by: Austin Shi

Foreign BPOs, call centers, and IT companies setting up business operations in the Philippines can opt for either PEZA or BOI registration. Registering with PEZA or BOI enables your company to avail of numerous tax incentives and exemptions, including but not limited to easier visa processing for expat employees, tax holidays of up to 4 years and other payment exemptions. In order to become eligible for these benefits, foreign companies must first comply with their respective registration agreements.

by Jason dela Torre

The future of Indian business process outsourcing or BPO, which registered a loss of growth momentum from 29% in the second quarter of 2008, to 17% in 2009, is uncertain: with most experts predicting a drop to single-digit growth by the fiscal year of 2010. India is widely regarded as the largest and fastest growing BPO  service provider in Asia and has dominated global outsourcing markets for over a decade. The Indian BPO industry generates $12.4 billion in total revenue and employs more than 3 million people in various outsourcing services; however, rising wages, rates of attrition, and a shortage of English proficient skilled workers, has led to the gradual decline of many voice-related tasks in Indian BPO. This, in turn, has opened doors of opportunity for countries, particularly the Philippines, allowing them to tap into the global BPO market.

In a bid to boost the stock market, the Real Estate Investment Trust (REIT) Act was recently passed into law, marking the fourth legislative attempt to bolster economic growth and development in Philippine markets. The Real Estate Investment Trust (REIT) Act of 2009 (Republic Act No. 9856) promises to promote economic development in capital markets, democratize the distribution of wealth by increasing Filipino participation in the Philippine real estate market, enable the financing of infrastructure and other projects through the management of capital markets, and provide protection to the investing public.

Setting up a foreign-owned business in the Philippines is no walk in the park. A foreign-owned corporation must obtain the necessary permits and licenses, register with the proper government agencies, and make the required capital investments   before setting up business operations inside the country. Business Registration procedures in the Philippines are different for sole proprietorships, representative offices, branch offices, regional headquarters (RHQs), domestic corporations or subsidiaries. The type of business established by the foreign investor is determined by the kind of industry that he/she wants to engage in. Under the 1991 Foreign Investments Act (FIA), foreign investors are allowed to engage in any business enterprise, as long as it doesn’t fall under the foreign investments negative list established by the Philippine government, wherein foreign ownership is restricted to a small percentage of the company and the investor is required to establish a corporate presence inside the country.

Cyber Parks (Techno Parks, IT Parks, Ecozones) are ideal destinations for setting up a BPO or call center in the Philippines. Outsourcing companies prefer to locate business operations inside technoparks, mainly because of the large number of tax incentives and government exemptions available in these areas. Businesses established inside IT Ecozones are eligible for numerous benefits, including income tax holidays from 5-8 years, permanent residency status to foreign-based business owners and investors, as well as the payment of 5% tax on gross income after the company’s income tax holidays have expired. Government exemptions on capital equipment, the employment of foreign nationals, and gross income remittances are also readily available to foreign and locally-owned BPO companies in these areas. Metro Manila, considered as one of the top BPO destinations in the world, is home to a large number of these Cyber Parks, some of which include the Eastwood City Cyber Park in Libis, the McKinley Hill Cyber Park near Fort Bonifacio, UP-AyalaLand Technohub in PHILCOA, and the Northgate Cyber Zone in Alabang.

As the global Business Process Outsourcing “BPO” market continues to expand, outsourcing destinations like Latin America and the Philippines are seeing more foreign investors and increasing annual revenue.  These areas expect a 30-40% profit upswing from BPO for the first quarter of 2010.

Latin American BPO is poised for growth, with large multinationals like Citigroup, Pfizer, and Ford setting up operations in the area. Other international offshore players in the area include TCS, Convergys and IBM. Latin American countries offer a number of fragmented domestic IT and BPO services, which enable bigger companies to capitalize on local acquisitions. Proximity to the United States and similar time zones may have led to 32% growth in voice transcription services in 2009 for the region.  Whatever the reason, the tides are shifting toward Latin American shores and away from India, the traditional leader in the voice transcription field.

Fueled by advancements in computer technology, the Online Gaming industry has become one of the biggest moneymakers in the Philippines today. As responsible online gaming becomes an accepted form of recreation or diversion for a number of Filipinos, the annual profits of online casinos, bingo and sports-betting companies keep increasing at a tremendous rate. PhilWeb, one of the largest online gaming companies in the Philippines today, posted a profit increase of 52% in the first quarter of 2010 alone. Company revenues also rose by 42%, totaling to about Php 239 million. The number is still expected to double, even as the year progresses.

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.”

Tax Incentives in the Philippines

Tax is always a concern for local and foreign investors.  K&C is committed to addressing risks and identifying opportunities and will assist you in choosing a tax effective structure for your company, planning your inbound investment and market entry strategy in the Philippines, and help determine your eligibility for availing of investment incentives granted under Philippine law. Some tax incentives depend on the geographic location of a business.

K&C will identify Philippines Special Economic Zones (PEZA)  and Cyber Parks where businesses and individuals are allowed to avail of special tax breaks in Makati, Manila, Ortigas, Eastwood, Cebu and Fort Bonifacio, Philippines.