Republic of the Philippines
House of Representatives
Quezon City

SEVENTEENTH CONGRESS

Second Regular Session

House Bill No. 2 80 3

EXPLANATORY NOTE

In our constant quest to find a solution to poverty and elevate the lives of
our countrymen, it is important to support innovative businesses and small to
medium enterprises that create new jobs and promote trade in the country.

This bill seeks to encourage the creation of small businesses and start-up
ventures by providing incentives that are crucial to the institution, expansion
and strengthening of such. It likewise seeks to eliminate the unnecessary
constraints trade players need to hurdle to establish new companies.

The previous Congresses passed bills in support of small businesses like
the “Go Negosyo Law” and the “Microfinance NGO Act”. Unlike these laws which
targeted to spur the growth of small to medium enterprises, this bill shifts the
focus on innovative start-up companies struggling to enter the Philippine
market. By providing incentives such as exemption and waiver of registration
and other fees, tax breaks, visa privileges and a support service program under
multiple coordinating agencies, it is envisioned that this bill will pave the way for
a strong entrepreneurial environment and strong business growth and
development.

A similar bill entitled the “Innovative Startup Act” has been filed and
approved by the Senate this 17% Congress. This representation’s version of the
bill follows the Senate version with additional changes. Through the passage of
this bill, it is hoped that the business climate in the Philippines- particularly that
of start-up micro, small and medium enterprises - will vastly improve, with the
end goal ofa flourishing economy for all Filipinos.

Support for this bill is therefore earnestly sought.

UE S. GARCIA III
Province of Bataan


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Republic of the Philippines
House of Representatives
Quezon City
SEVENTEENTH CONGRESS

Second Regular Session

House Bill No. 1803

AN ACT PROVIDING BENEFITS AND PROGRAMS TO STRENGTHEN,
PROMOTE, AND DEVELOP THE PHILIPPINE START-UP ECOSYSTEM AND
APPROPRIATING FUNDS THEREFOR

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled:

ARTICLE I. GENERAL PROVISIONS

SECTION 1. Short Title. - This Act shall be known as the "Innovative
Start-up Business Act.”

SECTION 2. Declaration of Policy. - It is hereby declared the policy of the
State to foster national development and promote inclusive growth through an
innovative economy by streamlining government and non-government
initiatives, in both local and international spheres, to create new jobs and
opportunities, improve production, and advance innovation and trade in the
country.

To this end, the State shall provide incentives and remove constraints
aimed at encouraging the establishment and operation of innovative new
businesses, and businesses crucial to their growth and expansion, and to
strengthen, promote, and develop an ecosystem of businesses and government
and non-government institutions that foster an innovative entrepreneurial
culture in the Philippines.

SECTION 3. Definition of Terms. - As used in this Act, the following
terms shall mean:

(a) Business Operation - period that shall commence from the date the
Authority to Print Invoices/Receipts from BIR has been claimed by the owners of


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the enterprise or their representative, and shall terminate upon the closure of
the enterprise;

(b) Core Business Function - the primary undertaking of the enterprise as
its main source of revenue, in the case of the corporations it shall be that
indicated in its articles of incorporation;

(©) End User - the consumer of the product or service offered by the
enterprise whether for free or for a fee;

(d) Host Agency - the Department of Science and Technology (DOST),
Department of Trade and Industry (DTI), Department of Information and
Communications Technology (DICT) or other national government agency or
public academic institution that provide benefits and incentives to innovative
start-ups as defined in this Act subject to an application or selection process;

(e) Innovative Start-up - a registered business entity in the Philippines
operating for no longer than sixty (60) months from the commencement of their
business operation whose core business function involves product, process,
service, or business model innovation driven by, but not limited to technology or
intellectual property; Provided, That:

i. the innovative product, process, or business model is the primary
source of revenue of the business entity;

ii, the business entity is not a mere end user of the innovative product,
process, or business model;

the cost of the business entity for research and development is at least
fifteen percent (15%) of its total operational cost, or is a licensee or owner of a
patent or registered software;

iv, the gross annual revenue of the business entity has not exceeded fifty
million pesos (PHP 50,000,000.)

v. itis not an affiliate, subsidiary, or franchisee of an enterprise with gross
annual revenue of more than fifty million pesos (PHP 50,000,000.00); and

vi. it is a duly-registered business in the Philippines whether the nature is
that of a sole proprietorship, cooperative, partnership, or corporation.

Provided, That the applicable benefits to business entities provided in this
‘Act shall only apply after their successful registration as a business entity and the
actual commencement of their business operations.

(f) Innovative Product - a good or service that is new or significantly
improved, such as improvements in technical specifications, component


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materials, software in the product, user friendliness or other functional
characteristics;

(g) Innovative Process - a new or significantly improved production or
delivery method through changes in techniques, equipment and/or software;

(h) Innovative Business Model - a new organizational method in business
practices, workplace organization or external relations;

(i) Research and Development Cost - the expenditure of the enterprise as a
fraction of its total operational cost that shall include the salary of the employees
engaged in research and development, purchase or lease of equipment, software,
substances or materials, and such other items and goods and services that may
be justified for the purposes of the development of the innovative good, service,
process, or business model of the enterprise;

(i) Support Service Provider - Any business entity that provides goods or
services that are identified to be crucial in supporting the operation and growth
of innovative start-ups, or enterprises whose core business function, which in
the case of corporations, are indicated in their articles of incorporation, involves
the targeted or exclusive provision of goods and services to innovative start-ups.

SECTION 4. Innovative Start-up Development Program. - There is
hereby created an Innovative Start-up Development Program hereinafter
referred to as the "Program". Under the Program, an Innovative Start-up or
Support Service Provider as defined under Section 3 of this Act shall be provided
with benefits and incentives from the Department of Science and Technology
(DOST), Department of Information and Communications Technology (DICT),
and/or the Department of Trade and Industry (DTI) through their respective
programs.

SECTION 5. Program Objectives. - The Program shall aim to achieve the
following:

(a) Support the research and development of Innovative Start-ups and
Support Services in the Philippines;

(b) Support and promote the access of an Innovative Start-up to locally
and internationally offered programs for Innovative Start-ups;

(©) Support and promote the participation of Innovative Start-ups in
international competitions;

(d) Support the participation of Innovative Start-ups in events that aim to
link them to potential investors, mentors, and collaborators;


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(¢) Support the collaboration of an Innovative Start-up with a national
government agency, public or private academic institution, or industry partner
to develop innovative products, processes, or business model that may be
integrated in programs, projects, or delivery of public services by the host
national agency;

(f) Support the development and growth of enterprises whose products
and services are integral to building a competitive innovative start-up ecosystem
in the Philippines;

(g) Develop and amend policy and regulations to remove undue
restrictions in the development, establishment, and growth of Innovative Start-
ups by facilitating consultation with pertinent national government agencies.

ARTICLE II. PROGRAM BENEFITS AND INCENTIVES

SECTION 6. General Benefits and Incentives. - Innovative Start-ups and
Support Service Providers selected by DOST, DTI, and DICT under their own
respective application or selection processes shall be entitled to the following
benefits:

(a) Registration benefits which may be provided through either:

i, Waived fees in the application and processing of permits and
certificates required for the business registration and operation of the enterprise
with the appropriate registering agency;

ii, Refund from the national government agency equivalent to the
sum of fees and taxes levied by local government units and national government
agencies for the permits and certificates, and their corresponding prerequisite or
supporting documents for its registration and operation. Provided, That
Innovative Start-ups and Support Service Providers shall only be entitled to this
benefit once from any national government agency unless fees and taxes levied
applied for refunding has not been refunded by any government agency; and

iii. Expedited processing of permits and certificates, and their
corresponding requisite documents required for the registration and operation
of the Innovative Start-up or Support Service Provider;

(b) Grants-in-Aid for research, development, and expansion projects to be
provided and approved by the Secretary of the granting agency. Provided, That
the host agency may facilitate the application of the Innovative Start-up or
Support Service Provider to provide initial or supplemental grants-in-aid from
another government agency subject to its established guidelines;


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(c) Exemption from fees and charges levied by the national government
agencies for the use of equipment, facilities, or services availed by the innovative
startup such as, but not limited to, the use of testing and fabrication facilities;

(d) Access to applicable benefits and incentives provided by Intellectual
Property of the Philippines; and

(e) Subsidy for Visa application, renewal, or extension of foreign owners,
employees, and/or investors of an innovative startup and support service
provider, and exemption from the alien employment permit.

SECTION 7. Benefits for Participation in Local and International
Start-up Events, - Innovative Start-ups and Support Service Providers selected
by the host agency for reasons that include participation in local and
international start-up events shall be entitled to the following benefits
chargeable to the available funds of the host agency:

(a) Agency endorsement and facilitation support in the application of
passport and/or visa;

(b) Subsidy or reimbursement of fees and charges incurred in the
application of the passport or visa;

(c) Subsidy or reimbursement of excess baggage allowance when the need
is justified and subject to the approval of the host government agency;

(d) Fully subsidized round trip airfare/s for the representatives of an
Innovative Start-up or Support Service Provider participating in local or
international program or event; Provided, That the host agency may set
limitations on the number of representatives that it will subsidize; and

(e) Tax exempt daily allowance for representatives of an Innovative Start-
up or Support Service Provider participating in a local or international event.
Provided, That the host agency may set limitations on the number of
representatives provided the allowance.

SECTION 8. Tax Exemptions. - Innovative Start-ups or Support Service
Providers shall be entitled to the following tax benefits in the commercialization
of the innovative product, process, or business model:

(a) exemption from income tax arising from the operation of the
enterprise;

(b) exemption from Value Added Tax (VAT) for the sale and lease of
goods, properties or services arising in the course of trade or business of the
enterprise or percentage tax;


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(©) exemption from creditable withholding tax on income;
(d) exemption from withholding tax on its income payment;

(e) exemption from income tax on that portion of the gains realized from
the sale, disposition, or transfer of capital assets that corresponds to the portion
of the proceeds of the sale that is invested in new issuances of capital stock
within six (6) months from the date the gains were realized, Provided, (1) That
the said disposition or transfer and the investment of the proceeds thereof have
been registered with the proper government agency; and (2) That the shares of
stock representing the investment are not disposed of, transferred, assigned, or
conveyed for a period of five (5) years from the date the investment was made.

(f) tax exemption on stocks given to employees; and

(g) tax exemption on capital equipment including all machinery,
equipment and spare parts imported within seven (7) years of business
registration; Provided, That (1) said machinery, equipment, and spare parts are
not manufactured domestically nor readily available locally at a reasonable cost
and quantity, (2) are directly and actually needed and will be used exclusively by
the registered enterprise, and (3) are covered by mandatory shipping documents
in the name of the registered enterprise to whom the shipment will be delivered.
The machinery, equipment, and spare parts described herein may not be
transferred, disposed of or sold within five (5) years from the date of acquisition
unless said transfer or disposal shall be (a) to another Innovative Start-up or
Support Service Provider; (2) due to proven technical obsolescence; or (3) for
purposes of replacement to improve and/or expand the business.

SECTION 9. Innovative Start-up Venture Fund. - There is hereby
created an Innovative Start-up Venture Fund, henceforth referred to as the
"Fund," to cover for initial or supplemental grants-in-aid for Innovative Start-ups
and Support Service Providers selected by a host agency. The Fund shall be
administered by DOST.

In the administration of this Fund, the DOST shall:

(a) Determine the technical and prioritization standards, and the
procedure for applications to access grants-in-aid from this Fund;

(b) Ensure that mechanisms for the application for grants-in-aid under
this Fund allow for the maximum utility of the Fund, such as but not limited to,
reopening succeeding rounds of application;

(¢) Relax prioritization standards when the Fund is undersubscribed,
reconsider approval applications denied solely on the basis of such prioritization


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standards, and reopen applications with public notice of such changes in
standards in the application;

(d) Guide applicant Innovative Start-ups, Support Service Providers,
and/or host agencies in developing and improving prospective or denied
applications; and

(e) Promote the availability of the Fund, and the capacity of host agencies
to endorse, and apply for grants-in-aid provided under this provision to support
Innovative Start-ups and Support Service Providers.

ARTICLE III. START-UP VISAS

SECTION 10. Innovative Start-up Visas. - There is hereby created an
Innovative Start-up Visa, henceforth referred to as the "Visa." The Visa shall have
an initial five (5) year validity and may be renewed or extended with a three (3)
year validity.

Bearers of the Visa shall be exempt from securing an Alien Employment
Permit (AEP) issued by the Department of Labor and Employment (DOLE). The
suspension or revocation of the Visa shall, however, terminate the benefit of the
exemption from securing the AEP.

The Bureau of Immigration (Bl) shall promulgate the rules and
regulations consistent with the provisions of this Act in order to enforce this
provision, and shall:

(a) Consult the DOLE and other host agencies in the promulgation of the
rules and regulations for this provision;

(b) Immediately publish and disseminate the requirements, rules, and
regulations on the application for the Visa;

(c) Coordinate the immediate and periodic training of its personnel, and
their counterparts in government agencies and public academic institutions
tasked to process the application for the Visa;

(a) Develop and maintain a database for all the bearers of the Visa, and
ensure public access to such information subject to existing rules and regulations
on Freedom of Information and Data Privacy; and

(e) Reserve the right to deny and revoke applications subject to the
promulgated rules and regulations to implement this provision, and applicable
rules and regulations governing immigration.


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SECTION 11. Visa Eligibility. - The following shall be eligible to apply for
the Visa provided under this Act:

(a) Prospective or current foreign owner of an Innovative Start-up or
Support Service Provider registered in the Philippines;

(b) Prospective or current foreign employee of an Innovative Start-up or
Support Service Provider registered in the Philippines; or

(©) Prospective or current foreign investors of an Innovative Start-up or
‘Support Service Provider registered in the Philippines.

Provided, That the Bl, upon the endorsement of a host agency, may extend
the provision of the Visa to foreign nationals whose presence in the country
contributes in the implementation of the Program, and such other government or
government-supported programs that aim to support the development of
Innovative Start-ups in the Philippines as justified in the endorsement.

SECTION 12. Visa Application. - In addition to standard visa
requirements, the following shall be required in the application of the Visa:

(a) Endorsement of a host agency;

(b) Copy of the terms and conditions on the endorsement for the Visa
application as may be required or agreed with the endorsing host agency; and

(©) Proof of eligibility.

Provided, That in the case of prospective or current foreign investors of an
Innovative Start-up or Support Service Provider registered in the Philippines, the
following shall be required:

(a) Certification under oath of duly authorized officers of any accredited
depository bank in the Philippines as to the amount of foreign exchange inwardly
remitted by the alien applicant, and its conversion to pesos through the said
bank. Provided, That for inward remittances sent through non-accredited
correspondent banks, the total amount of remitted money be immediately
transferred to an accredited bank;

(b) Certified true copy of peso time deposit with a maturity period of at
least thirty (30) days, amounting to at least Two Million Pesos (PHP
2,000,000.00); and

(©) Compliance agreement to invest at least Two Million Pesos (PHP
2,000,000.00) in Innovative Start-ups or Support Service Providers registered in
the Philippines. Provided, further. That the Board of Investments (BOI), in
coordination with the Bl, shall reserve the right to promulgate rules and


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regulations on the investment requirement for the maintenance of the Visa. The
BOI shall also require the periodic reporting of the investments in a manner to be
determined in the implementing rules and regulations of this Act.

Provided, finally, That the Bl shall:

(a) In case spouse and dependent children are included in the
application, require a marriage contract duly authenticated by the Philippine
Consulate or Embassy in the applicant's country, or the embassy of the country
of the applicant in the Philippines;

(b) Levy reasonable fees and charges for the processing of the Visa
application to implement this provision;

(c) When warranted, provide access to existing visas or approve a Visa
with limited validity of less than five (5) years, upon the request and justification
of the endorsing host agency for applicants engaged in short-term programs for
the development of Innovative Start-ups in the Philippines;

(d) Automatically waive fees and charges for the first cumulative five (5)
years of endorsed Visa application/s of an applicant; and

(e) In no case disapprove, suspend, revoke, or delay the release and
approval of any Visa application or renewal on the basis of delayed claim of
payment from, or delayed remittance of payment by, any host agency.

SECTION 13. Roles and Responsibilities of Endorsing Host Agencies. -
An endorsing host agency shall have the following roles and responsibilities:

(a) Facilitate the Visa application in close coordination with the Bl, and
the endorsed applicant;

(b) Disseminate its standards, qualifications, terms, and conditions for its
endorsement of Visa applications;

(©) Ensure that such standards, qualifications, requirements, and
procedures employed to implement this provision are efficient, up to date, and
subjected to periodic consultation with its prospective, current, and former
recipients;

(d) Justify in its endorsement the nature of the participation and
contribution of the applicant in the Program, or in other government or
government-supported programs for the development of Innovative Start-ups in
the Philippines;

(e) Maintain an internal mechanism that shall allow applicants to appeal
or contest the disapproval of requests for endorsement, the revocation of the

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endorsements, based on the standards and requirements that it may impose on
applicants;

(f) In no case deprive endorsement to an applicant on the basis of
unavailability of funds to partially or fully subsidize the application or renewal of
a Visa, and allow the applicant to receive endorsement and shoulder Visa fees
and charges;

(g) When warranted, facilitate the appeal of Visa applications denied, or
Visas revoked, by the Bl, or facilitate the reapplication reflecting necessary
corrections or improvements in endorsed applications and Visa bearers;

(h) Ensure the availability of funds, and its immediate remittance to the
BI, to cover the fees and charges that may be required to process the Visa
application or renewal;

(i) Track and update the eligibility and status of endorsed bearers of the
Visa, and immediately report to the Bl, such grounds for the denial of Visa
application or Visa revocation of applicants it has endorsed; and

(j) Update the database of endorsed bearers of the Visa along with other
endorsing government agency and public academic institutions.

ARTICLE IV. PROGRAM ADMINISTRATION

SECTION 14. General Roles and Responsibilities of the Host Agencies.
- DOST, DTI, DICT and other host agencies shall have the following roles and
responsibilities in the implementation of this Act:

(a) Develop the necessary department policies and guidelines for the
implementation of the Program, and coordinate with the relevant government
agencies for the provision of benefits and incentives for Innovative Start-ups and
Support Service Providers under this Act;

(b) Reassess and adjust their respective current programs based on its
applicability to the needs of prospective Innovative Start-ups and Support
Service Providers that may apply for the benefits and incentives under this Act;

(c) Coordinate their respective programs with other host agencies to
avoid unnecessary overlaps in coverage, and to promote seamless
implementation of complimentary initiatives;

(a) Promote itself as a prospective host agency to interested enterprises
who may qualify as an Innovative Start-up or Support Service Provider;

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(e) Develop and promulgate the efficient rules for its selection and
application process for Innovative Start-ups and Support Service Providers it
wishes to host;

() Ensure the immediate and efficient provision of the benefits provided
under this Act, and such additional benefits and incentives that may be provided
as a host agency; and

(g) Actively participate in startup events and programs by government or
private institutions.

Host agencies shall be prohibited from disqualifying Innovative Start-ups
or Support Service Providers access to general and additional benefits and
incentives under this Act on the basis of nationality.

SECTION 15. Role and Responsibilities of Innovative Start-ups and
Support Service Providers. - Innovative startups and Support Service Providers
shall have the following roles and responsibilities upon its application for the
benefits and incentives provided in this Act, and for additional benefits and
incentives that may be provided by the host agency:

(a) Truthfully disclose information requested by the host agency and/or
other national government agencies starting from the application for
collaboration or the provision of benefits and incentives under this Act;

(b) Ensure compliance with the agreed terms for the provision of the
benefits provided under this Act, and such other additional benefits that may be
provided by the host agency and/or other national government agencies; and

(c) Prepare and update the necessary documentary requirements to
ascertain the eligibility of the enterprise as an Innovative Startup or Support
Service Provider.

SECTION 16. Startup PH Website. - The DICT, in consultation with DTI
and DOST, shall develop and maintain a website that shall serve as the primary
source of information on statistics, events, programs, and benefits for startups
and related enterprises in the Philippines, not limited to those defined under this
Act.

This website shall at least have the following features:

(a) Online database of Innovative Startups and Support Service Providers,
indicating basic information such as business address, founders, contact
information, and funding received; Provided, That this database may also be
expanded to include businesses and project groups assessed by either DICT, DTI,
or DOST to be a startup;

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(b) Online inquiry, registration, application, and release of results for
endorsements, and applications for benefits and incentives provided under this
Act; Provided, That this feature may also be extended to facilitate application for
funding, or participation in programs or events for startups, whether organized
or supported by the government or the private sector;

(c) Statistical information and annual reports pertinent to the
implementation of this measure, and such other information content beneficial
to, and in line with, the goals and objectives of this Act; Provided, That
information featured here shall also include studies and reports pertinent to the
startups in the Philippines.

SECTION 17. Implementing Rules and Regulations. - DOST, DICT, and
DTI in coordination with the pertinent government agencies shall promulgate
the necessary rules and regulations within sixty (60) days from the effectivity of
this Act.

SECTION 18. Separability Clause. - If any section or part of this Act is
held unconstitutional, no other section or provision shall be affected.

SECTION 19. Repealing Clause. - All provisions of existing laws,
presidential decrees or issuances, executive orders, letters of instruction,
administrative orders, rules and regulations contrary to or inconsistent with the
provisions of this Act are hereby repealed, amended, or modified accordingly.

SECTION 20. Effectivity. - This Act shall take effect fifteen (60) days after
its complete publication in the Official Gazette and in at least two (2) newspapers
of general circulation.

Approved.

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