Breaking News: Call Centers Allowed Tax Breaks for Remote Work in the Philippines
by King White, on Nov 1, 2022 9:30:00 AM
The Filipino call center industry that employs an estimated 1.4 million workers is relieved as the Philippines government agreed to continue giving tax breaks regardless of how many of their employees work off-site or on-site. Prior to the COVID-19 pandemic, most companies opted for the Philippine Economic Zone Authority (PEZA) which was linked to a company’s physical location and employees working at that call center facility. However, many companies are now changing to the Philippine Board of Investments (BOI) program which covers employees working from home as the industry has changed due to the impact of the COVID-19 pandemic. To help you understand the impact on your call center site selection decisions in the Philippines, Site Selection Group has summarized both programs to understand the pros and cons of each.
What is BOI?
BOI, short for the Philippine Board of Investments, is a government agency attached to the Department of Trade and Industry responsible for promoting corporate investments. BOI supports businesses in the IT field, including software and application development, IT-enabled and ICT support services, Business Process Outsourcing (BPO), internet service provisions and other related fields. The benefits include income tax holidays, deduction of labor expenses, and the unrestricted use of consigned equipment. However, businesses that register with BOI are required to export 70% of their total production, and foreign-owned companies must obtain at least 40% Filipino-ownership after a given number of years.
What is PEZA?
PEZA is the acronym for the Philippine Economic Zone Authority, a government agency that provides tax incentives and other forms of investment assistance to foreign investors interested in setting up business operations in the Philippines. PEZA supports businesses in the IT field, including software development and application, IT-enabled services, content development for the internet and other forms of media, BPO and IT research development. Companies that register with PEZA are eligible for a number of special benefits, including tax holidays of up to four years, a special 5% tax on gross income, permanent residency for foreign investors (upon an initial investment of $2,586 [$150,000 Php] to any sustainable, local enterprise) and other payment exemptions. However, businesses that register with PEZA are required to relocate to special PEZA zones, and export 70% of their total production.
COVID-19 pandemic created challenges for companies in complying with PEZA requirements
Prior to the pandemic, one of the first questions asked when looking for call center sites in the Philippines was if the building was a PEZA registered building. If not, you would immediately cut the building from the search. Allowing agents to work from home was rarely done in the Philippines due to poor infrastructure and security concerns.
Fast forward to today. The use of remote agents changed dramatically due to the COVID-19 pandemic which forced over 1 million call center employees to work remotely. This event also triggered companies to fall out of compliance of PEZA’s original requirements that employees work from approved PEZA buildings. PEZA did modify its requirements to operate remotely to accommodate the impact of the coronavirus pandemic; however, the changes are set to expire in March 2023 and only allowed for 30% of the employees to work from home. Despite many of these workers coming back to the office now, many employers are still not hitting the mandatory thresholds required by PEZA.
BOI allows greater flexibility
The impact of the COVID-19 pandemic in the Philippines was significant and it altered call center site selection strategies and opened up a whole new world of working remotely it what is one of the largest offshore destinations. Companies should carefully consider PEZA and BOI benefits before the upcoming PEZA changes in March 2023. Site Selection Group will keep you informed of any future changes. If you are requiring assistance with your location strategies in the Philippines, please contact one of our call center site selection experts to advise you.