AAC Tax Code.

The availment of tax incentives in the preceding section shall be governed by the following rules:

(A) Registered export enterprises may opt for one of the following:

(1) ITH, which shall be followed by SCIT or EDR; or

(2) SCIT, which shall be in lieu of all national and local taxes and local fees and charges, and may be granted immediately at the start of commercial operations; or

(3) EDR, which may be granted immediately at the start of commercial operations.

The elected incentive package shall be irrevocable for the entire duration of entitlement to such incentives under Sections 296 and 296-A of this Code: Provided, That in no case shall the EDR be granted simultaneously with the SCIT.

(B) Registered domestic market enterprises may opt for either:

(1) ITH, which shall be followed by EDR; or

(2) EDR, which may be granted immediately at the start of commercial operations.

The elected incentive package shall be irrevocable for the entire duration of entitlement to such incentives under Sections 296 and 296-A of this Code.

The following conditions for the availment of each enhanced deduction shall be complied with:

(1) The depreciation allowance of the assets acquired for the entity’s production of goods and services (qualified capital expenditure) shall be allowed for assets that are directly related to the registered enterprise’s production of goods and services other than administrative and other support services.

(2) The additional deduction on the labor expense shall not include salaries, wages, benefits, and other personnel costs incurred for managerial, administrative, indirect labor, and support services.

(3) The additional deduction on research and development expense shall only apply to research and development directly related to the registered project or activity of the entity and shall be limited to local expenditure incurred for salaries of Filipino employees and consumables and payments to local research and development organizations.

(4) The additional deduction on training expense shall only apply to trainings, as approved by the Investment Promotion Agencies based on the Strategic Investment Priority Plan, given to the Filipino employees engaged directly in the registered business enterprise’s production of goods and services.

(5) The additional deduction on domestic input expense shall only apply to domestic input that are directly related to and actually used in the registered export project or activity of the registered business enterprise.

(6) The additional deductions on power expense shall only apply to power utilized for the registered project or activity.

(7) The deduction for reinvestment allowance to manufacturing and tourism industries shall only be availed of until December 31, 2034.

(8) The additional deduction on expenses relating to trade fairs, exhibitions, or trade missions shall include expenses incurred in promoting the export of goods or the provision of services to foreign markets approved by the concerned Investment Promotion Agency.

The Department of Finance, in coordination with the BIR, Fiscal Incentives Review Board, and Investment Promotion Agencies, shall prescribe the terms and conditions on the grant of EDR under Section 294(C) and this Title.

(C) The duty exemption shall only apply to the importation of capital equipment, raw materials, spare parts, or accessories directly attributable to the registered project or activity of RBEs, including goods used for administrative purposes: Provided, That the following conditions are complied with:

(1) The capital equipment, raw materials, spare parts, or accessories are directly attributable to the registered project or activity of the RBE, including goods used for administrative purposes, and are not produced or manufactured domestically in sufficient quantity or of comparable quality and at reasonable prices. Prior approval of the Investment Promotion Agency must be secured for the part-time utilization of said capital equipment, raw materials, spare parts, or accessories in a non-registered project or activity to maximize usage thereof: Provided, That the RBE shall adopt a method to best allocate the same at the time of application for a certificate of authority to import, or its equivalent: Provided, further, That the proportionate taxes and duties are paid on a specific capital equipment, raw materials, spare parts, or accessories in proportion to the utilization for non-registered projects or activities. In the event that the capital equipment, raw materials, spare parts, or accessories, shall be used for non-registered project or activity of the RBE at any time within the first five (5) years from the date of importation, the RBE shall first seek prior approval of the concerned Investment Promotion Agency and pay the taxes and customs duties that were not paid upon the importation; and

(2) The approval of the Investment Promotion Agency was obtained by the RBE prior to the importation of such capital equipment, raw materials, spare parts, or accessories.

An Investment Promotion Agency may authorize the importation of capital equipment, raw materials, spare parts, or accessories pending issuance of the certificate of registration, subject to the posting of a performance bond or bank guarantee equivalent to duties and taxes waived on such importations and other conditions as may be determined by the concerned Investment Promotion Agency and the BOC.

No taxes and duties shall be imposed on subsequent sale, transfer, or disposition of the capital equipment, raw materials, spare parts, or accessories, which were granted tax and customs duty exemption hereunder within the first five (5) years from date of importation. The approval of the Investment Promotion Agency must be secured before the sale, transfer, or disposition of the capital equipment, raw materials, spare parts, or accessories, which were granted tax and customs duty exemption hereunder, and shall be allowed only under any of the following circumstances:

(a) If made to another enterprise availing of customs duty exemption on imported capital equipment, raw materials, spare parts, or accessories;

(b) Exportation of capital equipment, raw materials, spare parts, accessories, source documents, or goods required for pollution abatement and control; or

(c) If donated to the Government of the Philippines or to any of its agencies or political subdivisions, including fully-owned government corporations, TESDA, state universities and colleges (SUCs), or DepEd and CHED-accredited schools: Provided, That the donation shall be exempt from import duties and taxes, including donor’s tax.

In case of subsequent sale, transfer, or disposition of tax and duty-free capital equipment, raw materials, spare parts, or accessories, within the first five (5) years from date of importation and upon approval by the Investment Promotion Agency, there shall be taxes and duties assessed based on the net book value of the capital equipment, raw materials, spare parts, or accessories if:

(a) Made to another enterprise not availing of duty exemption on imported capital equipment, raw materials, spare parts, or accessories; or

(b) There is proven technical obsolescence of the capital equipment, raw materials, spare parts, or accessories.

Provided, That if the RBE sells, transfers, or disposes the aforementioned imported items without prior approval, the RBE and the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of the duty exemption that should have been paid during its importation: Provided, further, That the sale, transfer, or disposition of the capital equipment, raw materials, spare parts, or accessories made after five (5) years from date of importation shall require that prior notice be given by the RBE to the Investment Promotion Agency: Provided, furthermore, That even if the sale, transfer, or disposition of the capital equipment, raw materials, spare parts, or accessories was made after five (5) years from date of importation with notice to the Investment Promotion Agency, the RBE is still liable to pay the duties based on the net book value of the capital equipment, raw materials, spare parts, or accessories if it has violated any of its registration terms and conditions.

(D) The VAT exemption on importation and VAT zero-rating on local purchases shall only apply to goods and services directly attributable to the registered project or activity of a registered export enterprise, or a registered high-value domestic market enterprise, including expenses incidental thereto. The project or activity registered with the Investment Promotion Agency shall be subject to the following conditions:

(1) Sale of goods or services by a VAT-registered seller to a registered export enterprise, regardless of location, shall be subject to zero percent (0%) VAT;

(2) Sale, transfer, or disposal of previously VAT-exempt imported capital equipment, raw materials, spare parts, or accessories shall be subject to the following rules:

I. If the purchaser is a registered export enterprise, regardless of location, the transaction shall be subject to zero percent (0%) VAT; and

II. If the purchaser is a registered domestic market enterprise, regardless of location, the transaction shall be subject to twelve percent (12%) VAT based on the net book value of the capital equipment, raw materials, spare parts, or accessories:

Provided, That local sales of goods and/or services by an RBE, regardless of the income tax incentives regime and location, shall be subject to twelve percent (12%) VAT, unless otherwise exempt or zero-rated under Titles IV and XIII of this Code. For this purpose, ‘local sales’ shall cover sales of goods and services to domestic market enterprises or non-RBEs, regardless of whether the sale occurs within the freeport or economic zones: Provided, further, That the liability to pay and remit the VAT to the government rests with the buyer of the said goods or services.

Any registered export enterprise that fails to meet the seventy percent (70%) export sales threshold in the immediately preceding year or high-value domestic market enterprise that fails to meet the export sale or investment capital requirement shall be disqualified from availing of duty exemption on importation under Section 294(D), and VAT exemption on importation and VAT zero-rating on local purchases under Section 294(E) in the immediately succeeding year.

Notwithstanding the provisions in the preceding paragraphs, sales receipts and other income derived from non-registered project or activity shall be subject to appropriate taxes imposed under this Code.

(E) Notwithstanding any law to the contrary, the importation of COVID-19 vaccine shall be exempt from import duties, taxes and other fees, subject to the approval or licenses issued by the Department of Health or the Food and Drug Administration.

(F) Persons who directly import petroleum products defined under Republic Act No. 8479, otherwise known as the ‘Downstream Oil Industry Deregulation Act of 1998’, for resale in the Philippine

customs territory and/or into free zones as defined under Republic Act No. 10863, otherwise known as the Customs Modernization and Tariff Act, shall not be entitled to the foregoing tax and duty incentives, and shall be subject to appropriate taxes imposed under this Code.

Any law to the contrary notwithstanding, the importation of petroleum products by any person, including RBEs, shall be subject to the payment of applicable duties and taxes as provided under Republic Act No. 10863, otherwise known as the ‘Customs Modernization and Tariff Act’, and this Code, respectively, upon importation into the Philippine customs territory and/or into free zones as defined under Republic Act No. 10863: Provided, That the importation of petroleum products used in international shipping or air transport operations shall be covered by the provisions of Sections 109(U) and 135(A) of this Code.

Provided, That the importer can file for claims for the refund of duties and taxes applicable under Republic Act No. 10863, otherwise known as the Customs Modernization and Tariff Act, and this Code, respectively, for direct or indirect export of petroleum products, and/or other tax-exempt sales under the Customs Modernization and Tariff Act and other special laws within the period provided therein: Provided, further, That the importers who subsequently export fuel, subject to the appropriate rules of the fuel marking program, may apply for a refund of duties and taxes, as applicable under Republic Act No. 10863, otherwise known as the Customs Modernization and Tariff Act, and this Code.

(G) Crude oil that is intended to be refined at a local refinery, including the volumes that are lost and not converted to petroleum products when the crude oil actually undergoes the refining process, shall be exempt from payment of applicable duties and taxes upon importation:

Provided, That applicable duties and taxes on petroleum products shall be payable only upon lifting of the petroleum products produced from the imported crude oil, subject to rules and regulations that may be prescribed by the Bureau of Customs and the Bureau of Internal Revenue, to ensure that crude oil shall not be lifted from the refinery without payment of appropriate duties and taxes.

(H) The RBE local tax shall be imposed on an RBE which meets and maintains the conditions for its registration, during the period of availment of the ITH and the EDR.

The tax shall be directly remitted by the RBE to the Treasurer’s office of the municipality or city where the enterprise is located.

Where two (2) or more local government units cover the same enterprise, the sharing between such local government units shall be as follows:

(1) Fifty percent (50%) of revenues shall be shared equally among the local government units; and

(2) Fifty percent (50%) of revenues shall be apportioned based on the population of the local government units.

Fifty percent (50%) of the share of the municipality based on the foregoing allocation shall be remitted to the province where the said municipality is located: Provided, That cities shall retain one hundred percent (100%) of their share.

Local government units may reduce or waive the rate of tax, or their share thereof, in the case of two (2) or more local government units covering the same enterprise.

RBEs, whose performance commitments include job generation, shall maintain their employment levels to the extent practicable. In case of reduced employment or when the performance commitment for job generation is not met, the RBEs must submit to their respective Investment Promotion Agencies and the Fiscal Incentives Review Board their justifications for and plans to address the same in the succeeding year.