»RESENT ATIVES

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Republic of the Philippines RECEIVED
HOUSE OF REPRESENTATIVES ,,,,.. 15 AUG 2016

Queson City ove OL gee

SEVENTEENTH CONGRESS BY:
First Regular Session

2882 REBISTR.ATION UNIT
HOUSE BILLNO. |, BILLS AND INDEX SERVICE

EXPLANATORY NOTE

The private sector is a critical driver of economic growth. It generates
employment and provides essential goods and services. The start-up industry, for
one, is instigating a string of positive effects on the economy at large — encouraging
investment, bringing innovation, creating jobs, and building a more vibrant
entrepreneurial ecosystem.

The government plays a crucial role in creating a healthy environment for
startups. As enshrined in the Constitution, the State recognizes the indispensable
role of the private sector, encourages private enterprise, and provides incentives to
needed investments. A thriving start-up ecosystem requires a close collaboration
between the public and private sectors.

By 2020, the roadmap targets to achieve at least 500 Philippine startups.’ The
continued growth of startups in the country benefits Filipinos who have innate talent
for shaping contemporary ideas.

This re-filed version of the start-up bill takes inspiration from the Senate bill
filed by Senator Paolo Benigno “Bam” A. Aquino IV on 30 June 2016. Taking the
vision for Philippine start-up further, it proposes online application and processing of
documents for faster and paperless government transactions. It also seeks to
broaden the definition of startups and provide more incentives to entrepreneurs such
as streamlined business procedures, tax incentives, and easier immigration.

This bill takes into consideration experiences of nations with groundbreaking
startups. Chile and Estonia are two examples of countries with start-up success
stories. In Chile, entrepreneurs who are accepted in its start-up program are given
seed capital, equity-free funding and residence visa valid for a year. The start-up
program of Chile receives 200 to 250 applicants per year. It aims to attract early-

Philippines. Department of Science and Technology-Information and Communications Technology
Office (DOST-ICT Office). (2015). The Philippine Roadmap for Digital Startups: 2015 and Beyond.
Retrieved from the Department of Science and Technology Web site: http://icto. dost. gov. ph/dost-icto-
to-launch-philippine-roadmap-for-digital-startups-at-geeks-on-a-beach-3-eyes-more-startups-by-2020!


stage, high-potential entrepreneurs to bootstrap their startups using Chile as a
platform to go global.

The Estonian start-up community, on the other hand, connects networks of
investors and mentors, numerous business and innovation accelerators, starting and
already succeeded enterprises. Estonia produces the biggest number of startups
and seed stage investments per capita in Europe. Entrepreneurs can apply their
business online, access several start-up accelerator programs and benefit from the
zero corporate income tax.

By adopting the best practices in start-up communities and tailoring the same

to fit the Philippine start-up ecosystem, the Filipino entrepreneurs can only be
immensely benefited. Thus, the immediate approval of this bill is earnestly sought.

LUIS, 'MUND “LRAY” VILLAFUERTE, JR.


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quejon City

SEVENTEENTH CONGRESS
First Regular Session

HOUSE BILL No_ 2882

Introduced by HONORABLE LUIS RAYMUND F. VILLAFUERTE, JR.

AN ACT DEVELOPING, SUPPORTING AND PROVIDING VARIOUS
INCENTIVES TO INNOVATIVE START-UP ENTREPRENEURS AND ITS
INVESTORS

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

SECTION 1. Short Title. — This Act shall be known as the "Start-up Pilipinas Act"

SECTION 2. Declaration of Policy. — The State recognizes the indispensable role
of the private sector, encourages private enterprise, and provides incentives to needed
investments. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the underprivileged

Accordingly, the State shall foster national development and promote inclusive
growth by encouraging the creation of enterprises that facilitate job creation, production,
innovation and trade in the country. For such purposes, the State shall provide
incentives and remove constraints to start-up businesses and proliferate an
entrepreneurial culture in Philippine society

SECTION 3. Definition of Terms. — For purposes of this Act, the following
definitions shall apply to the following terms:

a. Investor — means any person who commits money to a duly-certified start-up
enterprise in the minimum amount of Five Million Pesos (PhP5,000,000.00).

b. Research and Development Cost — the expenditure of the start-up 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 start-up
enterprise.


c. Start-up enterprise or Start-up — means an organization formed to search for
a repeatable and scalable business model; provided that:

Itis a duly-registered business in the Philippines;

It exists for no longer than (60) months from commencement of

business operation;

It is working towards innovation, development, deployment or

commercialization of new products, processes or services driven

by, but not limited to, technology or intellectual property;

iv. It is not a mere end user of an innovative product, process or
business model;

v. Itis not an affiliate, a subsidiary, or franchise of an enterprise with
gross annual revenue of more than Two Hundred Fifty Million
Pesos (PhP 250,000,000.00); and

vi. It has not exceeded Two Hundred Fifty Million Pesos (PhP

250,000,000.00) as gross revenue.

d. Repeatable business model — means doing the same sales process and
getting additional customers or users.

e. Scalable business model ~ means spending money on sales and marketing
that yields incremental net cash

f. Start-up Pilipinas Certificate - means the document awarded to eligible
entrepreneurs with registered startups.

g. Venture capital (VC) — means financing that investors provide to a start-up
enterprise in the minimum amount of Fifty Million Pesos (PhP50,000,000.00).

Chapter 4
Start-up Pilipinas Certificate

SECTION 4. Start-up Pilipinas Certificate. — Department of Trade and Industry
(DTI) shall issue Start-up Pilipinas Certificate to registered enterprises operating for no
longer than sixty (60 months) and whose core business function involves product,
process or business model innovation, provided that:

a. The product, process or business is the primary source of revenue of the
enterprise;

b. The enterprise is not a mere end user of the innovative product, process or
business model,

c. The cost of the enterprise 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; and

d. The gross annual revenue of the enterprise has not exceeded Two Hundred

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Fifty Million Pesos (PhP 250,000,000.00)

SECTION 5. Expiration of the Certificate. - The Start-up Pilipinas Certificate
shall expire after sixty (60) months from its issuance or when the enterprise receives
venture capital from an investor in the amount of Two Hundred Fifty Million Pesos
(PhP250,000,000.00), whichever is earlier.

The expiration of the Start-up Pilipinas Certificate or receipt of venture capital
disqualifies the holder to the benefits and incentives under this Act.

SECTION 6. Revocation of Certificate. — DTI shall revoke the certificate of
bearers who no longer meet the standards set to qualify the requirements under this Act
prior to its expiration.

DTI shall first issue a notice detailing the grounds for the revocation of the
certificate. It shall then provide the enterprise at least twenty (20) working days in order
to protest or clarify the notice of revocation. DTI shall only proceed with revocation if the
Notice remains uncontested, or the grounds have been confirmed despite protest. DTI
shall also be required to immediately post on its website, and on the website created
under this Act, information on the revocation of certificate such as but not limited to the
following:

a. Rules and regulations related to revocation; and
b. Cases of revocation and its resolution of result.

Chapter 2
Application and Assessment

SECTION 7. Application and Evaluation Process. -DTI shall be tasked to create
an online application and evaluation process for the Start-up Pilipinas Certificate
created under this Act while ensuring that:

a. Current owner(s) of a start-up enterprise shall be deemed eligible to apply, and
may commence with the application process for Start-up Pilipinas Certificate
upon submission of the Certificate of Business Name Registration.

b. The result of the application shall be released within seven (7) working days
upon the submission of complete requirements which must include an
accomplished form with information on the nature of the operation and core
business function of the current or prospective enterprise of the applicant.

c. In case an application shall be rejected, the applicant shall be given an email
notification that indicates and explains the ground for rejection and the right to
contest the result within thirty (30) working days from date of email notification of
rejected application


d. Incase an application shall be approved, the applicant shall be issued a Start-up
Pilipinas Certificate.

Chapter 3
Benefits and Incentives

SECTION 8. Tax Benefits. - Holders of a Start-up Pilipinas Certificate shall be
exempt from the following taxes arising from the operation of the enterprise for the
period covered by the validity of the certificate

a. Income tax arising from the operation of the enterprise;

b. 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;

c. Creditable withholding tax on income; and

d. Expanded withholding tax on its income payment.

SECTION 9. IPO Subsidy. — Holders of a Start-up Pilipinas Certificate shall be
exempt from fees and charges levied by the Intellectual Property Office for its services.

SECTION 10. Investment Incentives. —A Start-up enterprise holding a Start-up
Pilipinas Certificate shall be granted the following incentive benefits:

(a) Protection of Patents and Other Proprietary Rights. The right to be protected
from infringement of patents, trademarks, copyright, trade names, and other proprietary
rights, where such patents, trade marks, copyright, trade names, and other proprietary
rights have been registered with the appropriate agencies of the Government of the
Philippines

(b) Capital Gains Tax Exemption. Exemption from income tax on that portion of the
gains realized from the sale, disposition, or transfer of capital assets, as defined in
Section thirty-four of the National Internal Revenue Code, that corresponds to the
portion of the proceeds of the sale that is invested in new issues of capital stock within
six months from the date the gains were realized: Provided, (1) that the said date,
disposition or transfer and the investment of the proceeds thereof have been registered
with the DTI Special Office and the Bureau of Internal Revenue; and (2) that the shares
of stock representing the investment are not disposed of, transferred, assigned, or
conveyed for a period of five years from the date the investment was made. If such
shares of stock are disposed of within the said person of five (5) years, all taxes due on
the gains realized from the original transfer, sale or disposition of the capital assets
shall immediately become due and payable.

(0) Accelerated Depreciation. At the option of the taxpayer and in accordance with
the procedure established by the Bureau of Internal Revenue, fixed assets may be (1)
depreciated to the extent of not more than twice as fast as normal rate of depreciation
or depreciated at normal rate of depreciation if expected life is ten years or less; or (2)
depreciated over any number of years between five years and expected life if the latter
is more than ten (10) years; and the depreciation thereon allowed as a deduction from
taxable income: Provided, That the taxpayer notifies the Bureau of Internal Revenue at
the beginning of the depreciation period which depreciation rate allowed by this section

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will be used by it

(d) Tax Exemption on Imported Capital Equipment. Within seven years from the
date of registration, importation of machinery and equipment, and spare parts shipped
with such machinery and equipment, shall not be subject to tariff duties and
compensating tax: Provided, That said machinery, equipment and spare parts: (1) are
not manufactured domestically in reasonable quantity and quality as reasonable prices;
(2) are directly and actually needed and will be used exclusively by the registered
enterprise in the manufacture of its products; and (3) are covered by shipping
documents in the name of the registered enterprise to whom the shipment will be
delivered direct by customs authorities. If the registered enterprise sells, transfers, or
disposes of these machinery, equipment and spare parts without the prior approval of
the DTI Special Office within five (5) years from the date of acquisition, the registered
enterprise shall pay twice the amount of the tax exemption given it. However, the DTI
Special Office shall allow and approve the sale, transfer, or disposition of the said items
within the said period of five (5) years if made: (1) to another registered enterprise; (2)
for reasons of proven technical obsolescence; of (3) for purposes of replacement to
improve and/or expand the operations of the enterprise.

SECTION 11 Tax Exemption on Stocks Given to Employees. — Capital Gains
Tax shall not be imposed on stocks from the company that is given to employees in
exchange for intellectual capital and/or as incentive by the holder of a Start-up Pilipinas
certificate.

Chapter 4
Start-Up Visa

SECTION 12 Start-up Visa. — The Bureau of Immigration (BI) shall be tasked to
promulgate the necessary rules and regulations in the provisions of the following visas:

a. General Start-up Visa ~ The visa shall entitle its holder a renewable twelve (12)
month stay in the Philippines requiring only an official endorsement or invitation
from any registered start-up enterprise or holder of a Start-up Pilipinas Certificate
justifying the purpose of the travel and its duration.

b. Start-up Employment Visa — The visa shall entitle its holder exemption from the
Alien Employment Permit and stay in the Philippines until three (3) months from
the expiration of the applicant's employment contract with holders of Start-up
Pilipinas certificate, requiring only the following in addition to standard visa
requirements:

Applicant's employment contract endorsed by the hiring start-up
enterprise; and
ii. Start-up Pilipinas Certificate
Provided, that the endorsing employer/hiring start-up enterprise shall inform the
BI within fourteen (14) working days from the termination of the contract used to
justify the visa and provide the whereabouts of the visa holder that it endorsed
c. Start-up Investor Visa — This visa shall entitle its holder to a multiple entry visa

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for infusing at least Five Million Pesos (PhP5,000,000.00) worth of total
investment into any holder of a Start-up Pilipinas Certificate within twelve (12)
months from the issuance of visa, requiring only the following, in addition to
standard visa requirements:

i. Proof of investment of at least Five Million Pesos amount in a start-
up enterprise; and

ii. If spouse and dependent children are included in the application, 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.

Provided, that the Board of Investment shall also require for the periodic reporting
of investments to be determined in the implementing rules and regulations of this
Act.

SECTION 13. Revocation of Visa. — The different types of visa created under this
Act may be revoked subject to any of the following conditions:

a. If the holder of the visa has been found to have falsified or misrepresented
information in the application; or

b. If the holder of the visa has been found guilty of the crime of moral turpitude.

Provided, that for foreign applicants, the revocation of any type of start-up visa shall
be a ground for deportation. The holder of a revoked start-up visa shall be barred
from re-application until charges have been cleared

Chapter 5
DTI Special Office

SECTION 14. DTI Special Office. — A special office referred to as “Start-up Office”
is created under this Act. The Start-up Office shall be attached to DTI

SECTION 15. Mandate. — The Start-up Office shall promote and develop an
environment that fosters innovation in the Philippines by coordinating, initiating, and
supporting government and non-government programs, projects, and activities towards
this end

The Start-up Office shall push for the implementation of this Act, and the creation
of comprehensive development plans for sectors pivotal to the growth of the economy
through innovation.

SECTION 16. Funding. — The activities and operational expenses of the Start-up
Office shall be funded by budgetary appropriation from the government. It may also be
funded by private sector contributions subject to the necessary rules and regulations
that shall be promulgated under this Act. An initial allocation of One Hundred Million
Pesos (PhP100,000,000.00) for the necessary operating expenses of the Start-up
Office shall come from the funds of DTI. Subsequent funding may be incorporated in
the budget proposal of the DTI, subject to existing accounting and auditing laws, and

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procedures.

Donations for the operation of the Start-up Office shall be received, accounted for,
and disbursed in accordance with the pertinent laws, accounting and auditing rules and
regulations.

Chapter 6
Start-up Website

SECTION 17. Start-up Website. — DTI shall develop and maintain a single portal
that shall serve as the primary source of information on statistics, events, programs,
application forms and related processes, and benefits with regard to the implementation
of this Act.

SECTION 18. Functions of the Start-up Website. — The Start-up Website shall
have features such as but not limited to the following:

a. Online database of certificate holders under this Act, which may include basic
information on the start-up enterprise;

b. Online application, inquiry, registration, and release of results of qualified
entrepreneurs for Start-up Pilipinas Certificate;

c. Advertising space which shall be a source of funds for the maintenance and
development of the website; and

d. Statistical information and annual reports pertinent to the implementation of this
Act, and such other informative content about startups.

Others

SECTION 19. Role of LGUs. — The concerned LGU may promulgate rules and
regulations encouraging and providing incentives to start-up enterprises in relation to
the purpose of this Act pursuant to the Local Government Code. It may create its own
start-up office, provide local financing, and develop a local start-up ecosystem

SECTION 20. Implementing Rules and Regulations. — DTI, in coordination with
SEC, IPO, BI, BOI, and a representative from the Union of Local Authorities of the
Philippines (ULAP) shall promulgate not later than thirty (30) days upon the effectivity of
this Act the necessary rules and regulations for its effective implementation.

SECTION 21. Separability Clause. — |f any section or part of this Act is held
unconstitutional or invalid, the other sections or provisions not otherwise affected shall
remain in full force and effect.

SECTION 22. Repealing Clause. — All laws, decrees, executive orders, rules and
tegulations, issuances or any part thereof inconsistent with the provisions of this Act,
are hereby repealed, amended or modified accordingly

SECTION 23. Effectivity. - This Act shall take effect fifteen (15) days after its

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publication either in the Official Gazette or in at least two (2) national newspapers of
general circulation

Approved,