When either the Board of Investments (BOI) or the Philippine Economic Zone Authority (PEZA) is mentioned, people usually think of it as an agency that serves only foreign nationals. After all, the laws creating each of these agencies were enacted primarily to attract investments into the Philippines. BOI’s regulatory authority is derived from the Omnibus Investments Code (the “Investments Code”); that of PEZA’s is from the Special Economic Zone Act of 1995 (the “PEZA Law”). These laws share the same objectives of job creation and enhancement of Philippine global competitiveness.
Both BOI and PEZA also offer fiscal and other incentives to Filipinos and not just to foreigners. The most substantial of these incentives is the income tax holiday, which exempts registered enterprises from the payment of national and local income taxes for a period of four or six years, depending on the nature of the registered business activity. Two other incentives are exemption from taxes and duties on imported capital equipment, and tax credits for taxes and duties paid on supplies and raw materials.
Each year, the President of the Philippines approves an Investment Priorities Plan (IPP) that lists the preferred areas of investments eligible for incentives. There are specific technical requirements for eligibility and the investment areas given priority cover a wide range of business activities.
As long as it exports at least 50 percent of its production, a Filipino-owned enterprise may be entitled to incentives even if its business activity is not among the preferred areas of investments. For PEZA registration, in particular, meeting this export quota is an essential requirement.
The incentives granted by BOI and PEZA are essentially the same. For an enterprise to be registered with PEZA, however, its operations must be located in a Special Economic Zone, or “ecozone,” established under the PEZA Law. These ecozones usually cater to export-oriented enterprises, but with the fast growth of the information and communications technology industry in the country, PEZA has allowed commercial buildings to be registered as special technology zones with the attributes of an ecozone.
Thus, so long as the majority of its services are being rendered to foreign-based clients, a company that provides information and communications technology services and is located within any of these PEZA-registered buildings may be eligible for PEZA registration.
There is another major difference between a BOI-registered enterprise and a PEZA-registered enterprise. In a BOI-registered enterprise, it is the business activity or project that is looked into; in a PEZA-registered enterprise, however, it is the company or enterprise as a whole that is evaluated. Thus, a company with multiple distinct business activities may have several of these activities registered with the BOI. On the other hand, PEZA determines a company’s eligibility for registration not by type of business but by its export orientation.
PEZA VS. BOI
There is a particular PEZA incentive that is not offered by BOI. After the income tax holiday period of four or six years, a PEZA-registered enterprise has the option of paying a special 5 percent Tax on Gross Income instead of paying national and local income taxes. This preferred tax rate is an attractive incentive considering that corporations are required to pay income taxes at the rate of around 32 percent of their net income.
It is therefore advisable for a new business enterprise to consider its eligibility for either BOI or PEZA registration so it can take advantage of the fiscal and other incentives provided by law. For eligible businesses, the earlier the business is registered, the better. This is because the period for enjoying these incentives is counted from the start of commercial operations of the enterprise and not from the time of BOI or PEZA registration.
Registration with BOI and PEZA need not be as bewildering as some may think. Each of these agencies provides a checklist of the documents that are required to be submitted. The documents consist mainly of an application form, a project study in the prescribed form, and several papers that profile the enterprise. For both BOI and PEZA registration, an essential requirement is for the project study to declare that the business has enough capital to cover at least 25 percent of its total project cost for one year.
If prospective applicants find the task of preparing these documents daunting, they may seek the professional assistance of a lawyer or accountant.
At any rate, anybody interested in learning more about BOI and PEZA can simply visit their websites, namely www.boi.gov.ph and www.peza.gov.ph. It will be such a pleasant surprise to discover that a proposed business venture is actually eligible for BOI or PEZA incentives.
DEPARTMENT OF TRADE AND INDUSTRY – BOARD OF INVESTMENTS
Tel. Nos.: 890-1332 / 895-3641
THE PHILIPPINE ECONOMIC ZONE AUTHORITY
Tel Nos.: 551-3454 / 551-3455
Omnibus Investments Code: Executive Order No. 226, as amended by Republic Act Nos. 7888 and 7918
The Special Economic Zone Act of 1995: Republic Act No. 7916, as amended by Republic Act No. 8748
The Rules and Regulations implementing Republic Act No. 7916
Memorandum Order No. 211 approving the 2006 Investment Priorities Plan