Philippines Depreciation

Straight-Line Requirement Under NIRC Section 34(F)

The Philippines National Internal Revenue Code (NIRC), as amended by the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act in 2021, requires the straight-line method as the standard approach for computing depreciation deductions under Section 34(F). The Bureau of Internal Revenue generally accepts useful lives consistent with industry norms: motor vehicles and transportation equipment 5 years (20% per year), commercial buildings 20 years (5% per year), computers and IT equipment 3–5 years, office furniture and equipment 10 years, and manufacturing machinery 5–10 years depending on the industry. Salvage value plays a larger role in Philippine calculations than in many other countries: BIR Revenue Regulations require businesses to estimate a reasonable salvage value, with 10% of original cost being the commonly applied benchmark. A BPO company purchasing PHP 20 million in workstations over five years deducts (PHP 20M − PHP 2M salvage) ÷ 5 = PHP 3.6 million per year — rather than PHP 4 million if no salvage value were assumed — a difference compounding over the asset's life.

CREATE Act Impact on Depreciation Value and Investment Incentives

The CREATE Act's most direct impact on depreciation was reducing the Regular Corporate Income Tax (RCIT) rate from 30% to 25% for large corporations and 20% for qualifying domestic SMEs (taxable income not exceeding PHP 5 million, total assets not exceeding PHP 100 million). This rate reduction changed the real value of every depreciation deduction: a PHP 10 million annual deduction that previously shielded PHP 3 million in tax (at 30%) now shields PHP 2.5 million (at 25%). Additionally, PEZA- and BOI-registered enterprises under the Strategic Investment Priority Plan (SIPP) can access enhanced deductions including an additional 10% per year on qualifying capital equipment — effectively creating accelerated depreciation for investment-priority sectors such as semiconductors, electronics, and business process outsourcing.

PEZA and BOI Registration: Depreciation Timing Strategy

Entities registered with the Philippine Economic Zone Authority (PEZA) or the Board of Investments (BOI) under income tax holidays (ITH) cannot claim depreciation deductions during the ITH period, since income is fully tax-exempt. However, depreciation accumulated during the ITH period can be carried over and claimed after the ITH expires, subject to applicable limitations. This creates a deliberate timing strategy: maximise capital expenditure acquisition during the ITH period to build a deferred depreciation pool, then deploy those deductions against taxable income in post-ITH years when RCIT applies. This technique is well-understood among Philippine tax advisers working with electronics and semiconductor manufacturers in the Clark Freeport Zone, Cavite Economic Zone, and Cebu IT Park — areas where ITH periods of 4–6 years under SIPP tiers regularly precede substantial RCIT-liable income streams.