Local businesses can now adopt work-from-home setups without losing valuable tax incentives as the newly enacted Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act officially permits flexible work arrangements.
The Department of Finance (DOF), in a Nov. 11 statement, said that businesses operating in economic zones and freeports can transition to remote or hybrid work models while retaining their tax benefits. This change allows companies to adapt to modern work trends without facing financial penalties.
"This reform recognizes the changing business landscape by formally allowing registered business enterprises (RBEs) in economic zones and freeports to implement flexible work arrangements without jeopardizing their tax incentives," the DOF stated.
The CREATE MORE Act stipulates that businesses must utilize at least 50 percent of their designated office space.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), explained that this provision primarily impacts companies that downsized their office space, requiring them to maintain a minimum workspace.
However, RBEs can still offer hybrid work options, enabling some employees to work remotely. Ricafort said that this flexibility helps businesses remain competitive, particularly in sectors where remote work is advantageous, while adhering to the 50 percent office space rule.
"This necessitates that RBEs maintain 50 percent workspace/office infrastructure, which should boost demand," Ricafort said.
He noted that the minimum office space requirement will drive demand for office infrastructure as businesses must maintain a physical workspace to comply with the law, even with flexible or hybrid work models.
Investment surge expected
DOF Secretary and Fiscal Incentives Review Board (FIRB) Chairperson Ralph G. Recto, in a separate Nov. 11 statement, lauded the new law as a "win-win for both local and international businesses and the Filipino people."
He believes it will enhance the competitiveness of the country's tax incentives regime by making it more globally competitive, investment-friendly, predictable, and accountable.
Recto expressed confidence that CREATE MORE will attract more investments from both domestic and international enterprises, leading to job creation, income growth, and poverty reduction. The government anticipates that this will stimulate capital reinvestment, workforce expansion, and long-term economic benefits, paving the way for investment-driven growth in the Philippines.
The law also streamlines business operations, clarifies value-added tax (VAT) regulations, enhances tax incentives, improves governance, and ensures seamless transitions for businesses registered under the previous CREATE Act.
"CREATE MORE will undoubtedly accelerate the influx of foreign investors into the Philippines, as demonstrated by the strong interest from nearly a thousand investors who participated in our recent economic briefings abroad," Recto stated. "This will facilitate more partnerships and joint ventures with local companies."
The DOF highlighted that the law provides a more attractive incentive package, including extended tax breaks of up to 27 years for strategic investments and added benefits for large-scale export and domestic enterprises.
Furthermore, it lowers the corporate income tax rate for RBEs to 20 percent, increases power expense deductions for manufacturers, provides additional deductions for tourism-related expenses, and maximizes Net Operating Loss Carry-Over benefits. It also offers tax exemptions on donations to government entities and educational institutions and introduces an optional local tax for RBEs, replacing other local taxes during their income tax holiday or enhanced deduction periods.
Addressing investor concerns
"To alleviate concerns for investors, export-oriented enterprises' local purchases are zero-rated, and importations are VAT-exempt," the DOF explained. This means export-focused businesses will not pay VAT on local purchases or imported goods, simplifying cost management.
"This measure is expected to resolve cash flow challenges for direct exporters, as they will no longer need to allocate funds for VAT payments that would be refunded later," the DOF added.
The law also broadens VAT incentives to encompass a wider range of services, including janitorial, security, and marketing, by relaxing eligibility criteria.
Potential short-term revenue Loss
Ricafort cautioned that CREATE MORE might initially lead to a decrease in government tax revenue. "There will be some foregone tax revenues for the national government with the CREATE MORE law," he acknowledged.
However, he anticipates this to be a temporary effect. Ricafort believes the law will ultimately stimulate increased foreign investments, job creation, and business growth, resulting in higher tax revenues in the long run, similar to the previous CREATE Law.
He suggested that the government might need to strengthen tax collection efforts and implement new tax reforms to offset any shortfalls.