Boosting Philippine startups
Credit to Author: SAMANTHA POBLACION| Date: Thu, 09 May 2019 16:17:09 +0000
The Philippine startup community awaits with bated breath for the approval of the Innovative Startup Bill. According to a senate press release in May 2018, the bill will provide support to innovative and tech startups, which pertain to businesses that provide unique and relevant solutions to pressing problems, such as transportation, financing, agriculture and healthcare.
The bill was ratified by the House of Representatives in January this year, following the bicameral conference committee report which combined provisions from House Bill 8862 and Senate Bill 1532.
This article discusses the Senate version of the bill. According to the bill, to be a qualified “innovative startup” which can access the incentives provided by the bill, the entity must be a registered business in the Philippines operating for no longer than 60 months from the commencement of its business operation whose core business function involves product, process, or business model innovation. The bill qualified that the innovative product, process, or business model must be the primary source of revenue of the business entity and the business entity must not be a mere end user of the innovative product, process, or business model. The cost of the business entity for research and development should be at least 15% of its total operational cost or is a licensee or owner of a patent or registered software. The business entity must not have a gross annual revenue exceeding P50,000,000.
Interestingly enough, and perhaps as foresight, the bill extends the availability of incentives to support service providers whose core business function, which in the case of corporations, are indicated in their articles of incorporation, involves the targeted or exclusive provision of goods and services to innovative startups.
To streamline the incentives and benefits to innovative startups and support service providers, the bill establishes the Innovative Startup Development Program which shall be managed by the Department of Science and Technology (DOST), Department of Information and Communications Technology (DICT), and/or the Department of Trade and Industry (DTI).
Among the notable incentives provided by the bill is a P10 billion Innovative Startup Venture Fund that can be accessed by qualified startups to jumpstart innovative business ventures. The fund will be managed by the Department of Science and Technology.
The cornerstone of the bill might be the promise of easing the registration process for new businesses. As determined by professionals engaged in providing services to local and foreign ventures, the complex and sometimes contradictory regulatory processes in the Philippines have always been a deterrent to clients who seek to establish businesses in the country. The bill grants waiver of fees in the application and processing of permits and certificates required for business registration and operation of the enterprise with the appropriate registering agency or, in the case of a qualified entity that pays the said fees, the bill grants a refund from the national government agency equivalent to the sum of fees and taxes levied by local government units and national government.
The bill also provides for expedited processing of permits and certificates and their corresponding requisite documents required for the registration and operation of the innovative startup or support service provider.
Innovative startups and support service providers shall be entitled to benefits for participating in local and international startup events chargeable to available funds of the host agency (i.e. DOST, DTI or DICT). These benefits, include, among others, fully subsidized round trip airfare/s and tax exempt allowances for the representatives.
In addition to the following economic incentives, the bill also creates an Innovative Startup Visa, henceforth referred to as the ‘Visa’. The Visa shall have an initial five-year validity and may be renewed or extended with a three-year validity.
Bearers of the Visa shall be exempt from securing an Alien Employment Permit (AEP) issued by the Department of Labor and Employment. The suspension or revocation of the Visa shall likewise terminate the benefit of the exemption from securing the AEP.
The bicameral version, however, might not have a robust tax incentive feature, as originally intended. Among the reported conflicting provisions between the House and Senate bills are the tax exemption on “income tax arising from the operation of the enterprise” and “value-added tax for the sale and lease of goods, properties or services arising in the course of trade or business of the enterprise or percentage tax,” both carried in the Senate version.
The assumption here is that the bill must be “consistent with the TRABAHO(Tax Reform for Attracting Better and High-quality Opportunities) bill.
For purposes of implementation, DOST, DTI, DICT and other host agencies shall have the roles and responsibilities to develop the necessary department policies and guidelines for the implementation of the program
This article will be updated upon the passing of the said bill into law.
Samantha L. Poblacion is a Senior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, deal, and litigation lawyer. The contents of the above article are intended for general information purposes only and do not constitute legal advice. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF Counsel’s website at www.mtfcounsel.com.
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