Many foreign companies that are setting up outsourcing operations (IT-BPO, call center, or IT companies) in the Philippines may opt to register with the Board of Investments or BOI for tax incentives. Many existing foreign-owned outsourcing companies are BOI-registered.
Board of Investments
The Board of Investments (BOI) provides tax breaks and other incentives to registered entities that engage in activities identified as investment priorities, or those which promote the general economic development of the Philippines, and those that are export-oriented (where export is more than 50% of production or 70% if the enterprise is more than 40% owned by foreign investors). The BOI, in consultation with the public sector, came up with an Investment Priorities Plan, listing these industries.
The BOI operates under the authority of the Department of Trade and Industry (DTI) and is mandated through the Omnibus Investments Code (Executive Order No. 226) to provide tax exemption and other incentives to registered enterprises that engage in activities enumerated in the Investment Priorities Plan (IPP) which is a list of areas of investments eligible for government incentives.
Incentives
BOI-registered companies in the Philippines are entitled to numerous fiscal and non-fiscal incentives (under E.O. No. 226), including but not limited to the following:
FISCAL INCENTIVES
- Income Tax Holidays
- Six (6) years for projects with Pioneer status and for projects located in a Less Developed Area (LDA)
- Four (4) years for new projects with Non-Pioneer status
- Three (3) years for expansion/modernization projects
- Duty exemption on imported capital equipment, spare parts, and accessories
- Exemption from wharfage dues and export tax, duty, impost, and fees
- Tax exemption on breeding stocks and genetic materials
- Tax credits on imported raw materials
- Tax and duty-free importation of consigned equipment
- Additional deduction for labor expense
NON-FISCAL INCENTIVES
- Employment of Foreign Nationals
- Simplification of customs procedures for imported products
- Importation of consigned equipment
- Privilege to operate a bonded manufacturing/trading warehouse (subject to custom rules and regulations)
The main advantages for an eligible BOI-registered firm are the 4 to 8 year Income Tax Holidays and the 4 to 6 year exemption from local business taxes for Pioneer and Non-Pioneer industries. To be eligible for BOI incentives, foreign investors will need to have an equity investment in a Philippine corporation.
Start-ups and other types of businesses can benefit from BOI registration in the Philippines through the following:
- Income Tax Holidays of six, four, or three years
- Duty exemption on imported capital equipment, spare parts, and accessories
- Tax credits on imported raw materials
- Tax exemption on breeding stocks and genetic materials
- Additional deduction for labor expenses
- Simplification of customs procedures for imported products
- Employment of and visa privileges to foreign employees
- Privilege to operate a bonded manufacturing/trading warehouse (subject to custom rules and regulations); and many others
Requirements
The requirements for BOI registration in the Philippines are as follows:
- SEC Certificate of Registration;
- Articles of Incorporation and Bylaws (for Domestic Corporations, Partnerships, Branch Offices, Representative Offices, and Regional Headquarters) or DTI Certificate of Registration (for Sole Proprietorships);
- Audited Financial Statement (a feasibility report that contains the projected financial reports for the next 5 years);
- Income Tax Return for the past 3 years, if applicable;
- Board Resolution of a duly authorized company representative/signatory;
- Accomplished BOI Application Form 501 (this has various versions per industry);
- Project Report (which shall contain activities listed or are related to those listed in the Investment Priorities Plan [IPP])
Pioneer and Non-Pioneer projects have different requirements.100% foreign-owned enterprises may avail of incentives if they engage in Pioneer projects, export at least 70% of their total production, or undertake projects in less-developed areas of the country as identified by the BOI. These enterprises are obliged to attain 60% Filipino ownership within 30 years from registration, unless they export or will be exporting 100% of their production. For enterprises engaged in Non-Pioneer projects, foreign ownership is limited to 40%, unless the enterprise will export more than 70% of its annual production.
Applying to the BOI requires the submission of a notarized application, indicating the type of projects, how the activity relates to those listed in the Investment Priorities Plan, the production capacity geared to export, the capital structure of the enterprise, and the nationality of its investors. In addition, the company must submit a feasibility report, containing five-year projected financial statements.
Eligibility
The eligibility criteria for BOI registration in the Philippines are as follows:
- For wholly Filipino-owned enterprises, they must currently engage or propose to engage in an activity listed in the current IPP. They are allowed to engage in any domestic-oriented activity included in the IPP regardless if it is classified as a pioneer project or not.
- For wholly foreign-owned corporations, they must fulfill the following: a) engage in pioneer projects of the BOI; b) at least 70% of their services/products must be for export; and c) their proposed projects must be undertaken in areas listed as less-developed areas (LDAs) by the BOI.
These enterprises are obliged to attain 60% Filipino ownership within thirty (30) years from registration, unless they export or are planning to export 100% of their production. Notable samples of enterprises that export 100% of their goods or services are: Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), Legal Process Outsourcing (LPO), Call Center Agencies, and Outsourcing Companies.
For enterprises that intend to engage in Non-Pioneer projects, foreign ownership is limited to 40%, unless the enterprise will export more than 70% of its annual production.
Registration Process
- File the BOI Application Form 501,& along with supporting documents and filing fee;
- Prepare the Evaluation Report (including the Publication of Notice of Filing of Application and Plant Visit);
- Present to the BOI Management Committee;
- Receive confirmation and letter of advice from the BOI Governing Board regarding Board Action;
- Letter of advice to Applicant of Board Action;
- If approved, the letter of approval and comply with pre-registration requirements;
- Pay the Registration Fee;
- Secure the Certificate of Registration from the BOI
The usual processing time is ten (10) to twenty (20) working days depending on the type of business entity that you plan to register, the nature of your proposed activities, and the time it takes for BOI’s Management Committee to review your application.
Reportorial Requirements
As a holder of the Special Investors Resident Visa, an alien shall be entitled to reside in the Philippines while his investment subsists. For this purpose, he should submit an annual report, in the form fully prescribed for the purpose, to prove that he has maintained his investment in the country. Should said alien withdraw his said investment from the Philippines, the Special Investors Resident Visa issued to him will then automatically expire.
The Board of Investments (BOI) issued Memorandum Circular No. 2017-003, expounding on the implementation of the revised BOI Form S-1 (or the “Annual Report on Actual Operations”) and the guidelines for submission of reporting requirements. This streamlined the procedures for registered corporations, requiring them to submit only the Annual Report through the S-1 form. These BOI-registered corporations are not anymore required to submit the semestral reports or the BOI Form S1-2. According to the BOI, the use of the revised S-1 Form will cover reports starting fiscal year 2016. The revised form replaces eight different types of S-1 forms for different industries.
The revised S-1 Form is downloadable the BOI Website. To help RBEs in filling out the form, a Glossary and Guidelines of S-1 can be also downloaded at their website under the “BOI Applications” Tab, “Downloadable Forms” sub tab, “Monitoring” sub tab, then “Annual Report” sub tab. All mandatory fields must be accomplished and the data pertaining to the enterprise and registered project must be accurate.
For more information and clarification about the process for registration at the Board of Investments, do not hesitate to contact the reliable experts at Filepino. Email us at info@filepino.com.
