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BY CNA Team - May 3, 2018

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Philippines’ Crypto and Fintech push

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The  Cagayan Economic Zone Authority (CEZA) is welcoming all Fintech companies, Blockchain, crypto exchanges and ICOs to be licensed with a few conditions in place.

The Philippines is stamping its footprint into the Fintech and crypto world by grabbing the opportunity to build itself into a hub, amids regulatory uncertainty elsewhere. The Cagayan Economic Zone Authority (CEZA) has issued a set of rules for the licensing of Fintech and blockchain companies that includes exchanges and ICO projects. Already at least 15 parties are in touch with CEZA to explore the opportunities. So how real is this and what’s in the fine print?

Here is a gist of CEZA’s new rules:

  • Licensee’s will have to commit to invest US$1mil over a period of two years
  • Physically locate some level of their core operations in the zone
  • Have safisfactory KYC and AML practises in place
  • Will be placed in a sandbox managed by CEZA and observed by the Central Bank of Philippines
  • Will only be allowed to offer their services to customers located out of the Philippines
  • Expected to generate employment in exchange for the tax breaks they will receive

Ramon Garcia Jr, who acted as consultant to CEZA in suggesting the drafting of the new rules, explains that this new focus of the Cagayan Economic Zone is to give it a new lease of life and draw in investments from the burgeoning world of Fintech. He says this was achieved due to the vision of Secretary Raul Lambino who is the CEO of CEZA.

Ramon Garcia Jr, CEZA consultant

Excerpts of a Q&A with Ramon:

CNA: Reports indicate that CEZA is in talks to issue 10 licenses. Is that the limit of the number of licenses and if so, how come this was not open to others?

Ramon: The 10 is not a limit at all. There is no actual limit figure, as long as applicants fulfil the criteria. CEZA is open to talk to all interested parties.  The 10 parties we started talks began with existing contacts and word of mouth. In fact that number has grown to 15 now. Bear in mind also, that our new focus is aimed at Fintech in general and not just the crypto world. We want to become an innovation hub.

CNA: What infrastructure currently exists in the Cagayan Economic Zone?

Ramon: It is a port city and there are a number of casino operations and BPOs there, which was the initial focus of the economic zone. The Cagayan North International Airport (also called Lal-lo International Airport) opened recently. International flights to and from Macau have started and domestic flights from Clark airport will start this month.  Broadband services are currently provided by one company, which can be expensive but this is set to change with the recent MoU signed between CEZA and a Value Added Service provider in the Philippines to lay fibre optic cables in the zone that will connect to their undersea cable.

CNA: What are the tax incentives being offered?

Ramon: The CEZA Zone was created under our constitution thereby giving it strong provisions. These include income tax holidays, 5% tax on gross profit after the expiration of the income tax holiday, tax and duty free importation of capital equipment. In many ways it is like a Hong Kong and or Luxembourg with the ability to even do offshore banking.

CNA: Are there any buildings that can be rented or is the applicant expected to build their own office from scratch?

Ramon: Yes, existing office space is available, with more being constructed. Moreover the focus is also about ‘play’ – the Cagayan region has one of the top ten beaches in the Philippines, gaming services, some of the best sports fishing in the world, glamping, hunting lodges and the second largest river in the Philippines. In short it is unlike major cities in Asia which tend to be stifled by congestion and traffic jams. Think of why Silicon Valley is such a vaunted destination. It’s the work hard and play hard environment. The CEZA Zone is naturally endowed this way. Moreover with a driven head of CEZA in the form of Sec. Raul Lambino whose policy is to engage, listen and quickly deploy with the private sector  as though it were “yesterday”, there is a sense of direction and urgency.

CNA: Can you expand on the sandbox concept for licensees? Will the central bank be involved?

Ramon: The advantage of having a Cabinet Secretary Level Administrator is that there is access to all branches of government. Sec. Lambino approached and cleared the project with the Central Bank of the Philippines first and the Department of Finance. They are strongly backing the initiative. From the Central Bank perspective, they are happy to support a sandbox solution which would give them first hand observer status into what will and what won’t work. If you ask me it’s a very enlightened move by the Central Bank and could make them a leader in regulation when they apply it to the domestic market. Furthermore any firm that does well in the sandbox would likely be welcomed into the  domestic market by the Central Bank.

CNA: How long is the approval process and who actually decides?

Ramon: Sec Lambino is a leader who wants things accomplished “yesterday” He is a man on a visionary mission. He is very much a born evangelist. That being said the bottleneck will be the private entity, their legal counsel, preparedness of documents, probity checks and connection to the CEZA platform to insure the government fees, licenses and taxes are properly accounted for and recognized by the Commission on Audit – the Government Auditor.

CNA: What are the additional fees besides the USD$1mil commitment?

Ramon: There are a number of fees posted and may be modified from time to time based on the development of the industry and response to market conditions but they are currently less than Japan. Obviously, prepare for a probity check and integration into the audit platform which itself will use Blockchain technology.

CNA: Is there a minimum number of locals that need to be hired by the licensee and what is the level of talent that is available for hire?

Ramon: There are 110 million capable English speaking Filipinos. A significant number of them are tech or financially trained. Furthermore, with the new airport, CEZA can tap the cumulative work force population of close to a 1 billion people who are under a 3 hour flight distance from the airport.  CEZA will work with the Bureau of Immigration to facilitate their work visas. There are also incentives for their taxes paying only a maximum of 15% income tax based on whether a tax treaty exists or not with their home country. CEZA believes in a mixed workforce of foreigners and Filipinos.

CNA: Can you explain the level of autonomy that CEZA has? In other words, can these licenses one day be revoked by a Federal authority?

Ramon: Except for criminal activities and those that break Philippine laws and thereby make them individually and corporately undesirable, CEZA is protected under our constitution and its licensees will be defended under our laws.





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