The Philippines has ushered in a new era of economic reform with the passage of Republic Act No. 12066, or the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act[1]. Signed into law by the President on 11 November 2024[2], this legislation builds on the foundations laid by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act of 2021. By enhancing tax incentives and expanding eligibility, the CREATE MORE Act aims to attract investments, drive innovation, and accelerate the nation’s post-pandemic economic recovery. (Tax Law Firm)
A Game – Changing Reduction in Corporate Income Tax Rates
Among the most transformative features of the CREATE MORE Act is the introduction of a reduced 20% Corporate Income Tax (CIT) rate for Registered Business Enterprises (RBEs) under the Enhanced Deductions Regime (EDR). This adjustment, a marked decrease from the standard corporate tax rate, positions the Philippines to align with global standards such as the Organization for Economic Co-operation and Development’s (OECD) 15% Global Minimum Tax (GMT).
The lowered CIT rate not only reduces the tax burden for qualifying enterprises but also integrates enhanced deductions for essential expenses, such as research and development (R&D), employee training, and infrastructure investments. This dual benefit encourages businesses to reinvest in operations and innovation, making the Philippines a more compelling destination for global investors.
Enhanced Deductions: Fueling Industry Competitiveness
The CREATE MORE Act significantly expands the scope and value of deductions under the EDR, ensuring businesses benefit from lower operating costs:
- Energy Expenses: The allowable deduction for power costs has been doubled from 50% to 100%, addressing a critical barrier for energy-intensive industries like manufacturing and logistics.[3]
- Market Expansion: Expenses related to trade fairs, exhibitions, and promotional activities are now deductible, enabling businesses to explore new markets and increase visibility.
- Extended Net Operating Loss Carryover (NOLCO): Losses incurred during the ITH period can now be carried forward for five years, providing businesses with greater flexibility in managing financial setbacks.
These enhancements aim to stimulate investment in areas critical to national development while mitigating operational challenges faced by local and foreign enterprises.
Broadening the Scope of Incentives
The CREATE MORE Act extends eligibility for tax incentives to all RBEs, significantly expanding the pool of beneficiaries beyond the limitations imposed by the CREATE Act. This change is especially beneficial for foreign and local enterprises, fostering a competitive environment that underscores the Philippines as a hub for both domestic and international investments.
Streamlining VAT Incentives for Greater Clarity
To further support businesses, the CREATE MORE Act refines Value-Added Tax (VAT)[4] exemptions and zero-rating provisions, ensuring clear and consistent application:
- VAT Exemption: Applicable to goods imported by REEs with at least 70% export sales.
- Zero-Rating: Applies to sales of goods and services directly linked to registered activities or to bonded manufacturing warehouses.
- Special Incentives for High-Value DMEs: Companies with significant investments or substantial export sales now enjoy enhanced VAT benefits, driving investments in priority sectors like heavy industries and infrastructure.
These provisions simplify compliance, reduce ambiguities, and safeguard against the misuse of VAT benefits while ensuring that industries critical to economic growth receive targeted support. (Tax Law Firm)
Localized Tax Relief for RBEs
To alleviate administrative complexities, the CREATE MORE Act establishes a uniform local tax rate of up to 2% of gross income for RBEs during their ITH or EDR period. This provision consolidates various local taxes into a single rate, allowing businesses to focus more on operational growth than on navigating complex tax systems.
A Vision for Global Competitiveness
By offering an array of tax incentives, streamlined processes, and reduced operational costs, the CREATE MORE Act positions the Philippines as a prime destination for global and local businesses seeking expansion opportunities. Industries such as manufacturing, logistics, energy, and high-value exports stand to benefit significantly from the reforms.
This ambitious legislation not only aims to attract foreign investments but also seeks to enhance employment opportunities, drive innovation, and build a resilient economy capable of competing on the global stage. (Tax Law Firm)
Looking Ahead
As the CREATE MORE Act takes effect, its potential to reshape the Philippine economy will be closely monitored by both local and international stakeholders. This landmark legislation is designed to stimulate business growth, encourage investments, and enhance the country’s competitiveness in the global market. By overhauling the tax incentive system and providing targeted fiscal policies, the Act aims to create a more efficient and attractive business environment that can foster innovation, create job opportunities, and encourage economic diversification.
The CREATE MORE Act’s long-term benefits are expected to extend beyond mere economic recovery. It is poised to drive sustained growth by attracting foreign direct investments, particularly in industries that will benefit from the tax incentives and reforms it provides. This includes key sectors such as manufacturing, technology, and green energy, all of which have the potential to accelerate the Philippines’ integration into the broader Southeast Asian and global economy.
For enterprises looking to expand their footprint in Southeast Asia, the Philippines now stands as a beacon of opportunity. Engaging the services of a Philippine Law Firm would be the best way forward. This Act positions the country as an emerging business hub with a forward-thinking approach to economic development.
By fostering an environment conducive to innovation, expansion, and sustainable growth, the Philippines has the potential to lead in the region and establish itself as a competitive player in the global marketplace. In the years to come, businesses that take advantage of the opportunities created by the CREATE MORE Act will be well-positioned to thrive in an increasingly interconnected world.
Written by: Ericka Espadero
[1] Department of Finance. “Recto: CREATE more law is a win-win for both businesses and the Filipino people.” Last accessed on 20 November 2024.
[2] Presidential Communications Office. “PBBM Signs Law for More Jobs, Economic Growth.” Last accessed on 20 November 2024 from https://pco.gov.ph/news_releases/pbbm-signs-law-for-more-jobs-economic-growth/.
[3] Grant Thornton Philippines. “The CREATE MORE Act (RA 12066): A New Chapter for Tax Incentives and Economic Development in the Philippines.” Last accessed on 20 November 2024.
[4] Senate of the Philippines. “Policy Brief on CREATE MORE.” Last accessed on 20 November 2024
