Philippines Extends Tax Breaks to Remote Work BPOs

The Philippines has revised its investment regulations, reducing corporate tax rates and extending tax incentives to business process outsourcing (BPO) firms, even if up to 50% of their workforce operates remotely.

Until last week, call center companies faced challenges in retaining tax incentives while allowing remote work.

The new legislation simplifies the process by enabling BPOs to register with any of the country’s investment promotion agencies, ensuring they continue to benefit from tax incentives regardless of whether they operate within special economic zones (SEZs) or outside them.

Previously, compliance with the Philippine Economic Zone Authority (PEZA) regulations, which mandated on-site operations for firms within SEZs, posed difficulties for BPOs.

At the height of the COVID-19 pandemic, the government temporarily relaxed these restrictions, permitting up to 90% of employees to work from home.

In mid-2021, it agreed to permit only 75% of the workforce to operate remotely. In March 2022, following several extensions, PEZA mandated at least 30% on-site presence.

Consequently, in 2023, over 440 firms transitioned from PEZA to the Board of Investments (BOI) to retain their tax incentives.

Under the new law, even BOI-registered firms can continue to enjoy tax benefits as long as no more than 50% of their workforce operates remotely.

The revised policy also lowers the corporate tax rate from 25% to 20%. Additionally, BPO firms can opt for a simplified tax regime, paying a 5% tax on gross income.

Notably, they can also claim a 100% deduction on electricity expenses, further enhancing cost efficiency.