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:
- Submit your application
for pioneering status, along with your project brief and other documentation to the BOI or an IP - The Department of
Science and Technology will form a Technical Panel, who will determine the eligibility of the project
for pioneering status - 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
- 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.
