By: Bounteous M. Servito
Aimed to foster inclusive growth, create new jobs and opportunities, improve production, and advance innovation and trade in the country, entrepreneurs welcomed the Innovative Startup Act (RA 11337) with open arms when it was signed into law on April 26, 2019.
The Philippine Start-up Development Plan under the Act is composed of programs, benefits, and incentives for start-ups and start-up enablers to be led by host agencies — the Department of Science and Technology (DOST), the Department of Trade and Industry (DTI), and the Department of Information and Communications Technology (DICT).
On November 22, 2019, the Secretaries of DTI, DOST, and DICT finally approved and signed RA 11337’s Implementing Rules and Regulations (IRR). Below are some of the salient features of the IRR:
- The scope of the words “Innovation”, “Research and Development”, “Startup”, and “Startup enabler”
The IRR clarified certain concepts to let the beneficiaries how they can avail of the law’s incentives.
While “Innovation” is defined under RA 11337 as the creation of new ideas that results to the development of new or improved products, processes, or services which are then spread, transferred or commercialized, the IRR further clarified that to fall under the concept, the product, process, or service must create social, economic, or environmental impact.
The IRR also enumerated the activities that are considered as “Research and Development” such as fundamental or basic research, applied research, experimental development, and pilot testing —all considered as creative work undertaken on a systemic basis aimed to increase the stock of knowledge.
The concept of “startup” is defined under RA 11337 as any person or registered entity in the Philippines which aims to develop an innovative product, process, or business model. “Person” under this definition is clarified in the IRR as a natural person who is a Filipino citizen or foreign national, while “entity” is a juridical person registered in the Philippines, including but not limited to a sole proprietor, company, partnership, joint venture, cooperative, or association.
Finally, the concept of a “startup enabler” was further explained under the IRR to include startup accelerators, incubators, co-working spaces, investors, funders, event or meet-up organizers catered to startups, and other support organizations.
- Philippine Startup Development Program
To eliminate ambiguity as to when one could avail of the benefits under RA 11337, the IRR explained that the Philippine Startup Development Program shall support startups from the ideation, product development, marketing, and expansion. As lead or host agencies tasked to assess, monitor, develop, and expand the Program, the DOST, DICT, and DTI are also given the mandate under the IRR to constitute a Steering Committee for implementation of the IRR and management of the Program.
The IRR emphasizes coordination and consultation of the host agencies with other governmental agencies and even concerned startups and startup enablers.
To develop and amend policies and regulations, the IRR provides that consultations must be made with several agencies and departments of the government such as the Bureau of Internal Revenue (BIR), the Commission on Audit (COA), Department of Budget and Management (DBM), Securities and Exchange Commission (SEC), and the Anti-Red Tape Authority (ARTA). Furthermore, the host agencies are tasked to promulgate the appropriate policies and guidelines for the coordinated implementation of the Program through joint orders, memoranda of understanding, and other similar issuances. In the formulation of future regulatory policies and plans, host agencies are mandated to consult with startups, startup enablers, and other concerned national and local government agencies.
Lastly, the IRR has added a section enumerating the specific roles and responsibilities of the host agencies. They are expressly given the responsibility to promulgate rules for the efficient registration and assessment of startup enablers, keep a joint database of all programs, startups, and startup enablers who have availed of the incentives, and provide a venue for ease of starting businesses by establishing a one-stop shop (the Start-up Business One-Stop Shop, or Start-up BOSS).
- Registration and Operational Benefits and Incentives
The IRR reiterated the benefits provided by RA 11337 such as full or partial subsidy for registration, endorsement of host agencies for prioritized processing with other government agencies, subsidy for the use of facilities, spaces, equipment of the government, subsidy for the use of the repurposed government spaces and facilities of host agencies, and Grants-in-aid (GIA) for research, development, training, and expansion projects.
Also, the IRR included two new significant benefits — first, the host agencies now can endorse the beneficiaries to the Intellectual Property Office of the Philippines (IPOPHL) for assistance and expedited registration and protection. Second, the host agencies can also endorse the beneficiaries to the Department of Foreign Affairs (DFA) for the expedited processing of appropriate visas.
- Philippine Startup Ecozones, Startup Grant Fund, Startup Venture Fund, and Startup Visas
In addition to the benefits mentioned, a significant feature of RA 11337 is the creation and promotion of the Philippine Start-up Ecozones by the Philippine Economic Zone Authority (PEZA), in consultation and coordination with the host agencies. Beneficiaries of the law are entitled to tax breaks, benefits, and incentives normally accorded to ecozones.
Another significant feature, as reiterated in the IRR, is the creation of the Startup Grant Fund (SGF) which is under the host agencies. Each agency is mandated to use its respective SGF to provide initial and supplemental GIA for startups and startup enablers. The agencies are expressly tasked to closely coordinate and implement guidelines to discourage forum shopping and duplication. The IRR also emphasized the Startup Venture Fund (SVF) which is under DTI, in coordination with the National Development Company (NDC), to match investment by selected investors in startups based in the Philippines.
Startup visas are also created to entice and encourage foreign entities to own or invest in Philippine startups. RA 11337 has enumerated 3 types which are (a) Startup owner visas for prospective or current foreign owner of startup or startup enabler, (b) Startup employee visas for foreign employees of a startup or startup enabler; and (c) Startup investor visa for prospective or current foreign investor of a startup or startup enabler.
In the IRR, an application for the visas shall require an endorsement from a host agency which may be conditional to proof of investment in the Philippines. Also, the visas shall have an initial five (5) year validity and may be renewed or extended for another three (3) years.
Notably, RA 11337 and its IRR provide for an APEC Business Travel Card (ABTC) which bona fide Filipino executives of qualified start-ups are eligible to apply for, to eliminate the need for a visa when visiting other APEC participating economies.
- Capacity Building and the Accountability of Beneficiaries
The IRR included 2 new chapters concerning capacity building and accountability of the beneficiaries.
In capacity-building, the PEZA, Investment Promotion Agencies (IPAs), and Board of Investments (BOI) are tasked to assist the host agencies in training their respective personnel assigned to assist startups and startup enablers. The IPOPHL, on the other hand, shall be responsible for information, education, and promotional activities related to intellectual property.
The IRR also provided for the responsibilities of the beneficiaries such as providing reports on performance, outputs, or milestones as may be required by host agencies or as stipulated in the guidelines issued by the Steering Committee, submitting appropriate accounting and liquidation requirements following auditing rules and regulations, and observing proper conduct during the start-up events and the laws of the place and/or country where the event or competition is held, and complying with the guidelines as provided under RA 11337 and the IRR.
Lastly, the host agency is mandated to suspend or terminate the benefits and incentives granted to beneficiaries in cases of non-performance of responsibilities enumerated in RA 11337, its IRR, guidelines, and other relevant rules and regulations.