ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 46  October 2023 CPA Licensure Examination

TAX-2002
TAXATION A. TAMAYO  E. BUEN  G. CAIGA  C. LIM  K. MANUEL

PREFERENTIAL TAXATION 2: REGISTER BUSINESS ENTERPRISES (RBE)

I - Investment Promotion Agencies

a. Investment Promotion Agencies Defined

Investment Promotion Agencies refer to government entities created by law, executive order, decree or other issuances, in charge of
promoting investments, granting and administering tax and non-tax incentives, and overseeing the operations of the different
economic zones and freeports in accordance with their respective special laws. These include the:
1) Board of Investments (BOI);
2) Regional Board of Investments-Autonomous Region in Muslim Mindanao (RBOI-ARMM);
3) Philippine Export Processing Zone (PEZA);
4) Bases Conversion and Development Authority (BCDA);
5) Subic Bay Metropolitan Authority (SBMA);
6) Clark Development Corporation (CDC);
7) John Hay Management Corporation (JHMC);
8) Poro Point Management Corporation (PPMC);
9) Cagayan Economic Zone Authority (CEZA);
10) Zamboanga City Special Economic Zone Authority (ZCSEZA);
11) PHIVIDEC Industrial Authority (PIA);
12) Aurora Pacific Economic Zone and Freeport Authority (APECO);
13) Authority of the Freeport Area of Bataan (AFAB);
14) Tourism Infrastructure and Enterprise Zone Authority (TIEZA), and
15) All other similar existing authorities or that may be created by law unless other specifically exempted from the coverage of
the Tax Code.

b. Tax and Duty Incentive Granted to Registered Projects or Activities

Types of tax (A) Income Tax Holiday (ITH)
incentives (B) Special Corporate Income Tax (SCIT)
(C) Enhanced Deduction (ED)
(D) Duty exemption on importation of capital equipment, raw materials, spare parts, or accessories, and
(E) Value-Added Tax exemption on importation and VAT-zero rating on local purchases.

The Income Tax Holiday (ITH) shall be followed by the SCIT or ED.

c. Options Allowed to Export Enterprise, Domestic Market Enterprise and Critical Domestic Market Enterprise
At the option of the export enterprise, the domestic market enterprise with a minimum investment capital of P500,000,000, and the
domestic market enterprise engaged in activities that are classified as “critical,” the SCIT or ED shall be granted.

In no case shall the Enhanced Deductions (ED) be granted simultaneously with Special Corporate Income Tax (SCIT).

d. Special Corporate Income Tax (SCIT)

Taxpayers allowed 1) Export enterprise
2) Domestic market enterprise with a minimum investment capital of P500,000,000 (VETOED)
3) Domestic market enterprise under Strategic Investment Priority Plan engaged in activities that are
classified critical (VETOED)
Tax rate 5% based on gross income earned, in lieu of all national and local taxes.
Sharing of the 5% National Government – 3%
SCIT Local Government – 2% directly remitted by the registered business enterprise to the local government
unit (LGU)
Effectivity Effective July 1, 2020
Definition of terms Capital equipment refers to machinery, equipment, major components thereof, tools, devices, applications
or apparatus, which are directly or reasonably needed in the registered project or activity of the registered
enterprise.

Direct local employment refers to the full and decent employment of Filipinos by registered business
enterprise under an employer-employee relationship to perform functions that are directly related to the
production of goods or performance of services under the registered project or activity.

Domestic input refers to purchases of locally manufactured goods or locally produced raw materials or
domestically outsourced services known as services embedded in manufacturing that are used directly in
the production of goods under the registered project or activity. In the case of locally manufactured goods,
fifty percent (50%) of the value-added of the said good should likewise be locally produced or
manufactured.

Domestic market enterprise refers to any enterprise registered with the Investment Promotion Agency
other than export enterprise.

Page 1 of 9 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
PREFERENTIAL TAXATION 2: REGISTERED BUSINESS ENTERPRISES (RBE) TAX-2002
Investment capital refers to the value of investment indicated in Philippine currency, excluding the value
of land and working capital, that shall be used to carry out a registered project or activity, except that land
shall be included as investment capital for registered real estate development. Investment capital may
include the cost of land improvements, buildings, leasehold improvements, machinery and equipment, and
other non-current tangible assets.

Export enterprise refers to any individual, corporation, Philippine branch of a foreign corporation, or other
entity organized and existing under Philippines laws and registered with the Investment Promotion Agency
to engage in manufacturing, assembling or processing activity, and services such as information technology
(IT) activities and business process outsourcing (BPO), and resulting in the direct exportation, and/or sale
of its manufactured, assembled or processed product or IT/BPO services to another registered export
enterprise that will form part of the final export product or export service of the latter, of at least 70% of
its total production or output.

Freeport Zones refer to an isolated and policed area adjacent to a port of entry, which shall be operated
and managed as a separate customs territory to ensure free flow or movement of goods, except those
expressly prohibited by law, within, into and exported out of the Freeport zone where imported goods may
be unloaded for immediate transshipment or stored, repacked, sorted, mixed, or otherwise manipulated
without being subject to import duties. However, movement of these imported goods from the free-trade
area to a non-free trade area in the country shall be subject to all applicable internal revenue taxes and
duties: Provided, That for the Freeport to qualify as a separate customs territory, a Freeport shall have a
permanent customs control or customs office at its perimeter,

Domestic market enterprise under the Strategic Investment Priority Plan engaged in activities that are
classified as “critical” shall refer to those enterprises belonging to industries identified by the National
Economic and Development Authority to be crucial to national development.

Metropolitan areas refer to Metro Cebu and Metro Davao or other local government units which are later
qualified or grouped as such by the National Economic and Development Authority or through other laws
or executive issuances.

Other government agencies administering tax incentives refer to government agencies other than
Investment Promotion Agencies which register or administer tax incentives of any kind to any specific
entities and/or class of persons pursuant or any law.

Other registered entities refer to any individual, partnership, organization, corporation, Philippine branch
of a foreign corporation, or other entity organized and existing under Philippines laws and registered with
other government agencies administering tax incentives.

Qualified capital expenditure refers to purchases of capital goods with a useful life of more than one (1)
year acquired for the entity’s production of goods and services to be directly used in the project or activity
of the registered business enterprise.

Registered business enterprise refers to any individual, partnership, corporation, Philippine branch of a
foreign corporation, or other entity organized and existing under Philippines laws and registered with an
Investment Promotion Agency excluding services 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 Incentive Review Board, irrespective of
location, whether inside or outside the zones, duly accredited or licensed by any of the Investment
Promotion Agencies and whose income delivered within the economic zones shall be subject to taxes under
the National Internal Revenue Code of 1997, as amended.

Research and development refers to experimental or other related projects or activities:

1) Whose outcome cannot be known or determined in advance on the basis of current knowledge,
information or experience, but can only be determined by applying a systematic progression of
work:
a) Based on principles of established science; and
b) Processed from hypothesis to experiment, observation and evaluation, and leads to logical
conclusions.
2) That are conducted for the purpose of generating new knowledge, including new knowledge in
the form of new or improved materials, products, devices, processes or services.

Sophisticated refers to the state when a product or service required high level of technology, human
capital, competencies or know-how, and infrastructure to be produced or offered. required for a product
or service to be offered by an economy like that of the Philippines.

Sophistication refers to the high level of technology, human capital, competencies or know-how, and
infrastructure required for a product or service to be offered by an economy like that of the Philippines.

Source document refers to input materials and documents reasonably needed by information technology
(IT) and IT-enabled industries such as books, directories, magazines, newspapers, brochures, pamphlets,
medical records or files, legal records or files, instruction materials, and drawings, blueprints, or outlines.

Page 2 of 9 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
PREFERENTIAL TAXATION 2: REGISTERED BUSINESS ENTERPRISES (RBE) TAX-2002
Special economic zone or ecozone refers to selected area, which shall be operated and managed as a
separate customs territory that is highly developed or has the potential to be developed into an agro-
industrial, industrial, information technology, or tourist/recreational area, whose metes and bounds are
fixed or delimited by presidential proclamations and within a specific geographical area which includes
industrial estates (IEs), export processing zones (EPZs), ICT parks and centers, and free trade zones:
Provided, That for the ecozone to qualify as a separate customs territory, an ecozone shall have a
permanent customs control or customs office at its perimeter: Provided, however, That areas where mining
extraction is undertaken shall not be declared as an ecozone: Provided, further, That vertical economic
zones, such as, but not limited to, buildings, selected floors within buildings, and selected areas on a floor,
need to comply with the minimum contiguous land area as determined by the Fiscal Incentives Review
Board; and
Training refers to courses, curricula, certifications or modules provided to Filipino employees that are
directly related to the production of goods or performance of services under the registered project or
activity and that are of a technical nature, which shall develop or improve the specific skills or practical
knowledge of the employee especially in the mechanical, industrial art, scientific field or practical science
of a particular position or job function in the registered project or activity, or in preparation for enhancing
the value chain.”
e. Gross income defined
Gross income defined For purposes of implementing the tax incentive of registered ECOZONE enterprises, the term “gross
for ECOZONE income earned” shall refer to gross sales or gross revenues derived from business activity within the
ECOZONE, net of sales discounts, sales returns and allowances and minus costs of sales or direct costs
but before any deduction is made for administrative, marketing, selling and/or operating expenses or
incidental losses during a given period.
Direct costs included 1) ECOZONE Export Enterprises, Free Trade Enterprises and Domestic Market Enterprises:
in the allowable a. Direct salaries, wages or labor expenses
deductions to arrive b. Production supervision salaries
at gross income c. Raw materials used in the manufacture of products
earned d. Decrease in Goods in Process Account (Intermediate goods)
e. Decrease in Finished Goods Account
f. Supplies and fuels used in production
g. Depreciation of machinery and equipment used in production and of that portion of the building
owned or constructed that is used exclusively in the production of goods
h. Rent and utility charges associated with building, equipment and warehouses used in the
production
i. Financing charges associated with fixed assets used in production the amount of which were not
previously capitalized
2) ECOZONE Developer or Operator, Facilities, Utilities and Tourism Enterprises:
a. Direct salaries, wages or labor expenses
b. Service supervision salaries
c. Direct materials, supplies used
d. Depreciation of machinery and equipment used in rendition of registered services and that
portion of the building owned or constructed that is used exclusively in the rendition of registered
services
e. Rent and utility charges for buildings and capital equipment used in the rendition of registered
services
f. Financing charges associated with fixed assets used in registered services of which were not
previously capitalized
f. Enhanced Deduction Allowed
Taxpayers allowed 1) Export enterprise
2) Domestic market enterprise with a minimum investment capital of P500,000,000
3) Domestic market enterprise under Strategic Investment Priority Plan engaged in activities that are
classified critical
Enhanced 1) Depreciation allowance of the assets acquired for the entity’s production of goods and services (qualified
deductions items capital expenditures) (for assets directly related to the registered enterprise’s production of goods and
and conditions for services other than administrative and other support services)
availment g. Additional 10% for building
h. Additional 20% for machinery and equipment
2) 50% additional deduction on the labor expense incurred for the taxable year (does not include salaries,
wages, benefits, and other personnel costs incurred for managerial, administrative, indirect labor, and
support services)
3) 100% additional deduction on research and development expense incurred during the year (applies to
R&D directly related to the registered project of activity of the entity and shall be limited to local
expenditures incurred for salaries of Filipino employees and consumable and payments to local R&D
organizations)
4) 100% additional deduction on training expense incurred in the taxable year (applies to training, as
approved by the Investment Promotion Agencies based on the Strategic Investment Priority Plan, given
to Filipino employees engaged directly in the registered business enterprise’s production of goods and
services)
5) 50% additional deduction on domestic input expense incurred in the taxable year (applies to domestic
input that are directly related to and actually used in the registered export project or activity of the
registered business enterprise)

Page 3 of 9 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
PREFERENTIAL TAXATION 2: REGISTERED BUSINESS ENTERPRISES (RBE) TAX-2002
6) 50% additional deduction on power expense incurred in the taxable year (applies to power utilized for
the registered project or activity)
7) Deduction for reinvestment allowance to manufacturing industry (determined in the Strategic Investment
Priority Plan)
a) Reinvested in any of the projects or activities listed in the Strategic Investment Priority Plan
b) Amount reinvested to a maximum of 50% shall be allowed as deduction from its taxable income within
a period of 5 years form the time of such investment
8) Enhanced Net Operating Loss Carry-over (NOLCO)
a) NOL of the registered project or activity during the first 3 years from the start of commercial operation
b) Carried over as deduction from income within 5 consecutive taxable years immediately following the
year of such loss

g. Included Activities in the Different Tiers

Tier I Shall include activities that:
1) Have potential for job creation;
2) Take place in sectors with market failures resulting in under provision of basic goods and services;
3) Generate value creation through innovation, upgrading or moving up the value chain;
4) Provide essential support for sectors that are critical to industrial development, or
5) Are emerging owing to potential comparative advantage.

These activities shall include:

1) Agriculture, fishing, forestry, and agribusiness activities, including handicrafts intended for export,
and energy;
2) Ecozone and Freeport zone development;
3) Manufacturing of medical supplies, devices and equipment and construction of healthcare facilities;
4) Facilities for environmentally-sustainable disposal of waste;
5) Infrastructure;
6) Manufacturing and service industries that are emerging resulting from innovation, upgrading or
addressing gaps in the supply and value chain;
7) Mass housing, as well as infrastructure, transportation, utilities, logistics and support services;
8) The provision of cyber security services, and
9) Planned developments that use technologies and digital solutions that are crucial to the country’s
development.
Tier II Shall include activities that produce supplies, part and components, and intermediate services that are not
locally produced but are critical to industrial development and import-substituting activities, including crude
oil refining.
Tier III Activities shall include:
1) Research and development resulting in demonstrably significant value-added, higher productivity,
improved efficiency, breakthroughs in science and health, and high-paying jobs;
2) Generation of new knowledge and intellectual property registered and/or licensed in the
Philippines;
3) Commercialization of patents, industrial designs, copyrights and utility models owned or co-owned
by a registered business enterprise;
4) Highly technical manufacturing; or
5) Are critical to the structural transformation of the economy and require substantial catch-up
efforts.
These activities shall include:
1) Agriculture, fishing, forestry, agribusiness, and other activities and services that indispensably
require the employment of knowledge processing, modern science
2) Data analytics;
3) Creative content;
4) Engineering;
5) State of the art technologies;
6) Technologies that are available in other countries but are not yet available or widely used in the
Philippines; and
7) Research and development in the process of production of goods and services, resulting in
demonstrably significant value-added, productivity, efficiency, breakthroughs in science and
health, and high-paying jobs;
8) Manufacturing of FDA-approved investigational drugs, medicines and medical devices.

h. Period of Availment of Incentives Determined in the Strategic Investment Priority Plan

1) For exporters
Export Tier I Tier II Tier III
5 ITH + 6 ITH +
NCR 4 ITH + 10 ED/SCIT 10 ED/SCIT 10 ED/SCIT
Metro areas 5 ITH + 6 ITH + 7 ITH +
(NCR adjacent) 10 ED/SCIT 10 ED/SCIT 10 ED/SCIT
6 ITH + 7 ITH + 7 ITH +
All other areas 10 ED/SCIT 10 ED/SCIT 10 ED/SCIT

Page 4 of 9 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
PREFERENTIAL TAXATION 2: REGISTERED BUSINESS ENTERPRISES (RBE) TAX-2002
2) Critical Domestic Market Activities
Domestic Tier I Tier II Tier III
4 ITH + 5 5 ITH + 6 ITH +
NCR ED 5 ED 5 ED
Metro areas 5 ITH + 6 ITH + 7 ITH +
(NCR adjacent) 5 ED 5 ED 5 ED
6 ITH + 7 ITH + 7 ITH +
All other areas 5 ED 5 ED 5 ED
Note: Entities engaged in critical domestic market activities cannot avail of the SCIT.

i. Filing of tax return and submission of tax incentives reports

Filing of tax returns All registered business enterprises and other registered entities whether taxable or exempt, are required
to file their tax returns and pay their tax liabilities, on or before the deadlines as provided under the
NIRC of 1997, as amended, using the electronic system for filing and payment of taxes with the BIR.

Every registered enterprise subject to the 5% special income tax shall file a quarterly income tax return
within sixty (60) days after the close of each of the first three (3) quarters and a final adjustment
income tax return covering the entire taxable year, not later than the fifteenth (15 th) day of the fourth
month following the close of its taxable year. (Revenue Regulations No. 1-2000)

For purposes of complying with their tax obligations, cooperatives and other registered entities, which
do not have access to the electronic facilities shall file with their respective district offices.
Filing of tax For registered business enterprises and other registered enterprises availing of tax incentives
incentives report administered by the Investment Promotion Agencies and other government agencies administering tax
incentives, they shall file with their respective Investment Promotion Agencies or other government
agencies administering tax incentives a complete annual tax incentives report of the following:
a. Income-based tax incentives,
b. VAT exemptions and zero rating,
c. Customs duty exemption
d. Deductions, credits or exclusions form the income tax base, and
e. Exemptions from local taxes.
Filing of complete This report shall include data, such as, but not limited to:
annual benefits report a. Approved and actual amount of investment,
b. Approved and actual employment level, and job creation including information on quality of
jobs and hiring of foreign and local workers,
c. Approved and actual exports and imports
d. Domestic purchases,
e. Profits and dividend payout,
f. All taxes paid, withheld and foregone.
Period for filing tax The reports shall be filed within 30 calendar days from the statutory deadline for filing tax return and
incentives report and payments of taxes.
complete annual
benefits report Copy of the reports shall be simultaneously submitted to the Fiscal Incentive Review Board in electronic
form.
Filing of relevant The Investment Promotion Agencies and other government agencies administering tax incentives shall,
reports by the within 60 calendar days from the end of the statutory deadline for filing of the relevant tax returns, shall
Investment submit to the BIR, their respective annual tax incentives report based on the list of the registered business
Promotion Agencies enterprises and other registered enterprises, which have filed said tax incentives report.

The reportorial requirement under Section 3 of R.A. No. 10963 or the TRAIN Law (Power of the
Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons) shall be
covered.

j. Value-Added Tax (VAT) Rules

a. VAT incentives, in RBEs are entitled to VAT exemption on importation and VAT zero-rating on local purchases. (Sec.
general 294(E), NIRC, as amended by CREATE)
b. Limit to VAT-zero The VAT exemption on importation and VAT zero-rating on local purchases shall only apply to
rating and goods and services directly and exclusively used in the registered project or activity of export
exemption enterprises, during the period of registration of the said registered project or activity with the
concerned Investment Promotion Agency (IPA); Provided, That transactions failing under
Section 106 (A) (2) (a) (3), (4), and (5) and Section 108 (B) (1) and (5) of the Code, as
amended, shall be subject to the twelve percent (12%) VAT pursuant to Revenue Regulations
09-2021. Provided, further, That excess input taxes attributable to zero-rated sales by VAT-
registered RBEs, may at the RBEs option, be refunded or applied for a tax credit, subject to
the guidelines provided under Revenue Regulations No. 13-2018, as amended.

The direct and exclusive use in the registered project or activity refers to raw materials,
inventories, supplies, equipment, goods, services and other expenditures necessary for the
registered project or activity without which the registered project or activity cannot be carried
out. (Sec. 5, CREATE IRR)
c. Applicability of The "cross border doctrine" as applied to Ecozones or Freeport zones has been rendered
Cross-Border ineffectual and inoperative for VAT purposes because of the following:
Doctrine to RBEs
Page 5 of 9 0915-2303213  www.resacpareview.com
ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
PREFERENTIAL TAXATION 2: REGISTERED BUSINESS ENTERPRISES (RBE) TAX-2002
(i) Passage of RA No. 11534, or the CREATE Act, expressly providing that only those goods and
services that are directly and exclusively used in the registered project or activity of RBEs qualify
as VAT 0% local purchases;

(ii) Sections 294 (E) and 295 (D), Title XIII of the Tax Code, as amended by the CREATE Act, and
as implemented under Rule 2, Section 5, and Rule 18, Section 5, respectively, of the CREATE IRR,
stating certain parameters for the availment of VAT zero-rating on local purchases of registered
export enterprises, regardless of location; and

(iii) Issuance of RR No. 21-2021, amending Sections 4.106-5(b) and 4.108-5(b)(2) of RR No. 16-
2005, as amended, to harmonize the VAT zero-rate provisions of the Tax Code, as amended by
TRAIN and CREATE laws, which now provide that the effectively zero-rated sales shall only apply
to sales of goods and services rendered to persons or entities who have direct and indirect tax
exemption granted pursuant to special laws or international agreements to which the Philippines
is a signatory. (Q2/A2, RMC No. 24-2022)
d. Direct and Direct and exclusive use in the registered project or activity refers to raw materials, supplies,
Exclusive Use equipment, goods, packaging materials, services, including provision of basic infrastructure,
utilities, and maintenance, repair and overhaul of equipment, and other expenditures directly
attributable to the registered project or activity without which the registered project or activity
cannot be carried out.

Only the portion of the expense directly and exclusively used by a registered export enterprise for
its registered project or activity shall qualify for VAT zero-rating on local purchases, excluding
those used for administrative purposes. The registered export enterprise concerned should adopt
a method to best allocate goods or services purchased, e.g., for utilities, use of separate water
and power meters for its registered project or activity or any method that may determine the
allocation such as area usage or ratio of utility expenses between cost of sales and administrative
expenses as reflected in the prior year Audited Financial Statements. If the goods or services are
used in both the registered project or activity and administration purposes and the proper
allocation could not be determined, the purchase of such goods and services shall be subject to
12% VAT.

For this purpose, services for administrative purposes, such as legal, accounting, and such other
similar services, are not considered expenses directly attributable to and exclusively used in the
registered project or activity. (Q13/A13, RMC No. 24-2022)
e. Other These are costs that are indispensable to the project or activity, i.e., without which, the project
Expenditures or activity cannot proceed, and these include expenses that are necessary or required to be
Directly incurred depending on the nature of the registered project or activity of the export enterprise.
Attributable
Examples:
1. Insurance costs required to be paid by the IPA before the facility can start operations.
2. Freight costs necessary to bring the raw materials or equipment to be used in the production
area.
3. Telecommunication expenses of registered export enterprises engaged in IT/BPO services or
other registered project or activity, without the telecommunication services, such registered
project or activity cannot be carried out. This, however, does not include telecommunication
expenses incurred for administration purposes.

Any costs incurred prior to the registration of a project or activity with the IPA shall not be allowed
for this purpose. (Q14/A14, RMC No. 24-2022)
f. RBEs not entitled RBEs which are categorized as Domestic Market Enterprises (DME) are not entitled to VAT zero-
to VAT zero-rating rating on local purchases. Sale of goods or services to a registered domestic market enterprise
shall be subject to VAT at 12%.
In addition, the following service enterprises, though duly accredited or licensed by any of the
IPAs, are not entitled to VAT zero-rating on their local purchases of goods and/or services:
1. Customs brokerage;
2. Trucking services;
3. Forwarding services;
4. Janitorial services;
5. Security services;
6. Insurance;
7. Banking and other financial services;
8. Consumers' cooperatives;
9. Credit unions;
10. Consultancy services;
11. Retail enterprises;
12. Restaurants; and
13. Such other similar services as may be determined by the Fiscal Incentives Review Board
(FIRB). (Q16/A16, RMC No. 24-2022)
g. Sale by Domestic The DME under the 5% Gross Income Tax (GIT) or Special Corporate Income Tax (SCIT) regime,
Market registered as a VAT exempt entity, shall treat its revenues as VAT exempt. The VAT passed on to
Enterprises (DME) it by its VAT-registered local suppliers shall form part of its cost or expenses. (Q17/A17, RMC No.
under SCIT 24-2022)
Page 6 of 9 0915-2303213  www.resacpareview.com
 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
PREFERENTIAL TAXATION 2: REGISTERED BUSINESS ENTERPRISES (RBE) TAX-2002
h. Sale by registered a. If the seller is VAT-registered while enjoying ITH, the sale of goods and services to another
export enterprise registered export enterprise is subject to VAT at zero-rate, provided, the goods and services
to another are directly and exclusively used in the latter's registered project or activity.
registered export b. If the seller is enjoying the 5% GIT incentive, the sale of goods and services, such as
enterprise manufactured, assembled or processed product or IT/BPO services to another registered
export enterprise that will form part of the final export product or export service of the latter,
of at least seventy (70%) of its total production or output, shall be VAT-exempt. (Q18/A18,
RMC No. 24-2022)
i. Sale of previously The VAT treatments on the sale, transfer, or disposition of the imported capital equipment, raw
VAT-exempt materials, spare parts, or accessories are as follows:
importation
1. If the purchaser is a registered export enterprise, regardless of location, the transaction is
subject to VAT at zero-rate; provided that the same shall be directly and exclusively used in
the registered project or activity of the registered export enterprise.

2. If seller is non-registered export enterprise or a domestic market enterprise, regardless of

location and is under the following regimes:
a. Under Special Corporate Income Tax (5% GIT), transaction is VAT-exempt.
b. Not under the 5% SCIT, transaction is generally subject to VAT at 12% based on the net
book value of the capital equipment, raw materials, spare parts, or accessories, unless
purchaser is a registered export enterprise, in which case, the rule in number 1 above
shall apply. (Q20/A20, RMC No. 24-2022)
j. Importation used In case the imported capital equipment, raw materials, spare parts, or accessories will be used
in non-registered for a non-registered project or activity of the RBE, the corresponding VAT on importation should
project/activity be paid accordingly.

For partial utilization in a non-registered project or activity, the amount corresponding to the VAT
on a specific capital equipment, raw materials, spare parts, or accessories shall be paid in
proportion to its utilization for the non-registered project or activity. (Q21/A21, RMC No. 24-2022)

II – Renewable Energy (RE) Developer

a. Definitions
Renewable Energy
(Systems) Developers" or
"RE Developers
"Renewable Energy
Service or Operating
Contract" (RE Contract)
b. Fiscal Incentives for RE Projects and Activities
Income Tax Holiday (ITH) 1) Existing RE Projects - 7 years from start of commercial operations. All RE Developers that acquire,
2) New investment in RE Resources – 7 years from the start of commercial operations resulting from
3) Additional investment in the RE Project – not more than 3 times the period of the initial availment
Net Operating Loss Carry-
Over (NOLCO)
Corporate Tax Rate
Accelerated Depreciation
Zero-percent VAT
Page 7 of 9
refer to individuals or judicial entities created, registered and/or authorized to operate in the Philippines
in accordance with existing Philippine law's and engaged in the exploration, development and utilization
of RE resources and actual operation of RE systems/facilities. It shall include existing entities engaged
in the exploration, development and/or utilization of RE resources, or the generation of electricity from
RE resources, or both. To be considered as a Registered RE Developer qualified to avail of incentives
under these Regulations, an RE developer must be duly registered with DOE;
refers to the service agreement between the Government, through the President or the DOE, and an
RE Developer has the exclusive right to explore and develop a particular RE area. The RE Contract
shall be divided into two (2) stages: the pre-development stage and the development/commercial
stage. The preliminary assessment and feasibility study up to financial closing shall refer to the pre-
development stage. The construction and installation of facilities up to the operation phase shall refer
to the development stage.
operate and/or administer existing RE facilities that were or have been in commercial operations for
more than 7 years upon the effectivity of the law, shall not be entitled to ITH, except for any
additional investment in RE resources.
new investments.
by the existing or new RE Project or covering new or additional investment.
NOLCO during the first 3 years from the start of commercial operation shall be carried over as a
deduction from gross income for the next 7 consecutive taxable years immediately following the year
of such loss.
All registered RE Developer shall pay a corporate tax of 10% on their net taxable income
If an RE, project fails to receive an ITH before full operation, the RE developer may apply for
accelerated depreciation in its tax books and be taxed on the basis of the same.
If an RE Developer applies for accelerated depreciation, the project or its expansions shall no longer
be eligible to avail of the ITH.
Plant, machinery and equipment that are reasonably needed and actually used for the exploration,
development and utilization of RE Resources may be depreciated using a rate not exceeding twice the
rate which would have been used had the annual allowance been computed. Any of the following
methods of accelerated depreciation may be adopted: (1) Declining balance method; and (2) Sum-of-
the years digit metho
The sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen fuels, shall be subject to zero percent (0%) value-
added tax (VAT) pursuant to the National Internal Revenue Code (NIRC) of 1997, as amended;
0915-2303213  www.resacpareview.com
 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
PREFERENTIAL TAXATION 2: REGISTERED BUSINESS ENTERPRISES (RBE) TAX-2002
Provided, that ancillary services generated through renewable sources of energy shall also be subject
to zero percent (0%) VAT.

On the other hand, the purchase by an RE Developer of local goods, properties, and services needed
for the development, construction, and installation of the plant facilities of RE Developers, and the
whole process of exploration and development of RE sources up to its conversion into power, including,
but not limited to, the services performed by subcontractors and/or contractors shall also subject to
zero percent (0%) VAT.

Accordingly, local suppliers/sellers of goods, properties, and services of duly-registered RE developers

should not pass on the 12% VAT on the latter's purchases of goods, properties and services that will
be used for the development, construction and installation of their power plant facilities. This includes
the whole process of exploring and developing renewable energy sources up to its conversion into
power, including but not limited to the services performed by subcontractors and/or contractors.

The local suppliers of goods. properties, and services shall require from the RE Developer a copy of the
latter's BOI Registration and DOE Registration for purposes of availing the zero percent (0%) VAT
incentive
Tax Exemption of Carbon All proceeds from the sale of carbon emission credits shall be exempt from any and all taxes
Credit

c. Hybrid and Co-Generation Systems

Tax Exemption Incentives The tax exemptions and/or incentives allowed to RE Projects and Activities shall be availed of by a
registered RE Developer of hybrid and cogeneration systems utilizing both RE sources and conventional
energy but only in proportion to and to the extent of the RE component.

The tax exemptions and incentives for hybrid and cogeneration systems shall apply only to the
equipment, machinery, and/or devices utilizing RE Resources. In this regard, the RE Developer shall
secure with the DOE a certification to distinguish the equipment, machinery, and/or devices utilizing
RE Resources. Only RE Facilities shall be entitled to the RE incentives.

For "common facilities", the DOE shall certify the capacity of RE in megawatts to determine the ratio
of the tax exemption privileges to be granted to RE Developers employing hybrid and co-generation
systems. Moreover, a CE shall also be secured from the BOI should the RE Developer avail of the ITH
and attach the same to the annual ITR to be filed with the BIR.

d. Incentives for RE Commercialization

Persons Allowed All manufacturers, fabricators, and suppliers of locally produced RE equipment and components duly
recognized and accredited by the DOE and upon registration with the BOI, shall be entitled to the
privileges on their sale of RE equipment to RE Developers.:
Exemptions Allowed
Value-Added Tax (VAT)- All shipments necessary for the manufacture and/or fabrication of RE equipment and components shall
free Importation of be exempt from VAT on importation: Provided: That the said components, parts and materials are:
components, parts, and (1) Not manufactured domestically in reasonable quantity and quality at competitive prices, as certified
materials to by the DTI;
(2) Directly and actually needed and shall be used exclusively in the manufacture or fabrication of RE
equipment:
(3) Covered by shipping documents in the name of the duly registered manufacturer or fabricator to
whom the shipment will be directly delivered by customs authorities: and
(4) Prior approval of the DOE is obtained before the importation of such components, parts and
materials.
Income Tax Holiday (ITH) For seven (7) years starting from the date of registration and accreditation with the appropriate
government agencies, such as the DOE and the BOI. an RE manufacturer. fabricator. and supplier of
RE equipment shall be fully exempt from income taxes levied by the National Government on net
income derived only from the sale of RE equipment, machinery, parts, and services.
Zero-Rated Value-Added All manufacturers, fabricators, and suppliers of locally-produced RE equipment shall be subject to zero-
Tax Transaction rated VAT on their transactions with local suppliers of goods, properties, and services needed in the
manufacture/fabrication of RE equipment;

The local suppliers of goods, properties, and services shall require the manufacturers, fabricators, and
suppliers of locally-produced RE equipment the following documents for purposes of future tax
audit/refund:

(1) BOI Registrations of the manufacturer/fabricator/supplier and of the recipient RE Developer; and

(2) DOE Registration/Accreditation of the manufacturer/fabricator/supplier and of the recipient RE

Developer.

e. Incentives for Farmers Engaged in Plantation of Biomass Resources

Persons Allowed All individuals and entities engaged in the plantation of crops and trees used as Biomass Resources
shall be exempt from payment of VAT on all types of agricultural inputs, equipment, and machinery
within ten (l0) years from the effectivity of the Act, subject to the certification by the DOE

Page 8 of 9 0915-2303213  www.resacpareview.com

 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
PREFERENTIAL TAXATION 2: REGISTERED BUSINESS ENTERPRISES (RBE) TAX-2002
Exemption Allowed Exempt from payment of VAT on all types of agricultural inputs, equipment, and machinery within ten
(l0) years from the effectivity of the Act, subject to the certification by the DOE
Conditions for Exemption 1) The crops and trees such as, but not limited to, jatropha, coconut, and sugarcane shall be
actually utilized for the production of Biomass resources; and
2) The agricultural inputs, equipment and machinery such as, but not limited to, fertilizers,
insecticides, pesticides, tractors, trailers, trucks, farm implements and machinery. harvesters,
threshers, hybrid seeds, genetic materials, sprayers, packaging machinery and materials, bulk
handling facilities, such as conveyors and mini-loaders, weighing scales, harvesting
equipment, and spare parts of all agricultural equipment shall be used actually and primarily
for the production of the said Biomass Resources.

f. TAX REBATE FOR PURCHASE OF RE COMPONENTS

Persons Allowed Purchasers of RE equipment for residential. industrial or community use
Rebate Allowed A rebate equivalent to the VAT passed on to the said purchasers.

The rebate shall only be available to purchasers who are not VAT-registered and shall be in the form
of a tax credit from the income tax liability of the purchasers during the year of purchase.

Any unutilized rebate or tax credit shall be forfeited.

g. PROHIBITION AGAINST DOUBLE AVAILMENT OF INCENTIVES

Unless otherwise provided by law, the registration/accreditation to avail of incentives under this Act shall disqualify the availment of
other tax and non-tax incentives under the National Internal Revenue Code. as amended by RA No. 11534, otherwise known as the
Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act

h. ANNUAL FILING AND REPORTORIAL REQUIREMENTS.

RE Developers and manufacturers, fabricators, and suppliers of locally-produced RE equipment availing the incentives provided for in
the Act shall comply with the filing and reportorial requirements under RA No. 1 1534 or the CREATE Act.

Non-compliance with the filing and reportorial requirements shall be meted with the penalties under the law.

END

“Be positive even if others are not. Work hard even if others have quit. Continue to dream big even if others have given up on theirs.”
– Tamthewise ☺

Page 9 of 9 0915-2303213  www.resacpareview.com