June 17, 2020
Philippines enhances proposal for corporate tax reform to promote investment
On 22 May 2020, the Philippine Department of Finance (DOF) officially submitted its proposed amendments to the Corporate Income Tax and Incentives Reform Act (CITIRA)1 bill. The enhanced bill (now referred to as the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill) aims to aid the recovery of businesses negatively affected by the COVID-19 pandemic and enhance the ability of the Philippines to attract highly desirable investments. CREATE is the largest fiscal stimulus program for enterprises in the country's history.
The proposed amendments are subject to further deliberations in the Congress.
This Alert summarizes the key amendments proposed by the CREATE bill.
Key tax enhancements under CREATE
Other proposed amendments under the tax reform package
It is expected that the CREATE measures will: (i) immediately assist businesses during the downturn; (ii) help enterprises invest in the revitalization of their businesses in the post-COVID-19 recovery period and create more jobs for Filipino workers; (iii) improve the country's competitiveness in doing business among its ASEAN neighbors; and (iv) boost the Philippines' bid to attract multinational companies seeking to diversify their supply chains.
1 Senate Bill No. 1357.
2 Regional Operating Headquarters (ROHQ) shall mean a foreign business entity which is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets. ROHQs are currently entitled to a preferential income tax rate of 10% on taxable income and various fiscal and non-fiscal incentives such as exemption from local taxes, fees or charges and tax and duty-free importation of training materials and equipment not locally available, among others.
3 Registered Business Enterprise (RBE) refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine laws and registered with an investment promotion agency (IPA) excluding service enterprises such as those engaged in customs brokerage, trucking or forwarding services, janitorial services, security services, insurance, banking, and other financial services, consumers' cooperatives, credit unions, consultancy services, retail enterprises, restaurants, or such other similar services, as may be determined by the Fiscal Incentives Review Board, irrespective of location, whether inside or outside the zones, duly accredited or licensed by any of the IPAs and whose income delivered within the economic zones shall be subject to taxes under the National Internal Revenue Code of 1997, as amended. RBEs are entitled to the specific fiscal and non-fiscal incentives granted through the IPA where they are registered.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Philippines (SGV & Co.), Makati City
Ernst & Young LLP (United States), Philippines Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
PDF version of this Tax Alert