Known as one of the fastest-growing economies in Southeast Asia, the Philippines is recognized as an ideal investment location for many foreign enterprises that wish to expand or grow in the Philippines and ASEAN markets. 

From tax incentives provided by investment promotion agencies (IPAs) to tax reform programs created by the government, the Philippines offers numerous opportunities for foreign enterprises. Moreover, these measures help attract foreign direct investments into the Philippines, boosting its market to neighbouring countries and strengthening its economy. 

Tax Reform Programs in the Philippines 

The Philippines has been aggressively reforming its taxation system to provide a simpler and more efficient tax system to local and foreign enterprises. The Corporate Tax Reform Program (CTRP) introduces several tax reform packages to boost investment and business activities.

There are four tax reform packages under CTRP: 

• Package 1: Tax Reform for Acceleration and Inclusion (TRAIN) 
• Package 2: Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act
• Package 3: Real Property Valuation Reform
• Package 4: Passive Income and Financial Intermediary Taxation Act (PIFITA)

Among these packages, tax benefits for enterprises in the Philippines fall under Package 2, more commonly known as the CREATE Act. 

Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act

Passed into law on March 26, 2021, the CREATE act greatly reduced the corporate income tax (CIT) rate from 30% to 25%, with a yearly deduction of 1% until 2027. 

Moreover, other salient features under CREATE Act include:

• Reduction of CIT rate to 25%, from the previous 30%, for large corporations. For small and medium-sized enterprises with net taxable income not exceeding ₱5 million, and total assets not exceeding ₱100 million (excluding land), the CIT rate is reduced to 20% 
• Reduction of minimum CIT (MCIT) rate from 2% to 1%
• Reduction of percentage tax from 3% to 1%

CIT reductions will vary depending on the type of taxpayer your business falls under. 

Tax Incentives in the Philippines

The Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA) are the special agencies responsible for administering and regulating tax incentives in the Philippines. Under BOI and PEZA, 17 different investment promotion agencies (IPAs) also administer, promote, and oversee various tax incentives in their respective regions. 

Both BOI and PEZA offer similar incentives to foreign enterprises willing to invest in the Philippines market. Such incentives include, but are not limited to: 

• Income tax holiday (ITH) of four to eight years 
• ITH bonus of years under certain conditions
• Special corporate income tax (SCIT) rate of 5% based on gross income in lieu of national and local tax rates
• Enhanced deductions (ED) for expenses on production of goods and services, labor, research and development, training, power generation, and domestic input
• Value-added tax (VAT) zero-rating and exemptions on importation or local purchases of goods and services directly and exclusively used on the registered project. 
• Duty exemption on imported capital equipment, raw materials, spare parts, or accessories
• Exemption from wharfage dues and export tax, duty, impost, and fees
• Tax credits on imported raw materials
• Tax and duty-free importation of consigned equipment
• Additional deduction for labor expenses
• Employment of foreign nationals in supervisory, technical, or advisory positions

Philippine Economic Zone Authority (PEZA)

PEZA is a government agency responsible for administering and regulating tax incentives to foreign enterprises willing to invest in Special Economic Zones (SEZs) in the Philippines. Foreign enterprises planning to engage in export manufacturing, tourism, and similar business activities can register their company with PEZA, given that their business is located within SEZs.

Documentary Requirements for PEZA Incentives 

To be eligible for tax incentives under PEZA, foreign enterprises are required to accomplish the following documents: 

Foreign enterprises must ensure to locate their operations in one of the SEZs identified by PEZA. They must also engage in export-oriented activities such as export manufacturing, IT service export, tourism, medical tourism, logistics and warehousing, facilities provider, agro-industrial export manufacturing, and agro-industrial biofuel manufacturing. 

The approval time for registering with PEZA usually takes up to 21 days, depending on the requirements submitted and type of industry your company wishes to operate in. 

Board of Investments (BOI)

Foreign enterprises that satisfy any of the following can register with BOI:

• Enterprises with at least 70% of their products or services dedicated to export-oriented activities
• Enterprises with activities included in BOI’s Strategic Investment Priority Plan
• Enterprises that set up their office in Less Developed Areas (LDAs)

Documentary Requirements for BOI Tax Incentives

Foreign enterprises interested in availing tax incentives from BOI must accomplish the following documents:

• SEC Certificate of Registration
• Articles of Incorporation and By-Laws
• Audited Financial Statement (feasibility report that contains projected financial reports for the next five years)
• Income Tax Return for the past three years (if applicable)
• Board Resolution of a duly authorized company representative/signatory
• Project Report (a report that contains activities listed or are related to those listed in the IPP)

Additionally, foreign investors are required to have an equity investment in a Philippine corporation to be eligible for BOI incentives. 

BOI Registration Process

The following are the steps for registering with BOI:

1. File BOI Application Form 501 along with supporting documents and filing fee
2. Prepare Evaluation Report (including Publication of Notice of Filing of Application and plant visit)
3. Present the application form, evaluation report, and supporting documents to the BOI Management Committee
4. Wait for the confirmation and letter advice from the BOI Governing Board regarding Board Action
5. Submit letter advice to Applicant of Board Action
6. If approved, submit the letter of approval and comply with pre-registration requirements
7. Pay Registration Fee
8. Secure Certificate of Registration from BOI

The usual processing time is 10 to 20 working days, depending on the type of business entity you plan to register, the nature of your proposed activities, and the time it takes for BOI’s Management Committee to review your application.  

Special Economic Zones in the Philippines

Special Economic Zones (SEZ) in the Philippines are regulated and administered by PEZA. SEZs, or ecozones, are selected areas with the potential to be developed into agro-industrial, industrial tourist/recreational, commercial, banking, investment, and financial centers.

At present, there are 379 operating SEZs under PEZA throughout the Philippines. These zones are classified under these categories:

• Manufacturing Economic Zone (74)
• Information Technology Parks/Centers (262)
• Agro-Industrial Economic Zone (22)
• Tourism Economic Zones (19)
• Medical Tourism Parks/Centers (2)

Foreign enterprises that operate in SEZs are entitled to tax incentives offered by PEZA. 

Investment Promotion Agencies in the Philippines

In addition to PEZA and BOI, the Philippines has a network of 17 IPAs tasked to formulate and develop strategies to position the country as a prime destination for investments. Each IPA offers distinct functions and incentive packages. 

BOI has categorized existing IPAs into three industry clusters:

Manufacturing and Logistics/IT-BPM Cluster:

• Authority of the Freeport Area of Bataan (AFAB)
• Bases Conversion and Development Authority (BCDA)
• Clark Development Corporation (CDC)
• Clark International Airport Corporation (CIAC)
• Subic Bay Metropolitan Authority (SBMA)
• Subic Clark Alliance for Development (SCAD)

Tourism Cluster:

• Aurora Pacific Economic Zone (APECO)
• Cagayan Economic Zone Authority (CEZA)
• John Hay Management Corporation (JHMC)
• Poro Point Management Corporation (PPMC)
• Philippine Retirement Authority (PRA)
• Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
• Tourism Promotions Board (TPB)

Mindanao/Agribusiness Cluster:

• Mindanao Development Authority (MinDA)
• PHIVIDEC Industrial Authority (PIA)
• Regional Board of Investment-Autonomous Region of Muslim Mindanao (RBOI-ARMM)
• Zamboanga City Special Economic Zone Authority (ZCSEZA)

The documentary requirements for IPAs may vary depending on your location, business activities, and industry. 

How can WeCorporate Help?

With numerous investment schemes and tax incentive programs, investing in the Philippines will enable your company to grow and penetrate the Asian market with ease. By familiarizing yourself with the various tax incentives in the Philippines, you can maximize the number of incentives you can avail for your business. 

If you find such procedures exhaustive, you can reach out to business consulting firms to help you accomplish the necessary requirements when applying for tax incentives in the Philippines.  

Other Services Offered in the Philippines: 

• Company Incorporation
• Work Permit