Special Economic Zones (PEZA and Freeports)

Special Economic Zones (SEZs) in the Philippines are designated areas that offer fiscal and non-fiscal incentives to promote investment, trade, and economic development. These zones are governed by laws and regulations implemented by agencies such as the Philippine Economic Zone Authority and other Freeport authorities, in coordination with the Bureau of Customs.

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The Philippine Economic Zone Authority (PEZA) administers ecozones that cater to export-oriented industries. Registered enterprises within PEZA zones enjoy benefits such as income tax holidays, simplified import and export procedures, and exemption from certain duties and taxes on imported goods used in production.

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Freeports, such as those in Subic and Clark, operate under separate authorities and provide similar incentives. These zones function as separate customs territories where the movement of goods is subject to special rules. Imports into Freeports are generally duty-free, provided that goods are used within the zone or exported.

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Enterprises operating within SEZs benefit from streamlined customs procedures, reduced administrative requirements, and improved logistics infrastructure. However, strict compliance with zone regulations is required, particularly when transferring goods to the domestic market, where duties and taxes may become applicable.

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Special Economic Zones play a significant role in attracting foreign investment, boosting exports, and enhancing industrial growth. Understanding their advantages allows businesses to optimize costs, improve efficiency, and remain competitive in the global market.

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Importation Cost Breakdown

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Step-by-Step Cost Breakdown

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Step 1: Determine Customs Value (Transaction Value)

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• Based on the invoice price actually paid or payable.
• Adjustments include:
• Freight cost
• Insurance
• Packing costs
• Assists (e.g., molds, tools)
• This forms the CIF Value (Cost + Insurance + Freight).

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Step 2: Tariff Classification

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• Classify goods using the AHTN (ASEAN Harmonized Tariff Nomenclature).
• Determines the applicable duty rate (e.g., 0%–65%).

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Step 3: Compute Customs Duty

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Formula:

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Customs Duty = CIF Value × Duty Rate

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• Rates depend on:
• Product classification
• Trade agreements (e.g., ASEAN Free Trade Area)

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Step 4: Compute Import VAT

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• Standard VAT: 12%
• Based on:

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VAT = (CIF Value + Customs Duty + Other Charges) × 12%

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Step 5: Add Other Taxes (if applicable)

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• Excise Tax (for specific goods like alcohol, tobacco, fuel, vehicles)
• Governed by the Bureau of Internal Revenue

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Step 6: Include Customs Fees and Charges

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Typical charges include:

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• Import Processing Charge (IPC)
• Documentary Stamp Tax (DST)
• Customs Documentary Fee
• Container Security Fee

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Step 7: Arrastre and Wharfage Charges

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• Paid to port operators such as:
• Philippine Ports Authority
• Includes:
• Cargo handling (arrastre)
• Wharfage dues

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Step 8: Brokerage Fees

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• Paid to a licensed customs broker
• Covers:
• Documentation processing
• Customs clearance handling

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Step 9: Storage and Demurrage (if delayed)

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• Charged when cargo is not cleared on time
• Includes:
• Container detention (shipping lines)
• Warehouse storage fees

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Step 10: Inland Transportation and Delivery

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• Final cost for delivery from port to warehouse

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Release Procedures and Delivery

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Step-by-Step in Releasing Procedure and Delivery

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Step 1: Final Assessment of Duties and Taxes

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• After inspection (if any), the Bureau of Customs finalizes the computation of duties, VAT, and other charges.
• Any discrepancies found during the physical examination are adjusted.

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Step 2: Payment of Duties and Taxes

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• Importers pay through Authorized Agent Banks (AABs) or electronic payment systems.
• Payment confirmation is transmitted to the customs system (e2m).

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Step 3: Issuance of Clearance / Release Authority

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• BOC issues clearance for release of goods.
• For regulated goods, Authority to Release Imported Goods (ATRIG) may be required.

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Regulating Agencies Involved (if applicable):

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• Food and Drug Administration
• Bureau of Plant Industry
• Bureau of Animal Industry

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Step 4: Secure Delivery Order (DO)

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• Issued by shipping line or airline
• Authorizes withdrawal of cargo

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Step 5: Payment of Port and Handling Charges

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• Includes:
• Arrastre
• Wharfage
• Storage (if any)

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Entities Involved:

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• Port operators (e.g., ICTSI, ATI)
• Shipping lines

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Step 6: Issuance of Gate Pass

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• Issued after all obligations are completed
• Allows cargo to exit port premises

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Step 7: Withdrawal and Delivery of Goods

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• Cargo is released and transported to importer’s warehouse

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Key Note

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Delays in this stage may result in demurrage and storage charges, increasing overall costs.

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Importation Documentation

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Import documentation refers to the preparation, submission, and verification of all required documents to ensure that imported goods comply with Philippine laws, particularly the Customs Modernization and Tariff Act. Proper documentation is essential to facilitate smooth processing with the Bureau of Customs and other regulatory agencies.

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Step 1: Prepare Commercial Documents (Exporter Side)

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Documents:

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• Commercial Invoice
• Packing List
• Proforma Invoice (if applicable)

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Agency Involved:

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• No Philippine agency (issued by foreign supplier/exporter)

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Step 2: Arrange Shipping Documents

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Documents:

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• Bill of Lading (for sea cargo)
• Airway Bill (for air cargo)
• Insurance Certificate

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Agencies / Entities Involved:

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• Shipping Line / Freight Forwarder
• Airline Company
• Insurance Provider

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Step 3: Importer Registration & Accreditation

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Before documentation can be processed:

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Agencies Involved:

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• Department of Trade and Industry (sole proprietorship)
• Securities and Exchange Commission (corporations)
• Bureau of Internal Revenue (TIN, COR)
• Bureau of Customs (CPRS accreditation)

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Step 4: Secure Regulatory Permits (If Required)

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Depending on the type of goods:

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Agencies & Documents:

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• Food and Drug Administration
• LTO, CPR, ATRIG
• Bureau of Plant Industry
• SPS Import Clearance (SPSIC)
• Bureau of Animal Industry
• Veterinary Quarantine Clearance (VQC)
• Department of Environment and Natural Resources
• Chemical / Environmental permits
• National Telecommunications Commission
• Import permit / type approval
• Department of Trade and Industry
• ICC, CAI (for vehicles/products)
• Philippine National Police
• Firearms import permit

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Step 5: Obtain Certificate of Origin (If Applicable)

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Purpose:

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• Avail preferential tariff rates (FTA)

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Agency Involved:

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• Exporting country’s authorized issuing body

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Step 6: Prepare Import Entry Declaration

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Documents:

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• Import Entry Declaration
• Supporting documents (invoice, B/L, permits)

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Agency Involved:

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• Bureau of Customs
• Filed through e2m system by a licensed customs broker

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Step 7: Submission & Verification of Documents

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Process:

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• Customs reviews all submitted documents
• Checks consistency of:
• Value
• Quantity
• Description
• Classification

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Agencies Involved:

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• Bureau of Customs
• Concerned regulatory agencies (for validation of permits)

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Step 8: Inspection & Clearance

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Possible Actions:

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• Document check (Yellow Lane)
• Physical inspection (Red Lane)

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Agencies Involved:

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• Bureau of Customs
• Regulatory agencies (e.g., FDA, BAI, BPI if needed)

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Step 9: Issuance of Clearance Documents

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Documents Released:

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• Authority to Release Imported Goods (ATRIG)
• Customs Clearance / Gate Pass

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Agencies Involved:

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• Bureau of Customs
• Food and Drug Administration (for regulated goods)

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Customs Audit and Post Clearance Audit

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Post Clearance Audit (PCA)

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Step 1: Selection via Risk Management System

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• Based on:
• Compliance history
• Industry risk
• Revenue impact

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Step 2: Audit Notification Letter (ANL) Issued

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• Triggers audit process
• Importer is legally required to comply

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Step 3: 15-Day Document Submission Rule

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• Importer must submit complete records within 15 days
• Extensions may be granted

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Step 4: Audit Proper

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Focus areas:

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• Valuation (undervaluation issues)
• Tariff Classification errors
• Rules of Origin compliance
• Use of preferential tariffs

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Step 5: Exit Conference

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• Auditor discusses findings with importer
• Allows clarification or defense

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Step 6: Final Audit Report

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• Contains:
• Final assessment
• Legal justification

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Step 7: Issuance of Final Demand Letter (FDL)

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• Official billing for deficiency duties and taxes

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Step 8: Penalties and Surcharges

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• Based on degree of negligence:
• Simple Negligence - 10% surcharge
• Gross Negligence - 20%
• Fraud - up to 50%

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Step 9: Settlement or Legal Action

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• Options:
• Voluntary payment
• Appeal to the Court of Tax Appeals

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Key Compliance Insight (Advisory)

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• Maintain complete import records for at least 3 years
• Ensure:
• Accurate HS classification
• Proper valuation declaration
• Valid permits and licenses

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Failure to comply may result in:

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• Heavy penalties
• Suspension of import privileges
• Legal prosecution