HIGHLIGHTS OF THE CREATE MORE LAW

On November 8, 2024, President Ferdinand Marcos Jr. signed into law R.A. No. 12066, also known as the CREATE MORE Act. This legislation aims to strengthen and expand tax incentives to promote economic recovery, support enterprises, and attract foreign investments.

Below are the key features of this significant legislation:

1. Income Tax Implications
   • Corporate Income Tax Reduction: The Corporate Income Tax rate for Registered Business Enterprises (RBEs) under the Enhanced Deductions Regime (EDR) is reduced from 25% to 20%.
   • Expanded Tax-Exempt Income Scope: Income exempt under treaty obligations now includes agreements entered into by the President with economies and administrative regions, subject to Senate concurrence.
   • Deduction of Input Tax: Input VAT paid on local purchases related to VAT-exempt sales can now be deducted from gross income.
   • Withholding Tax Cap: Sets a maximum creditable withholding tax rate of 15% for payments to individuals and corporations residing in the Philippines.
2. Value-Added Tax (VAT) Implications
   
   • Expanded VAT Zero-Rating: Purchases related to goods or services sold to export-oriented enterprises qualify for VAT zero-rating if:
     • At least 70% of annual production is exported based on the previous year’s performance.
     • Sales are certified as “directly attributable” to export activities by the Export Marketing Bureau of the Department of Trade and Industry.
   • VAT Exemptions and Zero-Rating for RBEs:
     • Importation and local purchases of goods or services “directly attributable” to registered projects or activities are VAT zero-rated or exempt.
     • High-Value Domestic Market Enterprises (DMEs) enjoy similar incentives. These are domestic enterprises with:
       • Investment capital exceeding Php 15 billion.
       • Export sales of at least USD 100 million in the previous year.
   • Definition of “Directly Attributable”: Refers to goods and services essential for export activities, including janitorial, security, financial, consultancy, and administrative services like human resources, legal, and accounting.
   • Clarification on VAT Treatment:
     • Sales to registered export enterprises are VAT zero-rated, regardless of location.
     • Local sales to non-RBEs or the domestic market are generally subject to 12% VAT unless specified otherwise by law.
3. Tax Incentives Implications
   
   • Expanded Enhanced Deductions:
     • 100% additional deductions on power expenses incurred.
     • 50% deductions for reinvestment allowances in manufacturing and tourism industries, valid for five years.
     • 50% additional deductions for expenses related to exhibitions, trade missions, or trade fairs.
     • Enhanced Net Operating Loss Carry-Over (NOLCO) for losses incurred during the first three years, deductible within the next five years after the Income Tax Holiday (ITH).
   • Local Business Tax Reforms:
     • Introduces the Registered Business Enterprise Local Tax (RBELT) capped at 2% of gross income, replacing local taxes for RBEs under ITH or EDR.
     • RBEs under the 5% Special Corporate Income Tax (SCIT) rate are exempt from national and local taxes, fees, and charges.
   • Extended Incentive Periods:
     • Incentive periods for qualified RBEs extend from 17 to 27 years.
     • Allows an additional 10 years of SCIT or EDR for FIRB-approved projects.
     • Grants High-Value DMEs the same incentives as export enterprises.
     • Extends pre-2021 incentives for RBEs by three additional years (until December 31, 2034).
     • Extends VAT and duty incentives to cover the entire RBE registration period.
   • Work-From-Home (WFH) Arrangements: Permits up to 50% of an RBE’s workforce to operate under WFH setups without affecting incentives.
4. Administrative Provisions
   
   • Streamlined VAT and Excise Tax Refunds: Simplifies processes and improves transparency for refund claims.
   • Creation of RBETS: Establishes the Registered Business Enterprise Taxpayers Service (RBETS) within the BIR to assist RBEs with tax compliance.
   • Support for Foreign Investors: Investment Promotion Agencies (IPAs) must establish One-Stop Action Centers to aid RBEs in setting up and operating their businesses.
   • Enhanced IPA Approval Thresholds: Raises the capital investment threshold for IPA approval from Php 1 billion to Php 15 billion, with projects exceeding this amount requiring FIRB approval.

The CREATE MORE Act represents a pivotal step toward fostering a competitive, transparent, and investor-friendly economic landscape, ensuring inclusive growth and robust economic recovery.