THIRTEENTH CONGRESS OF 
) 
Second Regular Session 
1 
THE REPUBLIC OF THE PHILIPPINES ) 
S E N A T E  
S. No. 
,2240 
: -+-- 
INTRODUCED BY HONORABLE MAR R O U S  
AN ACT 
ESTABLISHING THE SPECIAL ECONOMIC ZONE AND FREEPORT 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 PURPOSES 
Be it enacted by the Senate and House of Repz-esentatives of the PhiIippines in Congress 
assem bled: 
SECTION 1. Short Title. This Act shall be known as the “Ilocos Sur Special Economic Zone 
and Freeport Act of 2005.” 
SECTION 2. Declaration of Policy. It is hereby declared the policy of the State to 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 especially 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 
Economic Zones and Freeports in suitable and strategic locations in the country and through 
measures that will attract legitimate and productive foreign investments. 
SECTION 3. Creation of the Ilocos Sur Special Economic Zone and Freeport. In pursuit of 
the rooregoing declared policy and subject to the concurrence of the concerned local 
governinelit units (LGUs) of Ilocos Sur affected by the zone, there is hereby established a 
Special Economic Zone and Freeport, hereinafter referred to as the Ilocos Sur Ecozone. It 


shall cover the entire Salomague Cove and the area embraced by the barangays of Dardarat, 
Solotsolot, Surngit and Refaro in the Municipality of San Juan as well as Dardarat, Pila, 
Sagayaden, Salomague, Sabang,Nainruangan, Salapasap, Daclapan, Pug-os, Turod and Baclig 
in the Municipality of Cabugao. The specific meLes and bounds of the Ilocos Sur Special 
Economic Zone and Freeport shall be more particularly defined in a presidential 
proclamation that shall be issued for this purpose. 
SECTION 4. Governing Principles. The Ilocos Sur Special Ecozone shall be managed and 
operated by the Ilocos Sur Special Economic Zone and Freeport Authority, herein refeired to 
as the ISSEZA, created under Section 10 of this Act, under the following principles: 
(a) Within the framework and limitations of the Constitution and applicable 
provisions of the Local Government Code, the Ilocos Sur Ecozone shall be developed into 
and 
operated 
as 
a 
decentralized, 
self-reliant 
and 
self-sustaining 
indbstrial, 
commercial/trading, agro-industrial, tourist, banking, financial and investment center with 
suitable residential areas. 
i 
(b) The Ilocos 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 Ilocos Sur and its 
neighboring towns and cities. 
(c) The Ilocos Sur Ecozone may establish mutually beneficial economic relations with 
other entities or enterprises within the country or with foreign entities or enterprises, 
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 
(DTl). 
(d) Subject to existing laws, foreign citizens and companies owned by non-Filipinos in 
whatever proportion may set up enterprises in the Ilocos Sur Ecozone, either by themselves 
2 


or in 
commerce with the Ilocos Sur Ecozone. 
joint venture with Filipinos in any sector of industry, international trade and 
(e) The Ilocos 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 its territory, 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 Ilocos Sur Ecozoiie to the 
other parts of the Philippine territory shall be subject to customs duties and taxes under the 
Tariff and Customs Cock of the Philippines, as amended, and the National Internal Rcvenue 
Code of 1997, as amended. 
(0 
The areas comprising the Ilocos Sur Ecozone may be expanded or reducecl when 
necessary. For this purpose, the ISSEZA, 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 Ilocos Sur Ecozone for the following purposes: 1) consolidation of 
lands for Ilocos Sur Ecozone development, 2) acquisition of right-of-way to the Ilodos Sur 
Ecozone; and 3) the protection of watershed areas and natural assets valuable to the 
prosperity of the Ilocos Sur Ecozone. 
(g) Goods manufactured by an Ilocos Sur Ecozone enterprise shall be made available 
for immediate retail sale in the domestic market, subject to the payment of correspdnding 
taxes on raw materials and other regulations that may be formulated by the ISSEZA, together 
with the PEZA, the Bureau of Customs (BoC) and the DTI in accordance with the National 
Internal Revenue Code of 1997, as amended, and the Tariff and Customs Code of the 
Philippines, as amended. I-Iowever, in order to protect domestic industries, a Negative List of 
industries shall be drawn up and regularly updated by PEZA. Enterprises engaged in 
industries included in such Negative List shall not be allowed to sell their products locally. 


(h) The defense of the Ilocos Sur Ecozone and the security of its perimeter fence shall 
be the responsibility of the national government (NG) in coordination with the IloCos Sur 
Ecozoiie and the LGUs. 
SECTION 5. Incentives to Registered Enterprises. The Ilocos Sur Special Ecozone and 
Freeport Authority (ISSEZA) may administer 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 income 
tax holiday from the start of their commercial operations to the extent of their activity under 
the following categories: 
Category A - registered domestic enterprise located in highly developed arieas, as 
determined by the Board of Investments (BOI), shall be entitled to a four-year income 
tax holiday. 
Category B - registered domestic enterprise on the following shall be entitled t6 a six- 
year income tax holiday: 
(I) 
(11) 
Located in less developed areas as defined by the BOI; or 
Producinghendering new pro'ducts/services or having strong backward 
or forward linkages 
Category C - registered export enterprise shall be entitled to a six-year incoke tax 
holiday: Provided, However, That if the export enterprise complies wiqh the 
following: (1) large capital investment or sizeable employment generation, or (2) use 
high level of technology, it shall be entitled to an eight-year income tax holiday. 
Registered enterprises embarking on new investments that are listed in the current 
Investineiit Priorities Plan (IPP) shall be entitled to incentives provided herein pertaining to 
the new investments and subject to such terms and conditions as the BO1 may determine. 
4 


Additional investments in the project shall be entitled to the income tax 17oliday 
corresponding to such investments as may be determined by the €301. Additional income tax 
holiday 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 macle: Provided, Furrhei; That the entitlement period for additional investments shall not 
exceed three times the period provided under this subsection: Provided, However, That the 
total ITH period for an export enterprise availing of an eight 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 ISSEZA are required to share in the special development 
fund of the BO1 for investment promotion projects of the government equivalent to one 
percent (1Yo) of the ITH granted for every application. 
The Bureau of Internal Revenue (BIII) shall require a registered enterprise availing of 
ITH or NOLCO to secure a certificate of eligibility from the ISSEZA before submitting its 
income tax return (ITiI) with ISSEZA for validation. 
Failure to secure certification and/or to file the ITH or NOLCO availment for 
validation by the ISSEZA within forty-five (45) days from the last day of statutory filing date 
of IFiI shall cause the forfeiture of the availment for the taxable period. 
(B) Net Operating Loss Carryover (NOLCO) - Net operating loss of the business or 
enterprise during the first three years from start of commercial operations which have not 
been previously offset as deduction froin gross income shall be carried over as a deduction 
from gross incoine for the next five consecutive years immediately 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 NOLCO. 
5 


Registered enterprises availing of the ITH as herein provided shall not be entitled to 
avail ofthe NOLCO. 
(C) Imposition of a Tax Rate of Five Percent (5%) on Gross Income Earned (GlE) - 
Except for real property tax on land, no local and national taxes as prescribed under the 
Republic Act No. 8424, also known as "The National Internal Revenue Code of the 1997, As 
Amended'' such as income tax, excise tax, franchise tax, shall be imposed on business 
establishments operating within Ilocos Sur Ecozone. In lieu thereof, 5% of the gross income 
earned shall be paid as follows: 
a. Three percent (3%) to the national government; 
11. Two percent (2%) shall be remitted by the business establishments to the 
treasurer's office of the municipalities where the enterprise is located; 
All persons and service establishments in the Ilocos Sur Ecozone shall be subject to 
national and local taxes under the National Internal Revenue Code of 1997, as amended, and 
the Local Government Code 
(11) 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 National 
~ 
Iiiteriial Revenue Code (NIRC) of 1997, as amended. 
(E) Capital Equipment Incentives - (1) Importations of capital equipment, spare, parts, 
tools and dye, or those required for pollution abatement and control, cleaner productidn and 
waste reduction including consignment thereof by registered enterprises upon the effectivity 
of' chis law, 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 
6 


registered enterprise in its registered activity: Provided, Further, That the importation of 
machinery and equipment and accompanying parts shall comply with the foliowing 
conclitions: 
i. 
They are not manufactured domestically in sufficient quantity, of comparable 
quality and at reasonable prices; 
ii 
They are reasonably needed and will be used exclusively by the registered 
enterprise in the manufacture of its products, unless prior approval 'of the 
ISSEZA is secured for the part time utilization of said equipment in a non- 
registered activity to maximize usage thereof or the proportionate taxes and 
duties are paid on a specific equipment and machinery being perma,nently 
used for noli-registered activities; and 
Approval of the ISSEZA was obtained by the registered enterprise ;or the 
iii 
importation of such machinery, equipment and spare parts 
Approval of the ISSEZA 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 years from date of importation, any of the 
following condition must be present: 
1) If made to another enterprise enjoying tax and duty exemption on imported 
capital equipment: 
2) If made to another enterprise, upon payment of any taxes and duties on the net 
book value of the capital equipment to be sold: 
3) Exportation of the capital equipment, machinery, spare parts or source documents 
or those required for pollution abatement and control; and 
4) For reasons of proven technical obsolescence. 
7 


When the aforementioned sale, transfer or disposition is made under any 'of the 
conditions provided for in the foregoing paragraphs other than paragraph (2), the registered 
firm shall not pay the taxes and duties waived on such items: Provided, Further, That if the 
registered enterprises sells, transfer or disposes the aforementioned imported items without 
prior approval within five years from the date of importation, the registered enterprjjse and 
the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of the 
tax and duty exemption given it: Provided, Enally, That even if the sale, transfer or 
disposition of the capital equipment, machinery or spare parts is approved after tha years 
from date of importation, the registered enterprise is still liable to pay the taxes and duties 
based on the net boo1c.vaIue 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. 
2) 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. 
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 equipmerit; 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 enterprise availing of the incentive provided under the 
iminediately preceding two paragraphs shall be subject to the following: (a) that said capital 
equipment, machinery and spare parts will be used exclusively by the registered enterprise in 
~ 
8 


its registered activity; (b) that the capital equipment or machinery where the raw materials, 
supplies, parts and semi-finished products were used would have qualified [or tax and duty- 
free importations; and (c) that the approval of the ISSEZA is obtained by the registered 
enterprise. If the registered enterprise sells, transfer or dispose 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 
subsectioii was not filed within one year from date of delivery. 
(F) The importation of source documents by information technology-registered 
enterprises shall be eligible for tax and duty free importation. 
(G) Raw materials incentives - every registered export-oriented enterprise shall enjoy 
a tax credic equivalent to the internal revenue taxes and customs duties paid on the supplies, 
raw materials and semi-manufactured products provided which are used in the manufacture, 
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 enterprgse. 
This incentive shall be deemed waived if application for tax credit under this 
subsection was not filed within one year from date of exportation of the final product. 
~ 
(1-1) Incentives on breeding stocks and genetic materials. - Importation of breeding 
stocks and genetic materials within ten (IO) years from the date of registration of connnercial 
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 ISSEZA. 
The availment of the incentives by a registered enterprise shall be subject to the 
following: (a) that said breeding stocks and genetic materials would have been qualified for 
9 


tax and duty-free importation under the preceding, paragraph; (b) that the breeding, stocks 
and genelic materials are reasonably needed in the registered activity; (c) that approval of the 
ISSEZA has been obtained by the registered enterprise; and (d) 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 year from date of delivery. 
(I) Exemption from wharfage dues. - The provisions of law to the contrary 
notwithstanding, exports by a registered enterprise shall be exempted from wharfage dues. 
(J) 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 computedunder 
the NIRC of 1997, as amended, for the taxable year: Provided, However, That said;MCIT 
shall be imposed only after the enterprise' entitlement period to the income tax-based 
incentives. 
(K) 
.
,
 
(1) Tax Treatment of Merchandise in the Ilocos Sur Ecozone - 
a) Except as otherwise provided in this Act, foreign and domestic merchandise, 
raw materials, supplies, articles, equipment, machineries, spare parts and wdres 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, 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; 
10 


b) Merchandise purchased by a registered Ilocos Sur Ecozone enterpris-, 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. 
c) Domestic merchandise sent from the Ilocos Sure Ecozone to the customs 
terrilory shall, whether or not combined with or made part of other articles likewise 
of local origin or inanufactured 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, 
d) Merchandise sent from the Ilocos Sure 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). 
e) Domestic merchandise on which all internal revenue taxes have been paid, 
if subject thereto, and foreign merchandise previously imported on which hab been 
paid, or which have been admitted free of duty and tax, may be taken into the: Ilocos 
Sure Ecozone from the customs territory of the Philippines and be brought back 
thereto free of quotas, duty or tax. 
f )  Subject to such regulations respecting identity and safeguarding of rqvenue 
as the ISSEZA may deem necessary, when the identiQ of an article entered into the 
export processing zone under the immediately preceding paragraph has been lost, 
, 
such article when renioved from the zone and taken to the customs territory shall be 
treated as foreign merchandise entering the country for the first time, under the 
provisions of the tariff and customs code of the Philippines, as amended. 


g) Articles produced or manufactured in the Ilocos Sure Ecozone and exported 
therefrom, on subsequent importation into the customs territory, be subject 
~ to the 
import laws applicable to like manufactured in a foreign country. 
11) 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. 
I 
(2) Tax Treatment of Merchandise in The Ilocos Sur Ecozone - The free 
tradeiFreeport 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/F{eeport 
zone. Importations of raw materials, and capital equipment are tax and duty free. However, 
exportations or removal of goods from the free tradeiFreeport zones to the other parts of the 
Philippine territoiy shall be subject to customs and internal revenue regulations. 
~ 
(3) Tax Treatnieiit Of Services In The Ilocos Sur Ecozone. - 
a) 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 
antoher ecozone or Freeport enterprise shall be treated as indirect export, and hence, 
entitled to the benefits alIowed by law for such transaction. 
17) Sale or service by a registered ecozone or Freeport enterprise to the ciisioms 
territory shall be subject to applicable internal revenue laws and regulations. 
(I.) Registered export oriented enterprise shall have access to the utilization of the 
bonded warehousing system in accordance with the rules and regulations of the bureau of 
customs. 
(M) Employment Of Foreign Nationals. - Subject to the provisions of section 29 
Commonwealth Act No. 613, as amended, a registered enterprise may employ foreign 
nationals in supervisory or technical positions for a period not exceeding ten (10) years from 
12 


its registration: Provided, That when the majority of the capital stock of a registered 
enterprise is owned by foreign investors, the position of the president, treasurer and general 
manager or their equivalents may be retained by foreign nationals beyond the peri,od set 
forth herein and such officer is the owner or a stockholder owning at least ten percenti(lO%) 
of the outstanding capital stock of the registered enterprise and he remains the owner oar 
maintains his stockholding 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 a multiple entry visa, valid for a period of three 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 validity of the multiple entry visa shall be extendible yearly. 
The foreign national admitted herein, as well as their respective spousos and 
depeiidents shall be exempt form: (a) obtaining alien certificate of registration and 
emigration clearance certificates; and (b) securing the alien employment permit (AEP) and 
all types of clearances, permits, licenses or their equivalents required by any government 
department or agency. 
SECTION 6. Incentive to Investors. Any foreign national covered under subsection 
(In) of section 5 of this act, who invests and amount of US$ 150,000.00, either in cash anNor 
equipment, in a registered enterprise shall be entitled to an investor’s visa; Provided, That, 
(1) He is at least eighteen (18) years of age; 
(2) He has not been convicted of a crime involving moral turpitude; 
(3) He is not afflicted with any loathsome, dangerous or contagious disease; 
13 


(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 5(M), last paragraph. 
As a holder of investor's visa, an alien shall be entitled to reside in the Philippines 
while his investment subsists. For this purpose, he should 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 7. Administration, Implementation and Monitoring of Incentives. The 
ISSEZA 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 BO1 for registered enterprises shall be uniformly applied by ISSEZA. 
The following are the duties and responsibilities of the ISSEZA in the administration 
of incentives: 
to adopt consistent procedures of administering incentives in accordance with the 
guidelines established by the BOI: 
to adopt and implement systems and procedures affecting trade and customs 
policies in accordance with the requirements established by the departinem of 
finance (DOF) and the BOI; 
to submit data and information to the DOF and the BO1 as required by any of 
theses 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): aind 
14 


(D) 
to perform all other duties and responsibilities as may be required by the 
president. 
For proper monitoring, the BO1 shall create a single database of all incentives provided by 
all incentives granting agencies, including ISSEZA, and all information thereto. Double 
entry accounting shall be done by the BO1 in recording all incentives granted 6y the 
government for transparency purposes. 
SECTION 8. Extension of Period of Availment. 
The availment period of the 
incentives provided herein inay be extended by ISSEZA in the event that the registered 
enterprise suffers operational force majeure or any equivalent thereto, impairing its vialility. 
SECTION 9. Duration of Incentives. Enterprises registered with ISSEZA may enjoy 
I'TH or NOLCO granted by the latter prior to the availment of the five percent (5%) GIE. 
Fiscal incentives under this Act shall be terminated after a cumulative peqiod of 
twenty (20) years form date of registration or start of commercial operation, whichever is 
applicable, except that it could be extended with regard to industries deemed indispe:nsable 
to development. 
The industries exempted from this provision shall be recommended by BOI, with the 
concurrence of the Secretaries of the Department of Finance and of Trade and Industry. 
SECTION 10. Creation of the Ilocos Sure Special Economic Zone and Frkeport 
Authority. There is hereby created a body corporate to be known as the Ilocos Sure Special 
Economic Zone and Freeport Authority, herein referred to as the ISSEZA, which shall 
manage and operate the Ilocos Sure Ecozone, in accordance with the provisions of this Act. 
This corporate franchise shall expire in fifty (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. 
15 


SECTION 11. Principal Office of ISSEZA. The ISSEZA shall maintain its principal 
orfice of Cabugao, Province of llocos Sur but it may establish branches within the Philippines 
as may be necessary for the proper conduct of its business. 
SECTION 12. Powers and Functions of the Ilocos Sure Special Economic Zone and 
Freeport Authority. - The ISSEZA shall have the following functions: 
(a) To operate, administer, manage and develop the Ilocos Sure Ecozone according to 
the principles and provisions set forth in this Act: 
(b) To recommend to the President the issuance of a proclamation to fix and clelmit 
the site of the Ilocos Sur Ecozone. 
(c) To register, regulate and supervise the enterprises in the Ilocos Sur Ecozone in an 
efficient and decentralized manner, subject to existing laws; 
(d) To coordinate with LGUs and exercise general supervision over the development 
plans, activities and operations of the Ilocos Sure Ecozone; 
(e) To regulate and undertake the establishment, operation and maintenance of 
utilities, other services and infrastructure in the Ilocos Sure Ecozone such as but not limited 
to heat, light and power, water supply, telecommunications, transport, toll roads and bridges, 
port services, etc. and to fix just, reasonable and competitive rates, fares, charges andipices 
thereof; 
( f )  To construct, acquire, own, lease, operate and maintain on its own or through 
contracts, franchise, 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 infrastructure required or needed for the 
operation and development of the Ilocos Sure Ecozone, in coordination with appropriate 
national and local government authorities and in conformity with applicable laws thereon; 
16 


(g) To operate on its own, either directly or through a license to other tourism-related 
i 
activities, including games, amusements, recreational and sports facilities; 
(11) Subject to approval o the President and the Monetary Board of the Baiigko Sentral 
ng Pilipinas upon the recorninendation of the Department of Finance 9DOF), 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 parts its property or assets; 
(i) To provide security for the Ilocos Sure Ecozone in coordination with the national 
and local governments. Military forces sent by the NG for the purpose of defense shall not 
interfere in the internal affairs of the Ilocos Sure Ecozon and expenditures for these military 
forces dial1 be borne by the NG. For this purpose, the ISSEZA may establish and maintain its 
security forces and firefighting capability or hire others to provide the same; 
I 
(j) To protect, preserve, maintain and develop the virgin forests, beaches, coral and 
coral reefs, and maintain ecological balance within the Ilocos Sur Ecozone; 
(k) To create, operate and/or contract to operate such functional units or offices of the 
ISSEZA as it may deem necessary; 
(1) To adopt, alter and use of corporate seal; make contracts, leases, own, or oth;erwise 
dispose of personal or real property; sue and be sued; and otherwise carry out its hiictions 
and duties as provided for in this Act; 
(in) 'To issue certificates of origin for products manufactured or processed in the' Ilocos 
Sur Ecozoiie in accordance with prevailimgrules of origin, and the pertinent regulations of 
the PEZA, the DTI and /or the DOF; 
17 


(n) To issue working visas renewable every two (2) years of foreign executives and 
foreign technicians with highly specialized skills which no Filipino possesses, as certified by 
the DOLE; 
(0) To report to the 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; 
~ 
(p) To 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 
(q) To issue rules and regulations consistent with the provisions of this Act as may be 
necessary to accomplish and implement the purposes, objectives and polices provided herein. 
SECTION 13. Exemptions for Donor’s Tax. All donations made by any person or 
entity in favor of the ISSEZA 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 
National Internal Revenue Code of 1997, as amended. 
SECTION 14. Banking Rules and Regulations. 
Existing banking laws and 
ruleshegulations of the Bangko Sentral ng Pilipinas (BSP) shall apply to banks and financial 
institutions LO be established in the Ilocos Sure Ecozone, such as those governing foreign 
exchange and other current account transactions (trade and nontrade), local and fkreign 
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 15. Remittance of Earnings. - In the case of foreign investments, a 
registered enterprise in the ISSEZA shall have the right to remit earnings from the 
investment in the currency in which the investment was originally made and at the 
18 


exchange rate prevailing at the time of remittance, subject to the provisions of Sectiod 74 of 
liepublic Act no. 265, as amended. 
SECTION 16. Board of Directors of the Ilocos Sur Special Economic Zone and 
Freeport Authority. The powers of the ISSEZA 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) 'The Chairman who shall, at the same time be the Administrator of the ISSETA; 
i 
(b) A Vice Chairman who shall come from among the members of the Board; 
( c) Members consisting of: 
(1) The Governor of the Province of Ilocos Sur; 
(2) The congressional representative of the district covering the site of the 'Ilocos 
Sur Ecozone; 
(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) representative from labor among the workers in the Ilocos Sur 
ECOZONE. 
The governor, the congressional representative and the mayors of the municipalities 
of Cabugao and Sail Juan shall serve as ex officio members of the Board, whose terms :in the 
Board correspond to their term as elected officials. 
The Chairman and the inembers of the Board, except the ex officio members, shall be 
appointed by the President of the Philippines to senre for a term of six (6) years, unless 
sooner removed for cause or dies or resigns voluntarily. In case of death, resignation or 
rernoval for 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 
19 


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 working expekience 
preferably in the field of management or public administration. 
The inembers 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, However, That the total per diem collected with 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 (Pl0,OOO.OO) for every Board meeting. 
SECTION 17. Powers and Duties of the Chairman-Administrator - The Chaipnan- 
Administrator shall have the following powers and duties; 
(a) To direct and manage the affairs of the ISSEZA in accordance with the policies or 
the Board; 
(b) To establish the internal organization of the ISSEZA under such conditioris that 
the Board may prescribe; 
(c) To submit an annual budget and necessary supplemental budget to the Board for 
its approval; 
(d) To submit within thirty (30) days after the close of each fiscal year an annual 
report to the Board and such other reports as may be required; 
(e) To submit to the Board for its ap1xoval policies, systems, procedures, rules and 
regulations that are essential to the operation of the Ilocos Sur Ecozone; 
(f) To create a mechanism in coordination with relevant agencies for the promoiion of 
industrial peace, the protection of the environment, and the advancement of the quality of 
life in the Ilocos Sur Ecozone; and 
20 


(g) To perform such other duties as may be assigned to him by the Board or which are 
necessary or incidental to his office. 
SECTION 18. Organization and Personnel. The Board of Directors of the ISSEZA 
shall provide for an organization and staff of its officers and employees. 
Upon 
recommendation of the Chairman-Administrator, the Board shall appoint and fix the 
reiiiuiieration and other emoluments of its officers and employees in accordance with 
existing laws on cornyensation and position classification; Provided, That the Board shall 
have exclusive and final authority to promote, transfer, assign or reassign officers .of the 
ISSEZA, any provision of existing law to the contraty notwithstanding: Provided, Further, 
That the Chairman-administrator may carry out removal of such ofricers and employees. 
~ 
The officers and employees of the ISSEZA, including all members of the Board, shall 
not engage directly or indirectly in partisan activities, nor take parc in any election, exkept to 
vote. 
No officer or employee of the ISSEZA, subject to civil service laws and regulations, 
shall be removed or suspended except for cause, as provided by law. 
SECTION 19. Applicability Clause. The provisions of Section 30 to 41 of Republic 
Act No. 7916, as amended, on leases of lands and building, land conversion, shipping and 
shippiiig register, protection of environment, termination of business, registration of 
business, one stop shop center, and on industrial harmony in the Ecozones, shall apply to the 
ISSEZA. 
SECTION 20. Capitalization. The ISSEZA shall have an authorized capital stock of 
two billion (2,000,000,000) no par shares with a minimum issue of Ten pesos (10.00) each, 
the majority shares of which shall be subscribed and pnid for by the NG and the.LGUs 
embracing the Ilocos Sur Ecozone. The Board of Directors of the ISSEZA may, with the 
written concurrence of the Secretary of Finance, sell shares, representing not more than 
21 


forty percentum (40%) of the capital stock of the ISSEZA to the general public under such 
plicy as the Board and the Secretary of Finance may determine. The NG and LGUs shall in 
no case own less than sixty percentum (60%) of the total issued and outstanding capital of 
die ISSEZA. 
The amount of necessary to subscribe and pay for the shares of the NG to the capital 
stock of the ISSEZA shall be included in the annual General Appropriations Act. For ~LGUS, 
the funds shall be talcen from their Internal Revenue Allotment and other local funds. 
SECTION 21. Supervision and Coordination of Development Plans. For purposes of 
policy direction and coordination, the Ilocos Sur Ecozone shall be under the direct control 
and supervision of te Office of the President. 
SECTION 22. Relationship with the Regional Development Council. The ISSEZA 
shall determine the development goals for the Ilocos 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. 
SECTION 23. Relationship with Local Government Units. Except as herein provided, 
the LGUs comprising the Ilocos Sur Ecozone shll retain their basic autonomy and identity. 
The municipalities of Cabugao and San Juan, Ilocos Sur shall operate and function in 
accordance with the Local Government Code of 1991. In case of any conflict between the 
ISSEZA and the municipalities of Cabugao and San Juan, Ilocos Sur on matters affecting the 
Ilocos Sur Ecozone other than defense and security matters, the decision of the ISSEZA shall 
prevail 
SECTION 24. InterpretatiodConstruction. The powers, authorities and functions 
that are vested in the ISSEZA are intended to decentralize governmental functions and 
22 


authority and promote an efficient and effective working relationship among the Ilocos Sur 
Ecozone, the NG and the LGUs. 
SECTION. 25. Auditing. 
The Commission on Audit (COA) shall appoint a 
representative who shall be a full-time auditor of the ISSEZA and assign such number of 
personnel as amy be necessary to assist said representative in the performance of hisiher 
duties. The salaries and emoluments of the assigned auditor and personnel shall: be in 
accordance with pertinent laws, rules and regulations. 
SECTION 26. Separability Clause. 
If any provision of this Act shall be held 
uiicoiistitutional or invalid, the other provisions not otherwise affected shall remain ,in full 
force and effect. 
SECTION 27. Repealing Clause. All laws, executive orders or issuances, or aiiy part 
thereof, which are inconsistent herewith are hereby repealed or amended accordingly.' 
SECTION 28. Effectivity Clause. This Act shall take effect upon its publicatioli in at 
lcast one (1) newspaper of general circulation. 
Approved. 
23