Part 1 of 2.
Last 27 November 2024, RA No. 12066, otherwise known as the CREATE MORE Act, took effect after its publication. This law is issued to amend certain sections of the National Internal Revenue Code of 1997, and to add new sections in relation to recent developments. It aims to modernize the tax system to attract new investments and consequently boost the economic growth of the country. This article focuses on the updates on the tax and duty incentives as well as the conditions of availing for such.
In addition to the usual incentives that can be availed of by Registered Business Enterprises (RBEs) on registered projects or activities, CREATE MORE Act increased the additional deduction on power expense from 50% to 100% on power utilized for the registered project under the Enhanced Deduction Regime (EDR). A new deductible expense of 50% of expenses relating to exhibitions, trade missions, or trade fairs was added to include expenses incurred in promoting the export of goods or the provision of services to foreign markets.
Also, the net operating loss of the registered project or activity during the first three (3) years from the start of commercial operation may be carried over within the next five (5) consecutive taxable years immediately following the last year of the income tax holiday (ITH) entitlement period of the project.
Under the EDR, the concerned local government unit may impose an RBE local tax at the rate of not more than two percent (2%) of RBE’s gross income, which shall be in lieu of all local taxes and local fees and charges imposed by the local government unit.
Registered export enterprises may opt to choose income tax holiday (ITH) followed either by special corporate income tax (SCIT) or enhanced deduction regime (EDR). Another option is to forego the ITH and be covered either by the 5% SCIT or the EDR immediately upon the start of its commercial operations. In all instances, the preferred incentive shall be irrevocable for the entire duration of entitlement, provided that in no case shall the EDR be granted simultaneously with the SCIT.
On the other hand, registered domestic market enterprises may opt for either ITH followed by EDR or EDR immediately at the start of its commercial operations, which shall also be irrevocable for the entire duration of entitlement, provided that the corresponding conditions shall be complied with.
Among other material amendments, CREATE MORE also revised the eligibility criteria for VAT exemption and VAT zero-rating. Now, the purchase of goods or services that are “directly attributable” to the registered project or activity may qualify for the VAT incentive. Specifically, if used directly in the registered activity, VAT exemption or zero-rating applies to (i) Janitorial services, (ii) Security services, (iii) Financial services, (iv) Consultancy services, (v) Marketing and promotional services, and (vi) Administrative operations, including human resources, legal, and accounting services.
Please be guided accordingly.
Source:
P&A Grant Thornton
Certified Public Accountants
P&A Grant Thornton is the Philippine member firm of Grant Thornton International Ltd.
As published in SunStar Cebu, dated 19, 2024
