CREATE MORE – Enhancing Incentives
By: Atty. Euney Marie Mata-Perez on November 21, 2024
Aside from amending the provisions in our National Internal Revenue Code (“Tax Code”) on value-added tax zero rating and incentives, as discussed in our article published on November 14, 2024, the Republic Act No. Act (RA) No. 12066 (or CREATE More) also amended several provisions of our Tax Code, generally improving the incentives to registered business enterprises (RBEs) and how these incentives are availed.
It is worthy to note that CREATE More empowered Investment Promotion Agencies (IPAs) to grant incentives directly to investors, provided their investment capital is at least PhP15 billion. IPAs will no longer be operating under a delegated authority from the Fiscal Incentives and Review Board (“FIRB”) in this regard. The FIRB, however, retained the power to approve the grant of incentives to investments higher than Php15 billion, and was also empowered to exercise regulatory and quasi-judicial functions, in addition to oversight and policy-making functions, over IPAs. This empowers the FIRB to impose sanctions such as suspension or cancellation of the IPAs’ authority to grant tax incentives.
As to other incentives, CREATE More introduced the following amendments to the Tax Code:
Enhancement of the EDR incentive
The EDR incentive was also enhanced, as follows:
Additional allowable deductions for power expenses were increased to 100% (from 50%).
The reinvestment allowance of up to 50% of the reinvested surplus now applies to tourism industries, in addition to manufacturing. This includes expenses incurred in promoting the export of goods or provision of services to foreign markets.
A new allowable deduction of 50% of expenses related to exhibitions, trade missions, or trade fairs was added.
The net operating loss carry-over deduction can now be carried over as deduction following the last year of the ITH period, instead of following the year of the loss, making the deduction more meaningful since there is no benefit for it during the ITH period.
Expansion of Duty Exemption
The duty exemption on importations was expanded to cover goods used for administrative purposes, in addition to capital equipment, raw materials, spare parts, or accessories, so long as the goods are “directly attributable” to the registered activity or project of the RBE.
Flexibility in Availment of Incentives
RBEs which are export enterprises, whether they be registered with the IPAs or the FIRB, are now granted three options, namely: (a) availment of the ITH, followed by SCIT or EDR, (b) availment of the SCIT or EDR immediately. Thus, RBEs need not wait for the expiration of their ITH before they can enjoy the SCIT or the EDR.
Accordingly, the RBE can enjoy the ITH period (which ranges from 4 to 7 years, depending on its location and industry as specified in the SIPP) followed by 10 years of EDR or SCIT. Alternatively, the RBE can immediately enjoy SCIT or EDR for 14 to 17 years, depending on its location and industry specifications.
On the other hand, registered domestic market enterprises can either choose to avail of the ITH followed by EDR, or EDR immediately. Thus, they can enjoy ITH for a period ranging from 4 to 7 years, followed by 10 years of EDR. Alternatively, such domestic enterprises can enjoy 14 to 17 years of EDR, depending on its location and industry as specified in the SIPP.
Longer periods are available (up to 27 years) for enterprises registered with the FIRB.
Cyber-security, artificial intelligence, and data center facilities are now considered Tier III priority activities. RBEs engaged in Tier III activities are entitled to a longer period of incentives.
Clearer Exemption on Local Charges and Fees
RBEs which are export enterprises enjoying 5% Special Corporate Income Tax (“SCIT”), which is in lieu of all taxes and fees, are now expressly exempt from local fees and charges. Prior to such amendment, enterprises enjoying the 5% SCIT have been imposed local charges and fees by local government units (LGUs).
CREATE More also added a new provision to allow LGUs to impose an RBE Local Tax of up to 2% of the gross income of the RBEs which are enjoying an income tax holiday (“ITH”) or enhanced deduction regime (“EDR”), and such tax shall be in lieu of all local taxes and fees imposed under the LGC. It should be noted that once an RBE is on ITH or while enjoying EDR, it becomes subject to all fees taxes and imposed by LGUs. Now, LGU’s can impose the 2% RBE Local Tax, and such tax shall in lieu of all other fees and charges. LGUs may reduce their rates of tax or waive taxes, or their share thereof, in case two or more LGUs cover the same enterprise.
Extension of Period of Availment
RBEs registered with both the FIRB and any of the IPAs may enjoy incentives for another five years if they have projects or activities that employ at least 10,000 local employees and maintain such number of employees during registration.
CREATE More also clarifies that projects or activities registered prior to the effectivity of CREATE may qualify to register on or before December 31, 2024, and avail of the incentives granted under CREATE, subject to certain conditions.
Speedy Processing of Tax Incentives Application
FIRB and IPAs are mandated to issue decisions on applications for tax incentives within 20 working days from receipt of all required documents. Also, the BIR is mandated to create a separate service to support end-to-end tax compliance of RBEs.
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the incoming Chair of the Tax Committee of the Management Association of the Philippines. She acknowledges the contribution of Elaisha Nelle C. Espinosa and Rey Christian M. Guintibano in this article. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.