Philippines: Clarification of local business tax exemptions for registered business enterprises

The “Corporate Recovery and Tax Incentives for Enterprises Act” (CREATE Act)—enacted in 2021—has created confusion for registered business enterprises (RBEs) regarding local business tax exemptions.

Prior to the Create Act, RBEs with the Board of Investments (BOI) were exempt from local business tax as pioneer or non-pioneer enterprises under the “Omnibus Investments Code of 1987” and the “Local Government Code” (LGC). However, the CREATE Act, which reformed the corporate income tax and incentive system, repealed certain provisions of the Omnibus Investments Code, leading to uncertainties about local business tax exemptions.

The Department of Justice (DOJ) in its Opinion No. 09, series of 2024 dated 13 February 2024, clarified that the CREATE Act did not repeal the authority of the Board of Investments (BOI) to certify and register enterprises as pioneer or non-pioneer, and these enterprises can still benefit from the local business tax exemption under the LGC. However, the DOJ emphasized that the local government unit grants the local business tax exemption, and the BOI only classifies the enterprise. Despite this clarification, further guidelines are likely needed to eliminate different interpretations.

Read a May 2024 report prepared by the KPMG member firm in the Philippines