Business Vehicles

TYPES OF BUSINESS VEHICLES IN THE PHILIPPINES

Investors in APECO may conduct business in the Philippines through a sole proprietorship, partnership, and corporation. In a sole proprietorship, the investor has no distinct personality from the business. Thus, he or she is solely responsible (unlimited) for any liabilities arising from the business. 

In a partnership, two or more natural persons contract to do business. Compared to a sole proprietor, the partnership acquires juridical form. Thus, the partners are liable only to the extent of their investment after the partnership exhausts all assets to cover its liabilities.  

Through a corporation, foreign investors may invest as a one-person, through a joint-venture, or as a subsidiary or affiliate of another corporation. They are only liable to the extent of their investments in the corporation. 

RA 9490 and RA 10083: The Difference

Short Title. The Amending Law renamed the Charter from “Aurora Special Economic Zone Act of 2007” to “Aurora Pacific Economic Zone and Freeport Act of 2010.”

Creation of the Aurora Special Economic Zone. The Amending Law expanded the area of the Ecozone by defining the metes and bounds of Parcels 1 and 2, increasing the total footprint from 500 hectares to 12,923 hectares. Parcel 1 has 496 hectares, while Parcel 2 has 12,427 hectares.

Governing Principles. The Amending Law renamed the Aurora Special Economic Zone Authority (ASEZA) to the Aurora Pacific Economic Zone and Freeport Authority (APECO). APECO has authority in managing and operating the Ecozone.  

The Amending Law also classified the Ecozone as a separate customs and taxation territory to ensure the free flow or movement of goods and capital within, into and out of the country. 

For goods manufactured within Ecozone, the Amending Law still allows their sale in the domestic market subject to payment of taxes on raw materials and APECO’s regulations, in consultation with the Philippine Economic Zone Authority (PEZA), the Department of Finance (DOF), and the Department of Trade and Industry (DTI).  DOF replaced the Bureau of Customs in this aspect. Note that the Amending Law does not allow industries who are in the Negative List of PEZA and Board of Investments (BOI) to sell their products in the domestic market, even if they operate within the Ecozone.

The Amending Law also provides that the National Government shall be responsible for the defense and security of the perimeter of the Ecozone in coordination with APECO and concerned LGUs. It also imposed a more aggressive obligation on the part of the National Government to cooperate and coordinate with APECO and concerned LGUs for APECO’s speedy development as a vital gateway to the Pacific.

Incentives to the Registered Enterprises. The Amending Law continues to provide a favorable tax rate of five percent (5%) on gross income in lieu of income, excise, and franchise taxes. Of the 5%, the National Government still gets its share of 3%. However, business establishments will no longer remit directly the total balance of 2% to the municipality or city where they are located. Instead, they will remit 1% to APECO. 

Tax Treatment of Merchandise in the Ecozone. Domestic merchandise sent to areas outside of the Ecozone, whether combined with or made part of other articles of local origin or manufactured in the Philippines while in the export processing zone, are still subject to internal revenue laws of the Philippines as domestic goods sold, transferred, or disposed of for local consumption. The duties and taxes shall be based on the value of said imported materials (except when the final product is exempt). Articles produced or manufactured in the Ecozone and exported therefrom are, on subsequent importation into the customs territory, subject to the import laws applicable to like articles manufactured in a foreign country. In the Amending Law, it is still presumed that any merchandise taken out of the Ecozone is bound for the customs territory unless the contrary is shown.

However, the Amending Law now provides that 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 Ecozone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manufactured, mixed with foreign or domestic merchandise whether directly or indirectly related in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, any provision of law to the contrary notwithstanding.

Exports or removal of goods from the Ecozone to other parts of the Philippines are subject to customs and internal revenue regulations. However, merchandise purchased by a registered enterprise, from the customs territory and subsequently brought into the export processing zone, are considered as export, and entitled to the benefits allowed by law for such a transaction. Moreover, services by an entity from the customs territory to the Ecozone or by a registered enterprise to another ecozone are treated as indirect exports and entitled to the benefits allowed by law for such transactions.

Powers and functions of APECO. The Amending Law retained most of APECO’s key powers under the Charter. Aside from its general powers to operate, regulate, administer, and manage the Ecozone, APECO continues to enjoy its power 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 by law, or joint venture, adequate facilities and infrastructures for the operation and development of the Ecozone. 

The Amending Law also improved some of APECO’s powers. These are the following:

• To license, set fees, regulate, and undertake the establishment, operation and maintenance of utilities, other services, and infrastructure within the Ecozone, such as, but not limited to heat, light and power, water supply, telecommunications, mobile, internet and other data facilities, transport, toll roads and bridges, port services, including the authority to fix just, reasonable, and competitive rates, fares, charges, and prices;

• To operate on its own, either directly or through a subsidiary, concession, or license, tourism activities, including games, amusement, and nature parks, recreational and sports facilities, such as golf courses and others set by the APECO;

• To enter into a cooperation agreement with the PEZA for the utilization of the PEZA’s resources, facilities, and assets; 

• To raise and borrow funds; and

• To create and establish subsidiaries, affiliates, or other entities for the operations of ancillary activities/services it is authorized to undertake for reasons of cost-effectiveness; in such cases, the APECO may invite private investors up to sixty percent (60%) of the capital of the entity.

Furthermore, APECO may also issue working visas renewable every three (3) years instead of two (2) years. It may also exempt foreigners, who are employees or consultants of APECO-registered enterprises, from alien employment permits (AEP) or working visas if they will stay and perform work in the Philippines for less than six (6) months. 

Please note that the Amending Law provides that APECO may now sue or be sued to carry out its Charter, including the power of eminent domain. It may also undertake, at its own expense, reclamation projects, by dredging, filling, or other means, of any foreshore lands bordering the Ecozone and establish and maintain proper docking and harbor facilities in consultation with the Secretary of Finance and the Secretary of Public Works and Highways.

Non-profit Character of APECO. The Amending Law classifies APECO as a non-profit entity. It shall use its one percent (1%) share for its operations, development, improvement, maintenance, and other related expenditures in the implementation of its Charter. It is exempt from paying all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings. Donations in favor of APECO are exempt from donor’s tax and the same shall be considered as deductible from the gross income of the donor. It shall also enjoy, receive, and benefit from the same privileges, licenses or concessions granted or to be granted to other ecozones and free trade zones, such as the Subic Special Economic and Freeport Zone, the Clark Special Economic and Freeport Zone, the Zamboanga City Special Economic and Freeport Zone and the Cagayan Special Economic and Freeport Zone.

Note that from the shares of the National Government from the five percent (5%) tax, one hundred percent (100%) shall be appropriated over a ten (10)-year period to an infrastructure development trust fund to be created by the Bureau of Treasury for the purpose of financing the infrastructure requirements of the Ecozone.

Composition and Tenure of the Board of Directors of APECO. The Amending Law increased the number of the Directors of APECO from nine (9) to ten (10), including the Chairman of the Board. 

• The Chairman;

• The President and CEO who shall be appointed by the Board of Directors and who shall be the Vice Chairman of the Board; and

• The Board of Directors composed of the following:

• The Governor of the Province of Aurora;

• The Congressional Representative of the district covering the site of the Ecozone;

• The President and CEO of the APECO;

• The Mayors of the Municipality of Casiguran, Dinalungan, and Dilasag;

• One representative from the domestic investors;

• One representative from the foreign investors;

• One representative from the workers working in the Ecozone; and

• Two prominent citizens of the Philippines of whom one shall be a resident of the Province of Aurora.

The Philippine President appoints the Chairman of the Board. Before, the Chairman also acted as the Administrator of the Ecozone. The Amending Law separated the functions between Chairman and the President and CEO. The President and CEO is now part of the Board as Vice Chairman. Before, the Vice Chairman came from the members of the Board. The President and CEO serves for three (3) years only, unless the Board reappoints him. 

The Amending Law also provides that the Mayor of Casiguran serves in rotational capacity of one (1) year, alternating every year with the Mayors of Dinalungan and Dilasag. Instead of two, APECO now only has one (1) representative in the Board from the workers working in the Ecozone. However, the membership of two (2) prominent citizens of the Philippines in the Board is an addition by the Amending Law.

Powers of the Chairman and President and CEO. Before the Amending Law took effect, these powers were concentrated on the Chairman-Administrator of the Ecozone. Now, the Amending Law separated and expanded these powers to highlight the strategic and governance mandates of the Chairman and President and CEO.

The Chairman shall have the following powers and duties:

• To exercise supervision over the affairs of the Board;

• To preside over all the meetings of the Board;

• To spearhead the formulation of policies and procedures for the Board and APECO with the concurrence of majority of its members;

• To direct the affairs of the APECO in accordance with the policies of the Board through its President and CEO;

• To ensure that the goals and objectives set forth by the Board are achieved and its policies implemented; and

• To lead the Board in carrying out the powers and functions of the APECO as enumerated in Section 12 (a) to (v) of this Act.

Among his or her other powers and duties, the President and CEO executes the policies, measures, orders, and resolutions approved by the Board; direct and supervise the day-to-day operation and administration of the Ecozone; and exercises other powers and performs other functions or duties as may be assigned to him by law or by the Board. Particularly, he shall have the following powers and duties:

• To act as the Vice Chairman of the Board, assist the Chairman, and act in Chairman’s stead in case of absence or incapacity;

• To sign and execute all contracts concluded by APECO, enter all necessary obligations required or permitted by the Charter as authorized by the Board, and sign all major documents, notes and checks for APECO;

• To exercise full discretion in the management of APECO in accordance with law, but accountable to the Board for all his acts;

• To establish the internal organization of the APECO under such conditions that the Board may prescribe;

• To submit an annual budget and necessary supplemental budget to the Board for its approval;

• 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;

• To submit to the Board for its approval policies, systems, procedures, rules, and regulations that are essential to the operation of the Ecozone;

• To create a mechanism for the promotion of industrial peace, the protection of the environment, and the advancement of the quality of life in the Ecozone; and

• To perform such other duties as may be assigned to him by the Board or which are necessary or incidental to his office.

Organization and Personnel. The Board continues to have exclusive and final authority to promote, transfer, assign or reassign officers of the APECO, any provision of existing law to the contrary notwithstanding, while the President and CEO may carry out removal of such officers and employees.

The APECO is exempt from existing laws, rules and regulations on compensation, position classification and qualification standards. However, it must make its systems conform as closely as possible with the principles under Republic Act No. 6758. 

Upon recommendation of the President and CEO, the Board continues to exercise the authority to fix the remunerations and emoluments of APECO officers and employees according to existing laws and based on a comprehensive job analysis and audit of actual duties and responsibilities. Note that APECO’s compensation plan shall be comparable with the prevailing compensation plans in the Subic Bay Metropolitan Authority (SBMA), the Clark Development Corporation (CDC), the Bases Conversion and Development Authority (BCDA) and the private sector. However, it shall be subject to the periodic review by the Board no more than once every two (2) years without prejudice to yearly merit reviews or increases based on productivity and profitability. 

Labor and Management Relations. The Amending Law inserted a new provision on labor relations in the Charter. The Labor Code of the Philippines will govern the labor standards and relations within the Ecozone. Employees and personnel in the registered enterprises shall receive salaries and benefits and shall enjoy working conditions provided under the Labor Code and other relevant laws and issuances of the Philippine government and the Department of Labor and Employment (DOLE). The Secretary of Labor and Employment may exercise its visitorial powers in the Ecozone.