Philippines

Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act

On 8 November 2024, President Ferdinand R. Marcos Jr. signed the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act into law (Republic Act No. 12066). The CREATE MORE Act aims to generate jobs and spur economic growth. It builds on the earlier CREATE Act by enhancing the tax regime and incentive framework to attract both domestic and international investments, particularly in strategic industries. The CREATE MORE Act took effect on 28 November 2024.

Here are the salient features of the law:

• Registered business enterprises under the Enhanced Deduction Regime are subject to the 20% corporate income tax (CIT) rate.
• Sales to export-oriented enterprises (70% export sales) are treated as value-added tax (VAT) zero-rated if directly attributable to export activities.
• Export sales, as defined under Executive Order No. 226, are generally omitted from enumeration of VAT zero-rated sales.
• Sales to bonded manufacturing warehouses of export-oriented enterprises are VAT zero-rated.
• There are additional due process requirements in the processing of input VAT refund claims.
• Issuance of electronic invoices (e-invoices) is mandatory for certain taxpayers.
• There is an additional deduction for micro/small taxpayers and medium/large using e-invoices.
• The 5% special corporate income tax (SCIT) is in lieu of all taxes, including local fees and charges.
• There are additional deductions for export and domestic market enterprises under the Enhanced Deduction Regime (EDR).
• Local government units may impose local taxes on registered business enterprises at up to 2% of gross income.

Digital Services Tax Act (DSTA)

Republic Act No. 12023 or the Digital Services Tax Act (DSTA) was enacted last 2 October 2024 and became effective on 18 October 2024. This law imposes 12% VAT on digital services supplied by non-resident digital services providers (NDSPs) whose products are consumed in the Philippines.

Here are some salient provisions of the law:

• Digital service shall refer to any service that is supplied over the Internet or other electronic network with the use of information technology and where the supply of service is essentially automated. All NDSPs whose gross annual sales are expected to exceed the VAT threshold (which is currently 3 million Philippine pesos [PHP]) are required to register for VAT.
• Non-residents are only liable to remit VAT on their supply of digital services in business-to-consumer (B2C) transactions and in case they are classified as an e-marketplace (with respect to sales of non-resident sellers that go through their platform).
• Business-to-business (B2B) transactions, under a reverse-charge mechanism, should be accounted for and remitted by the Philippine resident business consumer.
• In determining a contracting party’s business status (i.e. engaged in business or not), both the DSPs and consumers may rely on the documents submitted by their contracting parties.