Tax Credits Explained: Who Qualifies and How to Apply in the Philippines

June 11, 2025

Tax credits is a way for businesses and individuals to reduce their tax liability. But understanding them and navigating the application process in the Philippines can be complex. To help you learn, we’ll explain what is the meaning of tax credits, who qualifies, and how to apply for them.

What Are Tax Credits?

In the Philippines, tax credits are amounts that taxpayers can directly subtract from their tax liability, often stemming from overpaid taxes, erroneously collected taxes or specific incentives provided by law. They can be refundable, meaning you receive a refund if the credit exceeds your tax liability, or nonrefundable, where the credit only reduces your tax to zero without a refund for any excess.

Tax credits in the Philippines are primarily governed by the National Internal Revenue Code (NIRC) of 1997, as amended by laws like the TRAIN Law (Republic Act No. 10963) and the Ease of Paying Taxes Act (Republic Act No. 11976). These credits are often available for specific situations, such as excess withholding taxes, value-added tax (VAT) refunds, or incentives for businesses under certain investment programs.

Tax Credits vs Tax Deductions

A tax credit is a direct reduction in the amount of tax you owe, unlike a deduction, which reduces your taxable income.

For example, a PHP 10,000 tax credit subtracts your tax by PHP 10,000.
Meanwhile, a PHP 10,000 tax deduction reduces your taxable income by PHP 10,000. After the reduction, the appropriate tax rate is applied. This usually saves you only a fraction of that amount (e.g., 20% of PHP 10,000 or PHP 2,000 for someone in the 20% bracket).

Based on our example, you can see tax credits are generally more valuable than deductions of the same amount.

Who Qualifies for Tax Credits?

Eligibility for tax credits depends on the type of credit and the taxpayer’s circumstances. Here’s a breakdown of common scenarios where individuals and businesses in the Philippines may qualify:

For Individuals

Excess Withholding Taxes: Employees whose income taxes were over-withheld by their employer (e.g., through year-end adjustments) may be eligible for a refund or credit.
Erroneously or Illegally Paid Taxes: If an individual paid taxes in error or without legal basis, they can claim a refund or credit under Section 229 of the NIRC.
No Individual Credits (Child, Earned Income, etc.): Unlike in some countries, the Philippines does not offer personal tax credits. So there is no specific child, earned income, education, or disability tax credit as of now. However, the Philippines has other ways to reduce the tax burden of these individuals, usually through exemptions and deductions.

For Businesses

VAT Refunds (Also Called Input Tax Credit): Businesses engaged in zero-rated transactions (e.g., exports or sales to tax-exempt entities) can claim credits for excess input VAT under Section 112 of the NIRC. This also applies to businesses that dissolve or cease VAT-registered status.
Corporate Incentives: Registered business enterprises under the Strategic Investment Priority Plan (SIPP) may qualify for tax credits through the CREATE Act, including income tax holidays (ITH) or enhanced deductions for export-oriented or domestic market enterprises. You can find out more here.
Foreign Tax Credits: Corporations can claim credits for taxes paid on foreign-sourced income, limited to the proportion of foreign income to total taxable income.
Excess Income Tax Credits: Businesses with “going concern” status can claim credits for excess income tax payments, provided the income was declared in the Annual Income Tax Return (AITR) and supported by withholding tax certificates (BIR Form 2307).

Figuring out if you’re qualified for certain tax credits, like tax incentives, can be challenging. We recommend working with a professional tax consultation service for expert assistance.

How to Apply and Receive a Tax Credit Certificate

Applying for tax credits requires strict compliance with procedural and documentary requirements, as claims are construed against the taxpayer. Here are the basic steps to apply:

Determine Eligibility: Confirm the basis for your claim (e.g., excess VAT, erroneous payment, or business incentives).
Gather Required Documents: Common documents include:
- BIR Form No. 1914 (Application for Tax Credits/Refunds) for most claims.
- For VAT refunds: Summary of purchases, VAT invoices, importation documents, and zero-rated sales certification.
- For withholding tax credits: BIR Form 2307 (Certificate of Creditable Tax Withheld) and proof of declared income.
- A notarized taxpayer attestation certifying document completeness.
- A Delinquency Verification Certificate from the BIR.

Work with a professional tax consultation service to ensure you meet the criteria, as incomplete documentation or non-compliance can lead to denial.

File Within the Deadline: Claims must be filed within the designated period, which varies depending on the type of tax credit.
Submit to the Appropriate Office: File with the Revenue District Office (RDO), Large Taxpayers Service (LTS), or VAT Credit Audit Division (VCAD), depending on your registration status. Ensure electronic filing via the BIR’s Electronic Filing and Payment System (eFPS) for applicable returns.
Cooperate with Verification: Revenue Officers may request additional documents. Non-cooperation or incomplete submissions can result in denial.
Await Processing or Appeal: If approved, you’ll receive a Tax Credit Certificate (TCC) or a cash refund. If denied, you can appeal to the Court of Tax Appeals (CTA) within 30 days.

Properly completing the requirements and processing your claim is exceptionally challenging, especially if this is your first time. We recommend seeking assistance from a professional tax consultation service.

Summary

Tax credits in the Philippines offer opportunities to recover overpaid or erroneously paid taxes, particularly for businesses engaged in zero-rated transactions or eligible for certain tax incentives. However, the process is stringent, requiring meticulous documentation and adherence to deadlines. By understanding what qualifies and following the application steps, taxpayers can maximize their chances of successfully claiming credits. Working with a professional tax consultation service is highly recommended to ensure compliance and maximize savings.

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