Kinds of Tax Incentives in the Philippines and how to avail them

The Philippine government implemented tax incentives to attract more foreign investors to establish their businesses in the country. This, in turn, would increase the local job opportunities within significant economic areas and further improve the country’s development. For a company to be eligible for tax incentives, a business enterprise first must register with an investment promotion agency (IPA), then they can apply below the single menu under the CREATE act; afterwards, they must first register with an investment promotion agency (IPA)

However, the incentives offered by these agencies can vary; the Philippine Economic Zone Authority (PEZA), Board of Investments (BOI), Cagayan Economic Zone Authority (CEZA), and others each have their benefits and requirements. We recommend assessing each one and choosing one that best suits your business.

How to avail of tax incentives

1. Make sure that your proposed project or activity is included in the Philippines’ Strategic Investment Priority Plan (SIPP) since it contains projects or activities that promote an enterprise's long-term growth and sustainable development. The most updated version of the SIPP can be found here. The 2020 Investment Priorities Plan of the Board of Investments (BOI) serves as the transitional SIPP; since the first SIPP is not yet released, it will be effective until the initial SIPP is issued. The activities under the 2020 IPP (Investment Priorities Plan) may be eligible for incentives under the Tier I classification, as proposed by the BOI and approved by the FIRB (Fiscal Incentives Review Board), without the need to upgrade to Tiers II or III if qualified under the new SIPP.
2. Contact any of the country’s investment promotion agencies (IPAs) for assistance. They can facilitate and expedite the setting up and operation of investment projects, assist in the registration process and provide information and advice on any applicable incentives package. They can also help in coordinating with local government units and other government agencies, as mandated by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law.
3. Open an account under the Fiscal Incentives Registration and Monitoring System (FIRMS) to start filing your application; afterwards, your chosen IPA will review your applications through FIRMS.
4. Await the IPA’s response to your application through the official email address you used to create your FIRMS account.

Available tax incentives

1.) Income Tax Holiday (ITH)

• ITH of four to seven years, depending on the location and industry
• Relocation from NCR: additional ITH of three years
• Located in areas recovering from disaster/conflict: additional ITH of two years

2.) Special Corporate Income Tax

• Labor expense (150%) 
• Research and development (200%)
• Training expense (200%)
• Domestic input expense (150%)
• Power expense (150%)
• Reinvestment allowance to the manufacturing industry (Up to 50%)
• Enhanced NOLCO – losses during the first three years may be carried over within the next five consecutive years

3.) Duty Exemption

Duty exemptions are available to enterprises sponsored for up to 17 and 12 years for export and domestic enterprises from the registration date, respectively, unless otherwise extended under the SIPP.

4.) Value-added tax (VAT) exemption and zero-rating of registered export enterprises

These incentives can be used by those who have establishments that were sponsored for up to 17 years from registration are available unless extended under the SIPP.

The registered project or activity was directly and exclusively used were expanded to include packaging materials, services, which also adds the provision of basic infrastructure and utilities.

Period of availing of the incentives based on location and industry priorities:

(Note: Industry tiers are determined in the SIPP)

(A) For exporter activities

(B) For domestic market activities

(C) For highly desirable projects or specific industrial activities

The President of the Philippines can, if it’s in the interest of national economic development and, upon the recommendation of the Fiscal Incentives Review Board, modify the mix, period, or manner of availing of incentives provided under the CREATE Law or craft the appropriate financial support package for a highly desirable project or a specific industrial activity if it meets the following conditions:

1. The project has a comprehensive sustainable development plan with precise inclusive business approaches and a critical level of sophistication and innovation
2. Minimum investment capital of fifty billion pesos (PHP 50,000,000,000.00) or the equivalent in US dollars, or a minimum direct local employment generation of at least ten thousand (PHP 10,000.00) within three (3) years from the issuance of the certificate of entitlement.

The CREATE Law states that the grant of income tax holiday shall not exceed eight (8) years, and the total period of incentive availed shall not exceed forty (40) years.

Enhanced Tax Deductions (ED) in the Philippines

1. Depreciation allowance (10% for buildings, 20% for machinery) 
2. Labor Expense (150%)
3. Research and Development (200%) 
4. Training expense (2200%) 
5. Domestic Input Expense (150%)
6. Power Expense (150%) 
7. Reinvestment allowance to the manufacturing industry (Up to 50%) 
8. Enhanced NOLCO - losses during the first three (3) years may be carried over within the next five (5) consecutive years. 

Tax Services in Forvis Mazars

Keeping up to date with the constant changes and amendments to tax laws can become quite tedious to manage. At Forvis Mazars, we work closely with clients – offering solutions that simplify their compliance and help them navigate complex tax situations with confidence, including helping bypass certain processes like online tax filing requirements.  

Our professionals have deep experience in multiple areas of tax, providing businesses at all stages of their life cycle with specialist advice. Our expertise ranges from corporate and employment tax, to transfer pricing and corporate structuring, to national and international transactions, to assessing tax implications when setting up new operations overseas, among others.

Our solutions include outsourced tax compliance, tax advisory and expert opinions, application for incentives, and handling BIR tax assessments and audits, among others.

For more information on Yu Villar Tadeja’s tax services in the Philippines, reach out to us for an initial call or follow the link below.