Due to the covid-19 pandemic, registered business enterprises (RBEs) in the information technology-business process management (IT-BPM) sector have adopted work from home (WFH) arrangements to continue business operations. Now that movement restrictions have been relaxed, a balance must be struck between the requirement for RBEs to operate within economic zones and the clamour of RBEs to continue hybrid work arrangements while maintaining their fiscal incentives.
The Fiscal Incentives Review Board (FIRB), chaired by the Secretary of Finance, recognises that the WFH setup is the new business model for the IT-BPM industry and that it is time to resolve the industry's long-standing issue on tax incentive claims while performing business activities outside of their economic zone. Together with the Department of Trade and Industry (DTI) and the Philippine Economic Zone Authority (PEZA), the FIRB has released guidelines allowing RBEs in the IT-BPM sector to adopt a 70-30 WFH arrangement until 31 December 2022 and to transfer their registration from the investment promotion agencies (IPAs) to the Board of Investments (BOI) without loss of tax incentives by 31 December 2022.
On 14 September 2022, the FIRB issued Resolution No. 26-2022 further extending the effect of FIRB Resolution No. 17-2022, which temporarily allowed RBEs in the IT-BPM sector to adopt a 70-30 WFH arrangement. RBEs in this sector are allowed to adopt WFH arrangements not exceeding 30% of their total workforce until 31 December 2022. RBEs must still comply with the conditions prescribed in the earlier FIRB Resolutions No. 19-21, No. 17-22 and other relevant issuances.
Under FIRB Resolution No. 17-22, the number of employees under a WFH arrangement must not exceed 30% of the total workforce of the RBE. The remaining 70% of the total workforce must render work or service within the geographical boundaries of the ecozone or freeport zone being administered by the IPA where the project/activity is registered. The term "total workforce" refers to the total number of employees that are directly or indirectly engaged in the registered project or activity of the RBE. It does not include third-party contractors rendering janitorial, security or other similar services.
Transfer registration from IPAs to BOI
FIRB Resolution No. 26-2022 also granted RBEs in the IT-BPM sector the option to transfer their registration from the IPA administering an economic zone or freeport zone (such as PEZA) to the BOI until 31 December 2022. Through this resolution, the FIRB provides a more permanent solution to the request of RBEs in the IT-BPM sector to adopt more flexible work arrangements on a long-term basis.
However, only those RBEs with remaining tax incentives under section 311 of the National Internal Revenue Code, as amended, or those with approved incentives on or before 14 September 2022 under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act shall be allowed to transfer their registration. Although RBEs registered with the IPA and the BOI would receive the same incentives under the CREATE Act, what makes this an attractive option is that RBEs which transfer their registration to the BOI will be able to adopt a 100% WFH arrangement beyond 31 December 2022. Monitoring of the RBE's compliance and profit of their remaining incentives remains with the IPA where they are located, even after the transfer of the RBE's registration to the BOI.
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Originally published by the International Law Office on Lexology.