. It is felt that with the flexibility already
defined in the bill, creating the Freeport already as a body corporate, to institutionalize
another office or authority for purpose of running the Freeport would be necessary.

‘The competitive markets around are now moving fast already leaving the country
behind. The performance of South Korea, Hongkong, Taiwan and Singapore had always
been a source of envy despite limited resources they have compared to the abundance of
our country enjoys. And now Thailand, Malaysia and Indonesia are surging ahead,
outpacing even other western countries. Particularly because the proposed Freeport offers
an environment that can match the capabilities and resources of a comparable area
anywhere in the country, this Bill may help the country, at least, to keep pace with, not
necessarily, to get ahead of the pack.

There are physical geographic and natural attributes of the Salomague Area that
can make the creation of Freeport ideal therein, Salomague cove is a natural harbor and
haven for international ships during inclement weather. There is a channel that hugs the
semicircular shorelines that is appropriate for marine vessel traffic. Not to be forgotten is
that, it is probably the only port closest to Hongkong, Japan and Taiwan, It is large that it
can sit dozens of vessels at any one time, It can close to an international airport in Laoag
City, locos Norte and a local airport in Vigan locos Sur.

In light of the foregoing, approval of the Bill is earnestly sought.

RONALD V. we SON


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

SIXTEENTH (16") CONGRESS
First Regular Session

e
House Bill No. aS)

Introduced by: Honorable Ronald V. Singson

AN ACT ESTABLISHING THE SPECIAL ECONOMIC ZONE AND
EPORT IN THE PROVINCE OF ILOCOS SUR, CREATING FOR THIS.
PURPOSE THE ILOCOS SUR SPECIAL ECONOMIC ZONE AND FREEPORT
AUTHORITY, APPROPRIATING FUNDS THEREFOR AND FOR OTHER
PURPOSE

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

CHAPTER I

NERAL PROVISIONS

TION 1.

Short Title. — Vhis Act shall be known as the “Ilocos Sur Special

Economie Zone and Freeport Act of 2013”.

SE

of the State to

"2. Declaration of Policy. ~ \t is hereby declared the p.
actively encourage, promote, induce and accelerate the sound and balanced industrial,
economic and social development of the country in order to provide jobs to the people

espe

ally those in the rural areas, increase productivity and individual and family
income, and thereby improve the level and quality of living conditions through the

establishment, among others, of special

conomic zones and freeports in suitable and
strategic locations in the country and through measures that will attract legitimate and

productive foreign investments.



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CHAPTER I
CREATION OF THE ECOZONE.

SEC. 3. Creation of the Hocos Sur 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 Hocos Sur affected by the zone, there is hereby
established a special economic zone and freeport in the Province of Ilocos Sur to be
known as the Hlocos Sur Special Economic Zone and Freeport, hereinafter referred to as
the Ilocos Sur Ecozone. The Hlocos Sur Ecozone shall cover the entire Salomague Cove
and the area embraced by the barangays of Dardarat, Solotsolot, Surngit and Refaro in
the Muni

Namruangan, Salapasap, Daclapan, Pug-os, Turod and Baclig in the Municipality of

ality of San Juan as well as Dardarat, Pila, Sagayaden, Salomague, Sabang,

Cabugao. The specific metes and bounds of the Ilocos Sur Ecozone shall be more

particularly defined in a presidential proclamation that shall be issued for this purpose.

SI

2d Gi

verning Principles. ~ The locos Sur Ei

ozone shall be managed and

operated by the locos Sur Special Economic Zone and Freeport Authority, hereinafter

referred to as the ISSEZFA, created under Section 5 of this Act, under the following

principle

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

provisions of the Local Government Code, the Hock

s Sur Ecozone shall be developed
is

|, tourist, banking, financial and investment center

into and operated as a decentralized, self-reliant and self-sustaining industri

commercial/trading, agro-industri

with suitable residential areas;

(b) The Tocos Sur 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 Hocos Sur and its neighboring towns and cities:

(c) The Hocos Sur 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


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Economic Zone Authority (PEZA) an

F the Department of Trade and Industry (DTI),

with foreign entities or enterprises;

(a) Foreign i

izens and companies owned by non-Filipinos in whatever

proportion may set up enterprises in the Ilocos Sur Ecozone, either by themselves or in
joint venture with Filipinos in any sector of industry, international trade and commerce

within the Hocos Sur Ecozone;

(e) The locos Sur Ecozone shall be managed and operated as a separate
customs territory, thereby ensuring the free flow or movement of goods and capital

within, into and out of the Hocos Sur Ecozone, and shall likewise provide incentives

such as tax- and duty-free importations of raw materials and capital equipment to
registered enterprises located therein. However, exportation or removal of goods from

the territory of the Hocos Sur 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;

(1) The areas comprising the locos Sur Ecozone may be expanded or reduced

when necessary. For this purpose, the ISSEZFA, 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 Hocos Sur Ecozone for the
following purposes: (1) consolidation of lands for Hlocos Sur Ecozone development; (2)
acquisition of right-of-way to the tlocos Sur Ecozone: and (3) the protection of

watershed areas and natural assets valuable to the prosperity of the Hlocos Sur Ecozone;

(g) Goods manufactured by an Hocos Sur 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 ISS

ZFA, together with the PEZA, the Bureau of Customs (BoC) and the DTI in
accordance with the NIRC of 1997. as amended, and the Tariff and Customs Code of
the Phil

pines, as amended. However, in order to protect domestic industries, a

Negative List of industries shall be drawn up and regularly updated by the PEZA.
Enterprises engaged in industries included in such Negative List shall not be allowed to

sell their products locally: and



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(h) The defense of the Hlocos Sur Ecozone and the security of its perimeter fence
shall be the responsibility of the national government in coordination with the Ilocos

Sur Eeozone and the LGUs. For this purpose, a spe ed

defense team shall be orga

to define its power, duties and respor

GOVERD

ING STRUCTURES

Creation of the Hocos Sur Special Economic Zone and Freeport

ere is hereby created a body corporate to be known as the Ilocos Sur
Special Economic Zone and Freeport Authority, hereinafter referred to as the
Is

Z¥A, which shall manage and operate the Hocos Sur Ecozone in accordance with

the provisions of this Act. This corporate franchise shall ex}

in fifly (50) years
counted from the first year after the effectivity of this Act, unless otherwise extended
by Congress. It shall be organized within one hundred eighty (180) days after the
effectivity of this Act.

SEC. 6. Capitalization. — The ISSEZFA shall have an authorized capital stock

of two billion (2,000,000,000) no-par shares a minimum

ie 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 locos Sur Ecozone, The Board of
Directors of the ISSEZFA 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 ISSEZFA to the general public under such policy as the Board and the

Secretary of Finance may determine, The national government and the LGUs shall, in
no case, own less than sixty per centum (60%) of the total issued and outstanding

capital of the ISSEZFA.

The amount necessary to subscribe and pay for the shares of the national

government (o the capital stock of the ISSEZFA 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.

7. Principal Office of the ISSEZFA. ~ The \SSEZFA shall maintain its


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principal office in the Municipality of Cabugao, Province of Ilocos Sur, but it may
establish branches within the Philippines as may be necessary for the proper conduct of

its business.

SEC. 8. Powers and Functions of the ISSEZFA. —Yhe ISSEZFA shall have

the following functions:

(a) Operate, administer, m:

wwe and develop the Hlocos

{o the principles and provisions set forth in this Act;

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

proclamation to fix and delimit the site of the locos Sur Ecozone;

(©) Register, regulate and supervise the enterprises in the Ilocos Sur Eeozone in

an efficient and decentralized manner, subject to existing laws;

(d) Coordinate with LGUs

1d exercise general supervision over the

development plans, activities and operations of the locos Sur Ecozone;

(©) Authorize or undertake, on its own or through others, and regulate the

establishment, operation and maintenance of public utilities, services and infrastructure

in the locos Sur Beozone such as shipping, barg

ng, stevedo

, cargo handling,

hauling. warehousing, storage of cargo, port services or concessions, piers, wharves,

bulkheads, bulk terminals, mooring areas, storage areas, roads, bridges, terminals,

conveyors, water supply and storage, sewerage, draina

airport operations in

coordination with the Civil Aeronautics Board, and such other services

or infrastructure neces

sary or incidental to the accomplishment of the objectives of this
Act: Provided, however, That the private investors in the Hocos Sur Ecozone shall be

given priority i

the awarding of contracts, franchises, licenses, permits for the

establishment, operation and maintenance of utilities, services and infrastructure in the

Hocos Sur Ecozone:

() Regulate and undertake the establishment, operation and maintenance of

uti

ies, other services and infrastructure in the Ilocos Sur Ecozone such as. but not

limited to, heat, light and power,

ater supply. telecommunications, transport, toll

roads and bridges, port services. ete. and to fix just, reasonable and competitive rates.


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fares, charges and prices thereof;

(g) Construct, acquire, own, lease, operate and maintain, on its own or through
contracts, franchises, licenses, bulk purchases 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 ventures, adequate facilities and infrastructure required or
needed for the operation and development of the Hlocos Sur Ecozone, in coordination
with appropriate national and local government authorities and in conformity with

applicable laws thereon;

(h) Operate on its own, either directly or accredivlicense other emtities,

's, other tourism-related acti

recreational and sports fa ities and, subject to a grant
of franchise by Congress, gaming activities such as horse racing, dog racing, gambling

casinos, internet and inter-active gaming and other games of chance: Provided, ‘That

registered locator enterprises shall not operate gaming activitis

unless granted a
franchise by Congress:

(i) Subject to the approval of the President of the Philippines and the Monetary
Board of the Bangko Sentral ng Pi

s (BSP), upon the recommendation of the DOF,

to raise or borrow adequate and nec

sary 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;

{j) Provide security for thr Locos Sur Ecozone in coordination with the national
and local governments. Military forces sent by the national government for the purpose

of defense shall not interfere in the internal affairs of the Hocos Sur Ecozone and

expenditures for these military forces shall be borne by the national government. Kor

this purpose, the ISSEZFA may establish and maint security forces and

firefighting capability or hire others to provide the same:

(k) Protect, preserve, mainta coral

and develop the virgin forests. beaches,

and coral reefs. and maintain ecological balance within the Ilocos Sur Ecozone;

(¥) Create, operate and/or contract to operate such functional units or offices of


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the ISSEZFA as it may deem necessary:

(m) 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;

(n) Issue certif

ates of origin for products manufactured or processed in the
Ilocos Sur Ecozone in accordance with prevaili
regulations of the PEZA, the DTI and/or the DOF;

ig rules of origin, and the pertinent

(0) Issue working visas renewable every three (3) years to foreign executives

and foreign technicians with highly specialized skills which no Filipino possesses,

certified by the Department of Labor and Employment (DOLE);

(p) 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

afler the issuance of such grant;

(q)

powers granted to it hereunder, as well as those that shall enable it to carry out,

ercise st

+h powers as may be essential, necessary or incidental to the

ses

implement and accomplish the purposes, objectives and policies of this Act; and

(F) Issue rules and regulations consistent with the provision of this Act as may

be necessary to accomplish and implement the purposes, objectives and pol

provided herein,

SEC. 9. Applicability Clause. — The provisions of Sections 30 to 41 of Republic

Act No. 7916, (The Special Economic Zone Act of 1995) as amended, on leases of

lands and buildings. tand 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 ISSEZFA.

EC. 10. Tax Exemptions. — The ISS is hereby declared exempt from the

payment of all taxes, duties, fees, imports. charges. costs and service fees in any court

or administrative proceedings in which it may be a party.


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The foregoing

mptions may, however, be entirely or partially lifted by the

President of the Philippines upon the ree:

mendation of the Secretary of Finance, not
earlier than

ve (5) years from the effectivity of this Act, if the President shall find the
ISSEZPA to be sel

sustaining and financially capable by then to pay such taxes,

customs duties, fees and other charges after providin

for debt service requirements of

the ISSEZFA and of its projected capital and operating expenditures.

Furthermore, all donations made by any person or entity in favor of the
Is

considered a

‘A shall be exempt from the payment of the donor's tax and the same shall be

1s deductible from the gross income of the donor, pursuant to the NIRC of

1997, as amended.

SEC. 1. Adminis Implementation and Monitoring of Incentives.
The ISSEZFA shall be responsible for the administration and implementation of the
incentives granted to its respective registered enterprises: Provided, That any incentive
administration policy adopted by the BOI for incentives common to all registered

enterprises shall be uniformly applied by the ISSEZFA.

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

administration of ince

(a) Adopt consistent procedures of adm \centives in accordance with

the guidelines established by the BOI and to amend the same when necessary:

(b) Adopt and implement systems and procedures affecting trade and customs
policies in accordance with the requirements established by the DOF and the BOL and

to amend the same when ne

(c) Submit data and information to the DOF and the BOI as required by any of

these agencies (0 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

(d) Perform all other duties and responsibi

ies as may be required by the

President of the Philippines.


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For proper monitoring, the BOI shall create a single database of all incentives
SSEZFA and all

provided by all incentives-granting agencies, including the
information thereto. Double-entry accounting shall be done by the BOT in recording all

incentives granted by the gover

nent for transparency purposes.

SEC. 12. Board of Directors of the ISSEZFA. —'Vhe powers of the ISSEZFA

shall be vested in and exercised by a board of directors. hereinafter ret

ferred to as the

Board, which shall be composed of the following:

(a) The chairperson who shall, at the same time, be the administrator of the

(b) A vice chairperson who shall come from among the members of the Board:
(c) The Members consisting of:
(1) The governor of the Province of Ilocos Sur:

(2) The congressional representative of the district covering the site of the

locos Sur cozone;

(3) The mayors of the municipalities of Cabugao and San Juan:

(4) One (1) representative from the domestic investors;
(5) One (1) representative from the foreign investors; and

(6) Two (2) representatives from labor from among the workers in the Hocos

Sur Ecozone.

The governor, the congressio

I repres

native and the mayors of the

municipa

ities of Cabugao and San Juan shall serve as ex officio members of the Board,

whose terms in the Board correspond to their term as elected officials. The chairperson
and the members of the Board, except the ex officio members, shall be appointed by the
President of the Philippines to serve for a term of six (6) years unless sooner removed
for cause or dies or resigns voluntarily. In case of death, resignation or removal for

‘cause, the replacement shall serve only the un

red portion of the term.



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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 follow

ig ficlds: economics, business, public
administration, law, management or their equivalent, and with at least ten (10) years
relevant working experience preferably in the ficld 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 (19BM) in accordance with existing
rules and regulations: Provided, however, That the total per diem collected each month
shall not exceed the equivalent per diem for four (4) meet
President of the Philipy

such per diem shall not be more than Ten thousand pesos (P10,000.00) for every Board

ngs. Unless and until the

ines has fixed a higher per diem for the members of the Board,

meeti

Ig.

SEC. 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 ISSEZFA in accordance with the

policies of the Board;

(b) Establish the internal organization of the ISSEZFA under such conditions

that the Board may prescribe:

(c) Submit an annual budget and necessary supplemental budget to the Board

for its approval;

(d) Submit within thirty (30) days after the close of each fiscal year an annual

report (o the Board and such other reports as may be required:

(c) Submit to the Board for its approval policies, systems, procedures, rules and

regulations that are essential to the operation of the locos Sur Ecozone;

(8) Create a mechanism in coordination with relevant agencies for the promotion

of industrial peace, the protection of the environment and the advancement of the


in
quality of life: and

(g) Perform such other duties as may be assigned to

sher by the Board or

which are necessary or incidental to his/her office.

SEC. 14. Organization and Personnel. ~ The Board of Directors of the
Is:

EZFA shall provide for an organization and staff of its officers and employees

Upon recommendation of the ch it and fix

irperson-administrator, the Board shall appo
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 excl

PA.

ive and final authority to promote, transfer, assign or reassign

officers of the ISS!

¥y 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 ISSEZFA, 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 ISSEZFA, subject to civil service laws and

regulati

ins, shall be removed or suspended except for cause, as provided by law.

SEC. 15. General Manager. ~ Vhe Board of Directors of the ISSEZPA shall

istrator and chief executive offi

appoint a full-time professional and competent adm q

for the ISSEZFA whose compensation shall be determined by its Board of Directors

and shall be in accordance with the revised compensation and position classification

system. The administrator as chief executive officer of the ISSEZPA shall be

responsible to the Board and to the President of the Philippines for the efficient

‘management and operation of the ISSEZFA.

SEC. 16. Legal Counsel, ~ The ISSEZFA shall have its own internal legal
counsel under the supervision of the Office of the Government Corporate Counsel
(OGCC). When the xi

ISSLZFA may engage the se

encies of its busi

esses und operations demand it, the

es of an outside counsel, either on a case to case or on

a fixed retainer basis.


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CHAPTER IV,
INCENTIVES TO ECOZONE ENTERPRISES/INVESTORS,

SEC. 17. Incentives to Registered Enterprises. ~ The ISSEZFA shall provide
the following incentives to the registered enterprises located therein to the extent of the

activity/project:

s shall be entitled to an

(a) Income Tax Holiday (ITH) — Registered enterprit
ITH from the start of their commercial operations to the extent of their activity under

the following categories:

(1) Category A ~ Registered domestic «1

erprises. producing/rendering new

produets/services or having strong backward or forward linkages shall be entitled to a

six (6)-year ITH.

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

complies with the following
(j) Large capital investments or sizeable employment generation; or
(ii) Use of high level of 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 (BOI) 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


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B
enterprise availing of an eight (8)-year ITH shall not exceed twenty (20) years. Any
unused incentives shall therefore be deemed forfeited if not used during the incentive

period

Enterprises registered with the ISSEZFA are required to share in the special
development fund of the BO! for investment promotion projects of the government

equivalent to one percent (1%) of the ITH granted for every application,

The Bureau of Interal Revenue (BIR) shall require a registered enterprise
availing of the ITH or the net operating los
of eligibility from the ISSEZFA before
ISSEZFA for validation.

carryover (NOLCO) to secure a certificate

bmitting its income tax return (ITR) with the

Failure to secure certification and/or to file the [TH or the NOI.CO availment

for validation by the ISSEZEA w

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,

(b) Net Operating Loss Carryover (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

mediately following the year of such loss: Provided, however,
That operating loss resulting from availment of incentives provided in this Code shall
not be entitled to the NOLCO.

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

(c) Imposition of a Tax Rate of Five Pet

nt (5%) on Gross Income Earned,
(GIE) — Except for real property tax on land, no local and national taxes, as prescribed
under Republic Act No. 8424, also known as “the National Internal Revenue Code of

1997, As Amended’, such as the income tax, the excise tax and the franchise taxes shall

be imposed on business establishments operating within the locos Sur Ecozone, In lie
thereof, there shall be imposed a tax of five percent (5%) of the gross income earned by

all the business enterprises within the ISSEZFA and remitted as follows:



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(1) Two per centum (2%) to the national government;
(2) Two per centum (2%) to the Province of Hocos Sur;

(3) One-half per centum (1/2%) to be shared by the mu
the declaration of the ISSEZFA

alities affected by

proportion to their income from business activities

of the zone; and

(4) One-half per centum (1/2%) to the ISSEZPA.

All persons and service establ the Ilocos Sur

hments Scozone that are not

covered by Section 17 hereof shall be subject to national and local taxes under the

NIRC of 1997, as amended, and the Local Government Code.

(d) Acc

and equipment that are reasonably needed and actually used for the production and

erated Depreciation — Accelerated depreciation of plant, machinery
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.

(c) Capital Equipment Incentives ~ Importations of capital equipment. spare

parts, tools and dye, or those required for pollution abatement and control, cleaner

ion and waste reduct

produ on

sament thereof by registered enterprises
upon the effectivity of this Act shall be exempted to the extent of one hundred percent
(100%) of the taxes and customs duties: Provided, That the importation thereof shall be
used exclusively by the registered enterprise in its registered activity within the Hocos

Sur Eeozone: Provided. further. That the importation of machinery and equipment and

accompanying parts shall comply with the following conditions:

(1) These are not manufactured domestically in sufficient quantity, of

comparable quality and at reasonable prices;

(2) These are reasonably needed and will be used exclusively by the registered
enterprise in the manufacture of its products, unless prior approval of the ISSEZFA is

secured for the part-time utilization of said equipment in a non-registered activity to


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maximize usage thereof or the proportionate taxes and duties are paid on a specific

equipment and machinery being permanently used for non-registered activities: and

(3) Approval of the ISSEZFA was obtained by the registered enterprise for the

importation of such machinery. equipment and spare parts.

Approval of the ISSEZFA must be secured before any sale, transfer or

disposition of the imported capital eq

pment, 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 importatior

any

of the following conditions must be present

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

capital equipments

(ii) If made to another enterprise not covered by part (i) hereof, upon payment

of the taxes and duties on the net book value of the capital equipment to be sold;

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 tor the

inthe foregoing paragraphs other than paragraph

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
i

portation, the registered enterprise and the vende, 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 afler 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
es and duties wi

payment of the tax ced thereon.



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the purchase of machinery, capital equipment, 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,

the registered export-oriented enterprise shall be granted a tax credit

equivalent to the amount of duties that would

je been waived on the machinery

capital equipment. raw mate
fabri

its submission to the Department of Finance (DOF) of the bill of materials evidencing

i. supplies, parts and semi-finished produets used in the

ation of machinery

nd capital equipment, had these items been imported, upon

the transaction value of such and other pertinent documents, for verification and proper

endorsement.

The registered export enterprise availing of the incentive provided under the

mediately preceding 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
ty: (

the raw materials, supplies. parts and semi

enterprise in its registered activit that the capital equipment or machinery where

finished products were used would have
ind (iii) that the approval of the ISSEZPA.

is obtained by the registered enterprise. If the registered enterprise sells, transfers or

qualified for ax- and duty-free importatio

ion in the

disposes of these machineries, capital equipment and spare parts, the prov

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.

() Ta

information technology registered enterprises shall be eligible for tax- and duty-fre

and-Duty Free Importation-The importation of source documents by

importation

(g) Raw Materials Incentives ~ very registered export-oriented

nterpr

enjoy a tax eredit 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

quanti

. quality or are not competitively priced which are used in

the manufacture, processing or production of its export products forming part thereof,


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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 i

application for tax credit under this,

subsection was not filed

‘one (1) year from the date of exportation of the final

product.

(h) 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 operations 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 ISSEZF.

The availment of the ince to the

ives by a registered enterprise shall be subj
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 ISSEZFA 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 operations of the registered enterprise.

This incentive shall be deemed waived if application for tax credit under this

‘tion is not filed within one (1) year from the date of delivery.

(i) Exemption from Wharfage Dues- the provision of law to the contrary
notwithstanding, exports by a registered enterprise shall be exempted from wharfage

dues.

(i) Deterred Imposition of the Minimum Corporate Income Tax ~ The
minimum corporate income tax (MCI) 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 computed under the NIRC of 1997, as amended, for the taxable year: Provided,
however, That

id MCIT shall be imposed 11 only after the enterprise’s entitlement

period to the income tax-based incentives.


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(k) Tax Treatment of Goods and Services in the Ilocos Sur Ecozone

(a) Tax Treatment of Merchandise in the Ilocos Sur Ecozone — 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
zones 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 zone to be sold,
stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise

processed, whether

inufactured, mixed with foreign or domestic merchandis

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.

(ji) Merchandise purchased by a registered [locos Sur Ecozone enterprise, from
the customs territory and subsequently brought into the export processing zone, shall be
considered as export sales and exportation thereof shall be entitled to the benefits

allowed by law for such transaction,

sent from the Ilocos Sur Ecozone to the customs

ii) Domestic merchan

territory shall, whether or not combined with or made part of other articles likewise of

ured 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.

(iv) Merchandise sent from the Hocos Sur 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).


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(v) Domestic merchandise on which all internal revenue taxes have been paid, if
subject thereto, and foreign merchandise previously imported on which taxes have been

be taken into the Hocos

paid, or which have been admitted free of duty and tax, may

Sur Ecozone from the customs ter

jory of the Philippines and be brought back thereto

free of quotas. duty oF tax.

(vi) Subject to such regulations respecting identity and safeguarding of revenue

as the ISSEZFA 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 enter

ing the country for the

time, under the provisions of

the Tariff and Customs Code of the Philippines. as amended

(vii) Articles produced or manufactured

the Ilocos Sur Lcozone 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.

(viii) Unless the contrary is show

merchandise taken out of the export
processing zone shall be considered for tax purposes to have been sent to customs

territory

(b) Tax Treatment of Services — (i) Sale of service by an entity from the customs
territory to a registered evozone or free trade enterprise, or by a registered ecozone or
freeport enterprise to another ecozone or freeport enterprise shall be treated as indirect

and

export and hence, entitled 10 the benefits allowed by law for such transactio

(i)Sale oF service by a registered ecozone or freeport ent

prise to the customs territory

shall be subject to applicable internal revenue laws and regulations.

(I) 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 Bo

(im) 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


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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 ret

ined by forcign nationals beyond he
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

ren

ins the owner or maintains his/her 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. 61

as amended, shall

be permitted to enter and reside in the Philipy

jonals. They shall be issued multiple-entry

nes during the period of employment of

sueh foreign ni

as, 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 adi

ed herein, as well as their respective spouses

and dependents, shall be exempt from: (1) obtaining alien certificates of registration

and emigration clearance certificates; and (2) securing alien employment permits (AEP)

and all types of clearances. permits, licenses or their equivalents required by

any

government department or agency.

18. Ey

tension of Period of Availment, ~ The av

SEI ment period of the

incentives provided herein may be extended by the ISSI

A in the event that the

registered enterprise suffers operational force majeure or any event equivalent thereto,

pairing its viability.

SEC. 19. Duration of Incentives. ~ Enterprises registered with the ISSI
may enjoy ITH or NOLCO granted by the latter prior to the availment of the five

percent (5%) Gross Income Earned (GIE).

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 operations,

industries

whichever is applicable, except that it could be extended with regard to


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deemed indispensable to national development as determined by the ISSEZPA.

The industries exempted from this provision shall be recommended by the BOI,

with the concurrence of the secretaries of the DOF and the DTI.

SEC. 20. Incentive to Investors, ~ Any foreign national covered under

subsection (m) of Section 17 of this Aci

who invests an amount of One hundred fifty
thousand L

S 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;

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

ind

(d) He has not been institutionalized for any mental disorder or disability:

Provided, further, That in securing the investor's visa, the alien appli

entitled to the same privileges provided for under Section 17, 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.

SI

. 21. Banking Rules and Regulations. isting banking laws and
rules/regulations of the BSP shall apply to banks and financial institutions to be

established in the locos Sur Ecozone, such

s those governing foreign exchange and

other current account transactions (trade and nontrade), local and foreign borrowings.

ign
's and other financial institutions under the

foreign investments, establish

and operation of local and foreign banks, for

currency deposit units, offshore bi

nking
supervision of the BSP.

SEC. 22. Remittance of Earnings. — In the case of foreign investm

ma

registered enterprise in the ISSEZFA shall have the right to remit earnings from the


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investment in the currency in which the investment was originally made and at the
exchange rate prevailing at the time of remittance, subject to the provisions of Section
74 of Republic Act No. 265, (The New Central Bank Act), as amended.

CHAPTER V
NATIONAL GOVERNMENT AND OTHER ENTITIES

SEC. 23. Interpretation/Construction. — The powers, authorities and functions
that are vested in the ISSEZPA are intended to decentralize governmental functions and

authority and promote an efficient and effective working relationship among the Hocos

Sur Ecozone, the national government and the LGUs.

SEC. 24, Supervision and Coordination of Development Plans, ~ For purposes

of policy direction and coordination, the locos Sur Ecozone shall be under the direct

control and supervision of the Office of the President.

SEC. 25, Authority of the Bureau of Customs (BoC) to entry
of Imported Articles in the ISSEZFA. ~ The BoC, in coordination with the

mine the

and

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 ISSEZPA for the

purpose of determining: (a) the quantity and description of subject imported articles;

and (b) compliance with the sanitary and agricultural requirements.

SEC. 26. Relationship with the Regional Development Council. — The
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FA shall determine the development goals for the locos Sur Ecozone within the
framework of national development plans, policies and goals. The administrator shall,
upon approval by the Board, submit the Ilocos Sur Ecozone plans, programs and
projects to the Regional Development Council for inclusion and inputs to the overall

regional development plan.

SEC. 27. Relationship with LGUs. — Except as herein provided. the LGUs

comprising the Ilocos Sur Ecozone shall retain their basic autonomy and identity. The
municipalities of Cabugao and San Juan, Province of Hocos Sur shall operate and

function in accordance with the Local Government Code of 1991. In case of any


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conflict among the ISSEZFA and the municipalities of Cabugao and San Juan,
Province of Ilocos Sur on matters affk

ng the llocos Sur Ecozone other than defense

and security matters, the decision of the ISSEZFA shall prevail.

SEC. 28. Auditing. - The Commission on Audit shall appoint a representative

who shall be a full-time auditor of the ISSEZFA and assign such number of personnel

as may be nece:

sary to assist said repre:

entative in the performance of his/her duties,

‘The salaries and emoluments of the assi

ed auditor and personnel shall be in

accordance with pertinent laws, rules and regulations.

CHAPTER VI

CELLANEOUS

SEC. 29. Separability Clause. — \f any provision of this Act shall be held

ions not otherwise affected shall remain in

unconstitutional or invalid, the other prov

full force and effect.

SEC. 30. Repealing Clause. ~ All laws, executive orders or issuances or any
part thereof which are inconsistent herewith are hereby repealed or amended

accordingly.

SEC. 31. Effectivity Clause. ~ This Act shall take effect fifteen (15) days after

its publication in at least two (2) national newspapers of general circule

Approved,