Overview
A leading hotel and convention center operator, recognized as a Domestic Market Entity (DME) under Tier 1 of the Strategic Investment Priority Plan (SIPP), is leveraging tax incentives within a designated economic zone. With the implementation of the CREATE MORE Act of 2024, significant amendments have been introduced that impact business operations, particularly in restructuring fiscal incentives. Understanding these changes is crucial for ensuring compliance and maximizing tax benefits.
This advisory primarily focuses on non-gaming revenues from hotel and convention center operations. While gaming revenues are subject to a 5% franchise tax, the company must immediately decide whether to benefit from a 4-7-year Income Tax Holiday (ITH) or opt for the Enhanced Deduction Regime (EDR).
Key Tax Incentives
As a Domestic Market Entity (DME), the company qualifies for multiple tax incentives under the CREATE MORE Act based on the level of investment:
Investment-Based Incentives
| Investment Size | Available Incentives |
|---|---|
| Php 15B and below | IPA Incentives: 4-7 years ITH + 10 years EDR or outright 14-17 years EDR |
| Above Php 15B | FIRB Incentives: 4-7 years ITH + 20 years EDR or outright 24-27 years EDR |
The specific Income Tax Holiday (ITH) duration is determined by the classification and location of the business.
Location & Industry Tiers for ITH Duration
| Location | Tier I | Tier II | Tier III |
|---|---|---|---|
| NCR | 4 years | 5 years | 6 years |
| Metro areas adjacent to NCR | 5 years | 6 years | 7 years |
| All other areas | 6 years | 7 years | 7 years |
Enhanced Deductions Regime (EDR) Benefits
The CREATE MORE Act brings significant amendments to the Enhanced Deduction Regime (EDR), particularly benefiting non-gaming operations in tourism-related activities. Under the new law, the corporate income tax rate for Registered Business Enterprises (RBEs) under EDR is reduced from 25% to 20%, resulting in lower tax liabilities and improved cash flow.
Key Amendments under EDR
| EXPENSE CATEGORY | PREVIOUS INCENTIVES (CREATE Act) | UPDATED INCENTIVES (CREATE MORE Act) |
|---|---|---|
| Power Expenses | 50% additional deduction | 100% additional deduction |
| 50% Reinvestment Deductions | Applied to manufacturing RBEs only | Expanded to manufacturing & tourism RBEs* |
| Exhibition, Trade Missions & Trade Fairs | No provision | 50% additional deduction |
| Availment of the Net Operating Loss Carry Over (NOLCO) | Within 5 consecutive years following the year of loss | Within 5 consecutive years following the last year of ITH entitlement |
These expanded deductions allow businesses to reduce taxable income by reinvesting in infrastructure, marketing, and power-saving initiatives, creating financial sustainability and long-term growth opportunities.
Importation & VAT-Related Incentives
Duty-Free Importation of Capital Equipment & Administrative Goods
The CREATE MORE Act extends duty exemptions beyond gaming and hospitality equipment to administrative necessities such as office equipment, IT infrastructure, and essential operational tools. This amendment lowers the cost of modernizing operational and back-office functions, making overall business operations more cost-efficient and competitive.
RBE Local Tax (RBELT) on DMEs
Under the Republic Act 12066, local government units (LGUs) can impose a Registered Business Enterprises Local Tax (RBELT) of up to 2% of gross income on DMEs during their ITH and EDR periods. While this tax consolidates all local taxes and fees into a single charge, businesses must carefully integrate it into financial planning to avoid unexpected expenses.
Streamlined VAT Refund Process
The VAT refund process has been simplified, requiring only certified true copies of invoices and mandated documents. This prevents unnecessary delays by prohibiting the Bureau of Internal Revenue (BIR) from requesting additional paperwork.
- Refund Processing Timeline: 90 days
- Action Required for Denied Claims: Must file for reconsideration within 15 days to prevent final rejection.
Expansion & Workforce-Based Incentives
Incentive Extension for Large-Scale Employment
Businesses employing at least 10,000 direct local workers can extend fiscal incentives for up to 10 additional years. This measure supports job creation, economic stimulation, and corporate growth while maintaining compliance with tax regulations.
13-Year EDR for Expansion Projects
Companies investing in new facilities, services, or tourism-related infrastructure may qualify for a 13-year EDR, making expansion projects more financially attractive. Businesses aligning expansion plans with the Strategic Investment Priority Plan (SIPP) can maximize tax savings while improving market competitiveness.
Application for Tax Incentives
Required Documents for Incentive Applications
Enterprise-Level Documents
- DTI or SEC Registration
- BIR Certificate of Registration (Form No. 2303)
- SEC General Information Sheet (GIS)
- Notarized Integrity Pledge
- Latest Audited Financial Statements (AFS)
- Details on Related Party Transactions
Project or Activity-Level Information
- Location & Classification Under SIPP
- Business Model & Timetable for Commercial Operations
- Projected Investment & Source of Funds
- Expected Tax Contributions (Local & National)
- Projected Employment Figures & Salary Breakdown
Businesses can efficiently secure tax incentives and optimize fiscal benefits by ensuring all required documents are correctly prepared and submitted.
Summary of Key Incentives for the Tourism Industry
| FISCAL | NON-FISCAL |
|---|---|
| • ITH + EDR or Outright EDR • Reduced Tax Rate under EDR • Amendments on Enhanced Deductions • Duty exemption on importation • VAT Exemption on importation and VAT Zero-rating on local purchases (for High Value DMEs) • 10-year extension (subject to conditions) • 13-year EDR for qualified expansion projects • VAT Refund Amendments • RBE Taxpayer Services | • VAT Refund Amendments • RBE Taxpayer Services |
Conclusion
The CREATE MORE Act of 2024 (R.A. No. 12066) introduces a robust set of incentives for hospitality businesses in the Philippines, particularly those in the gaming, tourism, and hospitality sectors. By strategically utilizing the Income Tax Holiday (ITH), Enhanced Deduction Regime (EDR), and importation incentives, companies can reduce tax liabilities, optimize operational efficiency, and plan for long-term expansion.
For businesses seeking to maximize tax benefits while maintaining compliance, proactive planning and strict adherence to regulatory requirements are essential. Leveraging these fiscal incentives not only enhances profitability but also strengthens economic contributions through employment generation and infrastructure development.
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📌 Resources
- Create More Act IRR | Download
- Interim IRR of CREATE MORE Act and Revenue Regulations No. 18-2024 | Download
- Understanding CREATE MORE: A Guide for Businesses in the Philippines | Read More
- CREATE MORE Act Philippines: Tax Incentives & Investment Benefits for 2025 | Read More
- Enhanced Tax Incentives for your Business from the CREATE MORE Act | Read More
