BUSINESS Process Outsourcing companies can opt for a BOI or a PEZA registration.
BOI stands for the Philippine Board of Investments. It is an attached agency of the Department of Trade and Industry (DTI) and is responsible for the development of investments here in the Philippines. A BOI registration supports IT (Information Technology), IT-enabled, and ICT (Information and Communications Technology) support services including Business Process Outsourcing (BPO), software and application development, internet service provisions, and other related fields of interest. The benefits of a BOI registration include income tax holidays, labor expense deductions, and unrestricted use of consigned equipment. Some BOI-registered companies, however, are required to export 70% of their yearly production and foreign-owned firms must comply with a 40% Filipino ownership composition for a specific number of years.
PEZA, on the other hand, stands for the Philippine Economic Zone Authority. PEZA is also an agency of the DTI created to promote investments in the Philippines. It was created specifically to assist foreign business entities within designated areas in the Philippines which are called PEZA Special Economic Zones. Like the BOI registration, PEZA registration also supports companies in the IT field including software development and application, IT-enabled services, content development for media, BPOs, and IT research. When businesses are accredited by PEZA, certificates are issued which entitle them to fiscal and non-fiscal incentives. These include income tax holidays for up to four years, a special 5% tax on gross income (after the income tax holiday), and certain payment exemptions. Foreign investors are granted permanent residency status upon an initial investment of USD 150,000 to any sustainable, local enterprise. Further, PEZA-registered companies enjoy a 5% special tax on Gross Income, as well as exemption from national and local taxes, tax and duty-free importation of raw materials, capital equipment, machinery, and spare parts, exemption from wharfage dues and export tax, imposts, and fees, and exemption from local licenses and local taxes among others. ALL entities must relocate to PEZA zones or buildings and are required to export AT LEAST 70% of total production.
From the get-go, while only certain types of entities are eligible for BOI and PEZA, both registrations offer numerous benefits for foreign companies seeking competitive costs, or start-up companies who want to upscale.
So which registration must companies look into?
The answer depends on what registration will give the entity the best possible benefits. Approval for both isn’t automatic. PEZA and BOI registration is granted on a case-to-case basis. PEZA REQUIRES companies to relocate within a PEZA IT Park or building while BOI does not. Both offer similar tax incentives for local and foreign companies. But the fine print says that PEZA is geared towards export manufacturing, IT, and tourism businesses, while BOI benefits BPO research and development.
Now that the Covid-19 pandemic has eased, many think that BPOs be placed under the BOI in light of the work-from-home arrangements. For the moment, BPOs under the jurisdiction of the PEZA are facing protocol issues with the PEZA since the Department of Finance (DOF) mandates that they (PEZA-registered entities) return to the face-to-face setup – an arrangement that has proven more costly in the last three years.
To deal with this issue, more and more BPOs are registering as exporters under the CREATE Law or the “Corporate Recovery and Tax Incentives for Enterprises Act”. This law allows a reduced corporate income tax (from 30% to 20% for micro, small and medium enterprises and 25% for corporate taxpayers), reduced minimum corporate income tax (MCIT) (reduced to 1% of the gross income until June 30, 2023, after which rate shall be 2%), tax-free exchanges (without need for a BIR confirmation or tax ruling), and VAT exemption among others.
When companies outsource to the Philippines, they are assured of the best cost savings and access to the finest talent pool. The only aspect that BPOs seeking to upscale must think of is the manner of registration and who to partner with.
Look no further. NEARSOL has got you covered with all aspects of starting your BPO system whatever form of registration you opt for.
Ramp up with NEARSOL Iloilo
NEARSOL is a US-based BPO and service company that offers clients custom-design solutions. With major hubs in Manila and Iloilo, it began operations in 2006 and has since gained a strong presence in the Latin American regions, the Caribbean, and the Asia Pacific, winning many awards for quality and service along the way. Most recent of which is its Great Place to Work-Certified™ Recognition, a global accreditation that tells stakeholders what employees think of the company culture.
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