Startups have the potential to change the way we live. Imagine how Facebook has changed the media landscape, or how Grab has changed the way we move around, or how Spotify has changed the way we listen to music. Legislators have high hopes that with the Innovative Startup Act, Philippines-based startups can make such an impact as well.
Signed into law on April 26, 2019 by President Rodrigo Duterte, the Innovative Startup Act (RA 1137) aims to strengthen, promote, and develop an innovative and entrepreneurial ecosystem and culture in the Philippines. The bill was first filed by Senator Paolo Benigno “Bam” Aquino IV in 2017.
At the heart of the bill is the creation of the Philippine Startup Development Program (PSDP) that will be “composed of various programs, benefits, and incentives for startups and startup enablers.” The program will be spearheaded by three government agencies: the Department of Science and Technology (DOST), the Department of Information and Communications Technology (DICT), and the Department of Trade and Industry (DTI).
The program covers startups that will develop an “innovative product, process, or business model” — so, while not necessarily limited to tech startups, it seems to lean towards this sector.
The law defines innovative products as “a good or service that is new or significantly improved,” whether in terms of technical specifications, component materials, or product software. On the other hand, innovative processes include improvements in production or delivery methods, whether through technique, equipment, and/or software. Lastly, an innovative business model is defined as “a new organizational method in business practices, workplace organization, or external relations.”
The program also covers startup enablers, defined as the people who “provide goods, services, or capital identified to be crucial in supporting the operation and growth of startups.”
Even though the Implementing Rules and Regulations (IRR) for the new law are still being drawn up, it would be good to get a head start in knowing its incentives and benefits.
So how will this new law and the PSDP help innovative entrepreneurs and startups?
Here’s a rundown of the Innovative Startup Act benefits:
One of the biggest challenges that most Filipino small- and medium-sized entrepreneurs face is access to or funding for capitalization.
Under the PSDP, the Startup Grant Fund (SGF) and the Startup Venture Fund (SVF) were set up to help budding startups with their funding requirements. The SGF will be administered by the DOST, DICT, and DTI and be given to startups who pass the selection and application process (details still to be determined in the IRR).
On the other hand, the SVF will be handled by the DTI and administered in coordination with the National Development Company (NDC), and is meant to “match investments by selected investors in startups based in the Philippines.”
Besides these, the DTI will be working with the Board of Investments (BOI) to create a Startup Investment Development Plan (SIDP) that will provide benefits for current and prospective investors of startups and startup enablers.
Besides capitalization, the Innovative Startup Act of the Philippines also covers business registration fees and other costs related to the application of permits and certificates required at both the local and national level. It also provides startups the privilege of fast-tracking their documents.
What’s more, qualifying startups can get financial support for the use of facilities, office space, equipment, and/or services provided by government or private institutions, and even have the option to use government facilities as their registered business address.
Every entrepreneur knows that access and exposure to best practices here and abroad help spark creativity and innovation. This is why in the Innovative Startup Act, training for techpreneurs and the opportunity to participate in local and international startup events or competitions are included. To make it even easier for startups, the legislation covers priority processing of travel documents (i.e. passport and/or visa applications, etc.), full or partial subsidy of application fees and charges, roundtrip airfare, as well as per diem allowance.
The program has also set up Grants-in-Aid (GIA) for research, development, training and expansion projects.
The program has commissioned the Department of Foreign Affairs (DFA) to issue special startup visas for foreigners who plan to support and/or invest in startups in the Philippines.
There are three (3) types of startup visas:
This special visa will have an initial five (5)-year validity and may be renewed or extended with a three (3)-year validity.
In the meantime, multiple-entry interim startup visas valid for six (6) months to one (1) year will be issued for free to prospective startup owners, investors, and enablers from other nationalities.
So if you’ve been looking for a foreign partner or investor for your startup for the longest time, things should now be much easier for you to invite them over and see the progress and development of your startup.
On the flip side, bona fide Filipino executives of qualified startups will be eligible to apply for an APEC Business Travel Card (ABTC), which eliminates the need for a visa when visiting other APEC participating economies.
The program has also tasked the Philippine Economic Zone Authority (PEZA) to create Philippine Startup Ecozones or Special Economic Zones to spur the growth and development of startup and startup enablers.
This includes tax benefits, breaks, and perks usually accorded to economic zones, as set by the Investments Promotion Agencies (IPAs).
With the passing into law of the Innovative Startup Act (RA 1137), now is the best time to be a techpreneur in the Philippines!
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