BIR releases revenue MC No. 120-2021, makes various changes towards IRR of CREATE Act

On December 13, 2021, the Bureau of Internal Revenue (BIR) released Revenue Memorandum Circular (RMC) no. 120-2021, which amends the various changes to the Implementing Rules and Regulations (IRR) of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. Most of the changes were made to Rule 2, Sections 4, 5 and 8; Rule 3, Section 3; Rule 17, Section 2; and Rule 18 Section 5, and Rule 18 Section 6, where a new rule was added. The circular explains these changes to these rules and how each section is affected by these recent changes.

The most notable changes to the CREATE Act are the following:

 RULE 2. Tax and Duty Incentives a. Section 4. Customs Duty Exemption on Importation of Capital Equipment, Raw Materials, Spare Parts, or Accessories

1. • • - The RMC explains that exemption from customs duties when importing capital equipment, spare parts, accessories, and raw materials can only be gained by going through the registered enterprises meant for the registered project or activity; this can be done only for a specific period unless extended under the Strategic Investment Priority Plan (SIPP).
   • b. Section 5. Value-added Tax (VAT) zero-rating and exemption 
     - The changes now state that the VAT exemption on importation and zero-rating on local purchases will only apply to goods and services directly and exclusively used in the registered project or activity of aregistered export enterprise, lasting for a maximum period of seventeen (17) years from registration unless there is an extension under the SIPP. - The RMC states that direct and exclusive use of raw materials, inventories, supplies, equipment, goods, packaging materials, services, including the provision of basic infrastructure, utilities, and maintenance, repair and overhaul of equipment, and other expenditures directly distributable to the registered project or activity without which the registered project or action cannot be carried out; provided that the VAT zero-rating on local purchases shall be granted upon the endorsement of the concerned Investment Promotion Agency (IPA) in addition to the documentary requirements of the BIR. 
   • c. Section 8. Taxation after the expiration of the period of availment of incentives.
     - This section’s changes state that all businesses enterprises are mandated to pay all applicable taxes at the regular rates under the Code and other laws after the expiration of the period of incentives of their registered project or activity.
2. Rule 3. Period of Availment of Incentives
   • a. Section 3. Qualified expansion, entirely new project, or existing registered projects or activities
     - The RMC states that the qualified expansion projects or activities defined under rule 1 can make use of these incentives; however, they need the approval of the Fiscal Incentives Review Board (FIRB) or the IPA. The incentives are as follows: 
     • VAT Exemption on Importation and VAT Zero Rating on local purchases under rule 2
     • Duty exemption 
     • 3-year extended Income Tax Holiday followed by enhanced deductions or Special Corporate Income Tax (SCIT)
3. Rule 17. Transitory and Miscellaneous Provisions
   • a. Section 2. Entitlement to duty exemption on importation of capital equipment, raw materials, spare parts, or accessories
     - The changes mention that any existing g RBEs that have a valid Certificate of Authority to Import (CAI) or Admission Entry whose capital equipment, raw materials, spare parts or accessories were ordered on the date of the purchase order or the date of the opening of the corresponding letters of credit; or loaded, as reflected in the bill of lading date; or are still in transit during the effectivity of Executive Order 85, Series of 2019, are qualified for the duty exemption until the CAI/Admission Entry’s expiration.
4. Rule 18. Investments before the effectiveness of the Act
   • a. Section 5. Non-income related tax incentives
     - The RMC states that all registered export and domestic market enterprises that wish to continue availing their existing tax incentives subject to Sections 1, 2 and 3 are still considered for the duty exemption, VAT exemption on the importation, and VAT zero-rating on local purchases of goods as services. But these need to be directly attributable to and exclusively used in the registered project or activity found inside the ecozones and freeports until the expiration of the transitory period.- This section also clarifies the importation of capital equipment, spare parts, and accessories by active export and domestic market enterprises registered with the Board of Investments (BOI) before the effectivity of the act shall continue to be subject to duty exemption for another five (5) years from the date of registration.
   • b. Section 6. Transitory rules for offshore gaming licenses and accredited service providers 
     - In this section, the RMC explains how offshore gaming licenses and accredited service providers can continue utilising the incentives given by the IPA until either the expiration of the transitory period, license expiration or until the enterprise is officially accredited whichever comes earlier. Once this has passed, all parties will be subject to the applicable taxes under Republic Act 11590 and all its implementing rules and regulations.