Your Guide to Provincial and National Incentives

Q1: What is the CREATE MORE Act?

The Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act is a set of amendments (Republic Act No. 12066) to the original CREATE Act. Its goal is to provide longer and more competitive tax incentives and further clarify existing provisions for Registered Business Enterprises (RBEs).

Q2: What are the main areas of change introduced by CREATE MORE?

The key provisions include: Longer periods for incentives like the Income Tax Holiday (ITH); a clearer treatment for Value-Added Tax (VAT) zero-rating; additional Enhanced Deductions; provisions supporting flexible work arrangements; and alignment of local tax imposition rules.

Q3: How does it change the Corporate Income Tax (CIT) rate?

The CIT rate for Registered Business Enterprises (RBEs) under the Enhanced Deduction Regime is reduced from 25% to 20%.

Q4: What is the change in the maximum Withholding Creditable Tax?

It is lowered from a range of 1%-32% to a maximum of 15%.

Q5: What are the changes to power and reinvestment deductions?

Power Expense: Additional deduction increased from 50% to 100%.
Reinvestment Allowance: The 50% deduction is now available to both Manufacturing and Tourism industries until Dec 31, 2034.

Q6: Are there new Enhanced Deductions available?

Yes. A 50% additional deduction is now available for expenses related to exhibitions, trade missions, or trade fairs.

Q7: When can a company start availing of Enhanced Deductions?

Companies can now avail of Enhanced Deductions either after the ITH or at the start of commercial operations (SCO), offering greater flexibility.

Q8: How much longer are the ITH periods?

High Priority Projects: Extended from 6 to 8 years.
Innovation & High Tech: Extended from 7 to 10 years.

Q9: What are the requirements for very large projects to get additional incentives?

1. Must have a sustainable development plan, inclusive business approaches, and demonstrate high sophistication/innovation.
2. Must have a minimum capital of P50 billion OR generate 10,000 direct local jobs within 3 years.

Q10: What is the new deadline for tax refund claims?

The deadline to act on VAT and Excise Tax refund claims for imported petroleum products is shortened from 180 days to 90 days.

Q11: Is there a deduction for electronic sales reporting systems?

Yes. Micro & Small Enterprises get a 100% deduction, while Medium & Large Enterprises get a 50% deduction for the setup cost.

Q1: What is the Foreign Investments Act (FIA) of 1991 (RA 7042)?

Republic Act No. 7042, also known as the “Foreign Investments Act of 1991,” is the primary law regulating foreign investments in the Philippines. It generally allows foreign investors to invest up to 100% equity in domestic market enterprises, subject to certain restrictions.

Q2: What is the main purpose of the FIA?

The law aims to encourage foreign investors to provide employment opportunities, develop local resources, increase the value of exports, and help fuel the overall Philippine economy.

Q3: What forms can foreign investments take?

Foreign investments can be made in various forms, including capital goods, patents, formulae, and other technological rights or processes.

Q4: What is the Foreign Investments Negative List (FINL)?

The FINL is a list of areas or activities that impose limits on foreign ownership. It is divided into two parts: List A and List B.

Q5: What is covered in List A of the FINL?

List A consists of investment areas reserved for Philippine nationals, primarily due to restrictions set by the Philippine Constitution. Foreign ownership in some of these areas is restricted to a maximum of 40%.

Q6: What specific areas are prohibited from foreign ownership (0%) under List A?

Foreign ownership is completely prohibited in mass media (except recording), practice of licensed professions, retail trade, cooperatives, and private security agencies.

Q7: What areas allow limited foreign ownership under List A?

Limited foreign ownership is permitted in areas such as private radio communication networks, private recruitment, advertising, ownership of private lands and condominium units, and exploration, development, and utilization of natural resources.

Q8: What is covered in List B of the FINL?

List B indicates limits for reasons of security, defense, risk to public health/morals, and protection of SMEs. Examples include manufacture/distribution of products requiring PNP/DND clearance (firearms, military equipment), telescopic sights, and all forms of gambling (except those under PAGCOR agreements).

Q9: What is the standard ownership setup for a company serving the local market?

The standard setup is 60% Filipino / 40% foreign. The paid-up capital for this setup can be less than US$200,000.00 (subject to recent amendments).

Q10: Under the original FIA, what conditions allowed ownership > 40%?

For a foreign entity to own more than 40% (if not in FINL), required capital could not be less than US$200,000.00. This could be lowered to US$100,000.00 if the activity involved advanced technology or the company had at least 50 direct employees.

Q11: What are the basic rights and guarantees for foreign investors?

• Repatriation of Investments: Right to repatriate in the original currency at prevailing exchange rates.
• Remittance of Earnings: Right to remit interest/loan payments to foreign entities.
• Freedom from Expropriation: Protection from government seizure except for public use with just compensation.
• Non-Requisition of Investment: Prohibited except in war/emergency, with just compensation.

Q12: What is Republic Act No. 11647, signed on March 2, 2022?

Act 11647 is the law that amends the Foreign Investment Act (RA 7042).

Q13: What are the key objectives of the amendments?

To attract foreign investments by allowing international investors to fully own domestic enterprises, including MSMEs, to promote competition and sustainable growth.

Q14: How did RA 11647 change foreign ownership for MSMEs?

Foreigners can own MSMEs with a minimum capital of US$100,000.00 if: (1) Enterprise uses advanced tech; (2) Endorsed as a startup enabler/startup; or (3) Hires no less than 15 Filipino employees.

Q15: What is the Inter-Agency Investment Promotion Coordination Committee (IIPCC)?

A new body under the DTI created to coordinate investment promotion across government agencies and ensure a uniform approach.

Q16: What power does the President have regarding foreign investments?

The President can order the IIPCC to review, suspend, or prohibit investments that threaten national security (e.g., military industries, cyber infrastructure).

Q17: What is the requirement regarding Filipino workers?

Foreign businesses enjoying fiscal incentives must implement an understudy or skills development program for local workers, monitored by DOLE.

Q18: How does RA 11647 balance growth and security?

It mandates a review of investments in sensitive sectors by the IIPCC in coordination with the NSC and NEDA to protect territorial integrity and citizen safety.

Q1: What is the primary purpose of RA 9513?

The Act promotes the development and utilization of renewable energy sources, such as solar, wind, and biomass, within the Philippines.

Q2: What specific energy sources are covered?

The Act encompasses biomass, geothermal, solar, hydro, wind, and ocean energy sources (Sec. 3).

Q3: Where should applications for incentives be filed?

All filings for incentives should be done with the Department of Energy (DOE).

Q4: What is the Income Tax Holiday (ITH) provision?

Developers are granted an ITH for the first seven years of commercial operations. Expansion projects may receive extensions for a maximum total period of 21 years.

Q5: Are there tax incentives for imported equipment?

Yes, duty-free importation of machinery and equipment is provided for a period of ten years.

Q6: What is the special tax rate for real estate improvements?

Special realty and other taxes on civil works and equipment exclusively used for RE facilities shall not exceed 1.5%.

Q7: What corporate tax benefits apply after the ITH?

A reduced corporate tax rate of 10% is applied after the initial seven-year ITH period.

Q8: What is Net Operating Loss Carry-Over (NOLCO)?

Operating losses from the first three years can be carried over as a deduction from gross income for the next three consecutive taxable years.

Q9: What is the provision for Accelerated Depreciation?

If an RE project fails to receive an ITH before full operation, it may apply for Accelerated Depreciation in its tax books.

Q10: Is RE-generated power subject to VAT?

No. There is zero-rated VAT on sales and local purchases of renewable energy-generated power and fuel.

Q11: Are carbon credits sales taxed?

No, the Act provides tax exemption for all proceeds from the sale of carbon credits.

Q12: Which key institutions were established?

The Philippine Electricity Market Corporation (PEMC), the National Renewable Energy Board (NREB), and the Renewable Energy Management Bureau (REMB).

Q13: What is the PEMC?

A corporation initiated by the DOE composed of WESM members, responsible for market operation governance.

Q14: What are the functions of the NREB?

• Policy recommendation for Renewable Portfolio Standards.
• Implementation oversight and monitoring of the NREP.
• Supervision of the Renewable Energy Trust Fund.

Q15: What is the role of the REMB?

Responsible for policy implementation, maintaining a centralized info base, promoting commercialization, and monitoring compliance in RE activities.

Q16: Has the foreign ownership limit changed?

Yes. In November 2022, the DOE revised the FINL (Circular No. 2022-11-0034) to allow 100% foreign ownership in the renewable energy sector.

Q17: What are the country's RE targets?

Under NREP 2020-2040, the Philippines aims to increase the share of renewable energy to 35% by 2030 and 50% by 2040.