CREATE MORE Act: Ushering a New Chapter in Philippine Tax Incentives and Investment Climate
On November 11, 2024, the Philippines took a major leap in tax reform and investment promotion with the enactment of the CREATE MORE Act, now officially known as Republic Act No. 12066. An enhancement of the existing Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, this legislation aims to attract more foreign and local investments, streamline fiscal incentives, and align the country's tax policies with international standards—especially in the era of global tax cooperation and digital economies.
The full title of the law—CREATE to Maximize Opportunities for Reinvigorating the Economy Act—captures its goal: to make the Philippines a more competitive, transparent, and business-friendly investment hub, especially for Registered Business Enterprises (RBEs) operating within or outside of economic zones.
Let’s break down what this landmark legislation brings to the table and how it affects businesses, investors, and the broader economic landscape.
1. Why CREATE MORE?
The original CREATE Law (RA 11534) was passed in 2021 in response to the COVID-19 pandemic. It lowered the corporate income tax and rationalized tax incentives to make the Philippines more attractive for investment. However, gaps and ambiguities in the implementation, particularly in the treatment of indirect exporters, VAT zero-rating, and the scope of fiscal incentives, created friction among stakeholders.
The CREATE MORE Act was crafted to address these concerns, enhance clarity, and refine the incentive structure to balance revenue generation with investment promotion. It also reflects the country’s need to comply with OECD's Global Minimum Tax (GMT) initiatives and maintain competitiveness in the ASEAN region.
2. Enhanced Deductibility Under the Enhanced Deductions Regime
One of the centerpiece changes under CREATE MORE is the improvement of the Enhanced Deductions Regime (EDR). Previously seen as less attractive than the Income Tax Holiday (ITH) + 5% Gross Income Tax (GIT) regime, the EDR now offers increased deductions, making it more lucrative for RBEs. Here's a summary of the changes:
- Power Costs Deduction: From 50% to 100% additional deduction on power expenses.
- New Deductible Items: Inclusion of costs related to trade fairs, exhibitions, and other marketing activities.
- Standard Deductions Enhanced: Greater flexibility and broader scope for businesses to claim allowable expenses, encouraging reinvestment into operations and R&D.
These measures are expected to improve the cash flow of businesses while incentivizing operational efficiency and innovation.
3. 20% Corporate Income Tax Rate for Registered Activities
The law introduces a special 20% Corporate Income Tax (CIT) rate specifically for registered projects and activities of RBEs under the EDR. This rate is more aligned with the OECD’s 15% Global Minimum Tax recommendation, positioning the Philippines to remain compliant with international tax agreements while preserving its ability to attract multinational enterprises (MNEs).
Importantly, this rate applies only to income generated from registered activities, maintaining the distinction between registered and non-registered business operations.
4. VAT Zero-Rating Clarified and Expanded
One of the most contentious issues under the original CREATE Law was the VAT zero-rating on local purchases. CREATE MORE resolves this by expanding and clarifying the coverage:
- VAT zero-rating is explicitly granted to goods and services directly attributable to the registered project or activity of RBEs.
- Support services such as security, janitorial, consultancy, financial services, and administrative functions are now recognized as eligible for VAT zero-rating, provided they are essential to the registered project.
- The requirement for VAT zero-rating is now based on the nature of the transaction and the end-use, rather than purely on export orientation.
This provides greater certainty for taxpayers and suppliers, reducing audit risks and improving business confidence.
5. Special Local Tax Treatment for RBEs
To harmonize national and local taxation, the CREATE MORE Act imposes a local tax of up to 2% on gross income of RBEs during their ITH or EDR periods. This replaces the myriad of local business taxes, fees, and charges previously imposed by local government units (LGUs).
This streamlined approach provides predictability in tax obligations and reduces compliance costs for businesses operating in different jurisdictions.
6. Enhanced Authority for Investment Promotion Agencies (IPAs)
Investment Promotion Agencies (IPAs) like the Board of Investments (BOI), Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), and others are given expanded authority under the Act. Key updates include:
- Issuance of Special Visas to attract highly skilled foreign professionals for priority industries.
- More active participation in promoting and regulating investment locations outside of Metro Manila.
- Greater flexibility in recommending fiscal incentives for strategic or high-impact projects, subject to the oversight of the Fiscal Incentives Review Board (FIRB).
These enhancements strengthen the country’s ability to attract quality investments, particularly in emerging sectors such as renewable energy, AI, digital services, and manufacturing.
7. Technology and Digital Reporting Compliance
CREATE MORE supports digital transformation in tax administration. Among its provisions:
- Registered enterprises are required to submit electronic reports on their operations and tax incentives.
- The BIR and FIRB are mandated to improve data-sharing and transparency on tax incentive availment and compliance.
This effort is in line with the government’s push for e-governance and builds public trust in the fiscal incentive system.
8. Balancing Incentives with Accountability
One of the guiding principles of CREATE MORE is performance-based, time-bound, and transparent incentives. This means:
- Incentives are granted based on merit, with performance metrics tied to job creation, investment size, export performance, and technological advancement.
- Non-performing RBEs may be removed from the registry and have their incentives revoked.
- Regular audits and compliance checks will be conducted by IPAs and the FIRB.
By linking incentives to performance, the government ensures that tax benefits serve the broader economic interest rather than just private profit.
9. Transition Rules and Implementation
To aid in the transition:
- Existing RBEs with incentives under the old rules are allowed to continue until their term ends.
- Those that wish to shift to the new regime may do so under certain guidelines provided by the FIRB.
- The Implementing Rules and Regulations (IRR) issued in February 2025 provide clarity on the procedures, application forms, and timelines for compliance.
10. Implications for Stakeholders
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For Businesses: The CREATE MORE Act provides clearer rules, more generous deductions, and a more stable tax environment. However, companies must review their compliance processes and consider upgrading their accounting systems to meet electronic reporting requirements.
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For Investors: The law enhances the country’s attractiveness to foreign investors, particularly those in high-value sectors. The special CIT rate, VAT reforms, and IPAs’ expanded roles offer confidence that investments will be supported by a more investor-friendly climate.
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For LGUs: While some taxing powers are limited, the simplified tax structure enables easier revenue collection and reduces administrative burden.
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For the Government: By refining its fiscal incentive system, the Philippines is better positioned to attract long-term, sustainable, and high-impact investments.
Conclusion: A Strategic Move Forward
The CREATE MORE Act represents more than just an amendment to tax laws—it’s a strategic economic reform aimed at transforming the Philippines into a competitive investment destination. By addressing the bottlenecks of the previous law and enhancing the country’s alignment with international standards, RA 12066 lays the groundwork for robust, inclusive, and innovation-led growth.
For Filipino businesses and professionals, the key is to stay informed, adapt to the changes, and seize the opportunities that this new law brings.
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