PHILIPPINES Law and Practice Contributed by: Kerwin K. Tan, Veronica S. Balbin and Jose Maria B. Buenagua, Tan Hassani and Counsels
developments are enhancing efficiency, cost savings, customer experience, agility, scalability, data-driven insights, and access to specialised expertise, posi - tioning BPO as a key element of modern business strategy. Incentives and strategic locations continue to drive BPO growth in the country. Registration under the Special Economic Zone Act (Republic Act No 8748) and the CREATE Law (Republic Act No 11534) frame - work enables IT-BPO projects to benefit from income tax holidays and either the special corporate income tax or enhanced deductions. These incentives are complemented by exemptions from customs duties on qualified imports and VAT zero-rating on local pur - chases directly and exclusively used in their registered business activities. The hybrid work model continues to disrupt traditional workplace structures. In 2022, the Fiscal Incentives Review Board authorised IT-BPO companies operat - ing within special economic zones to transfer their registration to the Philippine Board of Investments, allowing them to adopt hybrid work arrangements without forfeiting their fiscal incentives. In line with these developments, the Telecommuting Act (Repub - lic Act No 11165) affirms the principle of equal treat - ment between on-site and remote employees, ensur - ing parity in rights and benefits. Another key trend is the engagement of an existing Philippine “employer of record” (EOR) company to expedite the outsourcing and hiring of a local team while the “owned” Philippine entity is being estab - lished. An EOR is a third-party service provider that can immediately onboard employees by placing them under its payroll. Once the client’s Philippine entity is fully registered, these employees are then transferred from the EOR to the owned entity. EOR arrangements must be structured to comply with Philippine labour contracting rules, which prohibit labour-only contracting. The indicators of labour-only contracting include situations where the contractor lacks substantial capital, does not exercise control over its employees, or where the employees perform activities directly related to the principal’s core busi -
ness and the contractor has no substantial capital or investment in tools, equipment, or premises. To prevent such circumvention, the Department of Labor and Employment (DOLE) requires compliance with Department Order 174 (DO 174) and implements Articles 106 to 109 of the Labor Code of the Philip - pines. Under DO 174, a legitimate contractor must: • be registered with the appropriate DOLE Regional Office; • have substantial capital, which means paid-up capital stock/shares of at least PHP5 million for corporations, partnerships, and co-operatives, or a net worth of at least PHP5 million for single propri - etorships; • carry on a distinct and independent business and assume responsibility for performing the contract - ed service using its own methods and resources, free from the control of the principal except regard - ing the results of the work; • exercise control over its employees’ work perfor - mance and methods, except for the final result; and • own or have the right to use tools, equipment and machinery, and supervise its workers. Notably, DO 174 ensures that a contractor’s employ - ees enjoy all rights and privileges under Philippine labour laws, including safe working conditions, labour standards compliance, and security of tenure. Employees also have recourse against the principal, who is deemed jointly and severally liable with the contractor for any violations. Statutory employer obligations also attach with EORs. Thus, EORs are required to remit all government- mandated contributions and benefits, including those under the Social Security Act of 2018, the Universal Health Care Act through PhilHealth, and the Home Development Mutual Fund Law. Further, EORs are obligated by law to withhold compensation tax under Section 79 of the National Internal Revenue Code (NIRC). 1.3 New Technology New technologies like AI, chatbots, machine learn - ing, robotics, RPA, blockchain, fintech, and smart
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