• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Corporate Recovery and Tax Incentives

for Enterprises (CREATE Act)
By:

RHODORA G. ICARANOM
Managing Owner
RGI Accounting & Auditing Office
Former BIR Revenue District Officer

• Date of signing into law: 26 March 2021

• Publication date: 27 March 2021
• Effective date: 11 April 2021
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

I N C O M E TAX
Regular Corporate Minimum Corporate Income Tax
Corporation Type
Income Tax (RCIT) (MCIT)

20%* or 25% 1%
of taxable income of gross income
Effective 1 July 2020 Effective 1 July 2020 until 30 June 2023
Domestic

25% 1%
of taxable income of gross income
Effective 1 July 2020 Effective 1 July 2020 until 30 June 2023
Resident Foreign

25%
of gross income
Effective 1 January 2021
Non-resident Foreign
* Total assets ≤ ₱100 Million (excluding Land) and Taxable income ≤ ₱5 Million
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Imposition of Improperly Accumulated Earnings Tax (IEAT) is repealed.

Regional Operating Headquarters (ROHQs) shall be subject to RCIT effective 1 January 2022.

15% - on interest income derived under the

expanded foreign currency deposit
system
Final income tax rates for foreign corporations
15% - on capital gains from sale of shares of
stock not listed and traded in the stock
exchange

Proprietary Educational Institutions and Non-profit 1% - of taxable income

Hospitals Effective 1 July 2020 until 30 June 2023

Other Percentage Tax

1% - of the gross quarterly sales or receipts
Effective 1 July 2020 until 30 June 2023
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)
SECTION 3. CORPORATE INCOME TAX RATES.
The matrix below shows the new income tax rates applicable to the regular
taxable income of corporations:
Type of Corporation The higher between the “Regular” or “Minimum
Corporate Income Tax (MCIT)” rates

Regular MCIT
Rate Effectivity Rate Effectivity
Domestic Corporation:
Domestic corporations, in general 25% July 1, 2020 1% July 1, 2020 to
June 30, 2023

2% July 1, 2023
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 3. CORPORATE INCOME TAX RATES.

Type of Corporation The higher between the “Regular” or “Minimum
Corporate Income Tax (MCIT)” rates
Regular MCIT
Rate Effectivity Rate Effectivity
For corporations with net taxable 20% July 1, 2020 1% July 1, 2020 to
income not exceeding Five Million June 30, 2023
Pesos (P5,000,000) AND total assets
not exceeding One Hundred Million
(P 100,000,000), excluding the land
on which the particular business
entity's office, plant and equipment
are situated
2% July 1, 2023
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 3. CORPORATE INCOME TAX RATES.

Type of Corporation The higher between the “Regular” or “Minimum
Corporate Income Tax (MCIT)” rates
Regular MCIT
Rate Effectivity Rate Effectivity
Proprietary Educational 1% July 1, 2020 to Not Applicable
Institutions and Hospitals June 30, 2023

10% July 1, 2023

Foreign Corporation [ on taxable income (e.g., net or gross income, as
applicable) derived from all sources within the Philippines]:
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 3. CORPORATE INCOME TAX RATES.

Type of Corporation The higher between the “Regular” or “Minimum

Corporate Income Tax (MCIT)” rates
Regular MCIT
Rate Effectivity Rate Effectivity
Resident Foreign Corporation 25% July 1, 2020 1% July 1, 2020 to
June 30, 2013

2% July 1, 2023
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 3. CORPORATE INCOME TAX RATES.

Type of Corporation The higher between the “Regular” or “Minimum
Corporate Income Tax (MCIT)” rates
Regular MCIT
Rate Effectivity Rate Effectivity
Offshore Banking Unit (OBUs) 25% Upon the 1% Upon the
(Note: OBUs shall now be effectivity of effectivity of
taxed as resident foreign the CREATE the CREATE
corporation upon effectivity of until June 30,
the CREATE) 2023

2% July 1, 2023
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 3. CORPORATE INCOME TAX RATES.

Type of Corporation The higher between the “Regular” or “Minimum
Corporate Income Tax (MCIT)” rates
Regular MCIT
Rate Effectivity Rate Effectivity
Regional Operating 25% January 1, 1% January 1,
Headquarters (ROHQ) 2022 2020 to June
30, 2023

2% July 1, 2023
Non-Resident Foreign 25% January 1, Not Applicable
Corporation 2021
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
A. DOMESTIC CORPORATION

1.LMB Corporation, a retailer, has a gross sales of P1,400,000,000.00 with a cost of sales of
P560,000,000.00 and allowable deductions of 150,000,000.00 for the calendar year 2021. Its total
assets of P180,000,000.00 as of December 31, 2021 per Audited Financial Statements includes
the land costing P50,000,000.00 and the building of P25,000,000.00 in which the business entity
is situated, with an aggregate amount of P75,000,000.00 as Fixed Assets. Assuming CY 2021 is
the 5th year of operation of LMB Corporation, computation of income tax (Income Tax -whichever
is higher between Regular Rate and MCIT) shall be as follows:
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
REGULAR RATE
Gross Sales 1,400,000,000.00
Less: Cost of Sales 560,000,000.00
Gross Income 840,000,000.00
Less: Allowable Deductions 150,000,000.00
Net Taxable Income 690,000,000.00
REGULAR RATE 25%
TAX DUE 172,500,000.00
MINIMUM CORPORATE INCOME TAX (MCIT)
Gross Income 840,000,000.00
MINIMUM CORPORATE INCOME TAX (MCIT) RATE 1%
TAX DUE 8,400,000.00

* INCOME TAX DUE shall be P 172,500,000.00

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
A.2 JPL Corporation, a manufacturer, has a gross sales of P190,000,000 for CY
2021, its 2nd year of operation. Its total assets amounted to P50,000,000, net of
the value of the land of P6,000,000 where its manufacturing plant and business
operations are situated. Its cost of sales and allowable operating expenses
amounted to P100,000,000 and P50,000,000, respectively. Compute for its
income tax due for CY 2021.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
Gross Sales 190,000,000.00
Less: Cost of Sales 100,000,000.00
Gross Income 90,000,000.00
Less: Allowable Deductions 50,000,000.00
Net Taxable Income 40,000,000.00
REGULAR RATE 25%
TAX DUE 10,000,000.00

* Although the total assets, net of the value of the land, is less than P100,000,000.00, its
net taxable income is above P5,000,000. Hence, the income tax rate is 25%. Not subject
to MCIT since it is in its 2nd year of operation.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
A.3 Given the same facts under Illustration A.2, except for the allowable
operating expenses, which amounted to P85,000,000.00. The net taxable income
will be P5,000,000.00. With this, the income tax rate shall be 20%, and the
income tax due shall be P1,000,000.00.

* In both illustrations A.2 and A.3, the MCIT shall not be applied since it is only
the second year of operation of JPL Corporation.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Proprietary Educational Institutions or Hospitals:

GROSS Income (from all

sources)
"unrelated trade,
business or other
activity” > 50%

Subject to RCIT (Entire

taxable income)
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
B. PROPRIETARY EDUCATIONAL INSTITUTIONS

Rosa Private School of Values or RPSV is a non-profit private educational

institution with an issued permit to operate from the Commission on Higher
Education (CHED). It is maintained and administered by MCGJ Inc., a private
domestic corporation registered under the Securities and Exchange
Commission.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
RPSV uses a fiscal year accounting ending July 31st of each year. On July 31,
2021, it recorded total gross receipts amounting to P18,000,000.00, of which
P10,000,000.00 came from education-related activities, while P8,000,000.00
from other unrelated business activities. Also, RPSV recorded cost of service
and operating expenses from related activities amounting to P2,000,000.00 and
P1,000,000.00, respectively, and from unrelated business activities amounting to
P3,000,000.00 and P2,000,000.00, respectively.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
Related Unrelated
Total
Activities Activities
Gross Receipts/Sales 10,000,000.00 8,000,000.00 18,000,000.00
Less: Cost of Service/Sales 2,000,000.00 3,000,000.00 5,000,000.00
Gross Income 8,000,000.00 5,000,000.00 13,000,000.00
Less: Allowable Deductions 1,000,000.00 2,000,000.00 3,000,000.00
NET TAXA BLE INCOME 7,000,000.00 3,000,000.00 10,000,000.00
REGULAR RATE 1%
TAX DUE 1,000,000.00

The educational institution is subject to income tax at the rate of 1% since its gross income
from unrelated activities did not exceed 50% of the total gross income.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
C. PROPRIETARY HOSPITAL

ILR Hospital, a private non-profit hospital, has gross receipts of P15,000,000.00

with a cost of P6,000,000.00 and allowable deductions of P3,250,000.00 from
related activities, while for its unrelated activities, it incurred P5,000,000.00 and
P2,000,000.00 as cost of sales and allowable deductions, respectively, with a
gross income of P18,000,000.00, for Calendar Year 2021.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS
Computation of tax shall be as follows:
Related Unrelated
Total
Activities Activities
Gross Sales 15,000,000.00 18,000,000.00 33,000,000.00
Less: Cost of Sales 6,000,000.00 5,000,000.00 11,000,000.00
Gross Income 9,000,000.00 13,000,000.00 22,000,000.00
Less: Allowable Deductions 3,250,000.00 2,000,000.00 5,250,000.00
NET TAXA BLE INCOME 5,750,000.00 11,000,000.00 16,750,000.00
REGULAR RATE 25%
TAX DUE 4,187,500.00
ILR Hospital is subject to the regular rate of 25% since its gross income from non-related
activities is more than 50% of its total gross income.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 4. INCOME TAX RATES ON CERTAIN PASSIVE INCOMES.

The matrix below shows the new income tax rates applicable to certain passive incomes of individuals and
corporations.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 4. INCOME TAX RATES ON CERTAIN PASSIVE INCOMES.

Type of Individual/
Nature of Income Rate Effectivity
Corporation
Winnings from PCSO Exempt
games amounting to
P10,000.00 and below
Domestic Corporation Intercorporate Dividends From another For foreign source
(domestic and foreign domestic dividends, these will be
source dividends) corporation – exempt from income tax
Exempt upon the effectivity of
the CREATE, subject to
From nonresident the conditions imposed
foreign corporation under Section 5 of
– 25% or 20%, as these Regulations
the case may be
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

DIVIDENDS
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

INTERCORPORATE DIVIDENDS

EXEMPT EXEMPT*

Domestic Domestic Foreign Domestic

* subject to minimum
shareholdings, holding period
and reinvestment conditions
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)
EXEMPTION FROM INCOME TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS.
In general, foreign-sourced dividends received by domestic corporations are
subject to income tax. However, the same shall be exempt if ALL of the
following conditions concur:
A. The dividends actually received or remitted into the Philippines are
reinvested in the business operations of the domestic corporation
within the next taxable year from the time the foreign-sourced
dividends were received or remitted;
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

B. The dividends received shall only be used to fund the working capital
requirements, capital expenditures, dividend payments, investment
in domestic subsidiaries, and infrastructure project; and

C. The domestic corporation holds directly at least twenty percent

(20%) in value of the outstanding shares of the foreign corporation
and has held the shareholdings uninterruptedly for a minimum of
two (2) years at the time of the dividends distribution.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)
In case the foreign corporation has been in existence for less than two (2)
years at the time of dividends distribution, then the domestic corporation
must have continuously held directly at least twenty percent (20%) in value
of the foreign corporation’s outstanding shares during the entire existence
of the corporation.

Absent any one of the above conditions, the foreign-sourced dividends

shall be considered as taxable income of the domestic corporation in the
year of actual receipt or remittance, subject to surcharges, interest, and
penalties, as applicable.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

REQUIREMENTS:
1. Submit, thru the responsible corporate officers, to the concerned BIR office
within thirty (30) calendar days from actual receipt of the remitted dividends a
Sworn Statement/Affidavit containing
(i) the fact of actual receipt of such dividends,
(ii) the amount and the source (non-resident foreign corporation [NRFC]) of such
dividends, including their shareholdings in that NRFC and the holding period at the
time of the dividends distribution, and
(iii) a statement that they shall fully comply with the conditions of the exemptions
above stated;
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

2. In the year of receipt of dividend, attach to the Audited Financial Statements

(AFS) an Independent Auditor Sworn Certification as to:

(i) the fact of actual receipt of the remitted dividends,

(ii) the amount and the source (NRFC) of such dividends including their
shareholdings in that NRFC and the holding period at the time of the
dividends distribution,
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)
2. In the year of receipt of dividend, attach to the Audited Financial Statements (AFS)
an Independent Auditor Sworn Certification as to

(iii) the fact that the domestic corporation, thru its Board, has appropriated or
has a plan to reinvest the dividends in its business operations to fund its
working capital requirements, capital expenditures, dividend payments,
investment in domestic subsidiaries, or infrastructure project, and
(iv) if any amount has been disbursed, a statement that said disbursement
complies with the above requirements.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

• Sworn
Substantial Statement/Affidavit
Compliance • Independent Auditor
Sworn Certification
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Securing a Written Tax

Exemption
Ruling/Certificate from
the BIR.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Disclosure Requirement:

Disclose Dividends in the said AFS and must be attached to the Annual Income
Tax Return (AITR) to be filed in the year of receipt, as well as the amount of
dividend deemed exempt from income tax, the same shall be declared in the
reconciliation part of the said AITR.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

3. In the immediately following taxable year:

• Attach to the AITR a Sworn Certification prepared and executed by an
Independent Auditor on the utilization or non-utilization of the dividends
received by the corporation.
• The Sworn Certification on the utilization of the dividends received shall
confirm the taxpayer’s full compliance with the conditions for its exemption.
However, if the Certification will state non-utilization of the dividends received,
the corresponding tax due on the unutilized dividends shall be declared as
taxable income, subject to surcharges, interest, and penalty, if any.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Other Conditions:
• No credit or deduction under Section 34(C) of the Tax Code shall be allowed
for any taxes of foreign countries paid or incurred by the domestic corporation
in relation to the exempt foreign-sourced dividends.
• Any taxes of foreign countries paid or incurred by the domestic corporation in
relation to the exempt foreign-sourced dividends shall be disregarded in

computing the limitations provided under Section 34(C)(4) of the Tax Code.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATIONS:
a. RLI Corporation, a domestic corporation, owns twenty percent (20%) of the
outstanding shares of USA Corporation, a non-resident foreign corporation
(NRFC), since August 1, 2015. On June 30, 2021 it received dividends
amounting to P1,000,000.00 from the said NRFC. The said dividend has not
been used until January 13, 2023. In this case, the P1,000,00.00 shall be
declared as taxable income for calendar year 2021, subject to surcharge,
interest, and penalty, since it was not utilized within the next taxable year,
which is in 2022.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

b. RSDV Corporation, a domestic corporation, owns twenty percent (20%) of the

outstanding shares of UK Corporation, a non-resident foreign corporation (NRFC),
since August 1, 2015. On May 1, 2021, it received dividends amounting to
P1,000,000.00 from the said NRFC. On September 1, 2022, RSDV Corporation
utilized P800,000.00 for its dividend payments. On January 1, 2023, it utilized the
remaining P200,000.00 for its working capital requirements. In this case,
P800,000.00 shall be treated as tax-exempt since this was properly utilized within
2022. On the other hand, P200,000.00 shall be declared as taxable income for the
taxable year 2021, subject to surcharge, interest, and penalty, since the utilization is
not within the following taxable year, which is in 2022.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)
c. BKTD Corporation, a domestic corporation, holds 20% of the stocks of EU
Corporation, a non-resident foreign corporation. BKTD is a wholly-owned subsidiary
of GKCM Corporation, a non-resident foreign corporation. BKTD’s holding in EU
Corporation started in 2018, and the holding period is uninterrupted. On July 1,
2021, BKTD Corporation received dividends from EU Corporation amounting to
P2,000,000 and subsequently paid out dividends on December 31, 2022, in the
amount of P1,500,000. The remaining amount of P500,000 has not been used in
any qualified activity for exempt foreign-sourced dividends. In this situation, BKTD
Corporation shall be subject to income tax on the unused amount in the taxable
period 2021, subject to surcharge, interest, and penalty.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

IMPROPERLY ACCUMULATED EARNINGS TAX.

The improperly accumulated earnings tax shall no longer be imposed on
corporations upon the effectivity of the CREATE onwards. This shall apply to the
entire taxable year for all fiscal years/taxable years ending after the effectivity of
CREATE.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

IAET
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATION:
JDS Corporation, a domestic corporation, has unappropriated retained earnings
in excess of its paid-up capital stock amounting to P20,000,000 and P50,000,000
as of the fiscal years ending June 30, 2020 and June 30, 2021, respectively. JDS
Corporation shall be subject to the 10% improperly accumulated earnings tax as
of June 30, 2020. However, JDS Corporation shall no longer be subject to
improperly accumulated earnings tax for the entire fiscal year ending June 30,
2021, which is after the effectivity of CREATE.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ADDITIONAL
DEDUCTIONS FOR ALL
TAXPAYERS
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Allowable DEDUCTIONS (Addition)

Upon the effectivity of the CREATE, an additional deduction from taxable income
of one-half (1/2) of the value of labor training expenses incurred for skills
development of enterprise-based trainees enrolled in:
Public Senior High Schools,
Public Higher Education Institutions, or
Public Education Institution, or

Public Technical and Vocational Institutions

and duly covered by an apprenticeship agreement under PD No. 442, Series of

1974, (or the Labor Code of the Philippines), as amended, shall be granted to enterprises.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

For the additional deduction for enterprise-based training of students from

Public Educational Institutions, the enterprise shall secure proper
“certification” from the
• Department of Education (DepEd),
• Technical Education and Skills Development Authority (TESDA), or
• Commission on Higher Education (CHED).

Provided, that such deduction shall not exceed Ten Percent (10%) of
Direct Labor Wage.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATION
MOC Corporation, a domestic manufacturing corporation, had gross sales of
P100,000,000.00 for Fiscal Year ending June 30, 2021 and incurred cost of sales of
P60,000,000.00 and operating expenses of P17,500,000.00, with the following details:

Cost of Sales
Direct Materials P 30,000,000.00
Direct Labor 20,000,000.00
Manufacturing Overhead 10,000,000.00
Total P 60,000,000.00
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATION

Operating Expenses
Salaries and Wages P 7,000,000.00
Taxes 300,000.00
Depreciation 3,500,000.00
Professional Fees 200,000.00
Advertising Expenses 3,000,000.00
Training Expenses 3,000,000.00
Office Supplies 500,000.00
Total P 17,500,000.00
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATION
Assuming MOC corporation has complied with the withholding tax requirement on all cost
and expenses incurred subject to withholding tax, compute for the corporation’s net taxable
income:
Gross Income ₱40,000,000
Less: Allowable deductions
Salaries and Wages ₱ 7,000,000
Taxes 300,000
Depreciation 3,500,000
Professional Fees 200,000
Advertising Expenses 3,000,000
Training Expenses 3,000,000
Office Supplies 500,000
Expenses before additional deduction on Training Expenses ₱ 17,500,000
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATION
Expenses before additional deduction on Training Expenses ₱ 17,500,000
Additional Allowable Deductions on Training Expenses (see
1,500,000 ₱19,000,000
Note)
Net Taxable Income ₱21,000,000

*The amount of ₱1,500,000, which is one-half of the value of the actual training expenses of
₱3,000,000, can be claimed as additional deduction, since it did not exceed ten percent
(10%) of the Direct Labor Wage. In this scenario, the corporation’s direct labor wages
incurred was ₱20,000,000. Thus, the one-half value of the actual training expenses of

₱1,500,000 did not exceed the ₱2,000,000 (10% of ₱20,000,000) threshold.

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

ILLUSTRATION

Provided further, that all the prescribed requirements in this section has been
complied with (e.g., Apprenticeship Agreement, Certification from DepEd or
TESDA or CHED, whichever is applicable). If the company’s direct labor
wage is only ₱10,000,000, the ₱10,000,000 deduction that can be allowed
shall be ₱1,000,000 and not ₱1,500,000.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

TAX FREE EXCHANGE

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Tax-free exchange of property under Section 40 (C) (2) of the Tax Code

• Transferor, alone or together with

others, not exceeding 4 persons,
exchanges property for stocks,
Merger or Control and further
collectively, gains or maintains Consolidation control
control of transferee.
Reorganization
• Gain/Loss on exchanges is not
recognized pursuant to a plan of Recapitalization Reincorporation
reorganization.

• Prior BIR confirmation or ruling

is no longer required.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

INTEREST ARBITRAGE
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Deductions from gross income

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

VAT EXEMPTIONS
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 2. AMENDMENTS
Provided, That beginning January 1, 2021, the VAT exemption shall only apply
to sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business; sale of real property
utilized for socialized housing as defined by Republic Act (RA) No. 7279, as
amended; and, sale of house and lot, and other residential dwellings with
selling price of not more that Two Million Pesos (P2,000,000.00), as adjusted
in 2011 using the 2020 Consumer Price Index values:
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

VAT-exempt transactions

Residential lot only No Exemption

Residential house & lot and
Exempt if P2 Million and below
other dwellings
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

RR 5-2021 SECTION 2

(4) Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house & lot and other residential dwellings
valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below,
as adjusted in 2011 using the 2010 Consumer Price Index values.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

VAT-exempt transactions
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

VAT-exempt transactions
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

VAT-exempt transactions
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

GOVERNMENT
MONEY PAYMENTS
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

GOCCs EXEMPT from Income Tax:

1) Government Service Insurance System (GSIS),
2) Social Security System (SSS)
3) Home Development Mutual Fund (HDMF)
4) Philippine Health Insurance Corporation (PHlC)
5) Local water districts
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Withholding of VAT on GMP

Beginning January 01, 2021, the VAT WT system shall shift from:

Final Withholding Creditable System

GOCCs: 1600-VT
1600 (eFPS)
2306
Suppliers: 2307
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

GMP Withholding on taxpayer subject to Percentage Tax:

1% until June 30, 2023

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

SECTION 2. GOVERNMENT MONEY PAYMENTS.

Purchases made by Government-Owned and Controlled Corporations,

National Government Agencies, Local Governments, and other government
instrumentalities, from persons/entities subject to percentage tax pursuant to
Section 116 of the Tax Code, as amended, shall be subject to One percent
(1%) withholding tax for the period July 1, 2020 until June 30, 2023.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

INCENTIVES
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Who can qualify for Incentives?

Enterprises

Export Domestic
enterprise Market
s Enterprise
s

 Direct export
70%  Indirect export
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

GENERAL QUALIFICATIONS:
1. Engaged in a project/activity included in SIPP.
2. Target performance metrics.
3. Install an adequate accounting system
4. Compliant with e-receipting & e-sales requirements.
5. Submit annual reports of beneficial ownership & related parties
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

WHAT ARE QUALIFIED ACTIVITIES?

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

TIER I
Includes activities that:

a) Have high potential for job creation;

b) Take place in sectors with market failures resulting in under provision of basic goods and
services;

c) Generate value creation through innovation, upgrading or moving up the value chain;

d) Provide essential support for sectors critical to industrial development, or;

e) Emerging owing to potential comparative advantage.

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

TIER II
Includes activities that produce supplies, parts and components, and
intermediate services not locally produced but critical to industrial

development and import-substituting activities, including crude oil refining.

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

TIER III
Includes activities on:

a) Research and development resulting in demonstrably significant value-

added, higher productivity, improved efficiency, breakthroughs in science
and health, and high-paying jobs;

b) Generation of new knowledge and intellectual property registered and/or

licensed property in the Philippines.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

TIER III
Includes activities on:

c. Commercialization of patents, industrial designs, copyrights and utility

models by registered business enterprises;

d. Highly technical manufacturing or;

e. Critical to structural transformation of economy and require substantial
catch-up efforts.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Activity/project may be located in any of the following areas:

1. National Capital Region

2. Metropolitan areas or areas contiguous and adjacent to NCR
3. All other areas in the Philippines
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

What are the fiscal incentives?

Enhanced
Special Corporate
Income Tax Deductions
Income Tax subject to certain
Holiday (ITH)
(SCIT) OF 5% conditions.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Other incentives
Custom duties Exemption for Capital Equipment, Raw Materials,
Spare Part and Accessories

 Directly and exclusively used in registered activity

 Part of direct cost
 Not produced/manufactured domestically in sufficient quantity/ of
comparable quality at reasonable prices

 IPA approval prior to importation

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Other incentives

VAT Exemption on importation and VAT zero-rating on local

purchases.

 Directly and exclusively used in registered activity.

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Rationalization of fiscal Incentives based on location and Industry

Enterprise Tax Incentives Location Tier I Tier II Tier III

NCR 4 years 5 years 6 years
ITH Metropolitan areas 5 years 6 years 7 years
Other areas in
6 years 7 years 7 years
Exporter + Philippines
SCIT or
Enhanced Regardless of location 10 years 10 years 10 years
deductions
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Rationalization of fiscal Incentives based on location and Industry

Enterprise Tax Incentives Location Tier I Tier II Tier III

NCR 4 years 5 years 6 years
ITH
Metropolitan areas 5 years 6 years 7 years
DME
+ Other areas in Philippines 6 years 7 years 7 years
Enhanced
Deductions Regardless of location 5 years 5 years 5 years
+2 years ITH for projects of registered enterprises located in armed conflict / major disaster recovering
areas
+3 years ITH for project registered prior to or under CREATE's incentive system that shall completely
relocate from NCR
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Enhanced deductions
 Depreciation Allowance – Building +10%
 Depreciation Allowance - Machineries & Equipment +20%
 Direct Labor Expense +50%
 R&D Costs +100%
 Training Expense +100%
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Enhanced deductions
Domestic Inputs Purchased +50%
Power Expense +50%
Reinvestment Allowance (for manufacturing industry) Maximum 50% of
reinvested profit
 Net Operating Loss Carry-Over (NOLCO) 5 years (incurred
during 1st three years
from start of
commercial operations)
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Sunset periods for existing projects

Current registration Sunset period

Granted ITH only Finish remaining ITH period

Granted ITH and 5% GIT after ITH

5% GIT for 10 years
Currently availing 5% GIT
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Authority to grant incentives

Investment Capital Granting Authority

Exceeding P1 Billion FIRB
Not exceeding P1 Billion IPA, as delegated by FIRB

Note: FIRB may increase threshold

• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Presidential power to modify set of incentives as recommended by FIRB

1. Modify mix, period / manner of availment of incentives
2. Craft appropriate financial support package for highly desirable project /
specific industrial activity

Maximum 8 years ITH plus may grant SCIT, up to 40 years total incentive
period.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

In recommending, FIRB shall consider:

 Project with comprehensive sustainable development plan, clear inclusive
business approaches, high level of sophistication and innovations
 Minimum investment Capital of P50 Billion / equivalent USD OR minimum
10,000 direct local employment within 3 years from Certificate of
Entitlement.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

BRIEFER ON TH VETO MESSAGE ON RA 11534 (CREATE ACT)

By Rep. Joey Sarte Salceda, Chairperson of the House Committee on Ways and Means
Principal Author, Corporate Recovery and Tax Incentives for Enterprise (CREATE) Act

Veto Item Justifications in the Veto Message

Tax Administration
1. Increase of the threshold for VAT • The VAT exemption from housing must provide relief
exemption in residential lot (from only to buyers of socialized housing and benefit only
P1.5M to P2.5M) and housing (from those from the lower income classes.
P2.5M to 4.2M) • Estimated foregone revenue of P155.3 billion
2. Automatic action on tax refunds • Impracticable given the required full audit of
within 90 days liabilities and examination of tax payments, books,
and returns
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Menu of Incentives
3. Grant of Special Corporate • This is redundant since domestic market
Income Tax (SCIT) to domestic enterprises are market-seeking
market enterprises enterprises that sell goods and services
where viable demand exists---with or
without incentives.
• The grant of SCIT for domestic market
enterprises may lead to an unequal
playing field. The tax savings give them
more legroom to reduce prices and out-
compete SMEs.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Menu of Incentives
4. Categories of domestic market • This was deleted to align with the veto of the
enterprises grant of SCIT for domestic market enterprises.
a) Those with minimum investment
capital of P500 million
b) Those which are considered “critical”
5. Extension of availment of tax • This may be unfair to ordinary taxpayers.
incentives Further, only new activities and projects
deserve fresh incentives.
6. “Hard coding” of industries in Tiers 1 • This may jeopardize the flexibility to keep up
and 3 with technological changes and industries of
the future.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Veto Item Justifications in the Veto Message

Administration of Tax Incentives
7. Limitations of the power of the • The power of the investment promotion
Fiscal Incentives Review Board (IPA) is only a delegated authority of the
(FIRB) FIRB.
• Despite this veto, the IPAs retain the
delegated power to grant incentives up to
P1 billion.
8. Definition of investment • This is inconsistent with existing
capital methodologies in establishing scales of
investment.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Veto Item Justifications in the Veto Message

Administration of Tax Incentives
9. Power of the President to exempt • This may be used as a political tool to subvert the
an Investment Promotion Agency will of Congress; or to escape accountability
measures institutionalized in the law; or may
open a path for discretion and capture by vested
interests.
10. Automatic approval of • This runs counter to the core of the reform to
applications for incentives within 20 develop a performance- based fiscal incentive
days system.
• Since tax incentives are privileges granted by the
State, applications must be reviewed carefully
and should not be sacrificed for the sake of
expediency.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Duration of Incentives
Incentives Location Duration of Tax Incentives by SIPP Tier and Location (Years)
Export market: Tier I Tier II Tier III
• Income tax holiday (ITH) National Capital
for 4 to 7 years, and Region (NCR) 6 ITH +
4 ITH + 10 ED/SCIT 5 ITH + 10ED/SCIT
thereafter 10ED/SCIT
• SCIT (5% of gross income Metropolitan areas or
earned) for 10 years or 6 ITH + 10 7 ITH + 10
areas contiguous and 5 ITH + 10 ED/SCIT
ED/SCIT ED/SCIT
• Enhanced deductions for adjacent to the NCR
10 years
7 ITH + 10 7 ITH + 10
All other areas 6 ITH + 10 ED/SCIT
ED/SCIT ED/SCIT
Domestic market NCR 4 ITH + 5 ED 5 ITH + 5 ED 6 ITH + 5 ED
enterprises:
• ITH for 4 to 7 years, and Metropolitan areas or
thereafter, areas contiguous and 5 ITH + 5 ED 6 ITH + 5 ED 7 ITH + 5 ED
• Enhanced deductions for adjacent to the NCR
5 years
All other areas 6 ITH + 5 ED 7 ITH + 5 ED 7 ITH + 5 ED
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Duration of Incentives
Duration of Tax Incentives by SIPP Tier and
Incentives Location
Location (Years)
Areas recovering
Export and from armed conflict Additional 2 years ITH
domestic market or a major disaster
enterprises Relocation from the
Additional 3 years ITH
NCR
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Tier I shall include activities that a) high potential for job creation; b) take place in
sectors with market failures resulting in underprovision of basic goods and
services; c) generate value creation through innovation, upgrading, or moving up
the value chain; d) provide essential support for sectors that are critical to
industrial development; or e) are emerging owing to potential comparative
advantage.
Tier II shall include activities that produce supplies, parts and components, and
intermediate services that are not locally produced but are critical to industrial
development and import-substituting activities, including crude oil refining.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

Tier III activities shall include a) research and development resulting in

demonstrably significant value-added, higher productivity, improved
efficiency, breakthroughs in science and health, and high-paying jobs; b)
generation of new knowledge and intellectual property registered and/or
licensed in the Philippines: c) commercialization of patents, industrial
designs, copyrights and utility models owned or co-owned by a registered
business enterprise; and d) highly technical manufacturing; or e) critical
to the structural transformation of the economy and require substantial
catch-up efforts.
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

I hope your paying

of taxes will always
be a pleasant
experience!
• (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act)

A fine is a tax for doing

something WRONG.
A tax is a fine for doing
something RIGHT!

- author unknown -