By: Atty. Euney Marie Mata-Perez on February 27,2025

THE Department of Finance (DOF) and Department of Trade and Industry (DTI) have released the Implementing Rules and Regulations (IRR) of the Create More Law (Republic Act 12066), which amended Title VIII of the National Internal Revenue Code (Tax Code).

Create More, which was signed on Nov. 8, 2024, introduced amendments to provisions on income tax; value-added tax (VAT), especially on VAT zero rating on purchases; incentives enjoyed by Registered Business Enterprises (RBEs); powers of the Fiscal Incentives Board (FIRB); and the Investment Promotion Agencies (IPAs); among others.

The IRR was signed last Feb. 17, and shall take effect immediately upon its publication. It was jointly signed by Finance Secretary Ralph Recto and Trade Secretary Cristina Roque.

The IRR clarified the following amendments:

– Extending the lower 20 percent of regular corporate income tax (RCIT) rate to RBEs operating under the Enhanced Deductions Regime (EDR). The IRR provides that the eligibility of a registered project or activity for any enhanced deductions under the Tax Code shall be as provided in the Strategic Investment Priority Plan.

– Extending Section 295(D) of the Tax Code on incentives for RBEs, that VAT exemption on importation and VAT zero-rating on local purchases now apply to goods and services “directly attributable” to the registered project or activity, including incidental expenses. It defined “directly attributable” as goods and services that are incidental to and reasonably necessary for the export activity of the export-oriented enterprise. It includes services such as janitorial, security, financial, consultancy, marketing, and promotion services. It also covers services for administrative operations like human resources, legal, and accounting services.”

– Extending the VAT zero-rating on purchases to RBEs which are “high-value domestic market enterprises” (HV DMEs), not just to export enterprises. It defined HV DMEs as domestic enterprises which have investment capital exceeding P15 billion, engaged in import-substituting sectors, or with significant export sales.

The IRR clarified that “import substituting” is the “ability of the country’s domestic production of goods and services to locally supply such goods and services that are normally being imported by the Philippines.” Rule 9 of the IRR provides that HV DMEs must apply annually for a VAT zero-rating certificate with their IPA to avail of VAT zero-rating incentives on local purchases. The certificate is valid for only one year, and non-compliance with export sales or investment capital requirements leads to disqualification from duty and VAT exemptions for the following year.

– The Enhanced Net Operating Loss Carry-Over (Nolco) can now be carried over as a deduction within the last year of the Income Tax Holiday (ITH) entitlement period, instead of just from the year of the loss. IRR clarifies that availing of the Nolco may either be within the next five consecutive taxable years immediately following the last year of the ITH entitlement period of the project, or immediately following the year of loss for RBEs electing EDR at the onset.

– No creditable withholding tax shall be imposed on income payments to RBEs in relation to their registered project or activity without the need for a BIR ruling during the ITH availing period.

– Local sales of goods and services by RBEs regardless of their income tax incentives regime and location, are still generally subject to 12 percent VAT, unless otherwise exempt or zero-rated under specific provisions of the Tax Code. It added a definition of “local sales” to mean sales to domestic market enterprises or non-RBEs, regardless if the sale is made within freeports or economic zones. This rule does not apply if the sale is exempt or zero-rated under Sections 106, 108, 294(D), and 295(E) of the Tax Code.

– RBEs enjoying 5 percent Special Corporate Income Tax (SCIT), which is in lieu of all taxes and fees, will be exempt from local fees and charges imposed by local government units (LGUs). Private ecozone developers are subject to real property tax on land owned by them under Republic Act 7916 or the Special Economic Zone Act, as amended.

– Addition of a new provision to allow LGUs to impose an RBE Local Tax (Rbelt) of up to 2 percent of the gross income of the RBE which are enjoying income tax holiday (ITH) or EDR, and such tax shall be in lieu of all local taxes and fees imposed under the Local Government Code (LGC). Upon expiration of the ITH, LGUs may still impose Rbelt or extend local business tax exemptions pursuant to its authority under the LGC. It requires LGUs imposing Rbelt to transmit a copy of their respective enacted ordinance to the FIRB and the IPA within 15 days upon its approval. In no case shall the Rbelt be deemed as a new imposition of local tax, and that the FIRB, in consultation with other government agencies, is mandated to prepare a model tax ordinance imposing Rbelt.

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 Chair of the Tax Committee of the Management Association of the Philippines. She acknowledges the contribution of Atty. Elaisha Nelle C. Espinosa 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

http://manilatimes.net/2025/02/27/business/top-business/what-create-mores-amendments-mean/2063084