PHILIPPINES Law and Practice Contributed by: Carina Laforteza, Joanna Marie Joson, Kristina Paola Frias and Joanna Marie Reyes, SyCip Salazar Hernandez & Gatmaitan
2.3 Special Incentives The CREATE Law sets out the fiscal incentives for entities engaged in preferred activities and registered with the Board of Investments, and for business enter - prises that are located within designated economic zones (“ecozones”) or former military bases that were converted into ecozones or freeport zones. The tax regime under the CREATE Law was expanded under Republic Act No 12066 (the “CREATE MORE Law”) to make the Philippines more attractive to foreign and local investors by providing enhanced tax incentives. Under the CREATE MORE Law, a uniform set of incen - tives may be granted to qualified enterprises whose activities are listed in the strategic investment priority plan, among other conditions. The fiscal incentives that may be granted to qualified registered enterprises under the law are: • for projects or activities approved by investment promotion agencies (IPAs), an ITH of four to seven years followed by a special corporate income tax (SCIT) of 5% on gross income earned in lieu of all national and local taxes or an EDR for ten years, or SCIT or EDR for a maximum period of 14 to 17 years, depending on location and industry priori - ties; • for projects or activities approved by the Fiscal Incentives Review Board (FIRB), an ITH of four to seven years followed by SCIT of 5% on gross income earned in lieu of all national and local taxes or EDR for 20 years, or SCIT or EDR for a maxi - mum period of 24 to 27 years, depending on loca - tion and industry priorities; • duty exemption on the importation of capital equip - ment, raw materials, spare parts or accessories, including goods used for administrative purposes, of the registered project or activity; • VAT exemption on importation and VAT zero-rating on local purchases; and • RBE Local Tax at the rate of not more than 2% of an RBE’s gross income earned during the ITH and EDR in lieu of all local taxes and local fees and charges imposed by the local government unit. The RBE may forgo the ITH in exchange for availing SCIT or EDR at the commencement of its operations.
Additionally, under the CREATE MORE Law, RBEs may apply for extension of availment of incentives for five or ten years, for the same registered project or activity under certain conditions and subject to per - formance review by the IPA or FIRB, as applicable. ITH will not be granted to RBEs that applied for exten - sion of availment of incentives for the same project or activity. The FIRB is tasked with granting appropriate tax incentives to registered projects or activities upon the recommendation of the relevant IPA. The grant of tax incentives to registered projects or activities with investment capital of PHP15 billion and below is delegated by FIRB to the concerned IPAs to the extent of their approved registered project or activity under the strategic investment priority plan. The FIRB is authorised under the CREATE MORE Law to adjust the threshold amount of PHP15 billion. The President is also given the power to modify the mix, period or manner of availing incentives, or to craft the appropriate support package for a highly desirable project or specific industrial activity, in the interest of national economic development or upon recommen - dation of the FIRB, provided that the grant of an ITH shall not exceed ten years and, thereafter, an SCIT rate of 5% or an EDR may be granted. Alternatively, the SCIT or EDR may be immediately granted at the start of commercial operations. However, the cumula - tive period of incentive availment for incentives grant - ed by the President shall not exceed 40 years. There are other special laws that provide fiscal incen - tives to certain sectors or undertakings such as co- operatives and renewable energy developers. 2.4 Loss Relief The Philippine Tax Code provides that the net oper - ating loss (NOL) of an enterprise (ie, the excess of allowable deductions over the gross income) for any taxable year immediately preceding the current tax - able year, which had not been previously offset as deduction from gross income, may be carried over as a deduction from gross income for the next three consecutive taxable years immediately following the year of such loss.
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