RR No. 7-2016: Prescribes the rules and regulations to implement the tax incentives available to tourism enterprises duly registered with the Tourism Infrastructure and Enterprise Zone Authority under RA No. 9593 (Tourism Act of 2009)

Key points

1. Income Tax Holiday in Tourism Enterprise Zones. The TIEZA Board may grant new Registered Tourism Enterprises (RTEs) in Greenfield and Brownfield TEZs a six (6) year Income Tax Holiday (ITH) from the start of operations. It may be extended for a Substantial Expansion, by no more than six (6) additional years, if the RTE applies in writing to TIEZA at least three (3) months before the initial ITH ends. An existing RTE in a Brownfield TEZ may get a non-extendible ITH of up to six (6) years for a Substantial Expansion.
2. 5% gross income tax. A new RTE may pay five percent (5%) on gross income from its registered activities in lieu of all national internal revenue taxes except real estate taxes and TIEZA fees. Allowable deductions to reach gross income include direct salaries and wages, service supervision salaries, direct materials, depreciation, rent and utilities, and financing charges for fixed assets used in registered activities.
3. Net operating loss carry over. A net operating loss may be deducted from gross income for the next six (6) consecutive taxable years. RTEs enjoying an ITH or the 5% rate cannot claim it. Losses from registered activities cannot be deducted from income of unregistered activities.
4. Exemption on imported equipment. Imported capital investment and equipment, and transportation equipment with spare parts, are tax-exempt if the listed conditions are met and TIEZA approves beforehand. Disposing of them needs prior approval of the TIEZA Board. Within five (5) years, disposal is allowed only in four listed cases: sale to an enterprise with similar incentives, proven technical obsolescence, replacement to improve or expand operations, or withdrawal or cessation of operations. Disposal without approval makes the RTE and the buyer solidarily liable for twice the tax exemptions granted.
5. Services, goods and social responsibility incentives. RTEs selling services get VAT and excise tax exemption on imported goods consumed in services rendered within the TEZ, and a tax credit for national internal revenue taxes on local goods and services. They also get a tax deduction of up to 50% of the cost of environmental protection, cultural heritage preservation, sustainable livelihood programs and similar activities, with prior approval of the TIEZA Board.
6. Outside zones, certificate and back taxes. Existing accommodation establishments outside TEZs may get a non-extendible ITH of up to six (6) years for a Substantial Expansion, along with the import and NOLCO incentives. Enterprises must get a Certificate of Entitlement from TIEZA each year and attach it with the TIEZA Certificate of Registration to the tax return, or the BIR disallows the incentive. If registration is downgraded, suspended or revoked, TIEZA orders back taxes for up to three (3) years before the decision, which the BIR may assess despite the period in Section 203 of the NIRC.

Who is affected

• TIEZA-registered tourism enterprises
• Existing accommodation establishments outside TEZs

Deadlines and effectivity

• ITH: six (6) years from start of business operations
• ITH extension application: not later than three (3) months before the initial ITH expires
• Incentives in effect for ten (10) years from effectivity of RA No. 9593
• Back taxes computed up to three (3) years before the decision