How the 2026 Philippine Corporate Tax Reforms (CREATE MORE + SEC Changes) Affect M&A and Deal Structuring

The landscape of corporate tax Philippines rules has shifted materially for anyone structuring mergers, acquisitions or joint ventures in 2026. The CREATE MORE Act and its implementing guidance, headlined by BIR Revenue Regulations No. 7-2025, have standardised withholding treatment on passive income, recalibrated MSME thresholds, and tightened the rules governing Registered Business Enterprises (RBEs). At the same time, the Securities and Exchange Commission has updated its Rules of Procedure and revised deadlines for GIS and AFS filings, introducing new procedural risks that feed directly into deal mechanics. This guide connects those changes to the questions that in-house counsel, private-equity investors and transaction lawyers ask at every stage of a Philippine deal: What are the rates? How do I structure?

What belongs in my purchase agreement? And where are the hidden exposures?

Quick Answers: 2026 Corporate Tax in the Philippines

Before diving into deal-level analysis, here are the headline figures that drive every Philippines corporate tax computation in 2026.

• Key point for deal professionals: The 20% MSME rate is not automatic. Buyers acquiring an MSME target must verify that both the net-income and total-assets tests are met annually, a failed test in any year reverts the entity to 25%. BIR RR No. 7-2025 provides the implementing rules for this eligibility assessment.
• MCIT note: Excess MCIT over RCIT can be carried forward and credited against RCIT for the three immediately succeeding taxable years. In M&A, unpaid MCIT carryovers in the target can be a hidden asset, or a hidden trap if eligibility lapses on change of control.

Snapshot: CREATE MORE + 2026 Implementing Guidance

The CREATE MORE Act (Republic Act No. 12066) built on the original CREATE law by expanding and rationalising tax incentives, clarifying the Enhanced Deductions Regime (EDR) available to RBEs, and aligning the Philippines more closely with international norms on passive-income taxation. For M&A tax Philippines practitioners, the statute itself matters less than the granular BIR and fiscal incentive guidance that followed it.

Key Legislative Changes

• Enhanced Deductions Regime (EDR). RBEs may now claim an additional deduction on certain costs (training, research, infrastructure) under the EDR in lieu of the income-tax holiday. The CREATE MORE Act Philippines framework standardised how these are computed and audited.
• Rationalised incentives for RBEs. Investment Promotion Agencies (PEZA, BOI, CEZA, AFAB and others) now operate under a uniform incentives code. Deals involving incentive-registered targets must assess whether the registration, and the attached incentives, transfer or terminate on a change-of-control event.
• Withholding on passive income. The Act standardised the treatment of royalties and interest paid to residents and non-residents, ending several legacy anomalies. This has a direct bearing on earn-out payments, intellectual-property licences and intercompany loans that are common in deal structuring Philippines work.
• NRFC rate reduction. The headline tax rate on gross Philippine-source income of NRFCs was reduced to 25%, aligning with the standard corporate rate and simplifying inbound investment calculations.

BIR Revenue Regulations and Guidance Impacting Deals

BIR RR No. 7-2025 is the principal implementing regulation for the MSME preferential rate, the EDR computation and the updated withholding rules. Industry observers expect additional Revenue Memorandum Circulars (RMCs) to clarify transitional issues, particularly the interaction between pre-existing incentive registrations and the new uniform code. Deal professionals should confirm the latest RMCs directly with the BIR prior to signing.

Passive Income and Withholding: Royalties, Interest and Cross-Border Payments

Withholding tax on royalties in the Philippines, and on interest, dividends and other passive income, is one of the most frequent sources of deal-level exposure. Under the 2026 rules, the following rates apply and must be factored into every purchase-price model, earn-out schedule and IP-licence arrangement.

Practical Withholding Considerations for Deal Structuring

Where a transaction involves ongoing royalty or interest streams, such as technology-licence fees paid to a selling group entity post-closing, the withholding tax on royalties Philippines rules require the Philippine payor to withhold and remit. Failure to withhold exposes the Philippine entity to penalties and makes the payment non-deductible. In deal structuring Philippines transactions, best practice is to:

• Include express gross-up obligations that reference the applicable WHT rate and any treaty relief relied upon.
• Require the seller to deliver valid treaty-relief certificates (BIR Form 0901/0902) as a condition precedent to closing or to the first post-closing payment.
• Model VAT on top of WHT for services classified as imported services (subject to 12% VAT reverse charge).

M&A Tax Outcomes: Asset Sale vs Share Sale Under 2026 Rules

The choice between an asset acquisition and a share acquisition remains the single most consequential structuring decision in M&A tax Philippines. Under the 2026 regime, each path triggers a distinct tax and regulatory profile.

Seller Perspective

In a share sale, the selling shareholder is subject to capital gains tax. For shares of stock not traded on the Philippine Stock Exchange, the rate is 15% on net capital gains. The seller bears the tax directly, and the buyer’s primary exposure is limited to ensuring the seller actually pays (avoiding BIR liens on the transferred shares). For domestic sellers, any accumulated earnings distributed as a pre-closing dividend will attract the applicable dividend tax.

In an asset sale, the selling corporation recognises ordinary income or capital gain on each asset transferred, depending on classification. The sale of real property triggers a 6% capital gains tax (on gross selling price or fair market value, whichever is higher) plus documentary stamp tax. Inventory and other ordinary assets are subject to regular income tax and 12% VAT.

Buyer Perspective

Buyers in a share deal inherit the target’s full tax history, including unresolved BIR assessments, transfer-pricing exposures, unclaimed MCIT credits and pending applications for incentive renewal. The Philippines corporate tax position of the target rolls forward unchanged. The advantage is simplicity; the risk is hidden liability.

Buyers in an asset deal can step up the basis of acquired assets to fair market value, generating higher future depreciation and amortisation deductions. The trade-off is immediate transfer-tax friction (VAT, documentary stamp tax, capital gains tax on real property) and the administrative burden of individually transferring licences, permits and contracts.

Valuation Adjustments and Tax Leakage Modelling

The practical effect of the 2026 Philippines corporate tax reforms on deal economics depends on modelling tax leakage accurately. A locked-box or completion-accounts mechanism should incorporate:

• Net tax leakage on each asset class (share deal: nil immediate; asset deal: itemised by asset).
• The present value of MCIT carryovers that survive in the target post-close.
• The value, or risk of clawback, of any PEZA/BOI incentive that may not transfer.

Tax Due Diligence Checklist for Philippine M&A

Effective tax due diligence Philippines work in 2026 must go beyond the standard document request. The CREATE MORE changes and BIR RR No. 7-2025 introduce new eligibility tests and compliance obligations that every buyer should verify before signing.

Documents to Obtain

• Income-tax returns (ITRs) for the last five taxable years, including all attachments and schedules.
• BIR assessment notices, Letters of Authority (LOAs), and any pending administrative or Court of Tax Appeals (CTA) proceedings.
• MSME qualification workpapers, net-income and total-asset calculations for each year the 20% rate was claimed.
• RBE registration certificates (PEZA, BOI or other IPA), including conditions, sunset dates and any change-of-control clauses.
• Withholding-tax returns (BIR Form 1601-EQ, 1601-FQ, 0619-F) and proof of remittance.
• Transfer-pricing documentation, including related-party transaction summaries and any Advance Pricing Agreements (APAs).
• SEC filings: latest SEC GIS form, AFS, and beneficial ownership declarations.

Red Flags for Buyers

• Unresolved BIR assessments. Any open Letter of Authority or pending Formal Letter of Demand is a high-priority risk item. The BIR has three years from the filing deadline (or ten years in cases of fraud) to assess deficiency taxes.
• Improper MSME claims. If the target claimed the 20% rate but breached the ₱5 million net-income or ₱100 million total-assets ceiling in any year, the deficiency plus surcharges could be substantial.
• Withholding non-compliance. Unreported or under-remitted withholding on royalties, interest or management fees is a pervasive exposure, and one that the buyer’s entity will bear post-closing in a share deal.
• Incentive clawback risk. If an RBE fails to meet performance commitments (employment, export ratios, capital expenditure) post-acquisition, the IPA may revoke incentives retroactively, triggering back taxes.

Sample Disclosure Schedule Items

A well-drafted disclosure schedule for Philippines corporate tax matters should, at minimum, include:

• A complete list of all open tax years and the status of any BIR or CTA proceedings.
• Confirmation of timely filing and payment for all national and local taxes.
• Identification of every incentive registration, its conditions and any known non-compliance.
• A transfer-pricing matrix showing all related-party transactions above a materiality threshold.

Contract Drafting and Allocation of Tax Risk

The 2026 corporate tax Philippines environment demands tighter, more specific purchase-agreement language. Generic tax representations are inadequate when the buyer’s exposure may include MSME disqualification, incentive clawbacks and standardised WHT obligations that did not exist in their current form before CREATE MORE.

Model Clause 1, Tax Representation and Warranty

“The Target has duly and timely filed all Tax Returns required to be filed under applicable Philippine law, including, without limitation, returns relating to corporate income tax, value-added tax, withholding taxes, and documentary stamp tax, and all such Tax Returns are true, correct and complete in all material respects. The Target has paid or adequately reserved for all Taxes shown to be due on such Tax Returns. The Target qualifies, and has at all relevant times qualified, for the preferential MSME rate under Section 27(B) of the Tax Code, as implemented by BIR RR No. 7-2025, and no event has occurred that would cause the Target to fail the net-taxable-income or total-asset eligibility tests.

All incentive registrations set forth in Disclosure Schedule [X] are in full force and effect, and no event of default, performance shortfall or change-of-control trigger has occurred that would entitle any Investment Promotion Agency to revoke, suspend or claw back any incentive.

Model Clause 2, Tax Indemnity and Holdback

“The Seller shall indemnify, defend and hold harmless the Buyer and the Target from and against any Losses arising out of or relating to (a) any Pre-Closing Tax Liability, (b) any deficiency assessment, penalty or surcharge imposed by the BIR or adjudicated by the CTA in respect of any Pre-Closing Tax Period, (c) any clawback or revocation of tax incentives attributable to acts, omissions or failures occurring prior to the Closing Date, and (d) any withholding-tax liability arising from payments made prior to Closing that were not properly withheld or remitted.

To secure the Seller’s obligations under this Section, the Parties shall deposit an amount equal to [●]% of the Purchase Price (the ‘Tax Escrow Amount’) into the Escrow Account, to be held for a period of [●] months following the Closing Date, which period shall be extended automatically in respect of any Indemnity Claim noticed prior to expiry.

The survival period for tax representations should be aligned with the BIR’s assessment window, industry observers expect most practitioners to set a minimum of four years from closing, extended to eleven years where fraud or substantial under-declaration is alleged. Escrow sizing is typically benchmarked at 5–15% of the purchase price, calibrated to the results of tax due diligence Philippines findings.

For additional guidance on structuring disclosure schedules and their interaction with representations, see why disclosure letters are crucial in M&A deals.

SEC Compliance and Procedural Risks Affecting Deals

Deal structuring in the Philippines does not end with tax. The SEC’s 2026 procedural reforms, including its updated Rules of Procedure and tightened filing enforcement, create a parallel compliance track that directly affects closing timelines, share transferability and post-closing reporting obligations. Understanding these SEC rules 2026 changes is essential for any acquirer of a Philippine corporation.

GIS and Audited Financial Statements Filing Changes

The SEC has progressively tightened the deadlines and penalties for filing the General Information Sheet (GIS) and Audited Financial Statements (AFS). In 2026, corporations must file their GIS within 30 days of the annual stockholders’ meeting, and the AFS must be submitted within 120 days of the end of the fiscal year. Failure to comply can result in monetary penalties, revocation of the certificate of incorporation, and, critically for deals, an inability to obtain a Certificate of Good Standing or a clearance required for share transfers.

Buyers should confirm, as a condition precedent to closing, that the target’s GIS and AFS filings are current and that no SEC show-cause order is pending. The SEC’s online filing system (eFAST) provides a verification mechanism, but manual confirmation with the SEC’s Company Registration and Monitoring Department is advisable for high-value transactions.

Contested Proceedings Under New SEC Rules

The SEC’s updated Rules of Procedure have streamlined the process for contested corporate proceedings, including intra-corporate disputes, derivative suits and challenges to corporate acts. For M&A, the practical effect is twofold:

• Speed. The revised rules impose stricter timelines for responsive pleadings and hearing schedules, which means that any pending SEC case involving the target may resolve, or escalate, more quickly than under the prior regime.
• Risk to closing. If a dissident minority shareholder initiates a contested proceeding challenging the transaction itself (e.g., an appraisal right dispute or a claim of oppressive conduct), the streamlined timeline may compress the buyer’s response window.

Buyers of companies with complex shareholder structures, particularly those subject to foreign-ownership restrictions under the 13th Foreign Investment Negative List, should build SEC clearance timelines into the deal timetable and budget for potential contested-proceedings risk.

Post-Closing Tax Management and Dispute Preparedness

Closing the deal is not the end of the corporate tax Philippines compliance journey, it is the beginning of a new risk-management phase. The buyer, now controlling the target, inherits responsibility for responding to BIR audits, managing CTA proceedings and preserving the documentary basis for all pre-closing tax positions.

Soft Triggers and Hard Triggers

• Soft triggers (voluntary action). If tax due diligence uncovers filing errors or unreported income, the buyer may elect to file amended returns or participate in the BIR’s Voluntary Disclosure Programme (VDP). Early correction reduces penalties and demonstrates good faith, a factor the CTA weighs in any subsequent litigation.
• Hard triggers (BIR-initiated). A Letter of Authority or electronic Letter of Authority (eLA) from the BIR is the formal commencement of an audit. The target must respond within the prescribed period. Buyers should establish a post-closing protocol that includes immediate notification to the seller (per the indemnity clause), preservation of all pre-closing records, and coordination with tax counsel.

For post-closing banking and treasury set-up, including the mechanics of opening a bank account in the Philippines for the acquired entity, separate planning is required to ensure continuity of operations and proper tax remittance channels.

Document-retention obligations under the Tax Code require preservation of books of account and supporting documents for ten years from the date the return was filed. In post-acquisition integration, this means the buyer must ensure that pre-closing records are not inadvertently destroyed during systems migration or office consolidation.

Conclusion: Practical Next Steps for Philippine Corporate Tax and M&A in 2026

The 2026 reforms to corporate tax Philippines rules, driven by the CREATE MORE Act, BIR RR No. 7-2025 and the SEC’s updated filing and procedural framework, have raised both the stakes and the complexity of deal structuring in the Philippines. For buyers and sellers closing transactions this year, the actionable takeaways are clear:

• Model tax leakage early. Use the updated rates (25% / 20% MSME / 2% MCIT) and withholding rules to build a tax-adjusted purchase-price model before signing a term sheet.
• Conduct targeted due diligence. Focus on MSME qualification, incentive-registration status, withholding compliance and open BIR assessments, the four areas where the 2026 changes create the most exposure.
• Draft tighter purchase agreements. Standard tax representations are no longer sufficient. Include specific reps for MSME eligibility, incentive compliance and CREATE MORE withholding obligations, backed by an escrow sized to real risk.
• Verify SEC filings and clearances. GIS, AFS and beneficial-ownership declarations must be current before closing. Build SEC clearance into your conditions precedent and monitor for contested proceedings under the new rules.
• Plan for post-closing disputes. Establish a BIR-audit response protocol, preserve all pre-closing records and ensure your indemnity mechanics work in practice, not just on paper.

The Philippines remains one of Southeast Asia’s most active M&A markets. With the right structuring, diligence and drafting, the 2026 corporate tax Philippines framework is navigable, but it demands precision, current data and experienced local counsel.

Sources

1. Bureau of Internal Revenue (BIR), Revenue Regulations No. 7-2025
2. Securities and Exchange Commission (SEC) Philippines, Official Site
3. PwC, Tax Summaries: Philippines (Corporate Income Tax)
4. Chambers & Partners, Corporate Tax 2026: Philippines
5. ASEAN Briefing, A Guide to Taxation in the Philippines
6. Dentons, Global Tax Guide: Philippines
7. Acclime Philippines, Corporate Income Tax Guide
8. Trading Economics, Philippines Corporate Tax Rate