The BoI next door: Registering IT-BPM companies


Taxwise Or Otherwise

Dorothy Jane Puguon

The pandemic brought in a huge wave of change to the workplace. The physical boundaries of work have blurred. Most are no longer confined to the four corners of the office. As many have seen, and probably experienced, most office jobs can now be done almost anywhere.

While there is an ongoing debate on whether full remote work arrangements are sustainable, the perks of not having to go to the physical office are undeniable. Apart from getting to save on fare or gas money, significant time is saved from being spared the long queues, dreary commutes and the horrible traffic. Needless to say, the peace of mind gained from avoiding the commute is such a blessing.

It is not surprising then that the loudest clamor for remote work has arisen in businesses where work can be accomplished substantially using digital technology. While such businesses have implemented hybrid work arrangements, there are some whose hands are (were) tied — registered business enterprises (RBEs) in the Information Technology-Business Process Management (IT-BPM) industry overseen by Investment Promotion Agencies (IPAs) administering ecozones or freeports.

As discussed by my colleague in a previous article, as a general rule, IT-BPM RBEs registered with IPAs (such as PEZA) must operate exclusively within the designated ecozone or IT park/building. Otherwise, they risk losing their tax incentives. Moreover, the transfer of equipment outside of the ecozone requires prior approval of the IPA. These restrictions made work-from-home (WFH) arrangements tedious and costly to implement. Soon enough, a crisis loomed over the industry with businesses forced to deregister from PEZA or even pull out from the Philippines.

To resolve the conundrum, the Fiscal Incentives Review Board (FIRB) released several issuances, the most notable of which was FIRB Resolution No. 026-22 authorizing IT-BPM RBEs registered with IPAs to register their projects or activities with the Board of Investments (BoI). This was followed by FIRB Resolution No. 033-22 which extended the effectivity of FIRB Resolution No. 026-22 from Dec. 31, 2022 to Jan. 31, 2023. Implementing guidelines, and supplemental ones, were soon issued, the latest of which is FIRB Advisory No. 004-2023, to answer common questions raised about the registration guidelines.

FIRB Advisory 004-2023 clarified that the registration of IT-BPM RBEs with the BoI is not a transfer of registration. Rather, it is an additional registration on top of the IT-BPM RBEs’ existing registration with the concerned (or original) IPA. The FIRB clarified that no additional incentives are received by virtue of the additional BoI registration. Instead, the fiscal incentives will be governed by the BoI registration, which effectively allows IT-BPM RBEs to implement 100% WFH arrangements indefinitely, as management deems necessary. Non-fiscal incentives and the terms and conditions of registration will continue to be governed by the original IPA.

The FIRB also reiterated that IT-BPM RBEs registered with their original IPAs starting Sept. 15, 2022 are excluded by FIRB Resolutions 026-22 and 033-22. The FIRB emphasized that beginning Sept. 15, 2022, IT-BPM enterprises that wish to avail of 100% WFH arrangements should register with the BoI directly. Otherwise, such RBEs will be required to work within their designated ecozone or IT park/building.

It is important to note that the additional BoI registration only covers existing registered projects/activities. New and expansion projects will be subject to separate registrations with the BoI in order to enjoy 100% WFH arrangements.

Penalties await IT-BPM RBEs that implement 100% WFH arrangements in 2023, but fail to register with the BoI by Jan. 31, 2023. Penalties include 100% of the regular corporate income tax for the month/s of non-compliance (with no adjustments based on the extent to which the 30% WFH threshold was exceeded). The FIRB further stated that the penalty is without prejudice to the suspension or withdrawal of the IT-BPM RBEs’ tax incentives or cancellation of their Certificate of Registration, after further evaluation by the original IPA or the FIRB.

Though also registered with the BoI, from a compliance perspective, the monitoring function still rests with the original IPA. The relevant certificates, such as Certificate of Authority to Import, Certificate of Entitlement to Tax Incentives, and Value-added Tax Zero-rating Certificate will continue to be processed and issued by the original IPA. The FIRB emphasized that IT-BPM RBEs will continue to observe the procedural requirements of the original IPA, even after they are registered with the BoI, unless otherwise declared.

Another important consideration in WFH and hybrid work arrangements is the mobility of the equipment used in the business. Generally, equipment which was imported tax and duty-free that is taken out of the ecozone would be subject to import tax and duties. To avoid this, all IT-BPM RBEs registered with the BoI need to secure a Tax Exemption Indorsement (TEI). A blanket TEI may be issued which will cover all imported goods as of Jan. 31, 2023 that availed of the import tax and duty exemption in relation to a registered project. This reduces the administrative burden of securing TEIs on a per-equipment basis. It is also comforting to note that the FIRB recognizes the peculiarity of the IT-BPM sector, where a strict one-to-one ratio of computer/IT equipment to employee more often than not, does not apply. The IT-BPM RBE would simply need to provide an explanation if the number of laptops or devices exceeds the number of employees availing of the WFH arrangement.

With the registration period now closed, and the BoI registrants now in the implementation phase, the latest clarifications on the BoI registration guidelines make it easier for IT-BPM RBEs to adopt a 100% WFH arrangement. Our incentives authorities have truly embraced the mandate to ease the doing of business in the Philippines.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co.

Dorothy Jane Puguon  is a manager at the Tax Services department of Isla Lipana & Co., the Philippine member firm of the PwC network.

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dorothy.jane.puguon@pwc.com