Export Processing Zones (EPZs) are defined as industrial zones with special zones incentives which are set up to attract foreign investors. An Export Processing Zone is essentially a delineated industrial estate, which constitutes a free trade enclave in the customs and trade regime of the country. In this regime foreign manufacture firms which produce mainly for the export, benefit from certain tax and financial incentives. The concept termed differently in different parts of the world, for example, Free Trade zone, Industrial Free Zone, Maquiladoras or Special Economic Zone.

According to the ILO, the main purpose behind establishing an EPZ is to attract investment which would not otherwise have been forthcoming. Developed countries establish Export Processing Zones mainly to promote development of export oriented manufacturing industries. Countries look to such investments in order to:

• Create jobs and raise standards of living
• Transfer new skills and expertise to local human resources
• Boost non traditional exports and export sector
• Increase foreign exchange earnings
• Create backwards and forwards links to increase the output and raise the standard of local enterprise that supply goods and services to the zone investors
• Introduce new technology
• Develop backward regions and attract industries
• Kick-start the economy as a whole
• Stimulate strategically important sectors to the economy

Free Port Zone

Physical Characteristics:

• Entire city or jurisdiction

Economic Objectives:

• Development of trading centre and diversified economic base

Typical Activities:

• Trade, service, industry, banking, etc.

Incentives:

• Simple business start-up
• Minimal tax and regulatory restraints
• Waivers with regard to termination of employment and overtime
• Free repatriation of capital, profits and dividends preferential interest rates
• Exemption from company tax
• Preferential rates for warehousing and storage
• Reduced port charges for all goods destined for re-export
• Exemption from customs duty, import duty and sales tax on all finished goods, machinery, equipment and materials imported into the Freeport zone
• Access to offshore banking facilities
• Possibility of selling a percentage of total turn-over on the local market
• No foreign exchange control
• 100% foreign ownership allowed

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Special Economic Zones

Physical Characteristics:

• Entire province region or municipality

Economic Objectives:

• Deregulation; private sector investment in restricted area

Typical Activities:

• All types of industry and services

Incentives:

• Reduced business taxes;
• Liberalised labour codes;
• Reduced foreign exchange controls.

Investment Incentives for Economic Processing Zones

Tax Incentives:

Import tax, commodity tax, and business tax are exempted on machinery, raw materials, fuels, materials, semi-finished products, and musters that are imported by zone businesses, and finished products trans-shipped by trade/warehouse operators.

Zero Business Tax is imposed on zone businesses for exported goods, exported labour, and machinery, raw materials, materials, fuels, and semi-finished products which are sold to businesses within EPZs, businesses within science-based industrial parks, and bonded factories and warehouses.

In accordance with the Statute for Upgrading Industries, zone businesses which are recognized as "newly emerging and strategic industries" are eligible for preferential tax measures such as a five-year exemption from the profit-seeking enterprise income tax and deductions on shareholder investments. Those zone businesses which are recognized as operations headquarters are eligible for exemption from the profit-seeking enterprise income tax.

In accordance with the Tax Exemption Incentives for New Investments in the Manufacturing and Technical Service Industries, new investment projects initiated between 2002 and 2003 may apply for a five-year exemption on the profit-seeking enterprise tax.

Investments in automation equipment, pollution control equipment/technology, R&D, and personnel training are eligible for a deduction on the profit-seeking enterprise tax for the current year.

Foreign businesses with branch companies in the ROC which operate international logistics and distribution centers or which commission ROC businesses to provide international logistics and distribution services may apply for exemption from profit-seeking enterprise tax.

Profit-seeking enterprise tax is imposed on trans-shipment operators at 10% of their revenue from trans-shipment business, in accordance with Article 14 of the Statute for the Establishment and Management of Economic Processing Zones.

EPZ Plants engaged in production are taxed at 1.5%, half of the commercial housing tax.

Newly constructed standard factories within EPZs or buildings acquired lawfully from the administrative authority are exempt from contract taxes.

Machinery and equipment in use for more than five years are exempt from custom duties when shipped out of the zones.

Investor Protection and Interests:

Foreign investors enjoy the same rights and privileges as domestic investors.

Foreign investors may hold a 100% stake in an EPZ business, and may also negotiate joint investments with ROC government or domestic enterprises.

Intellectual property rights and ownership rights are protected by the law.

Investments may be transferred to overseas and domestic companies, in accordance with Article 13 of the Company Law.

Competitive Advantages of Economic Processing Zones

Convenient and Simple Administrative Services ("Single Window"): EPZs run highly efficient administrative services, whether you are establishing a factory or dealing with administrative management. Our "Single Window" offers convenient services for investors and companies, including investment information / recommendations, issuance of certificates of origin, customs clearance, labour administration, industrial safety and hygiene, business registration, and construction /landscape management. In addition, personnel also provide services from the customs bureau, the tax department, and various banks.

Can utilize the benefits of industrial clusters:

• Upstream, midstream and downstream industries all comprise EPZ industrial clusters, bringing lower costs and creating a competitive edge for industries.

Automated processes for storage and customs clearance, speedy delivery of goods: EPZs use an online computer system to assist in customs clearance for all goods to ensure security and speed. Moreover, EPZs are equipped with storage and transportation centers, which can provide alongside ship and aircraft pick-up and delivery services for speedy onward shipment of goods by land, sea, or air.

Low land rent, no burden of land purchasing costs (Leasing rates are 2.24%-5% of the government-assessed land price.

Diversification of industries, cross-industry support: In addition to manufacturing and processing, EPZs are also open to companies engaging in trade, storage, transportation, unloading and loading, and packaging.

Safe and clean environment, comprehensive general facilities: A police squad, fire squad and sanitation team are stationed within each EPZ to ensure personal and material security and a clean and green environment. In addition, the zones have restaurants, welfare / support centers, healthcare centers, employee hostels, childcare centers, and many sports/recreation facilities, all of which improve the quality of life for personnel working in EPZs and allow companies to save substantially on operating costs.

Industrial Free Zone / EPZ

Physical Characteristics:

• Enclave or industrial park

Economic Objectives:

• Development of export industry

Typical Activities:

• Light industry and manufacturing

Incentives:

• Profits tax abatement and regulatory relief
• Exemption from foreign exchange controls
• Free repatriation of profits
• Trade union freedom restricted despite the fact that EPZs are required to respect national employment regulations
• 15 years exemptions on all taxes(maximum)

Enterprise zone

Physical characteristics:

• Part of city or entire city

Economic objectives:

• Development of SMEs in depressed areas

Incentives:

• Zoning relief
• Simplified business registration
• Local tax abatement
• Reduction of licensing requirements
• Trade unions are prohibited
• Government mandated liberal on hiring and firing of workers

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Information Processing Zones

Physical characteristics:

• Part of city or "zone within zone"

Economic objectives:

• Development of information processing centre

Typical activities:

• Data processing, software development, computer graphics

Incentives:

• Demonopolization and deregulation of telecoms
• Access to market-priced INTELSAT services
• A specific authority manages labour relations
• Trade union freedom restricted

Financial Services Zones

Physical characteristics:

• Entire city or "zone within zone"

Economic objectives:

• Development of off-shore banking, insurance, securities hub

Typical activities:

• Financial services

Incentives:

• Tax relief
• Strict confidentiality
• Deregulation of currency exchange and capital movements
• Free repatriation of profits

Typical examples:

• Bahrein
• Dubai
• Caribbean
• Turkey
• Cayman

Commercial Free Zone

Physical characteristics:

• Warehouse area, often adjacent to port or airport

Economic objectives:

• Facilitation of trade and imports

Typical activities:

• Warehousing, packaging, distribution, trans-shipment

Incentives:

• Exemption from import quotas
• Re-invested profits wholly tax-free

Typical examples:

• Jebel ali
• Colon
• Miami (USA FTZ)
• Mauritius
• Iran