What are the new tax incentives under the ‘CREATE MORE’ Act?

‘By building on the reforms initiated through the CREATE Act, we have enhanced our tax regime [and] incentive framework, making it more inviting for investment — while remaining steadfast in the principles of fiscal prudence and stability,’ says President Ferdinand Marcos Jr.

MANILA, Philippines – President Ferdinand Marcos Jr. signed Republic Act 12066, which provides clarity on corporate tax incentives and makes it easier for businesses — both foreign and local — to set up shop in the country.

The Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act or simply, the “CREATE MORE” Act, was signed into law on Monday, November 11.

This comes over three years since the approval of Republic Act 11534 or the CREATE bill, which finally lowered the Philippines’ income tax to 20% for small businesses and 25% for large corporations. The country’s corporate income tax (CIT) had stood at 30% — considered the highest in Southeast Asia.

“By building on the reforms initiated through the CREATE Act, we have enhanced our tax regime [and] incentive framework, making it more inviting for investment — while remaining steadfast in the principles of fiscal prudence and stability,” Marcos Jr. said.

Here are some important details from the new law:

Income tax lowered to 20%

Under the new law, the corporate income tax for registered business enterprises (RBEs) has been cut to 20% from 25%.

For local companies, this applies to those with net taxable income below P5 million and with assets not exceeding P10 million, not taking into account the value of the land of the business entity’s office.

Meanwhile, the law also states that any income derived from an agreement or any treaty with the Philippine government will be excluded from taxes.

VAT exemptions, refund center

Marcos said the law will also exempt registered business enterprises from being charged with value-added tax (VAT) as long as the transactions or costs are “directly attributable to the conduct of their businesses.” This may include services such as janitorial, security, financial consultancy, marketing, and administrative services.

“This means that essential expenses — those reasonably necessary and incidental to their operations — may once again be enjoyed zero-rated, as they were prior to the CREATE Act,” he added.

Local purchases of export-oriented enterprises will get a 0% VAT rate. This means raw packaging materials, as well as supplies, equipment, goods, and fuel sold to those in shipping or air transport operations will be zero-rated. Meanwhile, their imports will be exempted from VAT.

RA 12066 also provides the creation of a VAT refund center, which will be under the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). This is where businesses will file claims which will be categorized as low-, medium-, or high-risk claims, and processed within 90 days from the submission of documentary requirements.

Every year, 5% of the BIR and the BOC’s total VAT collection will be “automatically appropriated” for the office’s refunds and excess funds will be carried over to the next year finance refunds.

More jobs

Government officials also tout that the CREATE MORE law would generate jobs for Filipinos. The bill specifically notes that RBEs are required to “maintain their employment levels to the extent practicable.”

This means any businesses entering the Philippines must commit to providing as much opportunities to the local workforce as possible.

“In case of reduced employment or when the performance commitment for job generation is not met, the RBEs must submit to their respective Investment Promotion Agencies and the Fiscal Incentive Review Board their justifications for and plans to address the same in the succeeding year,” RA 12066 reads.

Additional incentives

According to the Department of Finance, the new law also requires the government to act swiftly on incentive applications — making official a 20-day turnaround period for applications with complete documents.

From the start of the RBEs’ operations, they may choose between availing of the Special Corporate Income Tax (SCIT) of 5% or the Enhanced Deductions Regime (EDR), which include among others 100% additional deduction on power expenses in the taxable year and 50% deductions on tourism expenses such as exhibitions, trade missions, or trade fairs. Finance Secretary Ralph Recto noted that the power deductions would be helpful for those in the manufacturing sector.

SCIT and EDR incentives may be availed of for 17 up to 27 years. Meanwhile, projects that are labor-intensive may seek a 5 to 10-year extension.

Foreign companies may also be charged an RBE local tax — at 2% of gross income at most — set by local government units.

Meanwhile, registered export enterprises and high-value domestic market enterprises now also get more incentives under the new law.

RBEs’ donations of equipment, raw materials, spare parts or accessories to the government, any government-owned or -controlled operations, the Technical Education and Skills Development Authority (TESDA), state universities and colleges, and schools accredited by either the Department of Education or Commission on Higher Education may be exempted from taxes as well.

The CREATE MORE law also allows businesses to implement flexible or hybrid work arrangements while still remaining eligible for business incentives.

Previous incentives to be honored

Marcos clarified that previous incentives granted will still be honored.

“This law authorizes businesses established before the CREATE Act to continue enjoying their national and local benefits, including VAT and duty incentives, until 2034,” the President said.

Businesses established before the CREATE law also have until the end of the year to register to make them eligible for the new business incentives. – Rappler.com