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Tax Guide on CREATE Law

On March 26 this year, President Duterte signed into law RA 11534, otherwise known
as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. It is
another landmark legislation of the Duterte Administration which took effect on April
11.

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The CREATE Act is the second package of the Comprehensive Tax Reform Program that
reduces the corporate income tax (CIT) rate from 30% to 20%. The following are its
salient features:

1. CIT rate is reduced from 30% to 25% for large corporations, and 20% for small and
medium corporations with net taxable income not exceeding P5 million, and total assets
not exceeding P100 million (excluding land) effective July 1, 2020;

2. Minimum CIT (MCIT) rate is reduced from 2% to 1% effective July 1, 2020 to June
30, 2023;

3. Percentage Tax is reduced from 3% to 1% effective July 1, 2020 to June 30, 2023;

4. The improperly accumulated earnings tax shall no longer be imposed on corporations

upon the effectivity of the CREATE onwards;

5. Qualified export enterprises shall be entitled to four to seven years Income Tax
Holiday (ITH) to be followed by 10 years 5% Special CIT (SCIT) or enhanced
deductions;

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6. Qualified domestic market enterprises shall be entitled to four to seven years ITH to
be followed by five years enhanced deductions;

7. Registered enterprises are exempt from customs duty on importation of capital

equipment, raw materials, spare parts, or accessories directly and exclusively used in
the registered project or activity;

8. Value-Added Tax (VAT) exemption on importation and VAT zero-rating on local

purchases shall only apply to goods and services directly and exclusively used in the
registered project or activity by a Registered Business Enterprise (RBE);
9. For investments prior to the effectivity of CREATE, RBEs granted only an ITH shall
continue with the availment of the ITH for the remaining period of the ITH while RBEs
granted an ITH + 5% Gross Income Tax (GIT) or currently enjoying 5% GIT shall be
allowed to avail of the 5% GIT for 10 years.

The Bureau of Internal Revenue (BIR) issued several revenue regulations to fully
implement the CREATE Law. For easy reference, here’s a summary list of revenue
issuances dated April 8, 2021:

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a. RR No. 2-2021 which amends certain provisions of RR No. 2-98, as amended, to
implement the amendments introduced by the CREATE Act to the National Internal
Revenue Code (NIRC) of 1997, as amended, relative to the Final Tax on certain passive
income;

b. RR No. 3-2021 prescribes the rules and regulations to implement Section 3 of the
CREATE Act, amending Section 20 of NIRC of 1997;

c. RR No. 4-2021 implements the provisions on VAT and Percentage Tax under the
CREATE Act, which further amended the NIRC of 1997, as amended, as implemented by
RR No. 16-2005, as amended;

d. RR No. 5-2021 implements new Income Tax rates on the regular income of
corporations, on certain passive incomes, including additional allowable deductions from
Gross Income of persons engaged in business or practice of profession pursuant to the
CREATE Act, which further amended the NIRC of 1997.

To serve as a tax guide especially for small and medium enterprises (SMEs), here are
some of the most frequently asked questions on the CREATE Law:

1. Will small businesses benefit from CREATE law? How about one-person
corporations?

Yes. Small corporations including one-person corporations with net taxable income not
exceeding P5 million and total assets not exceeding P100 million (excluding land) will
be subject to only 20% CIT effective July 1, 2020.

2. Is the reduced percentage tax from 3% to 1% applicable even to individual

taxpayers?

Yes. It’s applicable to all non-VAT registered taxpayers with annual gross sales of P3
million and below, effective July 1, 2020 to June 30, 2023.

3. If you filed an annual income tax return before the issuance of revenue
regulations on CREATE law, can you amend it to apply the reduced CIT rate?
Yes. RMC 46-2021 allows amendment of filed tax returns on or before May 15, 2021
without penalty. Any excess payment due to the reduced tax rate may be carried over
as credit in the next period or may be filed for refund.

4. Is there a reduced income tax rate of 20% applicable to foreign

corporations?

No. It’s only for domestic MSME corporations. Foreign corporations subject to the
regular rate will use 25% similar to other domestic corporations.

5. Are non-stock and non-profit proprietary educational institutions still

exempt under the CREATE law? How about the non-profit and proprietary
educational institutions and hospitals?

Yes. The income tax exemptions granted to non-stock and non-profit proprietary
educational institutions were not repealed. Non-profit and proprietary educational
institutions will be subject to a reduced special rate of 1% effective July 1, 2020 to June
30, 2023.

To know more about the CREATE law, you can watch the BIR’s free webinar on its
Facebook and YouTube channel. You may also join the Elite Taxpayer Circle and attend
the exclusive CREATE webinar for free which was organized by the Asian Consulting
Group. For inquiries, send an e-mail to consult@acg.ph or call +632 7622-7720.

This article reflects the personal opinion of the author and does not reflect the official
stand of the Management Association of the Philippines or MAP.

Raymond “Mon” A. Abrea is a member of the MAP Ease of Doing Business Committee,
the Founding Chair and Senior Tax Advisor of the Asian Consulting Group and the Co-
Chair of the Paying Taxes — EODB Task Force. He is Trustee of the Center for Strategic
Reforms of the Philippines — the advocacy partner of the Bureau of Internal Revenue,
Department of Trade and Industry, and Anti-Red Tape Authority on ease of doing
business and tax reform.
Republic Act (RA) No. 11534, otherwise known as the Corporate Recovery and Tax
Incentives for Enterprises (CREATE) Act was created by the Philippine Congress in
response to the COVID-19 pandemic as a fiscal relief to domestic and foreign
corporations doing business in the Philippines. It seeks to amend several provisions in
the old Tax Code, with a central focus on lowering corporate income tax rates and
rationalizing fiscal incentives to better attract local and foreign investments in the
Philippines. 
President Rodrigo Duterte signed CREATE into law on March 26, 2021, with a number of
vetoed provisions. It was published in the Business Mirror on March 27 and took effect
on April 11, 2021. 
Before the COVID-19 pandemic, CREATE Act was initially known as TRABAHO bill (or Tax
Reform for Attracting Better and Higher-quality Opportunities). When the bill failed to
pass Congress, it was renamed to CITIRA (or Corporate Income Tax and Incentives
Reform Act), which also failed to pass Congress because it was deemed as a non-
priority and non-urgent bill during the outbreak of COVID-19. The addition of COVID-19
related provisions propelled the passage of the bill into law. 

Corporate Income Tax (CIT) Reforms

under CREATE Act
The corporate income tax (CIT) rates for domestic corporations and resident foreign
corporations (RFCs) under the CREATE Act will be reduced from the current 30% to
25%, retroactive to July 1, 2020. The CIT will be reduced further by 1% annually in the
next six years. And shall eventually reach 20% by 2027 onwards. 
Summary of CIT rates and their effectivity under CREATE Act
Taxpayer Old Rate New Rate Effectivity

Domestic Corporations 30% 25% July 1, 2020

Minimum Corporate Income Tax (MCIT) for July 1, 2020 -

2% 1%
Domestic Corporations June 30, 2023

Domestic Corporations with Net Taxable

Income not exceeding ₱5M and total assets 30% 20% July 1, 2020
not exceeding ₱100M

Non-Profit Proprietary Educational July 1, 2020 -

10% 1%
Institutions and Hospitals June 30, 2023

Resident Foreign Corporations (RFCs) 30% 25% July 1, 2020

 July 1, 2020 -
MCIT Resident Foreign Corporations 2% 1%
June 30, 2023

Non-Resident Foreign Corporations (NRFCs) 30% 25% January 1, 2021

Regional Operating Headquarters (ROHQs) 10% 25% July 1, 2020

Changes on rates of certain passive income

Type of Tax Old Rate New Rate

Capital Gains Tax on capital gains derived by RFCs

on sale of shares of stocks not traded in the stock 5% / 10% 15%
exchange

Regional Operating Headquarters (ROHQs) 7.5% 15%

Fiscal Incentive Reforms under CREATE

Act
Corporate Income Tax (CIT) Incentives
CIT incentives under CREATE Act shall include:

 Income Tax Holiday (ITH) granted for a period of 4 to 7 years, followed by the
Special Corporate Income Tax Rate of 5% on gross income earned (GIE), in lieu of
all national and local taxes, or enhanced deductions (ED) for 5 or 10 years (the
incentive period varies depending on which area the registered project or
activity will be located) 
 Duty exemption on importation of capital equipment, raw materials, spare parts,
or accessories
 VAT exemption on importation and VAT zero-rating on local purchase (partly
vetoed by the President)
 The Strategic Investment Priority Plan (SIPP) shall define the coverage of the tiers
and provide the conditions for qualifying activities:
o For export enterprises:
Location/Industry Tiers Tier I Tier II Tier III

4 ITH + 10 5 ITH + 10 5 ITH + 10

National Capital Region (NCR)
ED/SCIT ED/SCIT ED/SCIT
 Metropolitan areas or areas 5 ITH + 10 6 ITH + 10 7 ITH + 10
contiguous and adjacent to NCR ED/SCIT ED/SCIT ED/SCIT

6 ITH + 10 7 ITH + 10 7 ITH + 10

All other areas
ED/SCIT ED/SCIT ED/SCIT


o For domestic market enterprises:
Location/Industry Tiers Tier I Tier II Tier III

National Capital Region (NCR) 4 ITH + 5 ED 5 ITH + 5 ED 6 ITH + 5 ED

Metropolitan areas or areas

5 ITH + 5 ED 6 ITH + 5 ED 7 ITH + 5 ED
contiguous and adjacent to NCR

All other areas 6 ITH + 5 ED 7 ITH + 5 ED 7 ITH + 5 ED

Transitory Provisions for Existing Registered Activities

 Those granted only with an ITH prior to the effectivity of CREATE Law shall be
allowed to continue with its availment for the remaining period
 Those that have been granted the ITH but have not yet availed of the incentive
upon the effectivity of the law may use the ITH for the period specified in the
terms and conditions of their registration
 Those granted an ITH prior to the effectivity of the law and are entitled to 5% tax
on Gross Income Earned (GIE) shall be allowed to continue to avail of the 5% GIE
incentive for 10 years
 Those availing of the 5% tax on GIE prior the effectivity of the law shall be
allowed to continue availing the said incentive for 10 years

Value-Added Tax (VAT) Exemptions

Value-Added Tax (VAT) exemptions under CREATE Act shall include:

 Sale or distribution, importation, printing, or publication of any educational

material covered by the UNESCO agreement including digital and electronic
format
 All drugs, vaccines, and medical devices prescribed and used for the treatment
of COVID-19
 Capital equipment, its spare parts, and raw materials for the production of
personal protective equipment for COVID-19 prevention
  Drugs for the treatment of COVID-19 approved by the FDA for use in clinical
trials, including raw materials directly necessary for the production of such
drugs
 Sale of prescription drugs and medicines for cancer, mental illness, tuberculosis,
diabetes, high cholesterol, hypertension, and kidney disease (beginning January
1, 2021 instead of January 1, 2023)

Vetoed Provisions in CREATE Act

The President vetoed several provisions in the new tax law, including:

 Increasing the VAT-exempt threshold on sales of real property and the

adjustment in the threshold amount every 3 years
 90-day period for processing of general tax refunds, requirements in case of
denial by the Commissioner, and remedy of taxpayer in case of denial
 Definition of investment capital
 Domestic market enterprises’ entitlement to special corporate income tax (SCIT)
rate
 Specific share of the national government and local government units in the
gross income earned using the SCIT rate
 Availment of a new set of incentives and its corresponding period of availment
for qualified expansions or entirely new project or activity
 Allowing export enterprises registered prior to CREATE Act to avail of further
extension of new incentives for the same activity
 Exercise of power by the Fiscal Incentives Review Board (FIRB) in granting
incentives to registered projects or activities with a total investment capital of
more than ₱1B
 Specific industries mentioned under activity tiers
 Provision granting the President the power to exempt any investment
promotion agency (IPA) from coverage of Title XIII of CREATE Act
 Automatic approval of applications for incentives in case of inaction