Pioneering Status in the Philippines: What Is It and How Do You Acquire One?

Foreigners who want to set up a business in the Philippines can enjoy special incentives if their firm has pioneering status. 
 
Typically, businesses with more than 40% foreign ownership can only qualify for these incentives if 70% of their products are exported. However, foreign-owned firms may engage in domestic oriented activities and still enjoy special incentives if they have pioneering status.
 
What is pioneering status and how can a business acquire one? Read on to find out.
 
Definition of pioneering status
 
According to the Department of Trade and Industry (DTI), pioneering status is given to businesses and investments that meet the following criteria:

• It is engaged not just in the assembly and packaging but the manufacturing and production of goods, products, and raw materials not found or produced in the Philippines
• It uses a process, design, formula, or method that converts raw materials into another raw material or a finished product that significantly utilizes indigenous raw materials
• It is engaged in agricultural activities or services that can contribute to the Philippines’ self-sufficiency program
• It is engaged in the production of non-conventional fuels or the production of equipment using non-conventional energy sources
• It is engaged in other activities that meet the investment criteria in the government’s Investment Priorities Plan, which is updated annually
• It is not engaged in activities included in the Negative List

 
Benefits for firms with pioneer status
 
Businesses with pioneer status can enjoy the following benefits and incentives:

• Income tax holidays for 6 years, which may be extended up to a maximum of eight years if the business meets certain criteria. Non-pioneer businesses enjoy only 4 years of income tax holidays.

 
As of 2017, businesses within Metro Manila, even with pioneer status, can no longer enjoy income tax holidays except:

• Projects located in official industrial estates, resettlement areas, or National Housing Authority sites
• Service and trading type businesses without manufacturing facilities

• Tax credits and exemption from duties and taxes of imported machinery, equipment, spare parts, consumable supplies, and others
• Exemptions from duties and taxes for qualifying companies undergoing expansion
• Exemption from wharfage dues and export duties for eligible companies
• Non-tax incentives, such as simplified custom procedures, employment of skilled foreign nationals, bonded warehouse privileges, and others

 
The application process for a pioneering business
 
To enjoy the incentives offered to pioneering businesses, the firm must first be registered with the Board of Investments (BOI), PEZA (Philippine Economic Zone Authority), or other IPAs (Investment Promotion Agencies), such as the Bases Conversion and Development Authority, the Subic Bay Metropolitan Authority, and Clark Development Corporation.
 
The BOI is an agency attached to the DTI, and has been given the authority to provide tax incentives to qualified firms. PEZA and other IPAs are also attached to the DTI and functions similarly as the DTI but cover businesses operating within their designated ecozones and development areas. Additional incentives or benefits may also be enjoyed by accredited businesses in these specially designated areas. 
 
Registering your business with the BOI, PEZA, or any other IPA is an additional process you have to take after registering with the DTI or SEC. It’s best to decide whether to set up your business in a PEZA ecozone or any other IPA before registration, but you may also relocate to one in the future. 
 
Part of the application process is a technical evaluation to be conducted by the Department of Science and Technology to determine if your project qualifies for pioneering status. 
 
The steps in the evaluation process are as follows:

1. Submit your application for pioneering status, along with your project brief and other documentation to the BOI or an IP
2. The Department of Science and Technology will form a Technical Panel, who will determine the eligibility of the project for pioneering status
3. The Technical Panel will visit your plant or facilities to evaluate and validate your project’s eligibility using the following criteria:

• The activity falls within the IPP list of activities
• Technical viability of the project
• Economic viability of the project
• Extent of use and adaptation of the latest technology to local conditions
• Innovation and novelty of products, methods, or equipment used
• Extent of technology transfer to the local setting and its viability for commercial use
• Impact of technology used to productivity and efficiency
• Effects of the technology to the environment

1. Based on their assessment, the Technical Panel decides if your firm is eligible for pioneering status

 
Once your project is deemed eligible for pioneering status and you have complied with other application requirements, you can expect to receive approval in about 15 to 30 working days.
 
The process for acquiring pioneering status requires detailed attention and a considerable amount of time. We can take the burden off your shoulder while providing the guidance you need for a successful application. Contact us today to find out more.