Tax Articles

Proposed Changes under CREATE MORE

By: Atty. Mabel L. Buted

Mabel L. Buted Partner   +632 8403-2001 loc.160 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

Aiming to enhance the Philippine tax incentives policy and administration, our legislature passed the CREATE MORE bill (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy), amending the present CREATE. The Bicameral Conference Committee had already approved the bill on September 10, 2024. After the same is signed into law, we will be faced with yet another change in our Tax Code. So, here is a preview of the proposed amendments affecting Registered Business Enterprises (“RBEs”).

Under CREATE MORE, RBEs opting for or covered by the Enhanced Deductions (“ED”) Regime will be subjected to income tax on their taxable income derived from registered projects or activities at a reduced rate of 20%. These enterprises availing of the ED will also enjoy 100% additional deduction on their power expense. The 5% Special Corporate Income Tax Rate (“SCIT”) that used to be paid in lieu of all national taxes and local taxes will also be considered a substitute payment for all local fees and charges imposed by the LGUs, in addition to the national and local taxes.

In the proposed bill, the period to enjoy ED or SCIT of RBEs was increased (10 to 27 years). The period to avail for the income tax-based incentives, including the Income Tax Holiday, depends on the granting authority (either the Fiscal Incentives Review Board or FIRB or the Investment Promotion Agency or IPA). IPAs have the power to grant incentives for investments of P15 billion and below.

An RBE local tax (“RBELT”) is introduced. The RBELT may be imposed by the LGUs through an ordinance at not more than 2% of gross income. This will be paid by RBEs enjoying ITH or ED in lieu of all local taxes, fees, and charges under the Local Government Code.

There are also changes included in the availment of incentives on VAT exemption on importation and VAT zero-rating on local purchases of RBEs. To recall, the implementing rules and regulations of CREATE limited the application of these incentives to Registered Export Enterprises (“REEs”) only. In addition, the supply and purchases of goods and services must be exclusively and directly used in the registered project or activity of REEs before the importation, and local purchases may be exempted or subjected to 0% VAT. This means that these materials, supplies, goods, and services must be necessary for the registered project or activity, and without them, such project or activity cannot be carried out.

Under CREATE MORE, these requirements are relaxed. In the bill, not only REEs but also registered domestic market enterprises (“DMEs”) would enjoy the VAT incentives, if they are considered high-value DMEs. These will include only (a) those enterprises with investment capital of more than P15 billion and engaged in sectors considered import-substituting, or (b) those whose export sales are at least 100 million USD in amount in the immediately preceding year. Further, qualified RBEs will be exempted from VAT and subjected to 0% VAT on their importation and local purchases, provided that the goods and services are directly attributable to the registered project or activity. These apply to any goods and services that are incidental to and reasonably necessary for the registered project or activity of the enterprise, and these embrace administrative expenses like expenses on services on janitorial, security, financial, consultancy, marketing and promotion, and services rendered for administrative operations (e.g., human resources, legal and accounting).

One of the important changes introduced by CREATE MORE is the relaxation of the requirement for RBEs registered under IPAs administering economic or freeport zones to exclusively conduct or operate within the zone as condition for the enjoyment of benefits. This is still the rule even under CREATE MORE. However, an RBE may institute telecommuting program, including a work-from-home arrangement covering not more than 50% of the RBE’s total workforce. Work conducted outside the zone, provided the conditions are properly observed, should not affect the entitlement to incentives.

While these changes introduced by CREATE MORE are clear, we also hope that the rules and regulations that would be crafted to implement the same are also clear and simple so that the spirit behind the enactment of the law is achieved.