The Philippines’ decision to cut business taxes is the latest in a string of reforms over recent years to boost foreign direct investment (FDI), and comes in a year when FDI announcements are approaching record highs. 

On November 11, president Ferdinand Marcos Jr signed a law that lowers the corporate tax rate for businesses registered with local investment agencies from 25% to 20%, while introducing other fiscal incentives. He described the changes as “a decisive step towards our vision of a globally competitive and investment-led” economy.

“The government wants to incentivise FDI in selected sectors that they want to promote, and the new 20% rate speaks to that,” says Elaine Collado, Philippines country director at advisory firm Vriens & Partners. Those sectors include renewable energy, electric vehicles, textiles and microelectronics manufacturing, she says.

Other tax breaks introduced by the Corporate Recovery and Tax Incentives for Enterprises to Maximise Opportunities for Reinvigorating the Economy Act — or the ‘Create More Act’ — include doubling the power expense deduction to 100% to boost energy-intensive manufacturing investments and offset the country’s rising electricity costs.

The law also introduces a value-added tax deduction accompanied by a simplified refund mechanism to help tackle the red tape, which Ms Collado cites as one of foreign investors’ biggest pain points in the Philippines. 

Data from fDi Markets shows the reforms follow a strong post-pandemic bounceback in announced FDI in the country, which are on track to hit 168 projects so far this year until September. That would make it the second-strongest year since records began in 2003. 

Investments announced over the first nine months of 2024 include US Brightnight’s partnership with local energy firm ACEN to invest $1.2bn in renewable power projects across the country, and Taiwanese group Sunonwealth’s construction of a manufacturing plant for cooling solutions that will create 3500 jobs.  

Unctad data suggests the uptick in pledges is not yet translating into capital commitments, with latest figures showing that actual FDI inflows dropped in the two years following 2021. Despite the country's potential for FDI attraction, John Evans, Bangkok-based managing director of advisory firm Tractus Asia, says the Philippines' “dearth of quality infrastructure” does not “support the supply chain and logistics needs for manufacturing investments.” He says more “political will” is needed to improve this and other aspects of the general business environment to make it easier to operate in.

However other FDI experts in Southeast Asia are more confident in the country’s investment prospects.

“Given the investment liberalisation policies of [past] administrations, combined with the current initiatives ... it feels like the Philippines is nearing an economic tipping point,” Ms Collado says.

Since being elected in May 2022, the government’s other efforts to spur FDI include allowing 100% foreign ownership of renewable energy projects and the establishment of the sovereign wealth fund, Maharlika Investment Fund, which aims to de-risk inbound investment. The previous government under Rodrigo Duterte allowed full foreign ownership of utilities and established an Energy Virtual One-Stop-Shop to streamline the industry’s permitting process. 

Ed Ratcliffe, executive director of the Southeast Asia Public Policy Institute, says he hears “a lot of investor interest” in the country, adding: “It certainly seems that the Philippines is having a moment.”

“A growing middle class, a population with globally applicable language skills and a serious pro-business administration are a combination that may pay off,” he says. 

The Philippines’ population of some 117 million makes it Southeast Asia’s second-biggest domestic market after Indonesia, and the IMF expects its gross domestic product to expand by 6.1% in 2025 — tying with Vietnam as the region’s fastest growing economy.