Implementing Rules and Regulations of Title XIII of Republic Act No. 8424 as Amended by CREATE MORE Act

The Implementing Rules and Regulations (IRR) for RA 12066 have been issued, updating several sections and adding new provisions to the National Internal Revenue Code of 1997. These updates aim to enhance taxation and investment policies, with input from the Department of Finance (DOF), the Department of Trade and Industry (DTI), and other key government agencies.

• Scope and Coverage
• Summary of Income Tax-Based Incentives and Other Key Provisions
• Strategic Investment Priority Plan
• Registration and Availment of Tax Incentives

Scope and Coverage

This section highlights how this amendment affects the following entities:

1. Investment Promotion Agencies (IPAs): Covers all IPAs unless specifically exempted.
2. Newly Registered Enterprises: Includes new projects, expansion projects, or activities under the Strategic Investment Priority Plan (SIPP).
3. Existing Registered Enterprises: Applies to enterprises enjoying incentives before RA No. 11534 (CREATE Act) and RA No. 12066 took effect
4. Other Government Agencies: Covers agencies administering tax incentives and other registered enterprises availing of tax incentives.
5. Government-Owned Entities: Includes GOCCs, government instrumentalities, government commissaries, and SUCs receiving tax subsidies under the General Appropriations Act (GAA).

**Note:

1. Increased Investment Threshold: The FIRB raised the investment capital threshold for projects handled by Investment Promotion Agencies (IPAs) from ₱1 billion to ₱15 billion through FIRB Resolution No. 003-24 to enhance ease of doing business and attract more investments.
2. Empowering IPAs: The adjustment aligns with policy proposals in Congress, granting IPAs more authority in approving tax incentives while ensuring greater accountability and compliance among registered business enterprises (RBEs).
3. Oversight and Compliance: Projects exceeding ₱15 billion will still be under the FIRB’s jurisdiction, while IPAs must report approved projects in their monthly reports. The FIRB retains oversight over all registered business entities regardless of investment capital.

Summary of Income Tax-Based Incentives and Other Key Provisions

The IRR establishes a comprehensive tax incentive framework aimed at attracting investments and supporting business growth. By offering income tax holidays, special corporate tax rates, enhanced deductions, and VAT/customs exemptions, the government ensures a competitive environment for businesses operating in both the export and domestic markets. These incentives, coupled with local tax policies and post-incentive taxation rules, position the Philippines as an attractive destination for business expansion and investment.

The Implementing Rules and Regulations (IRR) outline tax incentives available for Registered Business Enterprises (RBEs), including income tax exemptions, special tax rates, enhanced deductions, and other fiscal benefits. These incentives aim to create a competitive business environment by reducing tax burdens and encouraging investment in key industries.

Income Tax Holiday (ITH)

Grants full exemption from regular income tax on income earned from registered projects or activities. During the ITH period, income payments are not subject to creditable withholding tax (CWT), and no Bureau of Internal Revenue (BIR) ruling is required to avail of this benefit.

Special Corporate Income Tax (SCIT)

Applies exclusively to Registered Export Enterprises (REEs) and imposes a 5% tax on Gross Income Earned (GIE) in lieu of all national and local taxes. The revenue allocation under SCIT is structured as 3% to the National Government and 2% to the Local Government Unit (LGU) where the enterprise operates. The gross income earned is defined as revenues from registered activities, less deductions such as sales discounts, returns, and direct costs (e.g., wages, raw materials, depreciation, and utilities). Private ecozone developers remain liable for real property tax on owned land.

Enhanced Deductions Regime (EDR)

RBEs can enjoy additional allowable deductions on top of those permitted under the Tax Code. However, SCIT and EDR cannot be availed simultaneously. The key enhanced deductions include additional depreciation (10% for buildings and 20% for machinery and equipment used in production), additional labor expense deductions (50% of direct local labor costs, excluding administrative and managerial salaries), and 100% additional deductions for research and development (R&D) expenses tied to registered projects. Additional deductions are also available for training expenses, domestic input costs, and power expenses. RBEs engaged in manufacturing and tourism may benefit from a 50% reinvestment allowance, applicable for up to five years until December 31, 2034. Additional deductions are also available for trade promotion expenses (50% of qualified expenditures) and an Enhanced Net Operating Loss Carry Over (NOLCO), which allows losses incurred within the first three years to be carried over for five years beyond ITH.

Customs Duty and VAT Incentives

Provide significant financial relief for REEs and Domestic Market Enterprises (DMEs). These enterprises are exempt from customs duties on capital equipment, raw materials, spare parts, and accessories used in registered projects, as well as goods used for administrative purposes directly linked to the business. To qualify, imported items must be directly attributable to the registered project and not locally available in sufficient quantity, quality, or reasonable price. VAT incentives include VAT exemption on importation and VAT zero-rating on local purchases for goods and services directly used in a registered project. The sale of goods and services to an REE or High-Value DME is subject to 0% VAT, while transfers to a DME are subject to 12% VAT on the net book value. Local sales to DMEs or non-RBEs are subject to VAT, with the buyer responsible for remittance.

Taxation of Petroleum Products

Resellers of petroleum products are not eligible for tax and duty incentives. However, exemptions apply to petroleum products used for international shipping and air transport under Sections 109(U) and 135(A) of the Tax Code. Directly imported petroleum products used by international carriers (both Philippine and foreign registry) may qualify for excise tax refunds, subject to BIR and Bureau of Customs (BOC) regulations. Additionally, importers who export fuel may apply for a duty and tax refund under the Customs Modernization and Tariff Act (CMTA).

Local Government Taxation (RBELT)

Provides guidance on local tax obligations for RBEs. LGUs may impose a tax of up to 2% of gross income during the ITH and EDR period, in lieu of local business taxes. However, RBEs under SCIT are exempt from RBELT. BOI-certified pioneer RBEs enjoy an exemption from local business tax for six years, while non-pioneer RBEs are exempt for four years. The revenue collected under RBELT is shared equally among LGUs (50%), with the remaining 50% apportioned based on population.

The IRR also provides guidance on Post-Incentive Taxation and Compliance. The BIR will establish a dedicated service for RBEs, streamlining tax compliance, return filing, and tax payments.

Simplified tax filing and payment processes will be implemented, while Investment Promotion Agencies (IPAs) or the Fiscal Incentives Review Board (FIRB) retain the authority to cancel or withdraw tax incentives if necessary. Once incentives expire, RBEs must pay regular taxes under the Tax Code.

However, REEs may still qualify for VAT zero-rating on local purchases and VAT exemption on importation, provided they comply with Tax Code requirements. Additionally, income from non-registered projects or activities is subject to regular taxation under the Tax Code.

Strategic Investment Priority Plan

The SIPP will provide fiscal and non-fiscal support to:

• Create high-skilled jobs and grow MSMEs to supply domestic and global value chains.
• Enhance the sophistication of locally produced or sourced products and services.
• Expand domestic supply and reduce import reliance.
• Attract significant foreign investment.
• Promote export diversification and countryside development aligned with SIPP criteria.
• Foster new industries and support emerging sectors.

Criteria for determining investment priorities:

• Significant investment contributions;
• Substantial employment generation, particularly in less developed areas;
• Notable increase in net exports;
• Utilization of modern, advanced, or innovative technologies, including existing technologies not yet applied in the Philippines;
• Adoption of processes and innovations, such as urban planning and development methods, that align with sustainable development goals, including the implementation of effective environmental protection systems and sustainability strategies;
• Addressing gaps or missing links in the supply or value chain, or advancing up the value chain or product ladder;
• Enhancing market competitiveness and strengthening the country’s position as a preferred investment destination;
• Building the capabilities of Filipino enterprises and professionals to deliver more sophisticated products and services;
• Supporting Philippine food security and boosting incomes in the agriculture and fisheries sectors;
• Encouraging regional and global business operations within the country.

The IPAs will only accept applications for projects or activities included in the SIPP. Any project or activity not listed in the SIPP will be automatically rejected. However, all areas currently in the SIPP will remain open for applications until any changes, such as amendments or deletions, are officially published.

Registration and Availment of Tax Incentives

Authority of the FIRB to Grant Tax Incentives

As mentioned above, the FIRB, based on the recommendation of the relevant IPA, will decide whether to approve or reject tax incentives for projects or activities with investment capital exceeding ₱15 billion. The FIRB, in consultation with IPAs, may increase this ₱15 billion threshold.

Authority of the IPAs

The relevant IPA has the sole authority to register all projects or activities, regardless of investment size, as long as they meet the minimum standards outlined in the rules.

The IPA can approve or reject tax incentives for projects or activities with investment capital of ₱15 billion or less, provided they comply with the Tax Code and the prescribed standards.

Projects covered by special laws not repealed or amended by RA Nos. 11534 and 12066 will still be managed by the IPA authorized under those laws. Incentives specified in these laws will continue to apply. However, if the law refers to incentives under the “Omnibus Investments Code of 1987,” the incentives and conditions under the Tax Code will apply instead.