The CREATE MORE Act and Renewable Energy: Tax Incentives for Foreign Power Generators
Introduction: Why CREATE MORE Matters to Offshore Renewable Energy Developers
Foreign investors entering Philippine renewable energy (RE) generation typically focus on project bankability: tax costs during construction, cash flow during early operations, and the certainty of incentives. The current incentive environment is shaped by (a) the Renewable Energy Act, which grants RE-specific fiscal incentives, and (b) the CREATE/CREATE MORE amendments to the National Internal Revenue Code (Tax Code), which reorganize incentives administered through investment promotion agencies and fiscal incentive oversight.
This article explains how offshore energy developers and foreign-backed generators can position a Philippine RE project to qualify for corporate income tax incentives (including income tax holiday) and VAT zero-rating, and what compliance steps commonly cause delays or denials.
Governing Laws and Issuances
R.A. No. 9513 (Renewable Energy Act of 2008) establishes fiscal incentives for qualified RE developers, including VAT incentives for eligible purchases and transactions, subject to registration and certification conditions.
National Internal Revenue Code of 1997, as amended by CREATE and CREATE MORE (including R.A. No. 12066) contains the modernized incentive menu for registered business enterprises (RBEs), including VAT incentives and related rules administered through investment promotion agencies and fiscal oversight mechanisms.
Revenue Regulations (RR) No. 7-2022 provides BIR guidance on the implementation and documentation of RE-related incentives, including VAT treatment of purchases by duly registered RE developers.
Two Supreme Court rulings guide incentive interpretation: CBK Power Company Limited v. Commissioner of Internal Revenue emphasizes the need for strict compliance with statutory and regulatory prerequisites, while Subic Bay Freeport Chamber of Commerce, Inc. v. Department of Finance, et al. stresses that administrative issuances cannot narrow incentives granted by statute.
Who Can Qualify: Foreign Power Generators and Project Structures
Foreign developers typically participate through a Philippine-incorporated project company (SPV) or a Philippine branch (if permitted and suitable for the sector and licensing requirements). Eligibility for incentives generally depends less on nationality and more on whether the entity is properly recognized as an eligible RE developer and is properly registered with the relevant government agencies for incentives.
Under the modern incentive system, incentive access commonly turns on whether the project company is treated as a registered business enterprise (RBE) under the Tax Code’s incentive provisions and whether the RE developer satisfies DOE certification/registration requirements.
Core Incentives Discussed in This Guide
1) Income Tax Holiday (ITH) and Income Tax Incentives
For RE projects, income tax incentives may be available through the RE law and implementing tax guidance, but they are not automatic. RR No. 7-2022 describes an incentive pattern for RE projects that includes an ITH period for qualified projects, subject to qualifications and documentation under the applicable rules and registrations.
Foreign developers should treat ITH entitlement as a compliance-driven benefit: it depends on proper project registration, certifications, and the issuance of proof of ITH entitlement by the appropriate agency.
2) VAT Zero-Rating and VAT Exemption: Why It Impacts Cash Flow
RE projects are capital-intensive. VAT zero-rating on qualified local purchases can materially reduce financing strain during development and construction, and can affect pricing of engineering, procurement, construction (EPC), and subcontractor services.
The Supreme Court has recognized that incentives like VAT zero-rating are governed by statute; administrative issuances cannot curtail what the law grants. In Subic Bay Freeport Chamber of Commerce, Inc. v. Department of Finance, et al., G.R. No. 266016, 2025, the Court held that revenue issuances cannot restrict VAT zero-rating when the statute grants it to qualified entities.
Registration and Certification: The Usual Gatekeeper for Incentives
The most common reason RE incentive claims fail is incomplete registration and certification. In CBK Power Company Limited v. Commissioner of Internal Revenue, G.R. No. 247918, 2023, the Supreme Court ruled that an entity seeking to avail of incentives under the RE law must comply with statutory registration and certification requirements, particularly with the Department of Energy (DOE) and, where applicable, the Board of Investments (BOI). The Court rejected the idea that being an RE developer “in substance” is enough; the requirements must be met.
Typical Documentary and Agency Requirements (Based on Current Rules and Jurisprudence)
While project requirements vary by technology and project history, the following are commonly expected before incentives are recognized for tax purposes:
Common prerequisites before claiming RE fiscal incentives
1) DOE registration and/or certification as an RE developer (as required for incentive entitlement under the RE law and implementing rules);
2) Where required, BOI registration and supporting incentive endorsements;
3) Issuance of documentation evidencing ITH entitlement if the project is claiming ITH;
4) Proper invoicing and documentation supporting that purchases are directly connected to the registered RE activity; and
5) Coordination with suppliers so VAT treatment on invoices matches the project’s incentive status.
These points are consistent with the Supreme Court’s approach in CBK Power Company Limited v. Commissioner of Internal Revenue, G.R. No. 247918, 2023, which underscores that agencies administering incentives may impose further requirements consistent with the law and implementing issuances.
How VAT Zero-Rating Works in Transactions: Common Scenarios
VAT incentives often turn on (a) the status of the buyer (duly registered/certified RE developer or registered enterprise), (b) the nature of the purchase (goods/services), and (c) the use (directly and exclusively for the registered activity where required).
Scenario A: EPC Contractor Bills the Project Company for Construction Services
If the project company is duly registered and properly documented for VAT incentive treatment, suppliers may be required not to pass on 12% VAT for eligible transactions covered by the incentive rules, consistent with the guidance discussed in RR No. 7-2022 and the Supreme Court’s insistence on compliance in CBK Power Company Limited v. Commissioner of Internal Revenue, G.R. No. 247918, 2023.
Scenario B: Local Purchase of Equipment and Components
Local purchases needed for the development, construction, installation, and qualified operations of the RE facility may be treated as VAT zero-rated when the buyer is duly registered/certified and the purchase is properly documented and linked to the eligible RE activity, consistent with the incentive approach reflected in RR No. 7-2022.
CREATE MORE and the Tax Code Incentive Menu: Where It Fits for Foreign RE Generators
CREATE MORE (including amendments under R.A. No. 12066) further refines the Tax Code’s incentives for registered projects and activities. Under the Tax Code’s incentives provisions, qualified registered projects may be entitled to benefits such as VAT exemption on importation and VAT zero-rating on local purchases for goods and services directly and exclusively used in the registered project or activity, subject to statutory conditions and registration as an RBE under the relevant incentive system.
As recognized in Subic Bay Freeport Chamber of Commerce, Inc. v. Department of Finance, et al., G.R. No. 266016, 2025, agencies implementing incentives cannot reduce statutory benefits via regulation when the law is clear. This matters when interpreting the scope of VAT incentives for projects registered under the incentive system.
Summary Table: Incentive, Legal Basis, and Usual Proof
| Incentive | Main authority to check | Common proof or condition |
|---|---|---|
| Income Tax Holiday (ITH) for qualified RE projects | R.A. No. 9513; RR No. 7-2022 | DOE registration/certification; where applicable BOI registration; proof of ITH entitlement issuance |
| VAT zero-rating on eligible local purchases | R.A. No. 9513; RR No. 7-2022; CBK Power Company Limited v. CIR, G.R. No. 247918, 2023 | DOE certifications and other agency endorsements; invoices reflecting correct VAT treatment; proof of use for eligible RE activity |
| VAT exemption on importation / VAT zero-rating for registered projects under the Tax Code incentives system | National Internal Revenue Code of 1997, as amended (including R.A. No. 12066); Subic Bay Freeport Chamber of Commerce, Inc. v. DOF, G.R. No. 266016, 2025 | Registration as a qualifying registered enterprise/project; documentation that items are directly and exclusively used in the registered activity |
Compliance Tips for Offshore Developers (What Usually Prevents Incentive Claims)
1) Treat DOE/BOI registration as a gating item, not a post-closing detail. The Supreme Court in CBK Power Company Limited v. Commissioner of Internal Revenue, G.R. No. 247918, 2023 made clear that incentives are not automatic and require compliance with registration and certification prerequisites.
2) Align procurement and invoicing with incentive eligibility. Even if the project is eligible, mismatched invoice language, missing certifications at the time of sale, or unclear proof of use can lead to disallowances or refund difficulties.
3) Document “direct and exclusive use” where required. For VAT incentives under the Tax Code incentive system, qualification commonly depends on whether the goods/services are directly and exclusively used in the registered project/activity.
4) Watch for conflicts between statutes and implementing issuances. If an issuance appears to narrow a statutory incentive, Subic Bay Freeport Chamber of Commerce, Inc. v. Department of Finance, et al., G.R. No. 266016, 2025 supports the principle that regulations cannot amend or restrict what the statute clearly grants.
Final Observations and Recommendations
For foreign power generators and offshore-backed RE developers, the most reliable route to incentives is early compliance planning: secure DOE registration and certifications, determine whether BOI registration applies, and set procurement systems that produce compliant VAT and income tax documentation from day one. Where incentives are anchored on statutory grants, monitor whether implementing issuances align with the law, consistent with the Supreme Court’s rulings on statutory primacy and strict compliance.
Before financial close, developers should run an incentives readiness review covering corporate structure, registrations, draft contracts (EPC and O&M), invoicing templates, and a documentation map for VAT and income tax claims.
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