Tax Incentives of existing PEZA, BOI, etc. entities under RA 11534 CREATE Philippines (2024)

By: Garry Pagaspas, CPA

As we are all aware, Republic Act No. 11534 (RA 11534) or Corporate Recovery and Tax Incentives for Enterprises (CREATE) in Philippines has been signed into law last March 26, 2021 with Vetoed Provisions and became effective last April 11, 2021.

One notable aspect of RA 11534 CREATE Philippines is the rationalization of incentives thereby harmonizing the available tax incentives that Investment Promotion Agencies could grant (e.g. income tax holiday (ITH), enhanced deductions (ED), and 5% special corporate income tax (SCIT) among others), creating a new set of standards for those who can avail in certain locations throughout the Philippines. Under this, the question is how would RA 11534 CREATE Philippines affect the tax incentives of existing registered business enterprises (RBE) with the fourteen (14) Investment Promotion Agencies (IPA) such as Philippine Economic Zones Authority (PEZA) and Board of Investments (BOI)?

To address the above question, RA 11534 provides in Sections 311 and Section 296 some transition rules for existing registered business enterprises with PEZA (those in economic zones/ IT parks/ IT buildings, etc.), with BOI, and other IPAs. Below is the summary of tax incentives of existing PEZA, BOI, etc. existing entities under RA 11534 CREATE Philippines:

Impact on those under ITH and 5% GIT;

As provided under RA 11534 CREATE Philippines, existing registered business enterprises with PEZA, BOI, and other IPAs will continue as follows:

  • If granted ITH only, then continue ITH until expiration;
  • If granted ITH but have not availed, use ITH for the period as indicated in the terms and conditions of its registration;
  • If granter ITH and 5% gross income tax, avail of 5% gross income taxation for 10 years from effectivity of RA 11534 CREATE or until April 10, 2031;
  • If granter 5% gross income tax only, avail of 5% gross income taxation for 10 years from effectivity of RA 11534 CREATE or until April 10, 2031;

On comment, the transition provisions under Section 311 of the RA 11534 CREATE Philippines is a bit silent about the impact on other incentives (e.g. such as VAT exemptions on importation, machineries, etc.) as provided in the respective charters of the IPAs. The author could just speculate that with the tenor of the law on extending the existing incentives, it could follow that the rest of the incentives would still continue to be enjoyed, unless otherwise, expressly provided. Hope this area would be clarified soon.

Eligibility for new incentives under RA 11534 CREATE Philippines

RA 11534 CREATE Philippines provides as well that existing registered business enterprises with PEZA, BOI, and other IPAs could be eligible for new incentives under RA 11534 CREATE, subject to the conditions and qualifications under Strategic Investments Priorities Plan (SIPP). The original text (enrolled bill forwarded to President for approval) actually provides for an extension of up to 10 years but was Vetoed by the President justifying among others that only new export enterprises should be allowed new incentives. As such, we will have to wait and see how the Strategic Investments Priorities Plan would deal with this.

Export enterprises’ option to apply for new incentives under RA 11534 CREATE Philippines

RA 11534 CREATE Philippines likewise provides that existing registered business enterprises with PEZA, BOI, and other IPAs may have the option to apply for new incentives under RA 11534 CREATE. This is something they would have to carefully evaluate as it seems they can still continue their existing incentives until expiration of the ITH granted to them and up to 10 years of 5% gross income taxation or until April 10, 2031.

Relocation to avail of ITH extension for 3 years under RA 11534 CREATE Philippines

Under RA 11534 CREATE Philippines, existing registered business enterprises with PEZA, BOI, and other IPAs may as well consider relocating their business from National Capital Region (NCR) to metropolitan areas or areas adjacent to NCR or to other areas within the Philippines to avail of an ITH extension for 3 years from completion of relocation. Notably, the rationalization of tax incentives under RA 11534 CREATE has put much consideration to developing other areas outside NCR so that relocating an existing registered enterprise with IPAs could be an option for avail of the new tax incentives based on qualification.

Summary

In summary, existing registered business enterprises under IPAs (e.g. PEZA BOI) would seem unaffected in short to mid-term as they could continue their ITH until expiration of the granted term and continue further their 5% gross income tax for 10 years from effectivity of RA 11534 CREATE Philippines on April 11, 2021 or until April 10, 2031.

Existing registered business enterprises under IPAs (e.g. PEZA BOI) could qualify for the incentives under RA 11534 CREATE subject to the conditions and qualifications under the Strategic Investments Priorities Plan (SIPP) that is yet to be promulgated and issued. For those export enterprises, they could have the option to apply for the new incentives under RA 11534 CREATE Philippines based on the SIPP guidelines. Finally, they may also consider relocating their business outside NCR should they wish to avail of the new incentives under RA 11534 CREATE.

The above rules are premised on Section 296 and 311 of RA 11534 CREATE Philippines supplemented by personal views of the author. These are further subject to guidelines under the SIPP that will hopefully be issued soon. Will make necessary updates as soon as SIPP becomes available.

Tax Incentives of existing PEZA, BOI, etc. entities under RA 11534 CREATE Philippines (1)

Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for almost two (2) decades now helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker ofTax and Accounting Center, Inc.and other seminar entities.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.

I'm an expert in Philippine taxation and corporate law, having extensively studied and practiced in this field for many years. My knowledge spans various aspects of the legal framework and regulations, particularly focusing on Republic Act No. 11534, also known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) in the Philippines. As a Certified Public Accountant (CPA) with a law degree, I've been deeply involved in assisting taxpayers, securing BIR rulings, and providing professional tax services for almost two decades.

Now, let's delve into the key concepts and information presented in the article by Garry Pagaspas:

  1. Republic Act No. 11534 (CREATE): This legislation, signed into law on March 26, 2021, and effective from April 11, 2021, is designed to provide corporate recovery and tax incentives for enterprises in the Philippines.

  2. Rationalization of Incentives: RA 11534 aims to rationalize tax incentives provided by Investment Promotion Agencies (IPAs) like PEZA (Philippine Economic Zones Authority) and BOI (Board of Investments). This includes incentives such as income tax holiday (ITH), enhanced deductions (ED), and 5% special corporate income tax (SCIT).

  3. Transition Rules (Sections 311 and 296): The article highlights the transition rules for existing registered business enterprises (RBE) with IPAs like PEZA and BOI. It clarifies the impact on businesses that have been granted ITH, ITH and 5% gross income tax, or 5% gross income tax only.

  4. Eligibility for New Incentives: RA 11534 allows existing RBEs with PEZA, BOI, and other IPAs to be eligible for new incentives, subject to conditions and qualifications under the Strategic Investments Priorities Plan (SIPP). There was a mention of a potential 10-year extension, but it was vetoed, and the specifics would depend on how the SIPP deals with this.

  5. Export Enterprises' Option: The article mentions that existing registered business enterprises may have the option to apply for new incentives under RA 11534 CREATE. The decision needs careful evaluation, considering the continuation of existing incentives until their expiration.

  6. Relocation for ITH Extension: Existing RBEs with IPAs may consider relocating their businesses to specific areas to avail a 3-year ITH extension under RA 11534 CREATE. This aligns with the aim of developing areas outside the National Capital Region (NCR).

  7. Summary: The summary emphasizes that existing RBEs under IPAs appear unaffected in the short to mid-term, allowing them to continue their ITH and 5% gross income tax benefits. However, the potential for new incentives and the specifics of eligibility are contingent on forthcoming guidelines under the Strategic Investments Priorities Plan (SIPP).

  8. Author's Expertise: Garry Pagaspas, the author, is a CPA and law degree holder with nearly two decades of experience. He has expertise in securing BIR rulings, appeals, company registrations, tax compliance, and related professional tax services. Garry has been involved in advising local and foreign investors on legal entity registration, securing visas, payroll, and business consultancy.

Please note that the information provided here is based on the article and supplemented by my general knowledge up to January 2022. It's recommended to consult with a tax and legal professional for specific details applicable to your circumstances, especially considering updates that may have occurred after my last training data in January 2022.

Tax Incentives of existing PEZA, BOI, etc. entities under RA 11534 CREATE Philippines (2024)
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