Tax Rules and News 044-2024

New VAT guidelines could lead to closure of non-compliant digital service providers, BIR warns
Bilyonaryo News / Eileen Mencias / November 11, 2024

The Bureau of Internal Revenue (BIR) has issued a draft regulation imposing value-added tax (VAT) on digital services, in line with Republic Act No. 12023, which amends the National Internal Revenue Code. The proposed regulation grants the BIR the authority to issue closure or take-down orders against digital service providers (DSPs) that fail to register and comply with the law. The BIR can enforce these measures to halt operations of non-compliant DSPs.

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New VAT guidelines could lead to closure of non-compliant digital service providers, BIR warns

The CREATE MORE Act: A new chapter for tax incentives and economic development (Let’s Talk Tax)
Business World / Paul Vinces C. Leorna / November 11, 2024

The Philippines has implemented significant tax reforms in recent years with the goals of modernizing the tax system, attracting investment, supporting small businesses, and boosting economic growth. One significant change that lowered corporate income tax rates and updated tax incentives was the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which was passed in 2021. Following this, the recently signed CREATE MORE (Maximize Opportunities for Reinvigorating the Economy) Act, signed by the President on Nov. 11, expanded upon CREATE, seeking to enhance and broaden incentives. Here, we examine the CREATE MORE Act’s main features and possible advantages.

CORPORATE INCOME TAX RATE FOR RBEs – One of the major amendments is the introduction of the 20% Corporate Income Tax (CIT) Rate for Registered Business Enterprises (RBEs) under the Enhanced Deductions Regime (EDR) on their taxable income derived from registered projects or activities during the taxable year.

EXPANDED DEDUCTIONS UNDER EDR – Another salient amendment is the increase in the percentage of deductible expense items under the EDR to further incentivize businesses. As an example, the Act increased the additional deduction for power expenses to 100% from 50%, making it more attractive for businesses to invest in energy-intensive industries such as manufacturing and logistics.

ELIGIBILITY CRITERIA FOR RBEs – Under the CREATE Act, incentives were available for only registered export enterprises (REEs) and domestic market enterprises (DMEs). The CREATE MORE Act eases this requirement by expanding the scope of eligible businesses to encompass “registered business enterprises,” which now includes both foreign and local businesses subject to certain conditions. 

VAT EXEMPTION AND ZERO-RATING

1. Eligibility criteria for VAT exemption and zero-rating – VAT incentives will be applicable to goods and services that are “directly attributable” to the registered project or activity of a registered company. The CREATE MORE Act specifies that the following goods and services, if used directly in the registered activity, will qualify for VAT exemptions or zero-rating: • Janitorial services • Security services • Financial services • Consultancy services • Marketing and promotional services • Administrative operations, including human resources, legal, and accounting services.
2. Conditions for VAT exemption and zero-rating – Further, the CREATE MORE Act specifies the conditions under which VAT exemption and zero-rating apply. • VAT Exempt: Goods imports by an REE whose export sales are at least 70% of total annual production of the preceding taxable year; • 0% VAT: Sale of goods and services to/for REEs whose export sales are at least 70% of the total annual production of the preceding taxable year; or • 0% VAT: Sales to bonded manufacturing warehouses of REEs
3. VAT treatment on the sale, transfer, or disposal of previously VAT-exempt imports– The CREATE MORE Act clarifies VAT treatment of the sale, transfer, or disposal of previously VAT-exempt imported capital equipment, raw materials, spare parts, and accessories as follows: • 0% VAT: Purchaser is an REE (regardless of location); • 0% VAT: Seller is a domestic market enterprise (DME), and purchaser is an REE (regardless of location); or • 12% VAT: If the seller is a DME (regardless of location), VAT shall be based on the net book value of the capital goods or materials.
4. Special provisions for high-value DMEs – Under the CREATE MORE Act, DMEs that have investment capital of at least P15 billion and are either import-substituting or catering to non-resident markets OR those with export sales of at least $100 million will enjoy enhanced 0% VAT on local purchases and VAT exemption on imports.

RBEs AND LOCAL TAX – Companies eligible for tax incentives, including those enjoying income tax holidays (ITH) or EDR, will be subject to a local tax of up to 2% of gross income, in lieu of all other local taxes and fees. This will reduce the substantial administrative and financial burden on companies, allowing them to concentrate more on their operations rather than dealing with local taxes with varying complexities.

Click the link below to read the full news from the source:
https://www.bworldonline.com/economy/2024/11/11/634297/the-create-more-act-a-new-chapter-for-tax-incentives-and-economic-development/