The Philippines could be the next startup hotspot in Asia, as it is aiming to have 500 startup companies by 2020 with a total funding of US$200 million and valuation of US$2 billion.
While the Philippines has a long way to go before it can become the next Singapore, there are many reasons, incentives, to be exact, for setting your eyes on the Republic as your next startup launch pad.
Here are some of the business incentives foreign investors can get if they want to help build the next big startups in the Philippines.
Business Incentives for Foreign Investors
Incentives under Special Registrations
The Philippine government has created several areas for investment opportunities for locals and foreigners. To avail of the following incentives, foreign investors must have qualified enterprises that can be registered with the Board of Investments (BOI) under the Omnibus Investments Code (OIC).
Businesses registered under the Philippine Economic Zone Authority (PEZA) are also eligible for the following tax and non-tax incentives.
Enterprises Registered Under the OIC
Here are the qualifications needed to become a registered enterprise under the OIC.
• The applicant must be a natural-born Philippine citizen. In partnership or association cases, the business must be organized under the Philippine laws and the applicant must own, at least, 60 percent of the capital.
• In cases of cooperatives and corporations, the business must be organized under the Philippine laws and the applicant must own, at least, 60 percent of the capital stock and has voting rights. Natural-born Philippine citizens must own the corporation or cooperative.
• A group whose Board of Directors are made up of, at least, 60 percent natural-born Philippine citizens can also register under the OIC.
• A business that is planning to engage in a preferred project under the existing Investment Priorities Plan (IPP). Otherwise, if the company is planning to export 50 percent of its total production, it can also qualify for the OIC registration.
• A business that is capable of contributing to the national economy or the development of a preferred area of business.
° Manufacturing: Motor vehicles; shipbuilding; aerospace parts and components; chemicals; virgin paper pulp; copper wires and rods; basic iron and steel; tool and die.
° Agribusiness and Fishery: Commercial production and processing; production of animal and marine feeds (excluding the ones for game animals, fowls, and species for leisure such as pets); fertilizer and pesticide production; sugar mills modernization; mechanized agriculture support services; and agriculture support infrastructures.
° Services: Integrated circuit design; creative industries or knowledge-based services; ship repair; e-vehicles charging stations; aircraft maintenance, overhaul and repair; and industrial waste management.
° Economic and low-cost housing
° Energy: Research and development of energy sources; power generation plants; and ancillary services
° Public Infrastructure and Logistics: Airports and seaports; transportation for land, water and air; LNG storage and regasification facilities; and bulk water treatment and supply.
° Public-Private Partnership (PPP) Projects
• Export Activities: Production and manufacture of export products; service exports, export support activities.
° Special Laws: Industrial Tree Plantation (P.D. 705); Mining (R.A.7942); Publication or Printing of Books/Textbooks (R.A. 8047); Refining, Storage, Marketing and Distribution of Petroleum Products (R.A. 8479); Rehabilitation, Self-Development and Self-Reliance of Persons with Disability (R.A. 7277); Renewable Energy (R.A. 9513); and Tourism (R.A. 9593).
° Autonomous Region of Muslim Mindanao (ARMM) List of preferred activities: Export Activities (Export Trade and Service Exporters; Support Activities for Exporters Agriculture, Agribusiness/ Aquaculture & Fishery, Basic Industries, Consumer Manufactures, Infrastructure and Services, Industrial Service Facilities, Engineering Industries, Logistics, Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMPEAGA), Trade and Investment Enterprises, Tourism, Health and Education Services and Facilities, Halal Industry)
For business applicants who do not meet the abovementioned registration criteria, some circumstances allow businesses to qualify for the incentives and OIC registration.
• If the business is designed to take on pioneer projects whose nature, capital requirements, technical skills, processes, and business risks cannot be filled by natural-born Philippine citizens, as per the opinion of the BOI.
• At least 70 percent of its total production is exported.
• If the business attains compels to attain a Philippine national status within 30 years from the date of business registration or longer depending on the BOI requirement. Companies that are exporting 100 percent of its total production are exempted from this prerequisite.
Tax and Non-Tax Incentives
• Tax incentives include a six-year income tax exemption from the start of the enterprise’s commercial operations for pioneer establishments, as well as a four-year income tax exemption for non-pioneer ones. This income tax holiday can even be extended depending on the BOI’s approval up to a maximum of eight years.
• Expanding businesses are eligible for income tax exemptions that are proportionate to the expansion in a three-year period from the start date of the extension’s operations. These firms cannot avail of additional incremental labor expenses deductions when they avail of the expanding firm’s incentive.
• Tax and duties exemptions can be availed for consumable supplies and spare parts, which are imported by registered businesses with customs-bonded manufacturing warehouse. These businesses must be exporting, at least, 70 percent of its total production to avail of the exemptions.
• Tax and duties exemptions on equipment, accessories, spare parts, and machinery which are imported by expanding businesses registered under the OIC.
• Within the first five years of the OIC registration, additional deductions from the business’ taxable income of 50 percent of the skilled and unskilled workers’ wages can be availed if the company meets the recommended capital-to-labor ratio.
• Within ten years from its registration date, enterprises can avail of tax and duties exemptions on breeding stocks and genetic materials importations.
• Registered business are also eligible for a tax credit on duties and taxes arising from raw materials, semi-manufactured products used in manufacturing exported goods, as well as supplies.
• Businesses with bonded manufacturing warehouses can avail of tax and duties exemptions on consigned or imported equipment’s’ supplies and spare parts.
• Exemptions from wharfage duties and export tax, fees, duty and impost of the business’ exports of non-traditional products.
• A six-year local tax exemption for pioneer enterprises, as well as a four-year local tax exemption for non-pioneer ones.
Non-tax incentives include the following:
• Simplified procedures in the equipment import. This also covers the spare parts, suppliers, raw materials, and the exportation of the processed goods.
• Required re-export bond but there are no restrictions on usage of consigned equipment.
• Employment of foreign nationals in supervisory, technical, and advisory positions, which can be extended for limited periods. This limitation is not applicable to the president, general manager, and treasurer of registered businesses that are owned by foreigners.
• Allowed operations for bonded manufacturing or trading warehouses. These are subjected to the rules and regulations of customs.
• Businesses in less-developed areas (excluding forestry, mining, and processing of forest products and minerals) are eligible for a dual deduction from their taxable income of 50 percent of the wages, as well as deductions on constructed major infrastructures deemed necessary.
Enterprises that are registered with the Philippine Economic Zone Authority (PEZA) are entitled to further incentives to help boost employment in non-urban areas.
These businesses can be registered as any of the following:
• Export Manufacturing Enterprise
• Information Technology (IT) Service Export Enterprise
• Tourism Enterprise
• Medical Tourism Enterprise
• Agro-industrial Export Manufacturing Enterprise
• Agro-industrial Biofuel Manufacturing Enterprise
• Logistics and Warehousing Services Enterprise
• Establishment, operations, and maintenance of water supply and light and power systems, as well as distribution systems inside Special Economic Zones.
• Economic Zone Development and Operation, such as Manufacturing Economic Zone; IT Park; Tourism Economic Zone; Medical Tourism Economic Zone; Agro-Industrial Economic Zone; and Retirement Economic Zone.
• Facilities Providers, such as Facilities for Manufacturing Enterprises; Facilities for IT Enterprises and Retirement Facilities.
These businesses are eligible for the six- and four-year income tax exemptions. When the tax holiday expires, companies in the Philippines’ Ecozones become eligible to the favored rate of five percent of earned gross income instead of paying all the national and local taxes.
Further incentives include:
• Zero VAT rating of locally purchased goods and services;
• Tax and duties exemptions on imports such as merchandise, machinery and equipment supplies, raw and construction materials, capital equipment imports, special office furniture and equipment, transportation equipment and specialized vehicles, household effects, and professional instruments;
• Import substitution tax credits;
• Exemptions on wharfage dues, import fee, and export taxes.
• Deductions for their personnel training costs and labor expenses.
• Tax credit on breeding stocks and genetic materials and domestic capital equipment.
• No restrictions on consigned equipment.
• Employment of foreign nationals in executive, supervisory, advisory and technical positions as long as the number doesn’t exceed five percent of its total workforce at any given time.
Subic Bay Metropolitan Authority Incentives
The Philippine government established the Subic Free Port Zone (SFZ) and the Subic Special Economic Zone (SSEZ) to help develop a non-urban area into an industrial, financial, and investment zone.
These areas include Olongapo City, the Subic Municipality, and the Subic Bay where a former U.S. Naval Base was located. It also covers nearby municipalities such as Morong and Hermosa and the Bataan Province.
A company’s business registration in the Philippines allows it to become an SFZ Freeport Enterprise under the Subic Bay Metropolitan Authority (SBMA). Another option is to become a registered Ecozone Enterprise in the SSEZ.
SSEZ enterprises are eligible for the same rate of five percent of earned gross income instead of paying all the national and local taxes.
On the other hand, an SFZ enterprise can also avail of the abovementioned special rate plus duty- and tax-free imports within the SFZ.
Clark Special Economic Zone Incentives
The Clark Special Economic Zone (CSEZ) covers Pampanga province’s Angeles City and the Porac and Mabalacat municipalities. It also covers Tarlac province’s Bamban and Capas municipalities.
A portion of the Clark Special Economic Zone has been converted into the Clark Freeport Zone; herein enterprises are entitled to the same favored rate of five percent on earned gross income instead of the local and national taxes, as well as a duty- and tax-dee imports of capital equipment and raw materials.
Booming Startups in the Philippines
In recent years, business registration in the Philippines has become faster and easier—enabling venture capitalists and serial entrepreneurs to take advantage of the booming startup scene in the country.
The wide usage of social media in the Philippines has helped many businesses expand its reach in a highly saturated market.
If you’re looking for your next big leap in Asia, the Philippines could be your best entrepreneurial launch pad to date.
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