The Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 7-2025 on 25 February 2025, to implement amendments to Sections 27, 28, and 34 of the National Internal Revenue Code (NIRC) as revised by Republic Act (RA) No. 12066, which was only signed into law in November 2024.
Pursuant to Sections 244 and 245 of the NIRC, which empower the BIR to promulgate rules for tax administration, RR No. 7-2025 aligns with the objectives of RA 12066 that reduced corporate income tax rates for registered business enterprises (RBEs), among others.
Currently, after the period of income tax holiday (ITH), RBEs may choose between enhanced deductions or a special corporate income tax (CIT) rate of 5% on gross income.
The newly issued regulation imposes a 20% rate of CIT on RBEs availing of the Enhanced Deductions Regime (EDR) under Section 294(C) of the NIRC, as amended, which allows RBEs registered as export enterprises enhanced deductions from gross income as follows:
(1) Depreciation allowance of the assets acquired for the entity's production of goods and services (qualified capital expenditure) - additional ten percent (10%) for buildings; and additional twenty percent (20%) for machineries and equipment;
(2) Fifty percent (50%) additional deduction on the labor expense incurred in the taxable year;
(3) One hundred percent (100%) additional deduction on research and development expense incurred in the taxable year;
(4) One hundred percent (100%) additional deduction on training expense incurred in the taxable year;
(5) Fifty percent (50%) additional deduction on domestic input expense incurred in the taxable year;
(6) One hundred percent (100%) additional deduction on power expense incurred in the taxable year;
(7) Deduction for reinvestment allowance to manufacturing and tourism industries. - When a manufacturing or tourism RBE reinvests its undistributed profit or surplus in manufacturing or tourism projects or activities, respectively, that are listed in the Strategic Investment Priority Plan (SIPP), no more than fifty percent (50%) of the amount reinvested shall be allowed as a deduction from its taxable income within a period of five (5) years from the time of such reinvestment;
(8) Fifty percent (50%) additional deduction on expenses relating to exhibitions, trade missions, or trade fairs; and
(9) Enhanced Net Operating Loss Carry-Over (NOLCO). - The net operating loss of the registered project or activity during the first three (3) years from the start of commercial operation, which had not been previously offset as deduction from gross income, may be carried over as deduction from gross income within the next five (5) consecutive taxable years immediately following the last year of the ITH entitlement period of the project.
Noticeably, while the RA 12066 took effect on 28 November 2024, the revenue regulation was only promulgated in February 2025, after some corporations had already filed their final adjusted returns for the calendar year 2024. Thus, RBEs qualified in this regulation that overpaid taxes in excess of the 20% may carry forward excess payments to subsequent taxable periods. This applies to Annual Income Tax Returns (ITRs) filed for calendar year 2024 or fiscal years ending before the regulations’ effectivity.
This article is for informational purposes only and is not intended to be legal advice. For legal concerns, you may email the firm at legal@cditlaw.net.
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