E-Commerce & Infotech Matters

Guidelines for the Registration and Adminsitration
of Incentives of IT Services

I. COVERAGE. Projects offering services both in the domestic and international markets, in the following activities are eligible for BOI registration:

1. Software development projects

a. Application software
b. Middleware
c. System software

2. IT enabled services

3. Support and knowledge-based services

4. Business process outsourcing

II. DEFINITION OF TERMS

1. Software development projects may be subdivided into three categories:

a. Application software products refer to the development of packaged software programs that provide solutions to problems specific to an industry or business (such as banking, manufacturing, research and development works, etc.). These also include programs that could address problems and functions across industries (such as human resource management, payroll system, project management and other office related activities.

b. Middleware products are computer programs that are used: (a) as interface among disparate application systems (e.g., web-based applications and mainframe-based or legacy applications; or (b) to develop and manage new applications that are robust, scalable and highly available.

c. System software products pertain to the development of operating system-type and software tools-type packaged programs.

Included are Operating Systems and Internet browsers and search engines.

2. IT enabled services cover services related to data encoding, digital directories, digital catalogues, legal records, financial and accounting records, hospital and medical records, engineering and design (e.g., computer-aided structural design), customer-interaction services (e.g., message handling, call centers, help desk), unified messaging services and voice over IP. These also cover services related to Internet Data Centers.

3. Support and knowledge-based services refer to other types of IT-related professional services, including but not limited to, provision of application or systems as in application service provider or ASP, consulting services, software maintenance services, information systems planning, computer and systems audits and other similar services.

4. Business process outsourcing (BPO) services form a significant part of major business process or operating function in a business enterprise where the services are performed by another enterprise which is located remotely from it and the services are rendered regularly and continuously, mainly at the service providers’ site and are delivered electronically to the client and/or to other recipients of the services on the clients’ behalf.

III. REGISTRATION UNDER E.O. 226

A. QUALIFICATIONS. Individuals, partnerships or corporations interested to engage in Information Technology Services (ITS) not yet registered and the expansion of existing BOI-registered/non-registered projects may qualify for registration under E.O. 226 and shall be eligible for incentives thereof.

All ITS projects will be considered preferred areas of investments for the next four years starting from the effectivity of the 2000 IPP.

Since the activity is listed in the IPP, for Filipino entities (at least 60% Filipino-owned), export commitment is not required.

For foreign-owned entities (more than 40% foreign-owned) at least 70% of total service rendered must be exported. If pioneering, 100% of services may be rendered to the domestic market. Provided, however, that the firm complies with the requirement under the Foreign Investments Act that the paid-up capital is at least US$200,000.00 which will be lowered to US$100,000 if (1) the project involves advanced technology as determined by the Department of Science and Technology or (2) hires at least fifty (50) direct employees.

B. PIONEER STATUS. To be eligible for pioneer status, a project must comply with any of the following:

1. It must utilize new or untried technology

2. It must have a substantial venture capital

3. It will introduce a major innovation in software development

4. The project cost should be at least P100 Million.

IV. ADMINISTRATION OF INCENTIVES

1. All registered enterprises engaged in the eligible IT-related projects shall be entitled to the following incentives:

a. Income Tax Holiday. Article 39(a) of E.O. 226 fully exempts a new registered firm from income taxes levied by the National Government for a period of six (6) years from commercial operation of pioneer enterprise and four (4) years for non-pioneer, with possible extension of two (2) years but not to exceed eight (8) years. A bonus year may be granted in each of the following cases:

1. The ratio of total imported and domestic capital equipment to the number of workers for the project does not exceed US$10,000 to one (1) worker or

2. The net foreign exchange savings or earnings amount to at least US$500,000 annually during the first three (3) years of operations.

b. Employment of Foreign Nationals under Article 39(h) of E.O. 226. The provisions of the Revised joint Circular of the Department of Tourism, Department of Labor and Employment and the Bureau of Immigration and Deportation on the foreign nationals in the functions specified hereto, however, shall be strictly observed.

c. Additional Deduction on Labor Expense

d. Unrestricted Use of Consigned Equipment

2. If registered projects are located in a less-developed area as identified in the Investment Priorities Plan (IPP), the firm shall be granted pioneer incentives, i.e., an income tax holiday for six years.