What Is the Export Processing Zone?

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  • Written By: Peter Hann
  • Edited By: Angela B.
  • Last Modified Date: 16 September 2019
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An export processing zone is an area in which a government provides incentives for exporters to locate their business. A country may be aiming to boost export-led growth and attract foreign investment into the zone. To achieve this, the government may provide sophisticated infrastructure and offer factory and office premises at favorable rental rates. There may be customs duty and indirect tax relief for materials and equipment imported into the zone and direct tax incentives for income from goods exported from the zone. There could be restrictions on the types of activity permitted in the zone and a license normally would be needed for businesses wishing to locate their operations there.

An export processing zone also may be called a free trade or special enterprise zone and may offer incentives for other businesses in addition to exporters. Information on such zones normally is available from the investment authority of a country, which also may help foreign companies with licensing and registration for the zone. The websites of relevant investment authorities may be consulted to find the types of business permitted in the zones, the infrastructure and premises available, and any customs duty exemptions and tax relief being offered.


Businesses operating in an export processing zone may be eligible for exemption from customs duty on goods and equipment imported into the zone for use in the manufacture of exports. Such exemptions generally only apply while the goods remain in the zone and, if goods are transported out of the zone into the rest of the country, the exemption will be lost. A sales or value-added tax (VAT) exemption may be available on imported materials, and goods exported from the zone often will be zero-rated for VAT purposes, enabling the business to claim a refund of any VAT incurred on inputs.

Tax exemptions available in export processing zones are sometimes dependent on the contribution that a foreign company will make to the local economy. Exemptions may depend, for example, on the number of local staff who will be employed and the extent to which materials will be obtained from local suppliers. Different levels of exemption may be available, depending on the size of the contribution made by the foreign company to the local economy. Income tax relief normally will only be available for export sales and any goods sold locally will be liable to income tax as usual.

An export processing zone often will be administered by an independent export processing zone authority (EPZ authority) that will assess applicant businesses and issue licenses. Licenses normally will be issued to specified types of activity, such as manufacturing or processing businesses, depending on the types of export the government is trying to promote. The EPZ authority normally would have the power to revoke licenses when businesses infringe the regulations.


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