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the Philippines’ Department of Finance undertook a multi-phased Comprehensive Tax Reform Programme that began with the enactment of the Tax Reform for Acceleration and Inclusion Act in 2018, and culminated with the passage of the Capital Markets Efficiency Promotion Act (CMEPA) in 2025, the fourth and final package of the programme. Collectively, these measures represent the Philippines’ sustained effort to build a tax system that is simpler, fairer and more efficient, while fostering a business environment responsive to regional and global economic shifts.
The CREATE Act
Deborah S Acosta-Cajustin
Senior Partner at PunoLaw in Manila
Tel: +63 2 8631 1261
Email: dsacosta@punolaw.com
Republic Act No.11534, otherwise known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, became effective on 11 April 2021. It aims to improve the equity and efficiency of the corporate tax system, develop a more responsive and globally competitive tax incentives regime, and provide support to businesses in their recovery.
The CREATE Act introduced amendments to several provisions of the National Internal Revenue Code (Tax Code), primarily reducing the regular corporate income tax rate for domestic and foreign corporations to 25%. A lower rate of 20% is also applicable to domestic corporations whose net taxable income exceeds PHP5 million (USD84,900) and whose total assets (excluding land on which the office, plant and equipment are situated) do not exceed PHP100 million.
The act also overhauled the country’s incentives structure for a more responsive and globally competitive tax incentives regime that is performance-based, targeted, time-bound and transparent. Registered business enterprises (RBEs) may opt to avail themselves of either the income tax holiday (ITH) or the enhanced deduction regime (EDR). After their incentive period, RBEs may be subject to either 5% special corporate income tax, or the regular tax, depending on their registration terms with the investment promotion agencies.
CREATE MORE
Keanu P Castañeda
Associate at PunoLaw
in Manila
Tel: +63 2 8631 1261
Email: kpcastaneda@punolaw.com
Republic Act No. 12066, also known as CREATE Maximise Opportunities for Reinvigorating the Economy (MORE), which took effect on 28 November 2024, refined and expanded the incentives framework introduced by the CREATE Act. One of its key reforms is the reduction of the corporate income tax rate for RBEs, whether domestic or resident foreign corporations, under the EDR from 25% to 20%.
In addition to lowering the income tax rate, CREATE MORE enhanced allowable deductions to improve operational efficiency. For example, the allowable deduction for power expenses was increased from 50% to 100%, directly benefiting energy-intensive industries.
It also introduced a more flexible rule on net operating loss carry-over (NOLCO), allowing businesses to carry over losses within five years following the last year of their ITH, instead of only for the first three years from the start of commercial operations, when the businesses are still under ITH and not generating any taxable income against which the NOLCO may be offset.
Further, CREATE MORE clarified that the 5% special corporate income tax is in lieu of all national and local taxes, including local fees and charges. At the same time, a new provision was included in the Tax Code, which allows local government units (LGUs) to impose a local tax not exceeding 2% of gross income on RBEs. This tax replaces all local taxes, fees and charges during the ITH or EDR period, balancing national investment promotion with local revenue interests.
CREATE MORE also refined the rules on value-added tax (VAT) exemption for importations and VAT zero-rating for local purchases of registered export enterprises and registered high-value domestic market enterprises.
The law now clearly includes transactions directly related to the registered activities of the registered export enterprises and registered high-value domestic market enterprises such as janitorial, security, financial, consultancy, marketing and administrative services – including HR, legal and accounting support. This clarification eliminated longstanding ambiguities that often led to disputes and delays in the enjoyment of VAT-related incentives.
Finally, acknowledging the global shift towards flexible work arrangements, CREATE MORE affirms that RBEs may adopt flexible work arrangements such as hybrid or remote work setups, without forfeiting their tax incentives, provided that compliance and reporting requirements are met. This policy aligns with global business trends and promotes workforce adaptability.
The RPVARA
John Edcel Q Andes
Associate at PunoLaw
in Manila
Tel: +63 2 8631 1261
Email: jqandes@punolaw.com
Republic Act No.12001, otherwise known as the Real Property Valuation and Assessment Reform Act (RPVARA), took effect on 5 July 2024. It aims to address one of the prevalent sources of confusion in Philippine taxation, which is the proper valuation of properties.
Prior to the RPVARA, redundancies were present in valuation. Both the national government, through the Commissioner of Internal Revenue, and the local governments, through the local assessors, are concurrently empowered to determine the valuation of properties. To further complicate matters, each LGU is free to adopt its own basis and standard for valuation, which applies only to its territorial jurisdiction.
One of the primary aims of the RPVARA is the establishment of the market value as the single property valuation base for real properties, obviating the need for separate valuations and streamlining the assessment process not only for realty taxes but for other taxes that are based on the valuation of real property.
To implement this standardisation, the Bureau of Local Government Finance was mandated to develop and maintain the Philippine valuation standards (PVS), aligned with international norms, which will guide the preparation of schedules of market values (SMVs) by local assessors. These SMVs will serve as the uniform valuation base for both local and national taxation.
However, the successful implementation of the above-mentioned reforms remains to be seen, considering that the SMV of each LGU is still being determined during the two-year transition period from the effectivity of the RPVARA, or until 4 July 2026.
Another primary aim of the RPVARA is the creation of a comprehensive and up to date electronic database for real property transactions and declarations. This database shall be made available for free to key stakeholders such as the LGUs, national government agencies, and even the private sector, subject to guidelines to be established by the Bureau of Local Government Finance.
Aside from transparency, the database will also improve tax administration by facilitating the update and revision of the SMVs by the assessors. In connection with this, the RPVARA also requires LGUs to automate their real property tax administration through tax mapping technology, software-enabled valuation systems and computerised records management.
Finally, the RPVARA also encourages tax compliance from delinquent taxpayers by granting a real property tax amnesty for penalties, surcharges and interest from unpaid real property taxes prior to its effectivity, which may be availed of within two years from its effectivity, or until 4 July 2026.
The CMEPA
Republic Act No.12214, otherwise known as the Capital Markets Efficiency Promotion Act (CMEPA), took effect on 1 July 2025 with the objective of strengthening the Philippine capital market by streamlining tax administration, the standardisation of tax rates, and the reduction of investors’ barriers to entry, with the goal of attracting more investment.
The CMEPA introduces uniform reductions across key investment-related taxes. For instance, the stock transaction tax on the sale of shares of stock listed and traded through the local stock exchange has been lowered from 0.6% to 0.1% of the gross selling price, or gross value in money of the shares of stock sold. In line with the policy of standardisation, the same lowered rate of 0.1% is also applicable to domestic shares listed and traded through foreign stock exchanges.
For unlisted domestic shares, the same 15% final capital gains tax (CGT) on net capital gains has been retained, but the coverage of the 15% CGT has now been extended to unlisted foreign shares sold by domestic corporations and residents, which levels the playing field for investments in foreign securities. To recall, capital gains from unlisted foreign shares were previously subject to graduated rates, which could go up to 35% for individual resident investors, or the higher corporate income tax rate of 20% to 25% for corporations.
The documentary stamp tax on the original issuance of shares has been aligned with that on debt instruments and bonds at 0.75% of the transaction value, from a previous 1% of the par value of the shares.
The CMEPA standardises taxation on most forms of passive investment income at a uniform 20% rate, simplifying compliance and improving transparency. With these reforms, the Philippine investment market is primed to be more regionally competitive and attractive to both domestic and foreign investors.
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