By: Kathleen Yu
Outsourcing companies in the Philippines can opt for either PEZA or BOI Registration to obtain tax incentives in their respective fields of enterprise. Registering with either PEZA or BOI offers numerous benefits for start-up companies in the country, including easier visa processing for expat employees. However, only certain types of enterprises are eligible for PEZA or BOI registration and registrants must comply with the conditions of their respective registration agreements.
According to Amanda Carpo, senior corporate lawyer of Kittelson & Carpo Consulting, “Companies setting up operations in the Philippines must carefully weigh their options before registering with either PEZA or BOI. This will not only prevent unnecessary mistakes from being made, it will also ensure that your company receives the best possible benefits, under the best possible conditions.”
What are the benefits of registering with PEZA or BOI? How will it affect your company’s business operations? Before I answer any of those questions, let me first give you a rudimentary understanding of what PEZA and BOI registration is all about.
PEZA, short for Philippine Economic Zone Authority, is a government agency that specializes in providing investment assistance and other incentives to foreign investors inside the country. PEZA Registration supports business operations in the IT field, including software development and application, IT-enabled services, content-development for Internet and other media, Business Process Outsourcing (BPO), as well as IT research and development. Some PEZA benefits include income tax holidays for up to four years, a special 5% tax on gross income (after the income tax holiday), payment exemptions.. Foreign investors will also be granted a permanent residency status upon initial investment of USD 150,000 to any sustainable, local enterprise. However, enterprises located in PEZA zones are required to export at least 70% of their total production.
The Philippine Board of Investments (BOI) is a government agency attached to the Department of Trade and Industry that promotes solid business investments in the Philippines. BOI Registration supports IT, IT-enabled and ICT support services, including software and application development, Business Process Outsourcing (BPO), internet service provisions and other related fields of interest. Some benefits of BOI Registration include income tax holidays, deduction of labor expenses, as well as the unrestricted use of consigned equipment. However, BOI registered companies are required to export 70% of their annual production, and foreign-owned firms must obtain 40% Filipino ownership after a given number of years.
Approval for PEZA and BOI registration is granted on a case to case basis. While PEZA registration requires the company to relocate to a PEZA IT Park or building, companies that avail of BOI registration are free to set up business anywhere in the Philippines. Both PEZA and BOI offer similar tax incentives for foreign and local companies in the country. However, PEZA benefits are usually geared toward export manufacturing, IT and Tourism enterprises, while BOI benefits are more focused on BPO Research and Development.
Whether to avail of PEZA or BOI Registration, the choice is yours. But before you decide, think carefully about what kind of benefits are best suited for your company and whether you will be able to meet eligibility requirements. Business is not business without risk-taking but this can be managed with the right advice.