Factory Ready to Land in the Philippines?

Why This Matters

With global trade policy shifts, we’ve recently received many inquiries about setting up factories in the Philippines—covering site selection, processing timelines, tax incentives, and compliance.

Some inquiries come from export-driven enterprises reevaluating their supply chains due to tariff changes. Others are from manufacturers who originally planned plants in other regions but are now considering the Philippines for its cost–benefit ratio and connectivity.

Among all options, the Philippine Economic Zone Authority (PEZA) zones have become a top choice on investors’ evaluation lists.

This article systematically addresses 40 high-frequency questions, grouped into six sections. Bookmark and share for future reference.

01｜PEZA Overview & Entry Criteria

1. What is PEZA? How is it different from a regular zone?
   PEZA is the government authority managing special economic zones. It grants tax exemptions, duty-free equipment imports, and 100% foreign ownership privileges. Compared to regular industrial parks, PEZA zones enjoy national-level policy backing.

2. Are there size requirements for entry? Can SMEs qualify?
   No fixed size thresholds, but priority goes to projects with export capacity, technology content, or strong job creation potential.

3. Which industries are most encouraged?
   Electronics, auto parts, medical devices, semiconductors, precision engineering, and other export-oriented sectors.

02｜Tax Incentives & Fiscal Regime

1. Key benefits of PEZA registration:

• Up to 7 years corporate income tax holiday

• 5% Gross Income Earned (GIE) tax thereafter

• VAT and import duties fully exempt

• 100% foreign equity allowed

• Green-lane registration and customs clearance

2. How does PEZA differ from BOI incentives?
   PEZA is better for export-oriented manufacturing; BOI suits domestic market or service-oriented enterprises.

3. Can foreign firms hold 100% ownership?
   Yes, no local shareholder required.

4. Can setting up in PEZA help avoid trade tariffs?
   Yes—if rules of origin are met, exports may enjoy RCEP, U.S., or EU tariff preferences.

5. How long do incentives last? What happens after?
   4–7 years tax holiday, then 5% GIE replacing most national and local taxes.

6. Other incentives besides tax?
   Expatriate visa quotas, VAT-free land/equipment leasing, fast-track approvals.

7. Can we rent a plant for trial runs before expanding?
   Yes. Start with rental, later upgrade to self-built facilities.

8. How long from application to operations?
   3–6 months for ready-built factories; 6–12 months for new builds.

9. Is it OK to only manufacture without local sales?
   Yes, as long as products are for export.

10. Can PEZA firms sell domestically?
    Yes, but usually capped at 30% of output; local sales require duties & VAT.

03｜Registration, Land & Facility Issues

1. What registrations are required?
   SEC incorporation, PEZA registration, BIR tax registration, and environmental permits.

2. What are land rules for foreign firms?
   No direct land ownership, but long-term leases (up to 50 years) are allowed. Buildings belong to the enterprise.

3. Do testing labs require separate approval?
   If tied to production, they can be included in the main registration.

4. Are imported machines duty-free? How to clear customs?
   Yes, through PEZA exemption certificates; clearance is expedited.

5. Are imported samples taxable?
   Shipments under PHP 10,000 can be exempt if clearly labeled “non-commercial use.”

04｜Labor Costs & Workforce Compliance

1. What are labor costs like?
   In Manila: PHP 645/day (~USD 11). Varies by region.

2. Mandatory benefits?
   13th month pay, SSS (social security), PhilHealth, Pag-IBIG housing fund.

3. Availability of skilled workers?
   Yes—TESDA training centers supply technical workers; retention often needs subsidies/training.

4. Can Chinese staff work in PEZA firms?
   Yes, foreign hires are allowed but must meet local-worker ratio requirements. PEZA visas offer quicker approvals.

5. How is communication?
   Basic English is widely spoken; for technical/managerial roles, assign Chinese supervisors for smoother communication.

6. Efficiency & management challenges?
   Work pace is slower; performance systems and training improve productivity. Many firms pair local teams with Chinese core staff.

05｜Facilities & Logistics

1. How to choose the right zone?
   Consider export markets, worker commute radius, and utilities.

2. Utilities in the zones?
   Usually provided by park operators or third parties. Electricity ~PHP 11/kWh (~USD 0.18). Check for backup supply.

3. How stable are logistics?
   Main ports: Manila, Batangas, Subic. Active international shipping, occasional congestion.

4. Can only part of production be moved to PEZA?
   Yes. Many firms relocate later-stage processing to meet rules of origin.

5. Is importing raw materials from China convenient?
   Sea freight takes 12–20 days. PEZA clearance is faster, but rainy season requires supply chain planning.

6. Is export clearance complicated?
   No—PEZA firms can set up bonded warehouses for automatic processing.

7. Rent or build initially?
   Renting is advised to shorten lead time; building is long-term but limited by land rules.

8. If we exit, is withdrawal complex?
   Yes—requires filing, tax adjustments, and asset liquidation. More complex than ordinary enterprises.

06｜Operations & Compliance Risks

1. How to speed up registration & approvals?
   Use complete documentation and experienced local consultants.

2. Reporting obligations?
   Annual financials, import usage records, and other PEZA reports.

3. Hidden costs?
   Security, utility hookups, firefighting equipment, wastewater systems.

4. Are inspections frequent?
   Yes—PEZA, DENR, and BIR may conduct random site audits.

📌 Pre-Landing Checklist

• Does your industry align with the Investment Priorities Plan (IPP)?

• Can you meet the 70% export ratio?

• Do you have production lines ready to deploy?

• Is your ownership structure compliant with foreign equity rules?

• Is the site near ports or logistics hubs?

• Does the park provide stable utilities and infrastructure?

Final Note

PEZA zones are not for every enterprise. But for export-oriented industries, they remain a rational choice.

If you want specific zone recommendations, step-by-step timelines, cost models, or visa compliance guidance, reach out to us. OCIC will continue to share practical case studies and policy insights.

👉 For further details on landing your factory in a PEZA ecozone, feel free to contact us anytime.