December 10, 2024 | 12:00am
The Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy, also known as CREATE MORE (RA 12066), has recently been enacted into law. This legislation amends certain provisions of the CREATE Act (RA 11534) to provide ‘more’ benefits for taxpayers. Among its most interesting features are the improvement of the incentive packages and the relaxation of conditions for VAT exemption on importation and VAT zero-rating on local purchases of goods and services by registered business enterprises (RBEs), to name a few.
Foremost is the enhancement of the incentives available to RBEs. CREATE MORE allows RBEs to choose which incentive package to avail themselves of at the start of commercial operations and accordingly adjusts the applicable period for availing of the chosen package.
To recall, under the CREATE Act, RBEs initially enjoy an income tax holiday for four to seven years, depending on location and industry, before availing themselves of either the five percent special corporate income tax (SCIT), which is in lieu of all national and local taxes, or enhanced deductions for 10 years.
Under CREATE MORE, registered export enterprises are given the choice to skip the ITH and immediately avail either the SCIT or the enhanced deduction regime (EDR) incentive at the start of commercial operations. This is granted for 14 to 17 years if approved by the Investment Promotion Agency (IPA), or for 24 to 27 years if granted by the Fiscal Incentives Review Board (FIRB).
On the other hand, registered domestic market enterprises may elect to immediately avail themselves of the EDR for a period of 14 to 17 years from the start of commercial operation if granted by the IPA, or for 20 to 27 years if approved by the FIRB, again depending on location and industry.
This development comes with a caveat that the election of which incentive package to avail themselves of will be irrevocable throughout the incentivized period. Moreover, the period of entitlement may be extended by up to five years, for incentives approved by the IPAs, or up to 10 years if approved by the FIRB, provided that the RBE maintains at least 10,000 employees during its registration.
CREATE MORE also introduced improvements to the EDR incentive. First, RBEs that elect the EDR will benefit from a reduced corporate income tax rate of 20 percent, down from the regular rate of 25 percent.
Second, the additional deduction for power expenses of RBEs in a taxable year has increased from 50-percent to 100 percent, on the condition that this shall only apply to power utilized for the registered project or activity. And lastly, the introduction of a 50 percent deduction on expenses relating to trade fairs, exhibitions, or trade missions, which shall include expenses incurred in promoting the export of goods or the provision of services to foreign markets, as approved by the concerned Investment Promotion Agency.
Finally, CREATE MORE relaxed the criteria for REEs to enjoy VAT exemption on importations and zero VAT rate on local purchases of goods and services. To qualify for these incentives, the said law requires that the export enterprise’s export sales are at least 70 percent of the total annual production of the preceding taxable year, and the imported goods or locally purchased goods and services are “directly attributable” to its registered activity.
As defined under the law, “directly attributable” refers to goods and services that are incidental to or reasonably necessary for the export activity of an export enterprise. This includes janitorial, security, financial, consultancy, marketing and promotion services, and services rendered for administrative operations such as human resources, legal and accounting. This is a highly appreciated change from the previous rule, which strictly required goods and services to be directly and exclusively used in the registered project or activity to be exempted from VAT on importation or subject to zero VAT rate on local purchases.
The CREATE MORE Act introduced several promising changes for RBEs operating in the country. However, as optimistic as these changes are, successful implementation is equally crucial. The implementing rules will be essential for the seamless and effective implementation of its key features, ultimately ensuring that the law achieves its primary objective of stimulating economic growth and fostering long-term prosperity for the Philippines.
Ria Mariz Nadora is a Supervisor under the Tax Group of R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Ria Mariz Nadora or Maria Myla Maralit through [email protected], social media or visit www.home.kpmg/ph.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or R.G. Manabat & Co.
Be the first to comment