On Monday, November 11th, Philippine President Ferdinand Marcos Jr. signed into law a new tax reform law aimed at enhancing foreign investment. By lowering corporate tax rates and offering targeted incentives, the law seeks to make the Philippines a more competitive destination for investors. While the Philippines remains one of Asia’s faster-growing economies, barriers like high energy costs, foreign ownership limits, and underdeveloped infrastructure have discouraged foreign direct investment.
Investment Comparison with Regional Neighbors
In 2022, the Philippines drew in $6.2 billion in foreign direct investment—a modest sum compared to Singapore’s $159.7 billion, Indonesia’s $21.6 billion, and Vietnam’s $18.5 billion. With challenges in other major markets creating new opportunities, the new tax reform law, formally known as the Corporate Recovery and Tax Incentives for Enterprises to Maximise Opportunities for Reinvigorating the Economy (CREATE) Act, aims to boost these figures. The act reduces the corporate income tax rate for registered business enterprises (RBEs) from 25% to 20%, providing tax relief to encourage investment.
Enhancing and Expanding the 2021 CREATE Act
First introduced in 2021 by former President Rodrigo Duterte, the CREATE Act initially provided tax relief to businesses impacted by the COVID-19 pandemic. It reduced tax rates for large corporations to 25% and for small enterprises to 20%, while also supporting investor confidence through duty-free COVID-19 vaccine import provisions. Building on this foundation, the new law includes further benefits, such as a 100% power expense deduction to help companies address high electricity costs.
Extended Incentives and Modern Work Provisions
Additional provisions in the new law extend tax incentives for strategic investments from 17 years to 27 years, specify allowable sales tax exemptions, and institutionalize remote work flexibility. Up to 50% of RBE employees can now work from home without impacting their company’s incentives, which is aimed at modernizing work environments in line with global trends.
Anticipated Revenue Impact
Marcos emphasized the bill’s role in transforming the Philippine economy. However, the government anticipates a 5.9 billion peso ($100.89 million) tax revenue loss between 2025 and 2028 as a result of these reforms, according to a document from the president’s communications office.
