Chapter 16: TAX INCENTIVES
Chapter 16
TAX INCENTIVES
Under Title XIII of the Tax Code
The discussions in this Chapter are in Pursuant to Section 21 of Republic Act No. 11534, OTHERWISE KNOWN AS "CREATE ACT" REFORMING THE CORPORATE INCOME TAX AND INCENTIVES SYSTEM, EFFECTIVELY LOWERING INCOME TAX RATES, OPTIMIZING FISCAL INCENTIVES, AMENDING FOR THE PURPOSE SECTIONS 27, 28, 34, 57, 109, 116, 204 AND 290 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997 OR THE TAX CODE, AS AMENDED, AND CREATING THEREIN NEW TITLE XIII, AND FOR OTHER PURPOSES.
SCOPE AND COVERAGE
Section 291 of the Tax Code (as amended) and IRR of Art. XIII
The scope and coverage of this Chapter, as provided for under the implementing Rules and Regulations (IRR) of the XIII of the Tax Code created under CREATE Act, are the following:
1. All existing Investment Promotion Agencies (IPAs) as defined in the rules and related laws with respect to the administration and granting of tax incentives unless otherwise specifically exempted from the coverage hereof.
INVESTMENT PROMOTION AGENCIES (Section 293 of the Tax Code, as amended)
These refer to agencies, offices or instrumentalities of the government, in charge of promoting investments, administering tax incentives and overseeing the operations of the different economic zones and industrial estates and special economic zones. These agencies include the Board of Investments (BOI), Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Clark Development Corporation (CDC), John Hay Management Corporation (JHMC), Poro Point Management Corporation (PPMC), Zamboanga City Special Economic Zone Authority (ZamboEcoZone), Authority of the Freeport Area of Bataan (AFAB), Tourism Infrastructure and Enterprise Zone Authority (TIEZA), and ALL OTHER SIMILAR OFFICES/AGENCIES that may be created by law without distinction as to whether the same was created by legislative or executive action.
2. All newly registered projects or activities including qualified expansion projects or activities may be registered with the IPAs as provided under this Title. The incentives under Title XIII of the Tax Code as amended by the CREATE Act shall be as follows:
"Strategic Investment Priority Plan (SIPP)" refers to the plan created by the BOI in coordination with the FIRB, and IPAs and OAs administering tax incentives, and in consultation with the President, and contains the priority projects or activities, scope and coverage of location and industry size, accommodation for non-export support and corresponding activities, and the time period of availment, as may be approved, determined, analyzed, data, guidelines, or criteria, as the BOI may deem appropriate.
3. Registered Enterprises (Registered Business Entities/Enterprises (RBEs)), projects, or activities currently registered with IPAs and enjoying incentives prior to the effectivity of the Act.
REGISTERED BUSINESS ENTERPRISE (Section 293(m) of the Tax Code, as amended)
Refers to any business entity, association, or cooperative organized and existing under Philippine laws and registered with an investment promotion agency granting incentives such as those engaged in customs brokerage, trucking or forwarding services, janitorial and security services, and similar services, whether domestic or foreign, consultancy services, retail enterprises, restaurants, or other similar services, as may be determined by the FIRB, respective implementing rules and outside the zone, duly accredited and issued by the investment promotion agencies and/or income tax incentives or other economic zone may be registered for the purpose of availment of incentives.
4. Other government agencies administering tax incentives with respect to the administration and implementation of tax incentives granted under Title XIII of the Tax Code as amended by the CREATE Act defined under Government Agencies.
"OTHER GOVERNMENT AGENCIES (OGA) ADMINISTERING TAX INCENTIVES" refer to government agencies or instrumentalities other than IPAs which may administer tax incentives of any kind to any specific entities or class of persons pursuant to any law.
5. Government-owned, and/or controlled corporations (GOCCs), government instrumentalities (GIs), government commissaries, and state universities and colleges (SUCs) that were granted subsidies under the tax expenditure fund of the Annual General Appropriations Act.
EXTENT OF AUTHORITY TO GRANT INCENTIVES
The Fiscal Incentives Review Board (FIRB), shall the Investment Promotion Agencies (IPAs) under a delegated authority from the FIRB or grant tax incentives to registered projects or activities pursuant to the Strategic Investment Priority Plan (SIPP).
SUMMARY OF TAX AND DUTY INCENTIVES AND PERIOD OF AVAILMENTS
Section 294 and 295 of Tax Code, as amended under RMC 02-2021
Subject to the conditions and period of availment in sections 295 and 296, respectively, the following types of tax incentives may be granted to registered projects and activities:
ITH
5% SCIT
Export Enterprises: ✓
Domestic Enterprises: ×
ED
10 years*
Export Enterprises: ✓
Domestic Enterprises: ×
DUTY EXEMPTION
10 years*
Export Enterprises: ✓
Domestic Enterprises: ✓
VAT Exemption and Zero-rating
Export Enterprises: ✓
Domestic Enterprises: ✓
*At the option of the export enterprise, the 5% SCIT rate or ED shall be granted
1. INCOME TAX HOLIDAY (ITH)
EXPORT ORIENTED ENTERPRISES or Registered Export Enterprises (REEs)
• May be granted an ITH of four (4) to seven (7) years depending on location and industry.
• After the lapse of the ITH period, the enterprise shall be subject to either:
a. 5% Special Corporate Income Tax (SCIT) OR
b. Enhanced Deduction (ED) for a period of ten (10) years.
At the option of the export enterprise, the SCIT rate or ED shall be granted; provided, that in no case shall the same be granted simultaneously. The conditions set forth under Section 295 of the Tax Code as amended shall be complied with.
The option to avail of either SCIT or enhanced deductions after the ITH period shall be exercised by the Registered Business Enterprise (RBE) at the time of application for registration of the project concerned PPA. Such option (SCIT or ED) shall be irrevocable for the entire duration of entitlement to such incentives.
Section 4(1) of the IRR of the Tax Incentives under Title XIII of the Tax Code as amended by the CREATE Act defined Export Enterprise as follows:
"export enterprise or Registered Export Enterprise (REE) refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine laws and registered with an Investment Promotion Agency (IPA), which is engaged in manufacturing, processing, repacking, assembly and other activities resulting in the alteration of the form or content of the product, or which renders services to export-oriented enterprises, where at least seventy percent (70%) of its total production or output is exported.*"
DOMESTIC MARKET ENTERPRISES
• May be granted an ITH of four (4) to seven (7) years depending on location and industry.
• Enhanced Deduction (ED) is applicable for a period of five (5) years.
NOTE:
a. The option to choose SCIT instead of ED is NOT APPLICABLE to Domestic Market Enterprises.
b. For Domestic Market Enterprises, Enhanced Deduction (ED) is applicable only for a period of five (5) years instead of ten (10) years.
Section 4(1) of the IRR of the Tax Incentives under Title XIII of the Tax Code as amended by the CREATE Act defined Export Enterprise as follows:
"domestic market enterprise refers to any enterprise registered with an IPA other than an export enterprise."
COVERAGE OF ITH (PEZA MC 2004-024 and Art. 78 of E.O. 226)
• RTT (2% or 25% under CREATE Act)
• Local business taxes, fees and charges
• Real Property Tax (RPT) on machinery and equipment within three (3) years from acquisition
The aforementioned taxes and fees shall not be imposed during the effectivity of the ITH.
OUT OF COVERAGE OF ITH (PEZA MC 2004-024 and Art. 78 of E.O. 226)
• Value Added Tax (VAT)
• Final Withholding Tax (FWT) on passive income
• Withholding Tax on payments
• Documentary Stamp Tax (DST)
(1) The aforementioned taxes (VAT, FWT, DST, etc.) shall be imposed even during the effectivity of the ITH period. These taxes, including RCT/ICT for unregistered activities, are beyond the coverage of ITH.
PROJECTS OR ACTIVITIES LOCATED IN AREAS RECOVERING FROM ARMED CONFLICT OR A MAJOR DISASTER
In addition to the incentives provided in the preceding Section, projects or activities registered business enterprises located in areas recovering from armed conflict or a major disaster shall be entitled to two (2) additional years of availment of ITH, subject to the submission of the following documents:
a. Declaration of the President or his/her authorized representatives of the existence of armed conflict or major disaster, including pandemic, within the locality;
b. The issuance of a proclamation declaring the start of the recovery period; and
c. Issuance of certification as to the implementation of recovery projects in the affected area or areas.
PROJECTS OR ACTIVITIES RELOCATING FROM THE NATIONAL CAPITAL REGION
A project or activity registered under this Act, who elects to relocate outside Metro Manila as provided under Section 294(C) of the Tax Code, shall be granted an additional two (2) years of availment of ITH in excess of the period prescribed under the Certificate of Registration issued to the RBE.
a. For an existing project or activity registered under this Act, the additional incentive shall be granted upon the transfer of its operation to the new location;
b. For existing project under the Certificate of Registration issued to the RBE, additional three (3) years of ITH shall commence after the expiration of the transition period.
Completion of the transfer shall signify the relocation of the facilities outside of NCR, including the transfer of the full operation of the registered project or activity to the new area of operation.
CERTIFICATE OF ENTITLEMENT TO TAX INCENTIVES (CETI)
The Fiscal Incentives Review Board (FIRB) shall issue the Certificate of Entitlement to Tax Incentives (CETI) prior to the filing of Income Tax Return (ITR). A registered business enterprise (RBE) shall apply for CETI to confirm whether its registered project or activity is entitled to Income Tax Holiday (ITH) or the 5% Special Corporate Income Tax (SCIT) either for the taxable period. Each registered activity shall be issued a separate CETI.
The industry and investment prioritization specified herein shall be subject to review and revision every three (3) years in accordance with the SIPP, and in exceptional cases, the FIRB may recommend to the President to respond to a change in the industry, to target specific industries or to respond to emergencies, calamities, public health emergencies and/or other analogous circumstances.
2. SPECIAL CORPORATE INCOME TAX (5% SCIT)
This incentive shall be applicable only after the lapse of the ITH period. A Special Corporate Income Tax (SCIT) rate of five percent (5%) on Gross Income Tax (GIT) or Gross Income Tax equivalent to five percent (5%) effective July 1, 2020, based on the gross income earned in lieu of all national and local taxes.
Section 2, Part II of the IRR of Title XIII of the Tax Code as amended by CREATE Act provides that the SCIT shall be equivalent to a tax rate of five percent (5%) based on Gross Income Tax (GIT) in LIEU OF ALL NATIONAL TAXES AND LOCAL TAXES. The 5% Special Corporate Income Tax (SCIT) in lieu of all national and local taxes shall include income taxes, VAT, excise taxes, percentage taxes and local taxes, fees and charges as defined under Section 131 (i) and (j) of the Local Government Code of 1991.
SCIT incentive is available only after ITH period and is applicable only to export oriented enterprises. This incentive is also known as the 5% tax regime or 5% Gross Income Tax (GIT).
The 5% SCIT is based on the nature and character of the tax as a tax on gross income, which is a tax on the gross receipts or gross sales derived from the registered activity, less sales returns, allowances and discounts. The 5% SCIT is also known as the 5% tax on gross income in lieu of all taxes.
NATIONAL TAXES AND FEES to be imposed under the national government agency such as the following shall be covered by the SCIT:
• Regular corporate income tax (RCIT)
• Minimum Corporate Income Tax (MCIT)
• Transfer taxes
• Value-Added Tax (VAT)
• Excise taxes
• Other percentage taxes
PEZA registered companies are exempt from creditable withholding tax, except for unregistered operations. However, companies which are not exempt from tax shall be subject to withholding tax. In case the enterprise is VAT-registered, the input tax attributable to VAT exempt sales shall be treated as cost or expense and is not allowed as input tax credit.
Section 11 of the IRR provides that the national government may impose the following taxes and fees which shall not be passed on to the registered enterprises:
a. Three percent (3%) tax on gross sales or gross receipts;
b. The percentage tax based on the actual amount paid by the registered enterprises to the treasurer's office of the municipality or city where the enterprise is located.
In case the Special Economic Zone (EZ/EC) is situated and encompasses the territorial jurisdiction of more than one (1) city or municipality, the share of each city or municipality from the 2% SCIT paid by registered enterprises shall be determined in accordance with the implementing rules and regulations. PEZA shall issue certification to the said enterprise as to the percentage share of each LGU as may be determined in accordance with the implementing rules and regulations as amended by RMC 01-2021.
"Gross Income Earned", for this purpose, refers to gross sales or gross revenues derived from the registered activity, net of sales discounts, sales returns and allowances and minus costs of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period. Only the items enumerated below shall be considered as deductions for purposes of computing the gross income earned to which the five percent (5%) SCIT rate:
a. Direct salaries, wages and labor expenses;
b. Raw materials used in the manufacture of products;
c. Goods in process (intermediate goods);
d. Finished goods;
e. Depreciation of machinery, equipment, and building used directly and exclusively in the rendition/production of services;
f. Renting and/or leasing charges associated with machinery, equipment, and warehouses used directly and exclusively in the rendition/production of services;
g. Financing costs, the amount of fixed assets used directly and exclusively in the registered activity which shall not be depreciated;
h. Direct materials and supplies used;
i. Other direct expenses necessary for the production of goods or services.
Exemption of PEZA Registered Enterprises from Local Taxes, Licenses and Fees
PEZA registered enterprises availing of TH incentive are exempt from payment of all local taxes, fees and charges, except real estate taxes, provided that these exemptions shall inure to the benefit of the government or its political subdivision. In case of payment of such amount, the same shall form part of the income of the LGU concerned. PEZA registered enterprises, availing of the 5% GIT incentive are exempt from national and local taxes, except real property tax owned by developers.
REGISTRATION FROM VAT TO NON-VAT
RMC 152-2022 dated December 7, 2022 requires Registered Export Enterprises (REEs) who have completed their ITH and are now availing themselves of the 5% SCIT incentive to change their registration from VAT to Non-VAT.
3. ENHANCED DEDUCTIONS (ED)
Section 3, Part II of the IRR of Title XIII of the Tax Code as amended by CREATE Act provides that: Registered business enterprises may be entitled to enhanced deductions in addition to the allowable ordinary and necessary deductions under Section 34(A) of the Tax Code, as amended.
Export enterprises or Registered Export Enterprises (REEs) may, at their option, avail of the enhanced deductions or the SCIT rate. In no case, however, shall enhanced deductions be granted simultaneously with the special corporate income tax.
The following may be allowed as deductions:
A. Additional depreciation allowance of the assets acquired for the production of goods and services (qualified capital expenditure). From the total depreciable cost of the assets that are directly related to the registered enterprise's production of goods and performance of services (qualified capital expenditure), a registered business enterprise may be allowed to claim an additional depreciation allowance of:
1. Ten percent (10%) for buildings; and
2. Twenty percent (20%) for machinery and equipment.
B. Additional Deduction on Labor Expense. Registered business enterprises shall be entitled to an additional deduction from the taxable income of fifty percent (50%) of the total labor expense in the taxable year. The additional deduction shall not include salaries, wages, benefits, and other personnel costs incurred for managerial, administrative, indirect labor, and support services.
C. Additional Deductions on Research and Development Expenses. Registered business enterprises shall be allowed to claim an additional deduction of one hundred percent (100%) on the research and development expense that are directly related to the registered project or activity of the entity and shall be limited to local expenditure incurred for salaries of Filipino employees and consumables and payments to local research and development organizations.
D. Additional Deduction on Training Expense. Registered business enterprise shall be entitled to an additional deduction from the taxable income of one hundred percent (100%) of the total expense on trainings conducted, as approved by the IPAs based on the SIPP, given to the Filipino employees engaged directly in the registered business enterprise's production of goods and services.
To ensure that only technical trainings required by the registered project or activity are covered, the following are not eligible for additional training expense deduction:
1. Onboarding workshops for newly-hired employees;
2. Team building activities, field trips and tours;
3. Executive education and leadership programs for senior management and c-suite;
4. Professional and legal trainings such as sexual harassment, discrimination and fraud;
5. Safety trainings such as evacuation plans, fire drills, workplace violence and first aid. Other safety trainings that are directly related to the performance of core job functions may be covered by the incentives as long as it is part of a technical training program; and
6. Quality trainings such as Iso processes and standards that are not related to the performance of an employee's core job functions.
E. Additional Deduction on Domestic Input Expense. The registered business enterprise shall be allowed to claim an additional deduction of fifty percent (50%) on domestic inputs that are directly related to and actually used in the registered project or activity of the registered business enterprise.
F. Additional Deduction on Power Expense. From the total power costs incurred in the production of the registered project or activity, the registered business enterprise shall be allowed to claim an additional deduction equal to fifty percent (50%) of the total power costs utilized for the registered project or activity.
G. Deduction for reinvestment allowance to manufacturing industry. The reinvestment of undistributed profit or surplus of a registered business enterprise engaged in manufacturing, in any of the projects or activities listed in the SIPP shall be allowed as a deduction, to a maximum of fifty percent (50%), from its taxable income within a period of five (5) years from the time of such reinvestment.
H. Enhanced Net Operating Loss Carry Over (NOLCO). Net operating loss of the registered project or activity during the first three (3) years from start of commercial operations which had not been previously offset as deduction from gross income may be carried over as deduction from gross income within the next five (5) consecutive taxable years, immediately following the year of such loss.
The SIPP shall provide the requirements and conditions for a registered project or activity to be granted the ED from the start of commercial operations under Rule 3 of the IRR.
Provided, That, the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, shall issue revenue rules and regulations on the process to avail of enhanced deductions.
AVAILMENT OF ITH, SCIT AND ED
The start of the period of availment of the foregoing income tax-based incentives shall commence from the actual Start of Commercial Operations (SCO) with the RBE availing of the tax incentives within three (3) years from the date of registration, unless otherwise provided in the Strategic Investment Priority Plan (SIPP) and its corresponding guidelines: Provided, that after the expiration of the transitory period under section 311(c), export enterprises registered prior to the effectivity of this Act shall have the option to reapply and avail of the incentives granted under section 294(b) for the same period provided under this section; subject to the conditions and qualifications set forth in the strategic investment priority plan and performance review by the FIRB.
PRIORITIZATION AND TIERING
The determination of the category shall be based on both location and industry of the registered project or activity, and other relevant factors as may be defined in the Strategic Investment Priority Plan (SIPP).
The location of the registered project or activity shall be prioritized according to the level of the development as follows:
1. National Capital Region (NCR);
2. Metropolitan areas or areas contiguous and adjacent to the National Capital Region (NCR); and
3. All other areas.
The Metropolitan areas shall be determined by the National Economic Development Authority (NEDA). The industry of the registered project or activity shall be prioritized according to the national industrial strategy specified in the SIPP. The SIPP shall define the coverage of the ITERS and provide the conditions for qualifying the activities:
Tier I shall include activities that (1) have high potential for job creation; (2) take place in sectors with market failures resulting in under provision of basic goods and services; (3) generate value creation through innovation, upgrading or moving up the value chain; (4) provide essential support for sectors that are critical to industrial development; or (5) are emerging owing to potential comparative advantage.
Tier II shall include activities that produce supplies, parts and components, and intermediate services that are not locally produced but are critical to industrial development and import-substituting activities, including crude oil refining.
Tier III activities shall include (1) research and development resulting in demonstrably significant value-added, higher productivity, improved efficiency, breakthroughs in science and health, and high paying jobs; (2) generation of new knowledge and intellectual property registered and/or licensed in the Philippines, (3) commercialization of patents, industrial designs, copyrights and utility models owned or co-owned by a registered business enterprise; (4) highly technical manufacturing; or (5) are critical to the structural transformation of the economy and require substantial catch-up efforts.
The period of availment of incentives based on the combination of both location and industry priorities, as determined in the Strategic Investment Priority Plan (SIPP), shall be as follows:
FOR EXPORT ORIENTED ENTERPRISES (Section 296 and Sec. 6 of the IRR)
Location/Industry tiers
Tier I
Tier II
Tier III
National capital region
4 ITH + 10 ED/SCIT
5 ITH + 10 ED/SCIT
6 ITH + 10 ED/SCIT
Metropolitan areas or areas contiguous and adjacent to to the national capital region
5 ITH + 10 ED/SCIT
6 ITH + 10 ED/SCIT
7 ITH + 10 ED/SCIT
All other areas
6 ITH + 10 ED/SCIT
7 ITH + 10 ED/SCIT
7 ITH + 10 ED/SCIT
FOR DOMESTIC MARKET ENTERPRISES (Section 296 and Sec. 6 of the IRR)
Location/Industry tiers
Tier I
Tier II
Tier III
National capital region
4 ITH + 5 ED
5 ITH + 5 ED
6 ITH + 5 ED
Metropolitan areas or areas contiguous and adjacent to the national capital region
5 ITH + 5 ED
6 ITH + 5 ED
7 ITH + 5 ED
All other areas
6 ITH + 5 ED
7 ITH + 5 ED
7 ITH + 5 ED
NOTE:
The option to choose 5% SCIT is not applicable to Domestic Market Enterprises
"Metropolitan areas" refer to Metro Cebu and Metro Davao or those local government units qualified or grouped as such by the National Economic and Development Authority (NEDA) or through laws or executive issuances;
4. VALUE-ADDED TAX (VAT) ZERO-RATING AND EXEMPTION
The VAT exemption on importation and VAT zero-rating on local purchases shall only apply to goods and services directly and exclusively used in the registered project or activity of EXPORT ENTERPRISES, during the period of registration of the said registered project or activity with the concerned IPA; Provided, That transactions falling under Section 106(A)(2)(a)(3), (4), and (5) and Section 108(B)(1) and (5) of the Code, as amended, shall be subject to the twelve percent (12%) VAT pursuant to Revenue Regulations 09-2021. Provided, further, that excess input taxes attributable to zero-rated sales by VAT-registered RBEs, may at the REs option, be refunded or applied for a tax credit, subject to the guidelines provided under Revenue Regulations No. 13-2018, as amended.
Meaning of Direct and Exclusive Use
The direct and exclusive use in the registered project or activity refers to raw materials, inventories, supplies, equipment, goods, services and other expenditures necessary for the registered project or activity without which the registered project or activity cannot be carried out.
RMC 24-2022 provides the following examples of "other expenditures" for this purpose:
a. Insurance costs required to be paid by the IPA before the facility can start operations.
b. Freight costs necessary to bring the raw materials or equipment to be used in the production area.
c. Telecommunication expenses of registered export enterprises engaged in IT/BPO services or other registered project or activity, without the telecommunication services, such registered project or activity cannot be carried out. This, however, does not include telecommunication expenses incurred for administration purposes.
Any costs incurred prior to the registration of a project or activity with the IPA shall NOT be allowed for this purpose. Refer also to Chapter 11 (Value Added Tax) of this book for additional discussion on vat zero rating, specifically in relation to RR 3-2023 dated April 20, 2023.
Only the portion of the expense directly and exclusively used by a registered export enterprise for its registered project or activity shall qualify for VAT zero-rating on local purchases, EXCLUDING those used for administrative purposes. The REGISTERED EXPORT ENTERPRISE concerned should adopt a method to best allocate goods or services purchased, e.g. for utilities, use of separate water and power meters for its registered project or activity or any method that may determine the allocation such as area usage or ratio of utility expenses between cost of sales and administrative expenses as reflected in the prior year Audited Financial Statements. If the goods or services are used in both the registered project or activity and administration purposes and the proper allocation could not be determined, the purchase of such goods and services shall be subject to 12% VAT.
For this purpose, services for administrative purposes, such as legal, accounting, and such other similar services, are NOT considered expenses directly attributable to and exclusively used in the registered project or activity.
Further, RMC 137-2022 provides that the list "other expenditures provided above based on RMC 24-2022 is not "exclusive", hence expenditures not listed therein may be allowed for VAT zero-rating, provided the same can be attributed directly to the registered activity of the REEs. This is true in the case of HMO plans acquired by REEs for employees directly involved in the operations of their registered projects or activities and forming part of their compensation package, for their health maintenance. Providing health benefits is not only an indispensable tool for building a competitive workforce but also ensures continuous and smooth operation of the registered project or activity. However, the VAT zero-rating shall not extend to HMO plans procured for employees dependents, as well as HMO plans for employees not directly involved in the operations of the registered projects or activities of the REEs.
In this regard, all REEs availing of the VAT zero-rate on their acquisition of HMO plans for employees directly involved in their registered project or activity shall provide their suppliers a detailed information on the HMO plans acquired using the format in Annex "A" to ensure that only HMO expenses for qualified employees are given VAT zero rating. This shall also be part of the documents to be submitted by the suppliers in filing the application for VAT zero-rate.
RMC 84-2022 prescribed the template of Sworn Declaration to be executed by the duly registered BE stating that the goods and/or services being purchased shall be used directly and exclusively in the registered project or activity. The said sworn declaration shall then be provided to the RE's supplier prior to the sale transaction to avail of the VAT zero-rate incentives (Refer to the attached format of the Sworn Declaration in Page 834 of this Chapter).
VAT on Local Purchases of Domestic Market Enterprises
As clarified under RMC 24-2022, Registered Business Enterprises (RBEs) which are categorized as Domestic Market Enterprises (DMEs) are NOT entitled to VAT zero-rating. Hence, sale of goods or services to a registered domestic market enterprise shall be subject to VAT at 12%. In addition, the following service enterprises, duly licensed and registered by any of the IPAs, are entitled to VAT zero-rating on their local purchases of goods and/or services:
a. Mining and quarrying services;
b. Farming services;
c. Industrial services;
d. Janitorial services;
e. Security services;
f. Banking and other financial services;
g. Consumers' cooperatives;
h. Construction services;
i. Custom brokerage;
j. Retail enterprises;
k. Restaurants and similar services as may be determined by the Fiscal Incentives Review Board (FIRB).
Sales to Registered Non-Export Enterprises or DMEs located in Ecozones and Freeport Zones shall be treated as sales to NON-RBEs.
Q&A No. 17 of RMC 24-2022, provides that the 5% Gross Income Tax (GIT) or Special Corporate Income Tax (SCIT) regime is a tax on income, hence, shall form part of cost of expenses (not that 5% SCIT/GIT is in LIEU of all National and Local Taxes).
Sales made by Registered Export Enterprises (REE) to non-RBEs pursuant to RMC 08A No. 18 of SEC 24-2022 provides the following rule shall apply:
a. If the seller is VAT-registered while enjoying ITH, sale of goods and services to another registered enterprise is subject to VAT at zero percent, provided the same are directly and exclusively used in the registered project or activity of the purchaser.
b. If the seller is enjoying the 5% SCIT procedure, the sale of goods and services to another registered enterprise, whether export or domestic, is subject to 12% VAT.
Same rule applies to the sale of a DME to a registered export enterprise.
Sales by Non-RBE Export-oriented enterprises
Non-RBE export-oriented enterprises are NOT accorded with the benefits under the III of the Tax Code as amended, hence, they are not entitled to tax incentives. They are only entitled to VAT zero rating on its direct export of goods or services pursuant to Sections 106(A)(2)(1) and 108(B)(2) of the Tax Code, as amended. However, if the non-RBE exporter is registered and sells goods and services to a registered export enterprise, the sale under the RMC 24-2022 is subject as illustrated in the preceding bullet points.
VAT Zero rating of Other Enterprises covered by special laws
QA No. 25 of RMC 24-2022 clarifies that sales from REEs, enterprises registered with the Board of Investments (BOI), and enterprises located in economic zones, freeports and other special zones, as may be determined by social laws such as renewable energy developers under R.A. No. 9513 (Renewable Energy Act of 2008), International Rice Research Institute (IRRI), Asian Development Bank (ADB), etc. are still subject to VAT at zero percent rate (0%) pursuant to Sec. 4.106-01 of RR 16-2005 and Sec. 4.108(B)(2) or RR 16-2005, as amended by RA No. 21-001.
Sale of Goods and Services by VAT-registered suppliers
The sale of goods and services by VAT-registered suppliers to registered export enterprises enjoying the fiscal incentives under CREATE Act shall be treated as VAT zero-rated, provided that the goods and services are directly and exclusively used in the registered project or activity.
The VAT zero-rating shall be enjoyed for a maximum period of SEVENTEEN (17) years from the date of registration, unless extended under the Strategic Investment Priority Plan (SIPP).
5. CUSTOMS DUTY EXEMPTION on Importation of Capital Equipment, Raw Materials, Spare Parts, and Accessories made by RBEs shall be exempt from customs duties, provided, that the following conditions are complied with:
A. DIRECT AND EXCLUSIVE USE. The duty exemption shall apply to the importation of capital equipment, raw materials, spare parts, or accessories directly and exclusively used in the registered project or activity by RBEs.
B. The capital equipment, raw materials, spare parts, or accessories:
1. are directly and exclusively needed in the direct cost of the registered project or activity of the RBE;
2. are not produced or manufactured domestically in sufficient quantity or comparable quality and at reasonable prices; Provided, that the importation shall be used solely to satisfy this condition. The IPA shall furnish the BIR with copies of the issued/Admission certificate of every shipment of the DTI with the Non-Local Availability in compliance with this condition.
C. PRIOR APPROVAL. The approval of the IPA through the CA/Admission entry must be obtained by the RBE prior to the importation of the goods.
D. SALE, TRANSFER, OR DISPOSITION. Within the first five (5) years from the date of importation, the importation of capital equipment, raw materials, spare parts, or accessories which were granted duty exemption, however, Provided That the sale, transfer, or disposition of the capital equipment, raw materials, spare parts, or accessories shall be subject to the net book value of the capital equipment, raw materials, spare parts, or accessories used in the registered project or activity, the amount of duties, taxes, or disposition thereof shall be allowed only under the following circumstances:
1. If made to another enterprise entitled to tax exemption or deduction on imported and export equipment;
2. If the enterprise shall sell, parts, or accessories for imported capital equipment, raw materials, spare parts and utilities, upon payment of the corresponding taxes and duties due on the net book value of;
3. If the importation is for replacement, capital equipment, raw materials, spare parts, or accessories due to actual obsolescence or required for the capital equipment, raw materials, spare parts or accessories;
4. Proven technical obsolescence of the capital equipment, raw materials, spare parts or accessories;
If done to the Technical Education and Skills Development Authority (TESDA), or to the Department of Education (DepEd) and Commission on Higher Education (CHED), or other entities duly authorized by the government to receive donation, the same shall be exempt from importation, the RBE shall notify the concerned IPA prior to the sale, transfer, or disposition of the capital equipment, raw materials, spare parts, or accessories.
E. SOLIDARY LIABILITY. If the RBE sells, transfers, or disposes the aforementioned imported items without prior approval of the concerned IPA, the RBE and the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of the duty exemption that should have been paid prior to importation, without prejudice to any penalties or sanctions that may be imposed.
F. UTILIZATION IN NON-REGISTERED PROJECT OR ACTIVITY. In the event that the RBE shall utilize the imported items in a non-registered project or activity, the amount corresponding to the duty exemption shall be imposed and paid by the RBE prior to approval of the concerned IPA and pay the amount corresponding to the tax and duties.
For part-time utilization in a non-registered project or activity, the amount corresponding to the duty exemption on a specific capital equipment, raw materials, spare parts, or accessories shall be in proportion to its utilization for the non-registered project or activity, as may be determined by the concerned IPA based on the specific capital equipment, raw materials, spare parts, or accessories utilized in a non-registered project or activity submitted to the IRR.
Taxation After Expiration of Incentives
TAXATION AFTER EXPIRATION OF INCENTIVES AND NON-REGISTERED PROJECT OR ACTIVITY
Section 8, Part II of IRR of Title XIII of the Tax Code as amended by CREATE Act provides that all registered business enterprises shall pay the applicable taxes, fees and charges under the Code and other laws after the expiration of the period of incentives of their registered project or activity.
Notwithstanding the provisions in the preceding paragraph, sales receipts and other income derived from non-registered project or activity shall be subject to appropriate taxes imposed under the Tax Code, as amended.
FISCAL INCENTIVES FOR RENEWABLE ENERGY (RE) PROJECTS AND ACTIVITIES
Section 4 of RR 7-2022 provides the following tax incentives and treatments on the Duly certified existing and New RE Developers in consultation with BOI, including solar/wind systems in proportion to and to the extent of the RE component, for both power and non-power applications:
A. Income Tax Holiday (ITH) – The duly registered RE Developers shall be exempt from income taxes levied by the National Government for the period as follows:
1. Existing RE Projects – Shall be entitled to ITH for seven (7) years from start of commercial operations subject to the submission of the Certificate of Compliance (COC) by the ERC under RA No. 9136 (Electric Power Industry Reform Act of 2001) or the EPIRA and is ready to inject power to the grid. All RE Developers that operates and/or supplies electricity to the grid facilities that were or are entitled to ITH, more than seven (7) years, upon the effectivity of the Act, shall not be entitled to ITH except for any additional investment in RE resources.
2. New Investment in RE Resources – ITH shall commence within seven (7) years from the start of commercial operations resulting from new investments. RE Developers undertaking expansion or rehabilitation projects, new projects subject to the setting up of separate books of accounts to be registered and approved by the BIR office where the RE developer is registered shall apply. In such cases, a fresh package of ITH from the start of commercial operations shall apply.
3. Additional Investments in the RE Project Availment of ITH for additional investment in RE project shall not be more than three (3) times the period of the initial availment of the existing or new RE Project giving rise or additional investment.
The ITH for additional investments in an existing RE project shall be applied only to the incremental increase in the registered project or activity, which may be improvements, modernization, rehabilitation, expansion, etc., which may or may not result in increased capacity. Subject to the issuance of appropriate guidelines by the DOE and in coordination with the BIR, the RE Developer shall file an application for the availment of the additional incentive under existing procedures.
B. Net Operating Loss Carry-over (NOLCO). The NOLCO of the RE Project during the first three (3) years from the start of commercial operation shall be carried over as a deduction from gross income for the next seven (7) consecutive taxable years immediately following the year of such loss:
1. The NOLCO had not been previously offset as deduction from gross income; and
2. The loss should be from the operation and within the period of availment of incentives provided for in the Act.
Other than the expenses provided above specifically for persons engaged in RE, the guidelines and procedures set forth in Revenue Regulations (RR) No. 14-2000 shall strictly followed in the availment of the NOLCO.
C. Corporate Tax Rate – After availment of the ITH, all registered RE Developers shall pay a corporate tax rate of ten percent (10%) on their net taxable income as defined in the Tax Code, as amended. Provided, That the ten percent (10%) corporate income tax rate shall pass on to the end-users in the form of lower power rates.
All RE Developers that acquire, operate, and/or administer existing RE facilities that were or are entitled to ITH, more than seven (7) years, upon the effectivity of the Act, shall pay a corporate tax rate of 10% on their net taxable income, upon registration with the DOE.
For purposes of the availment of this incentive, the RE developer shall submit to the BIR the following:
1. Copy of the Certificate of Endorsement issued by the DOE to the first year of its availment of the said corporate income tax rate;
2. Copy of the contract and/or service/operating contract and the corresponding Certificate of Registration;
3. In addition, the RE Developer shall also submit an undertaking stating that for the years of its availment of the 10% corporate income tax incentive, it has not been found to have breached its obligations under the Renewable Energy Service/Operating Contract and that it shall pass on the savings derived from this incentive in the form of lower power rates.
In the years succeeding its availment of the 10% corporate income tax rate incentive, following the adoption of these Regulations, the RE Developer shall submit to the BIR, in addition to the required reports, proof of compliance with the DOE and ERAC of the passed-on savings to the end-users as may be determined in accordance with the Department Circular No. DC2021-12-002.
To further prove that the RE Developer has, during the previous year, passed on the savings derived from this incentive to the end-users in the form of lower power rates, the RE Developer shall submit to the BIR the rates approved by the ERC.
D. Accelerated Depreciation – If an RE project fails to receive an ITH before full operation, the RE developer may apply for accelerated depreciation in its tax books and be taxed on the basis of the same.
If an RE Developer applies for accelerated depreciation, the project or its expansions shall no longer be eligible for availment of the ITH.
Plant, machinery and equipment that are reasonably and actually used for the exploration, development and utilization of RE resources may be depreciated using the rate not exceeding twice the rate which would have been applicable had the annual straight line method been used. The depreciation may be allowed by using any of the accepted methods:
1. Declining balance method; and
2. Sum-of-the-years method.
The RE developer shall inform the BIR, through the Revenue District Office (RDO) where it is registered, that it is using the accelerated depreciation instead of the ITH.
E. Zero Percent Value-Added Tax Rate – The sale of power generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources and technologies, shall be subject to zero percent (0%) value-added tax (VAT) pursuant to Revenue Regulations No. 7-2022. Provided, however, that the input VAT attributable to zero-rated sales by VAT-registered RE enterprises may be refunded or credited, subject to the guidelines provided under Revenue Regulations No. 13-2018, as amended.
On the other hand, the purchase by an RE Developer of local goods, properties, and services needed for the registered project or activity, as defined in the Tax Code, shall be subject to VAT zero-rating pursuant to Sections 106(A)(2)(a) and 108(B)(1) of the Tax Code, as amended.
Accordingly, local suppliers/fabricators of goods, properties and services sold to registered RE developers shall not be subject to the 12% VAT, provided that the goods, properties, and services are directly and exclusively used in the registered project or activity of the RE Developer. This includes the whole process of development of renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and contractors.
The local suppliers/fabricators, and services, shall require from the RE Developer a copy of the latter's BOI Registration and DOE Registration for purposes of availing of the zero percent (0%) VAT rate.
F. Tax Exemption of Carbon Credits – All proceeds from the sale of carbon emission credits shall be exempt from any and all taxes.
HYBRID AND CO-GENERATION SYSTEMS
The tax incentives and treatments provided in Section 4 of RR 7-2022 as illustrated above shall be made to a registered RE Developer of hybrid and co-generation systems utilizing both renewable and conventional energy sources, to the extent of the RE component thereof. However, the tax exemptions and incentives for hybrid and co-generation systems shall apply only to the equipment, machinery, and devices utilizing RE resources.
In this regard, the RE Developer shall secure a certification from the DOE to distinguish the equipment, machinery, and/or devices using RE resources. Only RE facilities shall be entitled to the incentives. The ratio of the tax exemptions shall be based on the actual percentage of the RE component used in the system. Moreover, a CE shall also be secured from the BOI and the RE Developer shall file the same to the annual ITR to be filed with the BIR.
INCENTIVES FOR RE-COMMERCIALIZATION
Section 6 of RR 7-2022 provides that all manufacturers, fabricators, and suppliers of locally produced equipment and components used in the registered project or activity of RE developers, upon registration with the BOI, shall be entitled to the incentives and benefits set forth below on their sale of equipment to RE Developers.
A. Value-Added Tax (VAT) Importation of Components, Parts, and Materials All shipments necessary for the manufacture, fabrication and supply of equipment and components shall be exempt from VAT.
The importation of components, parts, and materials allowed herein shall not be subject to the issuance of Authority to Import (ATI) under Revenue Memorandum Order (RMO) No. 35-2002, as amended, and may be released by the Bureau of Customs (BOC) without need of an ATI. The BOC, however, may conduct a post audit of the documents to be submitted by the suppliers in filing the application for VAT zero-rate.
B. Income Tax Holiday and Exemption – For seven (7) years starting from the date of registration and shall be used exclusively in the registered project or activity of the RE Developer, the income derived from the sale of equipment, machinery, parts, and services shall be exempt from income taxes levied by the National Government.
C. Zero-rated Value-Added Tax Transaction – All manufacturers, fabricators, and suppliers of locally-produced RE equipment shall be subject to zero-rated VAT on their transactions with local suppliers of goods, properties, and services needed in the manufacture/fabrication of RE equipment; Provided, that the local suppliers of goods, properties, and services shall require the manufacturers, fabricators, and suppliers of locally-produced RE equipment the following documents for purposes of future tax exemption/s:
1. BOI Registration of the manufacturer/fabricator/supplier and of the recipient RE Developer;
2. DOE Registration/Accreditation of the manufacturer/fabricator/supplier and of the recipient RE Developer.
INCENTIVES FOR FARMERS ENGAGED IN THE PLANTATION OF BIOMASS RESOURCES
Section 7 of RR 7-2022 provides that all individuals and entities engaged in the plantation of crops and trees used as Biomass Resources shall be exempt from payment of VAT on all types of agricultural and industrial inputs necessary for the plantation, pursuant to the effectivity of the Act, subject to the submission of the following documents:
a. That the crops and trees such as, but not limited to jatropha, coconut, and sugarcane shall actually utilized for the production of biomass resources; and
b. That the agricultural inputs, equipment and machinery used directly and exclusively in the plantation, including but not limited to fertilizers, pesticides, insecticides, tools, implements, and spare parts, machineries and equipment, and building used directly and exclusively in the plantation, shall be exempt from taxes and duties.
TAX REBATE FOR PURCHASE OF Renewable Energy (RE) COMPONENTS
Purchase of RE equipment shall be entitled to a tax rebate equivalent to fifty percent (50%) of the value of the purchase, provided that the same is directly and exclusively used in the registered project or activity.
PROHIBITION AGAINST DOUBLE AVAILMENT OF INCENTIVES
Unless otherwise provided by law, the availment of incentives shall be in accordance with the Strategic Investment Priority Plan (SIPP) and its corresponding guidelines: Provided, That no incentive shall be granted simultaneously with the same incentive provided for in the same project or activity.
ANNUAL FILING AND REPORTORIAL REQUIREMENTS
All registered business enterprises shall file their annual income tax return and pay the taxes due thereon in accordance with the provisions of the Tax Code, as amended.
THE FISCAL INCENTIVES REVIEW BOARD (FIRB)
The functions and powers of the FIRB created under Presidential Decree No. 772, as amended, shall have the power to review, recommend, and approve applications for tax incentives, subject to the guidelines provided under the Code and other pertinent laws.
COMPOSITION OF FIRB (Section 298)
Chairperson - Secretary of Finance
Co-Chairperson - Secretary of Trade and Industry
Members:
• Executive Secretary of the Office of the President
• Secretary of Budget and Management
• Director General of the National Economic and Development Authority (NEDA)
The Board shall have a technical committee, and shall serve as its main support unit and perform functions as may be assigned, and shall be composed of the following:
• Chairperson - Undersecretary of Finance
STRATEGIC INVESTMENT PRIORITY PLAN (Section 300)
The Board of Investments (BOI), in coordination with the FIRB, Investment Promotion Agencies (IPAs), and other concerned government agencies, shall formulate the Strategic Investment Priority Plan (SIPP) to be approved by the President. The SIPP shall be formulated to serve as guide in the determination of priority projects or activities that shall be entitled to incentives.
The SIPP shall be reviewed every three (3) years or as may be necessary to respond to changes in the industry, to target specific industries or to respond to emergencies, calamities, public health emergencies and/or other analogous circumstances.
General Principles
The Strategic Investment Priority Plan (SIPP) shall provide for the types of fiscal and non-fiscal incentives to be granted to registered projects or activities that:
a. Create high-skilled jobs to grow local pool of enterprises, particularly micro, small and medium enterprises (MSMEs), that can supply to domestic and global markets;
b. Increase the sophistication of products and services that are produced and/or exported;
c. Expand domestic supply and reduce dependence on imports;
d. Attract significant foreign capital and investment; and
e. Promote export diversification and accelerate countryside development as these are consistent with the tier and locational criteria of the SIPP.
Formulation
The BOI, in coordination with the FIRB, IPAs and OGAs administering tax incentives, shall formulate and recommend the SIPP for the approval of the President.
Contents
The SIPP shall contain the following:
a. Priority projects or activities that are eligible or qualified to be granted incentives under the CREATE Act;
b. Scope and coverage by location and Industry Tier;
c. Period of availment of the grant of enhanced deductions;
d. Qualifications for expansion, or entirely new projects or activities, to avail of incentives;
e. Criteria and conditions for requesting projects or activities, prior to the effectivity of the CREATE Act to enjoy incentives under the provisions of the Act;
f. Conditions and guidelines for Export Enterprises registered under the transitory period under Section 311(c) and availment of the 5% tax regime or 5% Gross Income Tax (GIT) in lieu of all national and local taxes;
g. Other matters as may be determined by the Board in coordination with the FIRB; and
h. Export of at least seventy percent (70%) of products and services.
Validity
The SIPP shall be submitted to the President for approval and shall be valid for three (3) years from its issuance; Provided, That the BOI shall formulate and submit a new SIPP to the President not later than October 31 of the year immediately preceding the year when the new SIPP shall take effect. Provided, further, That the SIPP shall be open for application until the publication of the SIPP under the Ad.
Mandatory Laws
The SIPP shall include sectors or industries that are mandated by special laws to be listed in the Strategic Investment Priority Plan and granted incentives.
POWER OF THE PRESIDENT TO GRANT INCENTIVES (Section 298)
Notwithstanding the provisions of Sections 295 and 296, the President may, in the interest of the national economy and general welfare, grant tax incentives to registered projects or activities, upon recommendation of the FIRB.
The President may also grant incentives to new projects or activities, upon recommendation of the FIRB, provided that the grant of incentive shall not exceed eight (8) years, inclusive of the period of availment of incentives provided for in the Act.
QUALIFICATIONS OF A REGISTERED BUSINESS ENTERPRISE FOR TAX INCENTIVES (Sec. 304)
To be eligible and granted tax incentives, the registered business enterprise must:
a. Be engaged in a project or activity included in the strategic investment priority plan;
b. Meet the requirements and conditions as may be provided in the SIPP;
c. Install an adequate accounting system that shall clearly record investments, revenues, costs and expenses incurred in connection with its registered project or activity, separate and distinct from other activities, revenues, costs and profits or losses of the whole enterprise; and
d. Comply with such other requirements as may be determined by the concerned IPA or the Board in accordance with Sections 237 and 237(A) of the Tax Code.
FILING OF TAX RETURNS AND SUBMISSION OF TAX INCENTIVES REPORTS (Sec. 305)
All Registered Business Enterprises (RBEs) and other registered entities shall file their tax returns and other reports in accordance with the provisions of the Tax Code, as amended by RA No. 10963, otherwise known as the TRAIN Law, and other pertinent laws.
For this purpose, the RBEs shall submit to the BIR and to the concerned IPA, a true and correct copy of their Annual Income Tax Return (AITR) and other reports as may be required by the concerned IPA or the Board.
PROHIBITION ON REGISTERED ACTIVITIES (Sec. 309)
A qualified registered project or activity under an Investment Promotion Agency (IPA) administering incentives shall be exclusively conducted within the territory of the same IPA where the Registered Business Enterprise (RBE) may conduct or operate more than one registered project or activity within the same Ecozone or Freeport Zone under the same Investment Promotion Agency. Provided, That the registered project or activity shall be conducted within the territory of the same IPA, unless such project or activity is conducted or operated under another Investment Promotion Agency.
Concept of Ecozones
INTRODUCTION
It is the declared policy of the government to translate into practical realities the following State policies and mandates in the 1987 Constitution, namely:
1. The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments; and
2. The State shall promote comprehensive rural development and agrarian reform to produce goods, and adopt measures that help make them competitive.
In pursuance of these policies, the government shall actively encourage, promote and induce investments, in order to achieve a balanced industrial, economic and social development of the country in the shortest time possible and thereby increase the productivity and their individual and family income, and improve the level and quality of living of the people, and to accelerate the development of the country's agricultural and industrial potential and produce strategic locations in the country, through measures that shall effectively attract legitimate and productive foreign investments.
Ecozones and Freeport zones were, by legal fiction, regarded as foreign territories, the sale of goods and services to a VAT-registered seller to registered enterprises located therein shall be subject to VAT at zero percent (0%) VAT.
Special Economic Zones were granted special territory values tax and duty incentives such as under RA 7227 otherwise known as the "Bases Conversion and Development Act of 1992" to enhance the economic development of the country. Freeport zones are areas within or outside the special economic zones, which are effectively separated and distinct from the Philippine Customs territory, and which are subject to Philippine Enterprises enjoy special incentives, including tax and duty-free importations. More specifically, CDA/KEZ enterprises shall be subject to the five percent (5%) preferential rate on gross income tax in lieu of all national and local taxes pursuant to Finance and Department Circular No. 001-2008, GR No. 110388 dated February 29, 2008 and EO 18-2017 dated April 7, 2017.
Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under presidential Decree No. 66, creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987.
The different Fiscal Incentives available to registered Export Enterprises (REEs) shall now be governed by Title XIII of the Tax Code as amended under CREATE Act.
DEFINITION OF TERMS
Special economic zones (SEZ) – hereinafter referred to as the ECOZONES, are selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist/recreational, commercial, banking, investment and financial centers. An ECOZONE may contain any or all of the following: industrial estates, export processing zones, free trade zones, and/or tourist/recreational centers.
TERRITORY. The term "Customs Territory" means the national territory of the Philippines outside of the proclaimed boundaries of the ECOZONES except those areas specifically declared by other laws and/or presidential issuances to have the status of special economic zones and/or free ports.
Industrial estate (IE) – refers to a tract of land subdivided and developed according to a comprehensive plan under a unified continuous management and with provisions for basic infrastructure and utilities, with or without pre-built standard factory buildings and community facilities for the use of the community.
Export processing zone (EPZ) – a specialized industrial estate located physically and administratively next to an existing seaport and/or airport, designed to serve as a means of promoting and facilitating export-oriented industries and other registered projects or activities.
Free trade zone – an isolated policed area adjacent to a port of entry (seaport and/or airport) where imported goods may be unloaded for immediate transshipment, stored, repacked, sorted, mixed, combined the with other imported or domestic products and/or re-exported. However, movement of imported goods from the free-trade area to a non-free-trade area in the country shall be subject to import duties.
BOI Registered Enterprises
Bureau of Investment (BOI) Registered Enterprises
Executive Order No. 226 – Omnibus Investment Code of 1987
FISCAL INCENTIVES
Just like PEZA Registered Enterprises and other Enterprises registered by an Investment Promotion Agency (IPA), the available Fiscal Incentives for BOI Registered Enterprises are now governed by Title XIII of the Tax Code as amended by RA 11534 or the CREATE Act.
STRATEGIC INVESTMENT PRIORITY PLAN (SIPP)
Previously known as Investment Priorities Plan (IPP)
The Board of Investments (BOI) formulates the SIPP annually which is a list of promoted areas or activities eligible for government incentives. Strategic Investment Priority Plan (SIPP) refers to the list of projects or activities prepared by the Board of Investments (BOI) in coordination with the FIRB, Investment Promotion Agencies (IPAs), and other concerned government agencies administering tax incentives, and which is approved by the President, and contains the priority projects or activities, the scope and coverage by location and industry tier, the period of availment of incentives, the qualifications, criteria and conditions for availing of incentives, and other matters as may be determined by the BOI.
The SIPP lists activities that qualify for investment incentives under RA 11534 or the CREATE ACT. These are the government deemed to be priorities for investment. Incentives may be in the form of Income Tax Holiday (ITH), enhanced deductions (ED), and Special Corporate Income Tax (SCIT).
The length of the incentive depends on which of the three tiers the relevant activity falls under, whether located in National Capital Region, Metropolitan areas or areas contiguous and adjacent to the National Capital Region, or other regions.
APPROVAL OF THE SIPP
The President shall proclaim the SIPP as approved and shall be valid for three (3) years from its issuance; Provided, That the BOI shall formulate and submit a new SIPP to the President not later than October 31 of the year immediately preceding the year when the new SIPP shall take effect. Provided, further, That the SIPP shall be open for application until the publication of the new SIPP under the Ad.
AMENDMENTS TO SIPP
Subject to publication requirements and the criteria for investment priority determination, the Board of Investments may, at any time, add additional projects or activities, or amend the scope and coverage of the SIPP.
PUBLICATION
Upon approval of the SIPP, in whole or in part, or upon approval of an amendment thereof, the plan or the amendment, specifying and detailing the preferred areas of investments and their corresponding measured capacity shall be published in a newspaper of general circulation.
QUIZZER
Choose the letter of the correct answer.
1. ________ refers to government entities created by law, executive order, decree or other issuance, in charge of promoting, granting and administering tax and non-tax incentives, and overseeing the operations of the different economic zones and Freeport in accordance with their respective charters.
a. Investment Promotion Agencies (IPAs)
b. Registered Business Enterprises (RBEs)
c. Strategic Investment Priority Plan (SIPP)
d. Fiscal Incentives Review Board (FIRB)
2. ________ refers to the plan prepared by the Bureau of Investment (BOI) coordination with the Fiscal Incentives Review Board (FIRB), Investment Promotion Agency (IPA) and other Government Agencies administering tax incentives, and private sector which is approved by the President, and contains the priority projects or activities, the scope and coverage by location and industry tier, period of availment of incentives, qualifications, criteria and conditions for availing of incentives and other matters as may be determined by the BOI.
a. Investment Promotion Agencies (IPAs)
b. Registered Business Enterprises (RBEs)
c. Strategic Investment Priority Plan (SIPP)
d. Fiscal Incentives Review Board (FIRB)
3. The Strategic Investment Priority Plan (SIPP) shall be submitted to the President for approval and shall be valid for a period of
a. 2 years
b. 3 years
c. 5 years
d. 10 years
4. ________ refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine laws and registered with an Investment Promotion Agency (IPA) to engage in a registered project or activity and that is entitled to the incentives provided for under this Title.
a. Investment Promotion Agencies (IPAs)
b. Registered Business Enterprises (RBEs)
c. Strategic Investment Priority Plan (SIPP)
d. Fiscal Incentives Review Board (FIRB)
5. ________ refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine laws and registered with an Investment Promotion Agency (IPA) to engage in manufacturing, assembling, or processing activity, and services such as information technology (IT) activities and business
process outsourcing), and resulting in the direct exportation and/or sale of its manufactured, assembled or processed product or IT/BPO services to another registered export enterprise which shall form part of the final product or output, shall be VAT-exempt.
6. Registered Export Enterprises (REE) or Export Oriented Enterprise may be granted an Income Tax Holiday (ITH) for a period of:
a. 4 years
b. 5 years
c. 7 years
d. 1 to 7 years
7. Domestic Market Enterprise may be granted an Income Tax Holiday (ITH) for a period of:
a. 4 years
b. 5 years
c. 7 years
d. 1 to 7 years
8. Five percent (5%) Special Corporate Income Tax (SCIT) may be availed by a Registered Export Enterprise (REE):
a. Before ITH period
b. After ITH period
c. Simultaneously with ITH
d. Either before or after ITH period
9. Five percent (5%) Special Corporate Income Tax (SCIT) may be availed by a Domestic Market Enterprise:
a. Before ITH period
b. After ITH period
c. Simultaneously with ITH
d. Not entitled to SCIT
10. Enhanced Deduction (ED) may be availed by a Registered Export Enterprise (REE):
a. Before ITH period
b. After ITH period
c. Simultaneously with ITH
d. Either before or after ITH period
11. Enhanced Deduction (ED) may be availed by a Domestic Market Enterprise:
a. Before ITH period
b. After ITH period
c. Simultaneously with ITH
d. Not entitled to SCIT
12. Statement 1: After the ITH period, a Registered Export Enterprises (REE) may choose to avail either SCIT rate of 5% or Enhanced Deduction (ED).
Statement 2: After the ITH period, a Domestic Market Enterprise may choose to avail either SCIT rate of 5% or Enhanced Deduction (ED).
a. Statement 1 is correct
b. Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
13. Enhanced Deduction (ED) may be availed by a Registered Export Enterprise (REE) for a period of:
a. 3 years
b. 5 years
c. 10 years
d. 15 years
14. Enhanced Deduction (ED) may be availed by a Domestic Market Enterprise for a period of:
a. 3 years
b. 5 years
c. 10 years
d. 15 years
15. Special Corporate Income Tax (SCIT) may be availed by a Registered Export Enterprise (REE) for a period of:
a. 2 years
b. 5 years
c. 10 years
d. 15 years
16. Enhanced Deduction (ED) may be availed by:
a. Registered Export Enterprises
b. Domestic Market Enterprises
c. Both "a" and "b"
d. Neither "a" nor "b"
17. This refers to a tax rate equivalent to five percent (5%) effective July 1, 2020, based on the gross income earned of registered business enterprises, in lieu of all national and local taxes.
a. Income Tax Holiday (ITH)
b. Special Corporate Income Tax (SCIT)
c. Enhanced Deduction (ED)
d. None of the above
18. Statement 1: The 5% special corporate income tax (SCIT) rate may be availed by an export enterprise simultaneously with the availment of ITH.
Statement 2: Export enterprises cannot avail of the Enhanced Deductions and SCIT, simultaneously.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
19. Statement 1: Under the CREATE Act, the option to avail of either SCIT or Enhanced Deductions after ITH period shall be exercised by the RBE at the time of application for registration of the project.
Statement 2: The option to avail of either SCIT or Enhanced Deductions shall be irrevocable for the entire life of the registered project.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
20. Which of the following Registered Business Enterprise (RBE) may avail of income tax holiday (ITH) incentive under the CREATE Act?
I. Export enterprises
II. Domestic market enterprises
a. I only
b. II only
c. Both I and II
d. Neither I nor II
21. Which of the following Registered Business Enterprise (RBE) may avail of 5% special corporate income tax (SCIT) incentive under the CREATE Act?
I. Export enterprises
II. Domestic market enterprises
a. I only
b. II only
c. Both I and II
d. Neither I nor II
28. Statement 1: All RBEs shall apply for a Certificate of Entitlement to Tax Incentives (CETI) with their concerned IPA prior to the filing of Annual Income Tax Return (AITR).
Statement 2: In every case, the applicant/RBE shall have the burden of proving that every project or activity is entitled to the incentives applied for.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
29. Which of the following is not one of the scope of income tax holiday from an RBE's registered activities?
a. Regular corporate income tax (RCIT)
b. Final withholding taxes on certain income
c. Withholding taxes on passive incomes
d. All of the above
30. A Registered Business Enterprise (RBE) enjoying Income Tax Holiday (ITH) shall still be subject to:
I. Minimum corporate income tax on income from its unregistered activities
II. Regular corporate income tax on income from its unregistered activities
a. I only
b. II only
c. Both I and II
d. Neither I nor II
31. A Registered Business Enterprise (RBE) enjoying Income Tax Holiday (ITH) shall still be subject to what type of taxes?
a. Withholding taxes on salaries of employees
b. Withholding taxes on payments to persons, other than a registered enterprise, subject to withholding tax source under Section 50(B) of the Tax Code, as amended
c. Both "a" and "b"
d. Neither "a" nor "b"
32. Statement 1: The 5% Special Corporate Income Tax (SCIT) or also known as Gross Income Tax (GIT) is in lieu of all national and local taxes.
Statement 2: Registered Business Enterprises (RBEs) paying the 5% SCIT are not liable for local business taxes and other charges due to the local government unit.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct
33. A Registered Business Enterprise has a registered and an unregistered activity. Minimum corporate income tax (MCIT) shall apply to:
a. Registered activity
b. Unregistered activity
c. Both activities
d. Neither registered nor unregistered activity
34. Which of the following statements is incorrect?
a. Export and Domestic Market Enterprises may avail of the 5% Special Corporate Income Tax (SCIT) in lieu of national and local taxes.
b. All the provisions pertaining to availing Tax Incentives under Title XIII of the Tax Code, as amended, shall apply to registered business enterprises as if they were ordinary corporations for taxation purposes, subject to such other rules and regulations as may be promulgated by the Secretary of Finance.
c. Both "a" and "b"
d. None of the above
35. Registered Export Enterprises (REEs) who have completed their ITH and now under the 5% GIT/SCIT regime or those already enjoying the 5% GIT/SCIT upon the effectivity of CREATE Act but remained registered and/or decided to change their registration to non-VAT, they will be subject to:
I. Percentage Tax (PT), under Section 116 of the Tax Code as amended.
II. Percentage Tax under Section 116 of the Tax Code as amended.
Answer: YES, REEs whose registration status was changed from VAT to non-VAT does not necessarily mean that these REEs are subject to Percentage Tax (PT). PT tax should not be registered since these REEs are only required to pay and/or collect the corresponding output VAT.
III. Annual Income Tax Return (AITR) and Gross Receipts Tax (GRT) from the Bureau of Internal Revenue (BIR) under Revenue Memorandum Order (RMO) No. 35-2002, as amended, may be released by the Bureau of Customs (BOC) without need of an ATI. The BIR, however, may conduct a post audit of the documents to be submitted by the suppliers in filing the application for VAT zero-rate.
a. Only 1st statement is correct
b. Only 2nd and 3rd statements are correct
c. All statements are correct
d. None of the above
36. Registered Export Enterprises (REEs) who have completed their ITH and now under the 5% GIT/SCIT regime or those already enjoying the 5% GIT/SCIT upon the effectivity of CREATE Act but remained VAT-registered are entitled to claim for refund/credit of VAT input taxes:
a. One (1) month from the expiration of the ITH incentive.
b. Two (2) months from the expiration of the ITH incentive.
c. Three (3) months from the expiration of the ITH incentive.
d. None of the above
37. Which of the following tax incentives may be availed by DOE-certified existing and new Renewable Energy (RE) developers including hybrid systems?
I. Income Tax Holiday (ITH)
II. Corporate Tax Rate of 10%
III. Enhanced Deduction (ED)
IV. VAT Zero Rate
a. I and II only
b. II and III only
c. I, II and III only
d. All of the above
38. The corporate tax rate of 10% for Renewable Energy (RE) developers of RE facilities may be availed:
a. In lieu of availment of Income Tax Holiday (ITH)
b. After Income Tax Holiday (ITH)
c. Either "a" or "b"
d. Neither "a" nor "b"
39. Statement 1: Strategic Investment Priority Plan (SIPP) refers to list of promoted areas of investments eligible for government incentives.
Statement 2: SIPP is issued by the Philippine Economic Zone Authority (PEZA)
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct
40. Statement 1: All Registered Business Enterprises (RBEs) and other registered entities whether taxable or exempt, are required to file their tax returns and pay their tax liabilities, on or before the deadline as provided under the National Internal Revenue Code of 1997, as amended, using the Electronic System for filing and payment of taxes with the Bureau of Internal Revenue.
Statement 2: Registered Business Enterprises (RBEs) and other registered entities availing of tax incentives administered by the Investment Promotion Agencies (IPA) and other government agencies administering tax incentives, they shall file with their respective Investment Promotion Agencies a true and correct copy of their Annual Income Tax Return (AITR) and other reports as may be required by the concerned IPA or the Board.
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct
41. Statement 1: All registered business enterprises shall pay all applicable taxes at the regular rates under the Code and other laws after the expiration of the period of incentives of their registered project or activity.
Statement 2: Sales receipts and other income derived from non-registered project or activity shall be subject to appropriate taxes imposed under the Tax Code, as amended, even during the effectivity of the RBE's tax incentives.
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct
42. Upon approval of the Strategic Investment Priority Plan (SIPP), whether in whole or in part, or upon approval of an amendment thereof, the plan or the amendment, specifying and detailing the preferred areas of investments and their corresponding measured capacity shall be published in at least:
a. One (1) newspaper of general circulation
b. Two (2) newspapers of general circulation
c. Three (3) newspapers of general circulation
d. One (1) to three (3) newspaper of general circulation, at the option of the BOI
43. Strategic Investment Priority Plan (SIPP) shall be valid for a period of
a. 1 year
b. 2 years
c. 3 years
d. 5 years