Do you own or manage a business engaged in environmentally sustainable activities? Does it utilise green technologies or help to create a green economy? This article outlines the key elements of the Government’s new tax incentive scheme for “green” jobs. Find out below if your business is eligible!
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In recent years, the corporate world has become much more conscious of its obligations to the environment. Many strategic business decisions are now made only after environmental factors have been considered.
The Philippine Government has also declared its ambition to transition to a “green” economy. The introduction of the Philippine Green Jobs Act of 2016 is an example of this. Arising from this Act, the Bureau of Internal Revenue (BIR) has just recently issued regulations that provide for a new tax incentive scheme for businesses that generate “green” jobs.
See below for all you need to know about the new tax incentive scheme. We have also included a checklist for eligibility requirements and a step guide for the application process. See if your business is eligible for the tax incentive scheme!
What is the Philippines Green Jobs Act of 2016 (Republic Act No. 10771)
R.A. No. 10771, also known as the Philippine Green Jobs Act of 2016, is a Government act designed to promote the generation of green jobs and the granting of tax incentives for green businesses in the Philippines.
“Green jobs” refer to employment, across a number of sectors, which helps to preserve or restore the quality of the environment. Examples might include jobs that help to protect ecosystems or biodiversity, reduce energy and water consumption, decarbonize the economy or jobs that help to minimize/eliminate waste and pollution.
R.A. No. 10771 aims to achieve the Government’s declared policy of promoting the rights of the Philippine people to a “balanced and healthful ecology in accord with the rhythm and harmony of nature.”
A primary objective of the Government is to transition the economy of the Philippines to a green economy. The tax incentive scheme is in recognition of individuals and businesses that create jobs to assist with achieving this green economy objective.
Why is the Green Jobs Act 2016 relevant now?
In the last number of weeks, the Bureau of Internal Revenue (BIR) published Revenue Regulations No. 5-2019 which implemented the tax incentive provisions of the Philippine Green Jobs Act of 2016.
RR. No. 5-2019 introduces a tax incentive scheme for certain businesses engaged in activities concerned with environmental sustainability and that generate jobs that help protect the environment.
How does the new tax incentive scheme work?
Under RR. No. 5-2019, if your business is a “qualified business enterprise”, you are entitled to avail of a special deduction on the taxable income equivalent to 50% of the total expenses for skills training and research development expenses.
These special deductions will be over and above the ordinary deductions currently allowable for such expenses under the National Internal Revenue Code of 1997 (as amended) (i.e. the Tax Code).
What is a “qualified business enterprise”?
A “business enterprise” is an establishment engaged in the production, manufacturing, processing, repacking, assembly or sale of goods or services. This includes service-orientated businesses, self-employed workers, MSMEs and community based businesses.
In order to attain the status of “qualified”, a business enterprise must first be certified by the Secretary of the Climate Change Commission as qualified and eligible to receive the tax incentive.
Examples of “qualified businesses enterprises” might include businesses engaged in activities to mitigate climate change, businesses that utilise green technologies or follow green building practices and business processes and businesses engaged in the production or selling of green goods or green services.
Is there a time period for claiming this tax deduction?
Yes. The deduction must be availed of within the same taxable year in which the relevant expenses were paid or incurred.
When can you claim the tax deduction?
The tax deduction is claimed at the time the business files its income tax returns.
Does evidence have to be provided?
Yes. The business must be able to provide sufficient evidence that it is eligible to avail of the deduction. Evidence can be in the form of official receipts, delivery receipts, etc, and must show (a) the total value of the expenses being claimed and (b) the direct connection/relation between the skills training or research development conducted and the expenses.
How do you apply for the tax incentive?
Helpfully, RR. No. 5-2019 outlines the process required to apply for the tax incentive, as follows:
- The business must first submit, to the Revenue District Office where the business is registered, a Certification issued by the Climate Change Commission which confirms that the business is “qualified” and eligible to avail of the tax incentive;
- When filing its income tax returns/annual information returns, the business must submit the following documents, all of which must be sworn as true:
- A list of the total expenses paid or incurred for skills training or research development during the year;
- A list of the activities or projects undertaken and their cost and indicating how the expenses were paid/incurred;
- A declaration that the expenses paid/incurred have a direct connection/relation to the activities or projects of the business that generate or sustain “green” jobs.
Let CloudCfo know if you require support with your tax compliance obligations or BIR applications/filings!
CloudCfo is an accounting company that provides outsourced finance and accounting services to companies in the Philippines. CloudCfo advises various companies across Metro Manila on all aspects of their finance-related activities including bookkeeping, payroll, tax compliance, transaction support and more.
Our team of dedicated professionals has extensive knowledge of the tax compliance and regulatory system in the Philippines and can transform your financial processes into real value added activities for your company.