With the long-awaited lowering of the regular corporate income tax, and the rationalization of incentives, among others, the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) is expected to boost investment in the Philippines and help bring about an economic recovery.

It comes as no surprise that there have been queries related to the CREATE Act from potential foreign investors, particularly on what the country can offer them, and what the considerations are before putting their money into the Philippines.

For potential investors asking about the implementation of the CREATE Act, the incentives listed below are available for qualified business entities. These entities, referred to as Registered Business Enterprises (RBEs), are either Export Enterprises or Domestic Market Enterprises based on the qualifications provided under the Strategic Investment Priority Plan (SIPP).


The period to avail of the ITH is four to seven years, depending on the location and industry priorities.

RBEs located outside the National Capital Region (NCR) will be entitled to an additional three years of ITH while registered enterprises in areas recovering from disasters or conflicts will be entitled to an additional two years.

Hence, future investors may consider evaluating whether it would be beneficial for them to set up business operations in suburban or rural areas and/or pursue activities listed as priority programs. It must be emphasized, however, that one of the challenges that their businesses may face is accessibility or availability of the materials and labor needed for operations.

Note that the goal of the government is to help decongest the workforce in the NCR and bring opportunity to other provinces, a move that will support growth and development.


After the ITH period, RBEs may avail of the SCIT, which is equivalent to 5% of the gross income earned or ED. The option to avail of either the SCIT or ED is to be exercised and determined by RBEs during the application process with the Investment Promotion Agencies (IPAs) concerned. The option is irrevocable for the duration of the project or activity. Therefore, financial projections must be realistic enough to ensure that the investors are well-informed at the time of application with the IPA. Note, however, that choosing between the SCIT or ED is exclusive for RBEs qualified as export enterprises for a period of 10 years after the ITH period, while RBEs qualified as domestic market enterprises are confined to five-year ED period following the ITH.

Under the SCIT, potential investors should take note that the 5% is based on gross income and not net income. Hence, it would be critical for new investors to be aware of the allowable direct costs that may be deducted to arrive at the gross income.  Examples of these are direct salaries, wages, or labor expenses involved in the operations, raw materials and supplies used in production, and depreciation of machinery, equipment and building used in the registered activity.

As for the ED, the RBEs are provided supplemental deductions in addition to the allowable ordinary and necessary deductions under Section 34 of the Tax Code.

Examples of the supplemental or enhanced deductions are additional depreciation allowable for assets acquired for the production of goods and services, an additional 50% deduction on labor expense incurred, an additional deduction of 100% of expenses incurred for research and development directly related to the registered project or activity of the registered business activity, and additional deduction for training expenses, to name a few.

The enhanced deductions can bring down the taxable net income for the purpose of computing the corporate income tax due.


These imports by the RBE should be directly and exclusively used in the registered project or activity and the capital equipment, raw materials, spare parts, or accessories should be directly and reasonably needed in the operations. Furthermore, these should be used exclusively in and as part of the direct cost of the registered project activity and must not be produced or manufactured domestically in sufficient quantity or comparable quality and at reasonable prices.


The RBEs are entitled to VAT exemption on their imports and VAT zero-rating on their qualified local purchases, based on the provisions of the CREATE Act.

With regard to the VAT zero-rating on local purchases, previously, the Bureau of Internal Revenue issued Revenue Regulations (RR) No. 9-2021 which directed certain local purchases to be subject to 12% VAT. Then, subsequently, the RR was suspended by RR 15-21. It is hoped that the guidelines on VAT zero-rating be firmed up soon for the guidance of the taxpayers.

It should be noted by the potential investors that availing of the aforementioned tax incentives is subject to certain conditions, including, among others, that the project or activity of the RBE is listed in the Strategic Investment Priority Plan (SIPP). The SIPP was formulated by the Board of Investments, in coordination with the Fiscal Incentives Review Board (FIRB), Investment Promotion Agencies, other government agencies and the private sector, subject to the President’s approval.

The CREATE Act is considered the country’s largest fiscal stimulus package, with a potential tax relief effect of over P1 trillion over the next ten years. It is the hope of many that the lowering of taxes and rationalization of fiscal incentives attract potential investors to the Philippines.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.


As published in BusinessWorld, dated 17 August 2021