CREATE MORE

Republic Act No. 12066

Executive Summary

Republic Act No. 12066 (CREATE MORE), signed into law on November 11, 2024, and effective 15 days after publication, augments the CREATE Act to further modernize tax policy and enhance investment competitiveness in the Philippines. It introduces a 20% corporate income tax (CIT) rate under the Enhanced Deductions Regime (EDR), revises VAT zero-rating and exemption criteria for registered business enterprises (RBEs), extends incentive durations, refines net operating loss carry-over rules, allows optional local taxation, and expedites customs and VAT compliance processes—all aimed at attracting high-impact investments and improving ease of doing business.

Key Developments

1. Reduced Corporate Income Tax (CIT) under EDR

   RBEs opting for the EDR now benefit from a flat 20% CIT rate on taxable income related to registered activities, providing greater tax efficiency compared to the previous 25% rate under CREATE.

2. Enhanced and Expanded Deductions

   • Power expenses: Additional deduction increased from 50% to 100%.

   • Trade promotion & fairs: A 50% deduction now applies to costs associated with exhibitions and trade missions.

   • Reinvestment allowance: Expanded to include the tourism sector.

   • Net Operating Loss Carry-Over (NOLCO): Now usable for up to five years following the end of Income Tax Holiday (ITH) period—enhancing flexibility in tax planning and utilization.

3. VAT Exemption and Zero-Rating Clarified

   • Applies only to goods and services “directly attributable” to registered activities—now including services such as janitorial, security, consultancy, marketing and administrative support.

   • VAT-exempt importation and zero-rated local sales now apply to enterprises whose export sales comprise at least 70% of prior-year production; threshold compliance is verified by DTI’s Export Marketing Bureau.

   • The Department of Finance is mandated to set up a VAT refund center in both the BIR and BOC, and fund operations equivalent to 5% of prior-year VAT collections.

4. Incentive Periods and Optional Order of Availment

   • SCIT and EDR periods now extend up to 17 years via Investment Promotion Agencies (IPAs) and up to 27 years via the Fiscal Incentives Review Board (FIRB); labor-intensive projects may receive additional extensions.

   • Firms may now choose SCIT or EDR immediately at the commencement of commercial operations—no longer required to start with Income Tax Holiday (ITH) first.

5. Local Tax (RBELT) Provision

   CREATE MORE introduces an optional RBE Local Tax (RBELT) up to 2% of gross income during ITH or EDR, replacing all other local taxes, fees and charges—granting LGUs flexibility while maintaining predictability for enterprises.

6. Customs and Pre-Registration Import Flexibility

   Allows duty- and VAT-exempt imports before Certificate of Registration issuance, subject to posting performance bonds equivalent to waived tax—reduces setup delay for registered enterprises.

7. Flexible Work Arrangement Formalized

   RBEs based in economic zones and freeports may adopt telecommuting policies up to 50% of workforce, institutionalizing hybrid work without jeopardizing incentive status.

Implications for Businesses

• Strategic tax planning: Lower rate and enhanced deductions increase ROI on eligible projects.

• Sectoral appeal: Promotions benefit energy-intensive industries, tourism, trade fairs, and export-oriented clusters.

• Compliance and cash flow: Refund center and pre-CoR imports address longstanding cash-flow challenges for exporters.

• Local predictability: RBELT provides a fixed local tax alternative, reducing administrative burden.

• Operational agility: Early choice between SCIT and EDR and flexibility in hiring and working arrangements support modern business models.