Export Businesses And The New Tax And Incentive Reform Package (CREATE Law)
By: Noel C Ducusin
Is the CREATE Law Good Or Bad For Export Companies?
The Covid 19 pandemic has radically changed the business landscape.
One of the new laws that came out in the middle of the pandemic was a tax reform and government incentives modification package called the CREATE law (Republic Act 11534).
When this tax and incentives reform package was passed, businesses, particularly exporters, were already reeling from business losses.
Many were badly in need of a stimulus package at least until business, consumer demand, and the economy in general, return to normal.
But is the CREATE tax reform and government incentives reform package the stimulus package export companies have been waiting for? Is it even a stimulus package at all?
There is certainly no shortage of hype about the law given how the government is trying to sell it to business people and how it supposedly will benefit them.
After going through the complicated maze of tax scenarios with their various nuances depending on industry type and location, the bottom line is this:
The new law is not a stimulus package for exporters and amounts to a deletion of major incentives previously being availed of.
Deletion Of The 5% All In One Tax Based On Gross Income Earned
Previously, after an export company's income tax holiday expired, the company would be entitled to an all-in 5% tax on gross income earned and this 5% tax would be forever/indefinite.
That is no longer the case now.
This 5% gross income taxation has now been deleted. The only concession given by the government is that there will be a transition period of up to 10 years before its eventual removal.
This is particularly significant because the said 5% gross income taxation method is "in lieu of all national and local taxes". This means that the companies availing of the 5% gross income taxation method, do not have to pay local/city business taxes which amount to at least 1/2% of gross sales.
Thus, if your intention was to locate in the Philippines to avail of this simplified 5% gross income taxation scheme, you can now factor that out of your decision-making.
Enhanced Deductions
As if to soften the blow for exporters, an alternative to the 5% gross income tax availment was introduced. This is the so-called "enhanced deductions" where the export company will artificially be able to increase its deduction for expenses and specific line items against its income tax. These include artificially increased expense deductions for power, labor, training, research and development, domestic input, depreciation, and reinvestment allowance.
For example, domestic input expenses can be pumped up by 50% and the same goes for power expenses. You will have to check with your accountant which one is more advantageous to you whether it's the 5% gross income taxation or the enhanced deductions depending on the size of your gross income number.
Nonetheless, there is still a time limit of up to 10 years and then these enhanced deductions from income will be disallowed as well.
This is also not something, therefore, that you can factor into your long-term business plan.
Other Incentives Not Substantially Affected
Other incentives relating to the tax and duty-free importation of capital equipment, raw materials, spare parts and accessories when directly used for the registered activity still apply. The same goes for the value-added tax exemption on importation of such goods directly and exclusively used in the registered activity as well as local purchases concerning their VAT component for goods and services directly and exclusively used for the registered activity. Domestic sales allowance or domestic sales are still at the usual 30% threshold. Not much of a change in these areas.
Miscellaneous Matters
A little more incentives can be given if the export company will locate itself outside Metropolitan Manila in line with the government's thrust to spread economic development to the provinces. Incentives availment may also be for a slightly longer period depending on whether or not the business activity matches the government's strategic investment priorities plan.
The 1 Billion Exception
If your business or project exceeds Php 1 billion in investment capital, then you may be able to get special incentives/special treatment depending on government policy regarding your particular business activity especially if it is aligned with the government's strategic investment priorities plan.
In this case, the incentives will not be the stock incentives issued by the Philippine Economic Zone Authority but rather a special set of custom incentives to be determined by its new mother agency under the CREATE law, i.e. the Fiscal Incentives Review Board.
For your convenience, you can find the primer of the Philippine Department of Finance on the matter by clicking here.
You can also find a similar primer from the Philippine Bureau of Internal Revenue by clicking here.
In conclusion, the new tax and incentives reform program under the CREATE law does not benefit exporters.
It may benefit other businesses because of the reduced overall corporate income tax rates but as far as exporters are concerned, there is a significant reduction in benefits given the removal of the 5% gross income taxation plus the applicability of the at least 1/2% local/city business tax on gross sales.
About the Author
Atty. Noel C. Ducusin is the Director for M&A at DoingBusinessPH, where he works with offshore investors—primarily from Japan, Europe, the US, and Southeast Asia—seeking to enter the Philippine market through acquisitions, joint ventures, and strategic partnerships. He also advises local companies, family offices, and high-net-worth individuals on originating and executing transactions, including preparing businesses to be investment-ready through reverse due diligence.
His work spans the full M&A cycle: identifying counterparties, managing due diligence, leading negotiations, structuring transactions, arranging financing, and coordinating with trusted vendors such as banks, suppliers, and contractors. For startups and new ventures, he helps design fundraising-ready structures and connects them with investors, making DoingBusinessPH a natural bridge between global capital and local opportunity.
Beyond transactions, Noel and his team provide executive education and professional development through speaking events, seminars, and small-group sessions like business lunches and roundtables, then carry that value forward into practical, business-ready solutions. These include annual subscriptions for legal and regulatory updates, customized in-house corporate training, and post-event compliance audits, along with exclusive deep-dive masterclasses and peer mastermind groups for executives. They also prepare executive toolkits with ready-to-use templates and offer premium one-on-one consulting sessions—all designed to turn the insights gained from these settings into clear, actionable steps that help investors and businesses navigate the Philippine market with confidence.
A lawyer by training with a degree in Business Management, Noel is also Senior Partner at N. Ducusin & Partners Law Offices, which specializes in Mergers & Acquisitions, Investments, Cross-Border Regulatory, and Corporate Advisory. Over the years, he has developed deep, practical expertise in corporate finance, company valuation, and financial modeling through hands-on involvement as part of the deal team in live transactions. This combination of legal and financial experience allows him to bridge both perspectives seamlessly, ensuring that deals are not only executed but positioned for long-term success.
He is always looking forward to comparing notes with investors, startups, and vendors to explore where his clients’ mandates align with theirs and to uncover potential opportunities and collaborations that benefit both sides. Please feel free to connect with him to continue the conversation and explore where your goals and his clients’ interests may intersect.
His mission for this blog is to help foreign investors, business owners, and managers by breaking down complex legal concepts and dense technical material into simple, straightforward, and actionable insights for better business decisions. Articles and briefs are written in plain everyday language, without jargon or unnecessary academic writing—the simpler and more practical, the better.
“Everything should be made as simple as possible, but no simpler.” – Albert Einstein