It is believed that governmental support is very essential for any country to promote the sector’s growth and develop itself into an attractive outsourcing destination. At present, governments of certain countries carry on a series of incentives to boost their outsourcing industry. In this way they prove to be a great support for software firms by further providing all the basic facilities required for an outsourcing company to flourish thus playing a major role in contributing to the success and well-being of IT outsourcing.

To get information concerning the issue of IT outsourcing benefits in some other countries, click the links below.

Belarus, Ireland, Brazil, China, India, Mauritius, Ghana, Russia, Canada

Belarus

On September 22, 2005 the President of Belarus signed the Decree “On the Hi-Tech Park”. The Decree was aimed at boosting the competitive power of the national new and high technology-based sectors, developing modern technologies and expanding their exports, as well as attracting to the sector both Belarusian and foreign technologies.

Residents of Hi-Tech Park are exempt from the following dues and taxes:

• Dues and taxes to the state budget and non-budgetary funds;
• Income tax;
• Value added tax;
• Customs dues and VAT when the residents import hardware, firmware necessary for their activities in the Hi-Tech Park
• For foreign legal entities without a permanent Belarusian representative office the rate of income tax on the dividends, debts, royalty and licenses paid by the residents of Hi-Tech Park is 5% in case no other, more beneficial privileges are stipulated by international agreements of the Republic of Belarus;
• Individual income tax for Hi-Tech Park residents’ employees has a fixed rate of 9% from the salary received.

Non-Residence Opportunities:

Non-residents of Hi-Tech Park can also take advantage of the benefits adopted for Hi-Tech Park residents. For this non- residents need to register their business project in Hi-Tech Park. In case the goals of the business project comply with the park priority activities, the non-resident can benefit from the above-mentioned preferences while the business project is implemented.

Benefits for Construction within Hi-Tech Park Territory

Investors who intend to invest in the Hi-Tech Park infrastructure and construction of buildings will be exempt from:

• Land taxes for the period of construction;
• Real estate tax;
• Payments for shared participation in the city infrastructure development;
• Compensation to the city administration for the available engineering and social infrastructure.
• The increasing coefficient for the land tax levied in Minsk will not be applied to the buildings constructed within Hi-Tech Park.

Ireland

Outsourcing in Ireland holds a significant market segment. And speaking of the country, one should certainly mention that Ireland’s 12.5% corporate tax rate on trading income is one of the lowest ‘onshore’ rates in the world.

The development of high-technology production as well as R&D activities is encouraged in the country. For this reason the following resolutions have been adopted:

• Expenditure on scientific equipment is eligible for a 100% capital allowance.
• The cost of energy efficient equipment is granted at 100% capital allowance

(in the year of the expenditure) as part of the Irish Government’s Green Initiative. Eligible equipment includes:
- Motors and drivers;
- Systems lighting;
- Building Energy Management Systems (BEMS);
- ICT;
- Heating and electricity provision;
- Heating ventilation and air-conditioning control systems; and,
- Electric and alternative-fuel vehicles.

Ireland has had an R&D Tax Credit scheme since 2004. Its purpose is to encourage both foreign and indigenous companies to undertake new and/or additional R&D activity in Ireland. The tax credit is available to Irish resident companies and branches on the cost of in-house, qualifying R&D undertaken within the European Economic Area (EEA), provided such expenditure is not otherwise eligible for tax benefit elsewhere within the EEA.

Over the years, various amendments to Finance Acts have greatly improved the original scheme. Finance (No. 2) Act 2008 continued this process by increasing the R&D tax credit from 20% to 25% (in addition to a tax deduction at 12.5% for R&D expenditure in Ireland).

The credit also provides that up to:
— 5% of the R&D expenditure can be outsourced to European Universities, and in addition;
— 10% of the R&D expenditure can be sub-contracted to unconnected parties. (i.e. 15% in total).

Brazil

Brazil has fiscal benefits for IT Services and software export. There is a government agency called SOFTEX that promotes the IT services export from Brazil and encourages Brazilian IT companies for internationalization.

There are three main taxes in Brazil that account for the bulk of importing costs: the Import Duty, which is currently 5 percent; the Industrialized Product Tax (IPI); and the Merchandise and Service Circulation Tax (ICMS).

Brazilian information technology law provides exemption of the Industrialized Product Tax (IPI) in some states and a 95% reduction in others. To obtain the incentives, companies in development or protection of information technology goods and services or in automation will have to invest 5% of revenues with products benefited by the law. Those who do not invest will turn the 5% to the National Fund for Scientific and Technological Development, plus an extra 12%.

Besides, high-tech companies are exempt from the excise tax when they buy equipment produced in Brazil.

China

Outsourcing is now on the agenda of the Chinese government as they seek to boost foreign investment into China and support the development of the services sector. At present, there are the following benefits offered:

For ITO, BPO, KPO industries

• Preferential Corporate income tax rate 15% (instead of 30%)
• Business tax exemption for offshore outsourcing service income
• Pre-CIT deduction of actuall-incurred staff education charges, up to a limit of 8 percent of the total payroll

After China opened up back in 1980, government-promoted Special Economic Zones (SEZs) were set up to attract foreign investors to the country. The main purpose of these Special Economic Zones with their many investment incentives was to strengthen China’s embattled economy with foreign capital and to modernize the country through foreign technology. Manufacturing companies are generally granted a reduced tax rate of 15% in these zones, with full tax exemption in the first two years and a 50% reduction in tax during the three following years. Foreign invested service companies and banks can also benefit from tax concessions but are subject to special regulations in these zones.

Moreover, Economic and Technological Development Zones (ETDZs) were set up in 14 coastal cities of the People’s Republic of China in 1984. To date this number has been extended to more than 50. The aim of these development zones was the targeted opening of investment zones for foreign investors, as well as research and development in specific areas through the application of modern foreign technologies. In particular, foreign investors in these zones are offered a complete infrastructure that meets international standards.

Tax-wise, there is no difference between the Special Economic Zones and the other Economic and Technological Development Zones. Here, too, a reduced tax rate of 15% is generally applicable, with full tax exemption in the first two years and a 50% reduction in the following three years. Unlike the Special Economic Zones, however, the Economic and Technological Development Zones do not differentiate between manufacturing and service companies.

China offers further tax incentives for enterprises that reinvest their profits domestically, and these incentives operate in addition to rather than in replacement of the above tax incentives. In particular, enterprises that reinvest their profits to increase their own capital or to establish or invest in another foreign invested enterprise in China are eligible for a refund of 40% of the corporate taxes already paid on those reinvested profits. The refund rate rises to 100% if the enterprise in which profits are reinvested is classified as a Technologically Advanced Enterprise or Export Oriented Enterprise. This refund must be returned, however, if the reinvested finds are withdrawn within five years.
The government is also offering service outsourcing companies a subsidy of up to RMB4,500 (662 $) annually per college graduate employed for at least one year.

India

Building up the IT sector is a top priority for the Indian government. India has a ministry of information technology that quickly approves the implementation of IT projects and streamlines regulatory processes. The Indian government has even released a bill termed as the “IT act 2000”. India has been rated to have the most excellent investment potential in the coming years. The Indian government has given complete support to the IT and ITES industry in India. The Indian government has even permitted 100% foreign equity.

Companies with the status of Export Oriented Units or Software Technology Parks have 5 (10) year tax holidays, they are exempt from paying import tax and possess a number of other privileges (in paying for electricity, communication, etc.). Tax exemption of 100% on export profits for ten years up to F.Y. 2009-10, for new industries located in EHTPs and STPs and 100% Export Oriented Units. For units set up in Special Economic Zones (SEZs), 100% deduction of export income for first five years followed by 50% for next two years, even beyond 2009-2010.

Mauritius

The Mauritian government realizes that in order to become a favorable outsourcing destination and to attract foreign companies it needs to create an efficient, low-cost, business-friendly environment. Now it invests in the promising information technology sector, laying the foundation for a new pillar in the Mauritian economy.

Business registration for a service company is done within three days. The Occupation Permit, which combines the permits to work and live in Mauritius, is also delivered within three days.

These measures have been instrumental in promoting Mauritius as a regional centre of excellence and attracting foreign investors. Corporate tax, which stands at 15%, is one of the lowest among developing nations, allowing foreign investors to operate within a modern and secure regulatory framework.
Mauritius has also signed Investment Promotion and Protection Agreements with several countries. With investment opportunities in several areas, including information communication technologies (ICT), FDI into the country has increased four-fold since 2006. The government’s vision is to make ICT the fifth pillar of the economy, after sugar, tourism, manufacturing and financial services.

The legal framework governing ICT has been developed in accordance with international norms and best practices. A Copyright Act, a Cybercrime and Computer Misuse Act and an Electronic Transaction Act are currently in force. These, along with the recent promulgation of the Data Protection Act, illustrate the government’s commitment to enhancing the credibility of the Mauritian outsourcing industry.

Amendments are being made in view of making the acts EU compliant. The island also has an elaborate fibre optic network for both telephony and data services.

A training school geared to the specific needs of the BPO sector is due to open this year, in addition to the country’s two public universities and many private training and education institutions. Government is investing in additional seats at the university to raise the percentage of our skilled labor to reach 75 percent in the next four to five years.

Mauritius offers a low tax platform and an investor friendly environment to encourage companies to set up businesses in the country. Now, the corporate tax is 15 percent and personal tax is also 15 percent.

Ghana

Ghana’s commitment to attracting offshore investors started seven years ago when the government set up an incubation facility for IT startup firms; embarked on a review of the higher education system to incorporate skills required to compete for global outsourcing tenders; and set up a special secretariat for IT enabled services and BPO.

The government of Ghana has created a free zone area right outside Accra and other areas in different parts of the country, where companies specializing in offshore ventures can set up operations.

Companies in the free zone area pay zero taxes for 10 years from the date of commencement of operations, and only 8 percent tax after the 10-year period.

Russia

The Russian government has already made several important steps towards strengthening the position of Russia as an outsourcing software development destination in the global market. The software development export is now seriously supported by the government:

• The government created quite a number of resources that support software development outsourcing companies in Russia: the Federal Agency for Information Systems, the Federal Agency for ICT Export Development and the Federal Fund for Technology and Innovations. The agencies are intended to provide a high level of integration during the installation and implementation of ICT in the executive branch and provide informational, analytical and marketing support to the IT product and services promotion in the global market.
• Consolidated social tax is 14% for IT companies (however it can raise again up to 32-34%).

Russia plans to create its own silicon valleys, but still there are no published specific measures for reducing taxes for the high-tech companies.

Canada

Political atmosphere and legal system makes working with Canada outsourcing market players extremely easy and far less risky than probably any other country in the world. Taxes and other elements that constitute government support for outsourcing are mediocre at best, on the other hand employee lifestyle issues are well taken care of. IT and telecom infrastructure across the country is excellent, with prices close to those in the states.

There are no direct benefits in Canada, however there are different programs, such as Scientific Research and Experimental Development (SR&ED) program that allow an investment tax credit of between 20-35% on qualifying SR&ED expenditures in Canada relating to the establishment/operation of a research and development facility.

Belarus, Ireland, Brazil, China, India, Mauritius, Ghana, Russia, Canada