The CREATE MORE Act: A Foreign Investor's Complete Guide to Republic Act No. 12066 and Its Impact on Your Philippine Tax Strategy

When Republic Act No. 12066 — the CREATE MORE Act — was signed into law on November 11, 2024, it landed in the Philippines' investment landscape with the kind of impact that does not come along often. Building on the foundations laid by the original CREATE Act of 2021 (RA 11534), CREATE MORE refactors the country's tax incentives regime to be more globally competitive, more predictable, and more aligned with the standards that international investors expect when they commit capital to a market. For foreign investors — whether you are a Japanese manufacturer establishing your first Southeast Asian production facility, an American tech company setting up a regional hub, or a European brand evaluating the Philippines as your Asia-Pacific headquarters — understanding CREATE MORE is not optional. It is the difference between a tax strategy built on assumptions and one built on the actual incentives the law makes available.

This guide is written for foreign investors, in-house counsel, finance directors, and business development executives who are evaluating or already operating in the Philippines. It covers the full architecture of CREATE MORE: the incentive options, the registration process, the BIR implementing regulations, the Strategic Investment Priority Plan (SIPP) framework, the compliance obligations, and the strategic considerations that should inform how you structure your Philippine entity from day one.

I. Background: Why CREATE MORE Was Necessary

To understand what CREATE MORE changes, it helps to understand what it was fixing. The original CREATE Act (RA 11534) lowered the corporate income tax rate from 30% to 25% — a significant and welcome reform — but its incentives framework drew criticism from the private sector and from international institutions. The core complaints were threefold.

First, the Income Tax Holiday (ITH) regime — the period during which newly registered enterprises enjoyed zero corporate income tax — was considered too short to meaningfully offset the costs of market entry, particularly for capital-intensive industries like manufacturing and infrastructure. The original CREATE Act provided a maximum ITH of four years for certain priority activities, which many investors argued was insufficient to achieve profitability in a market where setup costs and regulatory timelines could consume years before commercial operations began.

Second, the special corporate income tax (SCIT) option of 5% — available in lieu of all national and local taxes during the incentive period — was accompanied by ambiguities about whether it truly superseded local taxes, fees, and charges imposed by LGUs. This created uncertainty and, in some cases, disputes between registered enterprises and local government units seeking to impose local business taxes on operations that the enterprise believed were covered by the SCIT exemption.

Third, the enhanced deductions regime (EDR) — which allowed registered enterprises to deduct from taxable income certain expenses attributable to their registered projects — maintained the standard 25% corporate income tax rate on ordinary income. For many investors, the math of additional deductions at 25% did not compare favorably to the certainty of a fixed reduced rate under SCIT, even if the SCIT rate was higher in nominal terms.

CREATE MORE addresses all three problems — and adds significant new incentives that were not available under the original CREATE Act. The result is a regime that, for many foreign investors, will make the Philippines meaningfully more competitive against Vietnam, Indonesia, and Thailand as a destination for regional investment.

II. The Two Core Incentive Options: SCIT and EDR

At the heart of CREATE MORE are two alternative incentive structures that Registered Business Enterprises (RBEs) may choose from at the point of registration. Critically, unlike the original CREATE Act — which generally required enterprises to first exhaust their ITH before transitioning to either SCIT or EDR — CREATE MORE allows RBEs to immediately elect either option from the commencement of commercial operations. Once elected, the choice is irrevocable for the duration of the registered project's incentive period.

Option 1: Special Corporate Income Tax (SCIT) at 5%

Under Section 294(F) of the Tax Code, as amended by CREATE MORE, an RBE may opt to pay a Special Corporate Income Tax of 5% on gross income in lieu of the regular corporate income tax and all national and local taxes, fees, and charges — including local business taxes, real property taxes on equipment and machinery, and other LGU impositions — during the registered project's ITH or EDR period.

This is a powerful simplification. For a foreign company that has historically faced uncertainty about whether local government units could impose taxes on their PEZA-registered or BOI-registered operations, the SCIT provides a clean, all-inclusive rate that eliminates that dispute. The BIR has confirmed through Revenue Regulations No. 7-2025 that the 5% SCIT is indeed in lieu of all national and local taxes, resolving the ambiguity that existed under the original CREATE Act.

The SCIT is particularly advantageous for:

• Export-oriented enterprises — companies selling primarily to overseas markets where transfer pricing considerations are minimal and gross income is straightforward to calculate
• Enterprises with complex real estate arrangements — where the risk of LGU tax assessments on equipment, machinery, and improvements is high
• Enterprises in sectors with thin profit margins — where the fixed 5% on gross income may be significantly lower than the effective tax rate under the regular regime

Option 2: Enhanced Deductions Regime (EDR) with 20% CIT Rate

The more transformative change under CREATE MORE is the reduction of the corporate income tax rate for RBEs under the EDR from 25% to 20%. This is provided under Section 294(C) of the Tax Code, as amended by RA 12066. For an RBE that elects EDR, the taxable income from its registered project is subject to a 20% CIT rate — still above the 5% SCIT on gross income in many scenarios, but significantly below the standard 25% rate for domestic corporations.

The EDR also preserves and expands the additional deductions that CREATE originally introduced:

• 100% deduction on power expenses (increased from 50% under CREATE) — a particularly significant benefit for energy-intensive industries such as semiconductor manufacturing, data centers, and industrial food processing
• 50% additional deduction on reinvestment allowance for tourism — previously limited to the manufacturing sector under CREATE, now extended to cover qualified tourism enterprises until December 2034
• 50% additional deduction on expenses relating to exhibitions, trade missions, and trade fairs — directly attributable to the registered activity
• Net Operating Loss Carry-Over (NOLCO) reform — losses incurred during the EDR period may be carried forward as a deduction for five years following the last year of the ITH entitlement period, rather than five years from the year the loss was incurred. This is a materially important change for enterprises that will spend several years in pre-profitability operations before their ITH expires

How to Choose: SCIT vs. EDR

The choice between SCIT and EDR is not obvious and depends on the enterprise's specific financial profile. A general framework for foreign investors:

• Choose SCIT if the enterprise has high gross revenue relative to taxable income, operates in an industry with high depreciation on capital assets (which reduces taxable income but not gross income), or is located in an area where LGU tax disputes are likely
• Choose EDR if the enterprise has high deductible expenses that can be attributed to the registered project, if the enterprise expects to generate losses in early years that would benefit from the reformed NOLCO carry-forward rules, or if the enterprise is in a sector where the 20% CIT rate on taxable income represents a meaningful reduction from the regular 25% rate

Foreign investors should model both scenarios with their Philippine tax counsel before registering with the IPA. The irrevocability of the election makes this one of the most consequential decisions in the registration process.

III. Extended Incentive Durations: Up to 27 Years

One of CREATE MORE's most significant concessions to the private sector is the extension of incentive durations. Under the original CREATE Act, the maximum combined period for ITH and SCIT/EDR was generally capped at 10 years from the date of registration. CREATE MORE extends this to:

• Up to 17 years of SCIT or EDR for general priority activities under the SIPP
• Up to 27 years for Registered Export Enterprises (REEs) and high-value Domestic Market Enterprises (DMEs) with investment capital exceeding PHP 15 billion and export sales or import-substituting production of at least USD 100 million in the immediately preceding year
• Additional 5 to 10 years for labor-intensive projects meeting specific criteria under the SIPP

These extensions bring the Philippines closer to the incentive durations offered by competing jurisdictions in the region. For a foreign investor evaluating a 20-year horizon for their Philippine investment, the availability of a 17-to-27-year incentive window is a meaningful factor in the financial model.

IV. The Strategic Investment Priority Plan (SIPP) Framework

CREATE MORE replaces the Investment Priorities Plan (IPP) with the Strategic Investment Priority Plan (SIPP), a three-tier framework administered by the Board of Investments (BOI) under the Department of Trade and Industry (DTI), with fiscal incentive recommendations reviewed by the Fiscal Incentives Review Board (FIRB). The SIPP is a three-year rolling plan — updated periodically to reflect the government's economic development priorities — that identifies the economic activities eligible for CREATE MORE incentives.

The three tiers of the SIPP are:

• Tier I: Job Creation and Essential Sectors — Activities that generate significant employment, particularly in areas outside the National Capital Region. These include labor-intensive manufacturing, agriculture and agribusiness processing, and essential services. Tier I activities are eligible for standard CREATE MORE incentives, typically the ITH or SCIT/EDR options with standard duration limits.
• Tier II: Competitive and Resilient Industries — Activities that strengthen the country's industrial base and export capacity. These include electronics and semiconductor manufacturing, automotive and automotive parts production, renewable energy components manufacturing, and logistics infrastructure. Tier II activities are eligible for enhanced incentives, including longer durations and additional deduction allowances.
• Tier III: Innovation and Technology-Driven Projects — Activities at the frontier of technological development, including artificial intelligence and data analytics operations, advanced software development, cloud infrastructure, and research and development activities. Tier III activities are eligible for the most generous incentive packages, including the longest SCIT/EDR durations and the broadest VAT exemptions.

The SIPP is administered by IPAs — the Board of Investments (BOI), the Philippine Economic Zone Authority (PEZA), the Clark Development Authority (CDA), the Subic Bay Metropolitan Authority (SBMA), and other registered ecozone administrators. Foreign investors should confirm with their legal counsel which IPA administers the geographic area and sector in which they intend to operate, as the application process and certain administrative procedures vary by IPA.

V. VAT Treatment: Export Enterprises and the "Directly Attributable" Standard

CREATE MORE makes significant changes to the VAT treatment of Registered Export Enterprises (REEs), which are among the most common entity structures for foreign manufacturers establishing Philippine operations.

VAT Exemption on Importations

Importations of capital equipment, raw materials, spare parts, and accessories by an RBE — when these imports are destined for use in the registered project or activity — are exempt from value-added tax under CREATE MORE. This VAT exemption on importations was one of the most sought-after reforms by the foreign investor community, particularly by companies in the semiconductor, electronics, and automotive sectors that rely on imported components and production equipment.

VAT Zero-Rating on Local Purchases

Local purchases of goods, services, and inputs by an REE are zero-rated for VAT purposes — meaning the REE pays no VAT on local purchases, and the seller may claim input tax credits. Under the original CREATE Act, the zero-rating was limited to purchases that were "directly and exclusively" used in the registered activity. CREATE MORE relaxes this standard to purchases that are "directly attributable" to the registered project, significantly expanding the scope of VAT-free local procurement.

The "directly attributable" standard under CREATE MORE expressly includes:

• Janitorial and security services
• Financial and consultancy services
• Marketing and promotion services
• Administrative services, including human resources, legal, and accounting functions

This is a meaningful expansion. Under the original CREATE Act, a PEZA-registered company that used an external law firm for its Philippine legal work could not claim VAT zero-rating on those fees because legal services were not "directly and exclusively" used in the manufacturing process. Under CREATE MORE, the same company can now zero-rate those fees if they are directly attributable to the registered project. For foreign companies with significant professional services expenditures in the Philippines, this change alone can represent a meaningful reduction in operating costs.

VAT Exemption on Donations to Government

CREATE MORE also provides tax and duty exemption on donations of capital equipment, raw materials, spare parts, or accessories made by an RBE to the government, GOCCs, TESDA, SUCs, DepEd-accredited schools, or CHED-accredited institutions. This removes a practical barrier that previously discouraged corporate social responsibility programs by RBEs, where donations of equipment could generate unexpected VAT liabilities.

VI. BIR Revenue Regulations Implementing CREATE MORE

The Bureau of Internal Revenue has been issuing implementing regulations for CREATE MORE since early 2025. Two issuances are particularly important for foreign investors:

Revenue Regulations No. 7-2025

Issued in March 2025, RR No. 7-2025 implements the reduced income tax rates for RBEs under the EDR as provided in Section 294(C) of the Tax Code. The regulation specifies the documentary requirements for claiming the 20% CIT rate, the process for electing EDR at the time of registration with an IPA, and the conditions under which the rate applies to income derived from the registered project.

Key provisions of RR No. 7-2025 include:

• Confirmation that the 20% CIT rate applies only to taxable income derived from the registered project or activity — income from non-registered activities remains subject to the regular 25% rate
• Specification of the books and records that must be maintained to support the allocation of income and expenses between registered and non-registered activities
• Procedures for filing amended returns for RBEs that had previously registered under the original CREATE Act and now wish to elect the EDR under CREATE MORE

Revenue Regulations No. 21-2025

Issued in August 2025, RR No. 21-2025 addresses the VAT treatment of RBEs under CREATE MORE, including the expanded "directly attributable" standard for VAT zero-rating on local purchases and the mechanics for claiming input tax credits for RBEs under the SCIT regime.

The regulation clarifies that:

• RBEs under the SCIT are not entitled to claim input VAT credits on purchases — the SCIT in lieu of all taxes means no VAT recovery, but equally no VAT liability
• RBEs under the EDR may claim input VAT credits on purchases directly attributable to the registered project in the normal manner
• The "directly attributable" standard is applied on a substance-over-form basis, meaning IPAs and the BIR will examine whether the expenditure is genuinely connected to the registered activity, not merely whether it appears in a cost center label

VII. The Flexible Work Arrangement Provision

Among CREATE MORE's more practically significant provisions for foreign investors is the institutionalization of flexible work arrangements for RBEs operating within economic zones and freeports. Under the original CREATE Act, an IPA administering an economic zone was required to conduct its registered activity exclusively within the geographical boundaries of the zone or freeport. This created a legal obstacle for companies that wanted to adopt work-from-home or hybrid arrangements for their employees — particularly relevant in the post-pandemic environment where talent retention depends on offering flexible work options.

CREATE MORE introduces an exception permitting RBEs to cover up to 50% of their total workforce under a telecommuting or flexible work arrangement, subject to IPA rules and regulations. The IPA is authorized to issue guidelines specific to its zone governing the implementation of flexible work arrangements, including requirements for productivity monitoring, equipment standards, and data security.

Critically, CREATE MORE also prohibits double registration — an RBE may not simultaneously register the same activity with multiple IPAs to claim incentives under different special laws. This is an anti-abuse provision that closes a loophole that some investors had been exploring under the original CREATE Act.

VIII. ROHQs and the Special Tax Treatment for Expatriate Executives

Foreign investors establishing a Regional Operating Headquarters (ROHQ) or Regional Area Headquarters (RAHQ) in the Philippines will find that CREATE MORE preserves the special tax treatment for qualified expatriate executives that was available under the original CREATE Act. Under Section 28(A)(8) of the Tax Code, foreign executives of ROHQs and of enterprises registered with investment promotion agencies who meet the prescribed compensation threshold may elect to be taxed at a flat 15% on Philippine-source gross income rather than at the regular graduated income tax rates.

This provision is particularly valuable for foreign companies that are bringing senior expatriate management to run their Philippine operations. At the applicable compensation threshold — currently set at a level that captures most senior management positions — the 15% flat rate on gross income represents a significant tax saving compared to the regular rates, which can reach 35% for income above PHP 3 million annually.

For the foreign investor planning to deploy expatriate executives to the Philippines, the interaction between Section 28(A)(8) and the CREATE MORE incentive regime requires careful coordination with Philippine tax counsel. The 15% special rate is not automatic — it requires an election by the expatriate executive and certification by the employer and the relevant IPA. The timeline for making this election and the documentation required should be addressed in the executive's employment agreement and onboarding process from day one.

IX. One-Stop Action Center and Ease of Doing Business

CREATE MORE directs IPAs to establish One-Stop Action Centers (OSACs) to assist investors in securing the necessary licenses, permits, and registrations required to establish and operate their businesses. For foreign investors who have navigated the multiple-agency process that establishing a Philippine entity historically required — SEC for corporate registration, BIR for tax identification, LGU for business permits, PEZA or BOI for incentive registration, BI for alien registration — the OSAC represents a meaningful improvement in administrative efficiency.

The OSAC is intended to serve as the initial point of contact for foreign investment leads, with the capacity to process multiple applications through a single window. While the implementation of OSACs varies by IPA and some are more functionally mature than others, the legal framework for OSAC operation under CREATE MORE provides a basis for foreign investors to push back against bureaucratic delays by referencing their OSAC rights under RA 12066.

X. Strategic Considerations for Foreign Investors

Timing of Registration

For foreign investors evaluating the Philippines in 2026, the question of when to register is closely tied to the SIPP. The SIPP is updated periodically, and activities that qualify for Tier I, II, or III incentives in 2026 may not be included in the next SIPP update. For investors with a planned market entry in the next two to three years, registering under the current SIPP is advisable before any potential narrowing of eligible activities.

Entity Structure and IPA Selection

The choice of entity structure — whether as a Philippine subsidiary, a branch office, a representative office, or an ROHQ — interacts significantly with CREATE MORE eligibility. PEZA-registered ecozone enterprises, BOI-registered enterprises, and CDA/SBMA-registered enterprises each have distinct characteristics, cost structures, and administrative relationships. Foreign investors should evaluate these trade-offs with their legal counsel before executing a registration strategy, as converting from one registration type to another mid-stream can trigger adverse tax consequences.

The Role of FIRB

The Fiscal Incentives Review Board (FIRB) plays a central gatekeeping role in the CREATE MORE regime. FIRB reviews and approves the fiscal incentives for RBEs above certain thresholds, particularly for large-scale investments seeking the longest incentive durations. Foreign investors planning capital-intensive projects — particularly those seeking the 27-year incentive window available to REEs and high-value DMEs with PHP 15 billion in investment capital — should engage with FIRB early in the planning process to confirm eligibility and understand the application requirements.

XI. Compliance Obligations Under CREATE MORE

RBEs enjoying CREATE MORE incentives are subject to ongoing compliance obligations that, if not met, can result in the withdrawal or modification of their incentive entitlements. Foreign investors and their Philippine finance teams should be aware of the following:

• Annual Reports: RBEs must submit annual reports to their registering IPA demonstrating continued compliance with the conditions of their registration, including employment levels, export performance (for REEs), and capital investment milestones.
• Books and Records: The BIR requires RBEs to maintain books and records that clearly allocate income and expenses between registered and non-registered activities. This allocation is critical for EDR-based RBEs where the 20% rate applies only to registered activity income.
• Withholding Tax Compliance: RBEs must comply with all applicable withholding tax obligations, including withholding on compensation, professional fees, and certain supplier payments. Failure to withhold properly can result in the loss of incentive benefits.
• Transfer Pricing: For foreign investors with related-party transactions — which is the norm for regional operations — Philippine transfer pricing rules under Revenue Regulations No. 30-2013 (as amended) require arm's-length pricing on intercompany transactions. CREATE MORE incentives do not exempt RBEs from transfer pricing compliance.
• IPA Reporting Deadlines: Each IPA sets its own reporting calendar. RBEs should track their specific IPA's deadlines, as late reporting can trigger compliance reviews and, in serious cases, suspension of incentives.

Conclusion

Republic Act No. 12066 — CREATE MORE — is the most significant investment incentives legislation in the Philippines since the original CREATE Act of 2021, and its implications for foreign investors are substantial. The reduction of the EDR CIT rate to 20%, the extension of incentive durations to 17 and 27 years, the clarification that 5% SCIT supersedes all local taxes, the expansion of VAT zero-rating to "directly attributable" expenses, and the institutionalization of flexible work arrangements for ecozone enterprises collectively represent a materially more competitive investment environment for the Philippines in 2026 and beyond.

For foreign investors, the strategic imperative is clear: the decision of when to register, which entity structure to use, which IPA to register with, and whether to elect SCIT or EDR must be made with a full understanding of CREATE MORE's options and trade-offs. These decisions are irrevocable once made, and they will define the financial architecture of your Philippine operations for years to come.

The team at Tungol & Tan regularly advises foreign investors on CREATE MORE registration strategies, IPA applications, BIR compliance, and the full range of corporate and tax matters arising from Philippine market entry. Contact us to discuss how CREATE MORE applies to your planned investment.

This article is for informational and educational purposes only and does not constitute legal advice. For specific legal guidance on your Philippine investment or tax planning, please consult a qualified Philippine attorney.