global opportunities bulletin 2nd edition, april 2014 · 2020. 5. 14. · 1 global opportunities...

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Global Opportunities Bulletin

www.morisoninternational.com

2nd Edition, April 2014

Disclaimer: Morison International Limited (MI) is

a global association of independent professional

firms. Professional services are provided by individual

member firms. MI doesnot provide professional

services in its own right. No member firm is liable

for the acts or omissions of any other member

firm arising from its membership of MI. The views

expressed in this newsletter are not those of Morison

International and are not a substitute for professional

advice. Before taking any decision based on the

content of this newsletter readers are advised to

consult their tax advisor. Whilst every endeavour has

been made to ensure the accuracy

of the information contained in

this booklet, no responsibility

is accepted for its accuracy and

completeness.

ContEnts2014 FIFA World Cup Brazil Generates Significant New Business Opportunities .....................................2

Stocks Soar as New Exchange is Launched ............................................4

Hayes Knight Asia Practice Builds Bridges to Beijing and Beyond… ....................................6

Turkey - A Promising Country for Direct Investment ........................7

India Relaxes FDI and Overseas Listing Rules ......................9

The Rising Potential of the BPO Industry in the Philippines ............12

From the Editors’ DeskIt is with great pleasure that we present the second edition of MI’s Global Opportunities Bulletin. The response to our inaugural edition was very positive, and we have taken readers’ requests into consideration when developing this edition.

2014 is FIFA World Cup time and we are delighted to present opportunities available in the host country, Brazil. We also explore some of the business opportunities available in Australia, India, the Philippines and Turkey. The articles provide great insights and are relevant to changes in the respective local and global economies.

The newsletter focuses on:

• Sharing and promoting business opportunities that are available globally

• Sharing the success stories of clients who are leveraging and working with MI members

• Showcasing the specialist skills and knowledge that our member firms can offer to other member firms, to facilitate cross-border opportunities.

As always we thank the contributors for their valuable input.

We trust you will enjoy this newsletter. As we count down to the FIFA World Cup, we hope that our insights might help members to enjoy significant rewards from the opportunities available.

For more information on this newsletter and its contents please contact the editors directly.

Anoosh Rooplal Anoop C. Samuel SizweNtsalubaGobodo – South Africa Morison Menon - UAE [email protected] [email protected]

Morison International is a fast-growing international association of accounting firms. With over 90 members firms, in 65 countries, our global footprint delivers clients the expertise they need, wherever they are.

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mailto:anoop%40morisonmenon.com?subject=

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2014 FIFA World Cup Brazil Generates significant new Business opportunitiesJoão Carlos Castilho Garcia, M/Legate Contadores, Auditores e Consultores, Brazil

The 20th FIFA World Cup (12 June to 13 July 2014) will be hosted by Brazil. This will be the second World Cup to be held

in Brazil (the first time was in 1950), and the fifth to take place in South America.

InfrastructureThe event will drive almost US$ 100 billion into the Brazilian economy. The direct investments planned are:

Hotels US$ 7.3 billionWater supply US$ 7.1 billionAirports US$ 3.9 billionStadiums US$ 3.1 billionEnergy US$ 1.5 billion

The investments, which combine private and public capital, also include improvements to security, hospitals, ports, etc. Much of the funding is supported by loans from the National Bank of Economic and Social Development (BNDES), because the World Cup goes beyond a sport event: it can facilitate social transformation.

Together with the infrastructure investments, the government is launching their plan for a bullet train between the two main cities of the country, São Paulo and Rio de Janeiro – a distance of 400 km. The budget for this project is US$ 6 billion. The technology for the construction will be provided by companies from France, Japan, South Korea and Germany that will operate as a consortium with Brazilian engineering companies.

The state agency of airport management has announced an investment plan of US$ 2.5 billion to remodel and modernise the airports of 10 host cities, each of which expects some six to 14 flights during the tournament, bringing over 500,000 visitors to the country. Most airports in Brazil were built before the end of World War II and several are at saturation point in terms of passengers. Infraero (a Brazilian goverment corporation responsible for operating the main Brazilian commercial airports) has undertaken to ensure that the 67 airports in its network will be in perfect condition to comfortably and safely receive such a high volume of domestic and international passengers. Just over half the money will be spent renovating São Paulo and Rio de Janeiro airports, including work to be carried out by 2014.

The Executive Group of the World Cup 2014 (Gecopa) has published a new consolidated list of work and figures. The forecast is for a total investment of over US$ 10 billion in 101 interventions, including plans for 12 stadiums, 51 urban mobility projects, and improvements to 31 airports and seven ports.

Anti-fraud PlanOn 11 June 2010, the Ministry of Justice (Brazil) and the Ministry of Sports launched a programme to protect against fraud and corruption in the tender process for the preparation work involved in the 2014 World Cup and 2016 Olympic Games. The plan, known as Fair Play, includes a series of advice guidelines for government institutions including tax authorities, and also for ordinary citizens, to be able to identify and denounce fraud attempts in biddings. There will also be a special group to monitor proposals for potential fraud and minimise construction delays.

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tax IncentivesOn 17 May 2010, the federal government announced that it would grant tax incentives for the construction and remodelling of stadiums for the 2014 World Cup. The Ministry of Treasury declared that World Cup stadiums would not be required to pay tax on industrialised products (IPI), import tax (II), or social contributions (PIS/COFINS).

In addition, the 12 cities that will host the World Cup matches should be able to waive the tax on circulation of goods and services (ICMS) on all operations involving merchandise and other goods for the construction or refurbishment of the stadiums.

In September 2013, the BNDES opened a line of credit of US$ 1 billion for World Cup stadiums. Each host city will be able to use these resources to finance up to US$ 180 million, or 75%, of the project.

stadiumsAltogether, 12 cities (all state capitals) will host World Cup matches. Usually, FIFA limits the number of host cities between eight and 10; however, given the continental dimension of the host country, the organisation accepted CBF (the Brazilian Football Confederation (Confederação Brasileira de Futebol)), requests and gave permission to have 12 host cities in the World Cup.

City Population (in millions)

stadium capacity (in thousands)

Belo Horizonte 2.5 57Brasília 2.8 68

Cuiabá 0.5 43

Curitiba 1.8 41Fortaleza 2.6 59Manaus 1.8 42Natal 0.8 42Porto Alegre 1.4 49Recife 1.5 43Rio de Janeiro 6.4 74Salvador 2.7 52São Paulo 11.8 66

opportunities for MI membersWith the increase of new businesses related to the World Cup, many branches of foreign companies are setting up in Brazil to take advantage of the opportunities to do direct business or to act as suppliers to keep up with their customers.

Many Morison International (MI) members’ clients will fall into this group and therefore MI members should actively identify these clients, in order to support them through the accounting, tax, human resources and auditing operations.

the next step: For more information on this article and opportunities in Brazil, contact: João Carlos Castilho Garcia – [email protected]

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stocks soar as new Exchange is LaunchedContributed by Hayes Knight Melbourne, Australia (source: http://www.apx.com.au)

The first listing for the Asia Pacific Stock Exchange (APX) enjoyed a stellar debut day of trade on 6 March 2014 with Chinese health and diet products company, Australia Samly Holdings Group, jumping 10%, while e-commerce logistics group ZhongHuanYun faring even better, adding 18.4%.

The APX is a securities exchange in Australia with a market licence granted by the Australian Securities & Investments Commission (ASIC). APX provides opportunities for growth-oriented companies to raise the capital they need for expansion from a diversified range of domestic and international investors, especially from the Asia-Pacific region. APX offers Chinese market participants an alternative listing venue to the Shanghai and Shenzhen stock exchanges in China.

As a securities exchange, APX provides ‘listing’ facilities to companies and securities issuers as well as ‘trading’ facilities for stockbrokers, traders and investors to buy and sell shares/securities. The securities that can be traded on APX include shares issued by companies; units issued by trusts, and other pooled investment products; and fixed interest instruments, such as bonds.

As a securities exchange licensed by ASIC, some of the main commercial roles of APX include:

• Creating capital-raising opportunities for corporates by providing companies with the facility to raise capital for expansion through selling shares to the investing public

• Creating investment opportunities for investors. As opposed to other businesses that require huge capital outlay, investing in shares is open to both large and small stock investors who simply buy the number of shares they can afford. Thus the APX allows both small and large investors to own shares in companies of their choice

• Facilitating company growth. Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase their market share or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion

• Mobilising capital for investments. When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds that could have been consumed, or kept in idle deposits with banks, are mobilised and redirected to promote business activities with benefits for several economic sectors (such as agriculture, commerce and industry), resulting in stronger economic growth and higher productivity level

• oversees corporate governance. By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency to meet the varying demands of these shareholders, as well as satisfying the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is theorised that public companies tend to have better management records and general corporate governance than privately-held companies.

APX is seeking to differentiate itself from other exchanges in a number of ways. These include:

• Access to Asian (especially Chinese) capital – opening up new markets

• Attracting large number of investors from Asia (especially in Greater China) to trade on the APX market

• Raising capital in Australia and Asia (especially in Greater China)

http://www.apx.com.au

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• Specifically targeting growth companies

• Adopting a multilingual approach (starting with English and Chinese) in the trading and information platform, as well as in customer services

• Advanced web-based trading system, providing real-time prices, that is both easy to use and highly accessible to all market participants

• A multicultural team of executives who have a strong understanding of the workings of both Chinese and Western financial and capital markets

• High level of market transparency and high quality of services

• Flexibility in its listing rules (while maintaining a high level of accountability and rigour)

• Focusing on fundamentals (e.g. no short selling)

• Competitive listing fees.

the next step: For more information on this article, contact: Richard Cen – [email protected]

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Hayes Knight Asia Practice Builds Bridges to Beijing and Beyond…Richard Cen, Hayes Knight Melbourne, Australia

The launch of the APX is a well-timed move that benefits not just Chinese companies but the whole of Asia, by creating a separate market that reflects

the characteristic style and pace of Asian business. It has the additional benefit of reducing the impact of any governance issues in China, which have jeopardised valuations in the past.

Hayes Knight is a large accounting firm represented by nine offices located in Australian capital cities and in Auckland, New Zealand. Collectively, the group has 45 directors and over 300 team members providing high-quality services to listed companies, Australian subsidiaries of multinational companies, large private companies and not-for-profit organisations in a diversified range of industries.

Hayes Knight Asia Practice is headquartered in Melbourne and is privileged to be the only accounting firm in Melbourne that is licensed to be a sponsor for the APX, helping clients who wish to capture opportunities in the, “Asian Century.” Our mission is to provide highly professional, tailored solutions to our clients on cross-border transactions and to become the most trusted business partner of their business to secure long-term success and growth in Australia and overseas.

All our specialists have gained vast experience from international accounting firms, top-tier banks and large Australia mining companies, as well as the Australian Taxation Office. This multinational experience enables us to provide a full range of high-quality professional services in the client’s own language without compromising our intimate local knowledge and insight.

Hayes Knight Asia Practice has associated firms in China, Hong Kong, Singapore and other major Asian countries. Our associated firm in China has more than 1,000 employees. Headquartered in Beijing with local branches covering all major Chinese economic regions (including Yangtze River Delta, Pearl River Delta, Bring-Bohai Region) and booming mid-west inland cities, services include:

• Cross-border transactions support

• Corporate finance

• Project finance

• Statutory audit service

• Complex tax planning

• Company secretary service

• Private wealth service

• 188 Visa recipient support services.

the next step: For more information on this article and opportunities in Australia, contact: Richard Cen – [email protected]

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turkey - A Promising Country for Direct InvestmentMustafa Bilgener, Bilgener CPA Ltd., Turkey

Turkey’s largely free-market economy is increasingly driven by its industry and service sectors. The private sector is expanding rapidly;

an improving regulatory environment and open-market policies support global trade and investment to sustain overall competitiveness. The banking sector has weathered financial turmoil relatively well with little government intervention. A privatisation programme has reduced state involvement in basic industry, banking, transport and communication sectors. Middle-class entrepreneurs continue to add dynamism to the economy by expanding production beyond traditional textiles and clothing sectors. The automotive, construction and electronics industries are rising in importance and have surpassed textiles within Turkey’s export mix.

In today’s post-crisis world, Turkey has achieved steady economic growth among other countries. Over the past decade, Turkey’s average annual growth rate is 5%. GDP levels have more than tripled, to US$ 786 billion in 2012 (up from US$ 231 billion in 2002). As a consequence of this steady growth, Turkey is already ranked the EU’s 5th and the world’s 17th largest economy in 2012, according to World Bank GDP figures. Turkey’s growth rate for Q2/2013 was 4.4% – a success that the OECD (Organisation for Economic Co-operation and Development) could not fail to notice, announcing Turkey as a promising economy with a bright future; it is expected to become the fastest-growing economy among OECD members during 2012–17, with an average annual real GDP growth rate of 5.2%.

Foreign direct investment (FDI) has been increasing in line with economic growth, with the number of investment projects more than doubling (to around

390 projects) from 2007 to 2012 and an average annual growth of 27% for this period. Over the same time, the number of companies with foreign capital operating in Turkey significantly increased to about 30,000 from 18,100. According to A. T. Kearney’s FDI Confidence Index, Turkey ranked as the world’s 13th most attractive destination for FDI in 2012.

While economic developments have clearly had a significant impact, the government has also been trying to attract FDI to Turkey by enacting important new policies such as the new Turkish Commercial Code, investment incentive system and reduced tax rates.

The first policy introduced by the government to attract FDI is the new Turkish Commercial Code, designed to achieve a corporate governance approach that meets international standards; to foster private equity and public offering activities; to create transparency in managing operations; and to align the Turkish business environment with EU legislation, as well as for the accession process.

The former Turkish Commercial Code required five shareholders to establish a joint stock company, and two to establish a limited liability company. The new Code allows establishment of both types of company with just one shareholder, thus removing the previous obligation to allow foreign investors to have all shares in a single party.

With the new Code, in compliance with EU legislation, the board of directors can now consist of a single person instead of at least three members; and board meetings can be held ‘virtually’ with board resolutions approved by electronic signature. This reduces unnecessary travel expenses, making it easier for foreign investors to do business.

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The new investment incentives scheme aims to encourage investments with the potential to reduce dependency on the importation of intermediate goods vital to the country’s strategic sectors. The primary objectives of the new scheme are to reduce the current account deficit; boost investment support to less developed regions; increase the level of support instruments; promote clustering activities; and support investments that will create the transfer of technology. The new system is comprised of four different schemes that can be accessed by both local and foreign investors:

• General investment. Supports all projects meeting both the specific capacity conditions and the minimum fixed investment amount, regardless of the region where investment takes place

• Regional investment. The sectors to be supported in each region are determined in accordance with regional potential and the scale of the local economy, while the intensity of supports varies depending on the level of development in the regions

• Large-scale investment. Supports 12 specific investment areas (e.g. petroleum products, chemical products and harbour services) that will potentially foster Turkey’s technology, R&D capacity and competitiveness

• strategic investment. Requires several mandatory criteria to be met: the domestic production capacity for the product to be manufactured with the investment shall be less than the import of the product, and the total import value of the product to be manufactured must be at least US$ 50 million over the past year.

Turkey has one of the most competitive corporate tax rates in the OECD region. Turkish corporate tax legislation now has noticeably clearer, more objective and better-harmonised provisions, which are in line with international standards. In Turkey, the basic corporate income tax rate levied on business profits is reduced to 20%. Both local and foreign investors are equally subject to law. International business taxation and transfer pricing is very significant not only for companies, but also for the Turkish government, which has shaped transfer pricing according to OECD guidelines.

Turkey welcomes FDIs with realistic multiples and valuation levels. Not only is current legislation advantageous for FDIs, but many multinational companies feel at home in Turkey, because of the presence of so many international subsidiaries, that the available services are similar to those in other countries. For more information, please visit official Bilgener CPA’s website, www.doingbusinessinturkey.com.

the next step: For more information on this article and opportunities in Turkey, contact: Mustafa Bilgener – [email protected]

http://www.doingbusinessinturkey.com

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India Relaxes FDI and overseas Listing RulesPadmini Khare Kaicker, B.K.Khare & Co., India

As we all know India is the “I” of the “BRICS” countries and has received a lot of attention for its growth potential, which is taking its time to be realised

due to India’s noisy democracy and not-so-fleet-footed government.

While sustainability of the growth of other BRICS countries is being challenged, India, being the second most populous country on the planet, is believed to have the ability to generate sustained growth for the next few decades due to its favourable demographics, vibrant democracy, an established framework of laws and regulations and English-speaking capability of its people – all of which make it easy for companies to do business in India.

Notwithstanding, the limited initiatives by various government agencies have taken certain initiatives within their ambit which, while not revolutionary, may nevertheless have a significant impact. We discuss two such initiatives taken by India’s central bank, the Reserve Bank of India (RBI).

Foreign Direct Investment in RetailThe retail industry in India is unusual in that no large retail chains have evolved in India. Many Indians prefer the convenience and personalised service of buying from local merchants. However, this requires layers of ‘middle men’, resulting in low prices to the producers and higher prices to the consumer.

The last decade, however, has seen the emergence of retail chains by the Future group (Big Bazaar brand), including the Tatas, Reliance and the Mahindra group – mainly in the electronics and apparel sector.

Although it is too early to judge the success of large-format retail versus the existing set-up in the country, smaller retailers certainly feel the threat from the big retail chains – especially with the demand for the big foreign players (such as TESCO, Carrefour and Wal-Mart) to be allowed to set up shop in the country.

There has been a large and vociferous debate about large-format retail and allowing foreign players to enter the country. The government has recently opened up the retail sector to foreign investment, and the policy initiatives for foreign direct investment (FDI) can be divided into two broad categories: single-brand and multi-brand retail. The key regulatory requirements and/or implications of each are summarised below:

single-brand Retail

• Extent of FDI allowed:

• 100% with government approval

• Relaxed to 49% under the automatic route with effect from 22 August 2013

• Products to be sold under a single brand only – any additional brands, including of the same group, would require additional approval

• Products should be sold under the same brand internationally

• Covers only products branded at the manufacturing stage

• Only one foreign entity permitted to undertake retail through a legally binding agreement with the brand owner – may have some implications for structuring the investment in India

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• In case of FDI beyond 51%, at least 30% of the value of goods purchased to be from India – preferably from medium and small enterprises, village and cottage industries, artisans and craftsmen

• Retailing via e-commerce is not permitted – relevant since e-commerce is a fast-growing segment for retailers worldwide.

IKEA was the first company to obtain permission for its single-brand venture, and in addition to the guidelines faced challenges in the format of its stores; for example, it had difficulties in opening its in-store cafés (the format for its stores worldwide), as this activity is not covered by the retail policy.

Multi-brand Retail

• Extent of FDI allowed is 51% with government approval

• Food and agricultural items sold can be unbranded

• Minimum investment to be brought in as FDI would be US$ 100 million, of which at least 50% is to be invested in in ‘back-end infrastructure’ (capital expenditure for manufacturing, processing, etc.). Application of this rule (e.g. if more than US$ 100 million is brought in either upfront or subsequently, depending on whether back-end investment increases beyond the US$ 50 million) may be subject to further clarification or interpretation

• At least 30% of the value of goods purchased to be from Indian ‘small industries’ (i.e., entities with a total investment in plant and machinery of US$ 1 million – amended to US$ 2 million from 22 August 2013)

• Retail outlets may be set up only in cities with a population of 1 million. Respective state governments may allow outlets to be set up in other cities (see also discussion below)

• Retailing via e-commerce not permitted.

The multi-brand retail policy is further subject to approval of the states/union territories; the policy document of the RBI describes it as ‘an enabling policy only’, adding that ‘the State Governments/Union Territories would be free to take their own decisions in regard to implementation of the policy’.

So far, only 10 Indian states/union territories in India have undertaken to implement this policy; some important states – Gujarat, Madhya Pradesh and Uttar Pradesh – are not yet on board.

Relaxation of norms by the RBI Allowing Companies in India to List in overseas Markets

The RBI has issued an amendment to its scheme for the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through the Depository Receipt Mechanism) Scheme, 1993 by Indian companies.

Under the existing rules, Indian companies planning to raise funds in international capital markets were required either to be listed in India or to have a simultaneous listing in the Indian market. The RBI has now decided to allow unlisted Indian companies to raise capital in international markets without the requirement of a prior or simultaneous listing in India. This window is being offered initially for a period of 2 years, following which a review would evaluate the possibility of extending the term.

This window presents various Indian companies, especially small and medium enterprises, to tap overseas capital markets without the cost and effort of a local listing. This presents many benefits to Indian companies, such as:

• Indian markets are not as deep and evolved as certain overseas markets, which may have a critical mass of potential investors with very focused investment objectives – e.g. the Alternative Investment Market (AIM) segment of the London Stock Exchange (LSE) is known to be a market for more risky types of investments and industries; the Singapore Stock

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Exchange (SGX) has been attractive to real estate (especially commercial real estate generating lease rental income) and shipping companies

• Foreign investors can invest directly in Indian markets without setting up entities in India

• A dual listing locally and abroad can increase issue size beyond what is required by the Indian company

• Indian companies can directly tap equity investors who have a long-term perspective, instead of private equity or other investments that may require them to provide an exit route for these entities.

These benefits, however, may come with greater transparency and disclosure that may be required by investors in overseas markets and may also require companies to install greater levels of governance.

In summary, as Mr Raghuram Rajan, currently Governor of the RBI and Professor of Finance at the University of Chicago’s Graduate School of Business, states in A Hundred Small Steps (a report of the Committee on Financial Sector Reforms commissioned by the Planning Commission of India):

‘Instead of focussing primarily on a few large and usually politically controversial steps, we also need to take a hundred small steps in the same direction that will collectively take us very far’. Please refer to page 3 of the report which can be found at: http://www.planningcommission.nic.in/reports/genrep/index.php?repts=report_fr.htm.

For the reasons already articulated (population size, continued favourable demographics, a democratic set-up and established laws and regulations), India is not a

market that can be ignored, although doing business in India does require awareness of the complexities of policymaking and working around current legislation.

the next step: For more information on this article and opportunities in India, contact: Padmini Khare Kaicker [email protected]

Morison International (MI) Case study: Assistance to thermax Ltd in a Foreign Due Diligence

We (B.K.Khare & Co.) recently assisted one of our clients, Thermax Ltd – an Indian energy and environment engineering company with operations in the UK, USA, Brazil and China – in conducting a due diligence on one of its European suppliers.

The enquiry was conducted by MHA MacIntyre Hudson, a member firm of MI in the UK. This case demonstrates how members of MI can work together successfully and serve clients globally.

http://www.planningcommission.nic.in/reports/genrep/index.php?repts=report_fr.htm

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the Rising Potential of the BPo Industry in the PhilippinesCharlemagne Paul M. Molina, Villaruz, Villaruz & Co., CPAs, Philippines

2001 marked a new dawn for the emergence of the business process outsourcing (BPO) industry in the Philippines. Having gradually gained

momentum, it has snowballed to become one of the fastest-growing industries in the Philippines, contributing almost 11% of the country’s GDP in 2013 – second only to remittances from overseas Filipino worker (OFW). The World Bank expects future endeavours in this field to increase employment in the sector to as much as 2 million by 2020; but with current employment trends this target is likely to be reached before the end of 2019.

In a nutshell, BPO is contracting the services of a third-party firm to provide non-core activities for their customers, to the highest industry standards. Handing over the reins of responsibility to third parties can be tricky: both customers and stakeholders can lose faith in the company if BPO partners do not follow the core principles and values of the client’s company. Even if these outsourced services are non-core activities, a shared commitment to quality is absolutely crucial. Within this framework, the Philippines can offer considerable advantages.

Why the Philippines?Given its richly varied cultural background, the Philippine population has a high level of cultural sensitivity acquired over many generations. Being adept in interpersonal skills such as politeness, hospitality, patience, and above all empathy, they are well suited to providing high-quality customer service.

Filipinos are happy, hard-working people who understand their role within the team and treat their

colleagues with friendly respect. They tackle daunting challenges with humour, finding creative solutions. This combination of skills and resilience encourages investors to seek BPO engagements in the Philippines – one of the top BPO countries in the world.

Emerging trends ProjectedDecember 2013 saw the release of Tholons’ latest survey of the Top 100 Outsourcing Destinations (see www.tholons.com/nl_pdf/Whitepaper_December_2013.pdf ). This included seven Philippine cities, with Manila (NCR) beating Mumbai to second place.

BPO facilities in the Philippines are divided into three tiers. Tier-I is located in the Metro Manila (NCR) and Metro Cebu, while Tier-II and Tier-III locations are in regional economic zones in cities such as Bacolod, Baguio, Cagayan de Oro, Angeles, Dagupan, Davao, Tacloban, Dumaguete, Lipa, Iloilo, Legazpi, Iligan, Olongapo and Urdaneta.

Tholons acknowledges the continuous collaborative efforts of national and local government, together with the Information Technology and Business Process Association of the Philippines (IBPAP), in developing the Tier-II locations included in the list. Local telecom companies and business processing associations are joining forces to help expand the country’s BPO industry, which the IBPAP expects to generate US$ 25 billion in revenue and 1.3 million in employment by 2016. This seems a realistic target, given the rapid growth of the sustainable industry: 2013 ended with US$ 15.5 billion in revenues and 900,000 currently in employment, as compared to US$ 1.5 billion in revenues and 100,500 in employment 9 years ago (Figures 1 and 2).

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Some years have seen a sharp decrease in the trend, but the results are commendable considering the Global Financial Crisis in 2007-08. Now that the Philippines has gained worldwide recognition as a BPO source, the trend is expected to climb faster than in previous years.

The submarine Southeast Asia-Japan Cable (SJC) system, launched in 2013 to link Brunei, Japan, Mainland China, Hong Kong, Singapore, and potentially Thailand, will surely boost the Philippines’ connectivity to the region, facilitating operations and reducing costs for BPO firms

Figure 2. Employment (thousands).

Figure 1. BPO revenues (US$ millions).

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in the country. The highly advanced SJC is believed to be the fastest in the world, transmitting 28 Terabits per second (imagine 3 million HD videos streaming all at once!). With this in place, the Philippines looks set to bloom into one of the most important IT hubs in Southeast Asia.

opportunities and Benefits Investing in the Philippines is encouraged by laws that offer tax incentives as well as protecting investors. The Omnibus Investment Code of 1987 provides considerable leeway for foreign investors to set up shop in the Philippines, giving them rights to operate in peaceful perpetuity, and enjoying benefits that are similar to those enjoyed by local firms in the country – including:

• Income tax holidays (ITH), available for 6 years to pioneer investment firms and for 4 years to their non-pioneer counterparts. Subject to certain conditions, these periods can be further extended for up to 8 years

• If the BPO firm meets the prescribed ratio of direct labour workers and capital equipment set by the Board of Investments (BOI), then taxable income can be reduced by up to 50% of the wages incurred, as an additional deduction for labour expenses, for 5 years from registration

• For 5 years from registration, BPO firms can enjoy up to 100% tax-free importation of capital equipment, including spare parts in the case of unforeseen breakdowns during start-up

• If the firm buys capital equipment locally instead of importing it, they can still claim the tax credit arising from the amount of taxes and levies it would take to get the same through importation, provided that they are following the application for the claim stated in the provisions by the BOI.

The law also simplifies importation, by introducing a specialised customs procedure that enables fast delivery of resources to aid the growth of the registered firm – such as capital equipment, supplies, raw materials, and spare parts.

Firms that choose to locate within the Philippine Ecozone can opt to register with the Philippines Economic Zone Authority (PEZA) and enjoy the extra benefits of the Special Economic Zone Act: as their ITH expires, the firm will be exempted from national and local taxes levied within the Ecozone and liable for just 5% on gross revenue, instead of the normal corporate tax rate. In this case, 3% will go to the national government and the rest direct to the treasurer of the local municipality or city.

In summaryThe global BPO trend is growing worldwide, with the Philippines firmly establishing its reputation in this rewarding industry. Based on current trends, the next couple of decades should see the Philippines become Southeast Asia’s top BPO hub, perhaps even taking the lead in global rankings.

With the government now taking measures to curb corruption, and the increase in economic growth as forecasted by the World Bank, the inexorable growth of the IT-BPO industry in the Philippines looks set to continue. Anyone taking advantage of the current favourable conditions for investment will undoubtedly reap significant rewards in the coming years. As Eric Schmidt, CEO of Google, once said, ‘If you’re offered a seat on a rocket ship, get on! Don’t ask what seat!’

the next step: For more information on this article and opportunities in the Philippines, contact: Charlemagne Paul M. Molina [email protected]

global opportunities bulletin 2nd edition, april 2014 · 2020. 5. 14. · 1 global opportunities...

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