RA 11534 – CORPORATE RECOVERY & TAX INCENTIVES FOR

ENTERPRISES ACT (CREATE)

PREPARED BY: DR. VIRGINIA JEANNIE P. LIM

This legislation was signed into law by President Duterte on March 26, 2021.
This monumental breakthrough is our government’s biggest stimulus for businesses.
It came at the most opportune time giving the much-needed relief to all for this will
serve as a fiscal relief and recovery measure for Filipino businesses still suffering
from the effects of the COVID 19 pandemic.

Our present corporate income tax at 30% is the highest among ASEAN
countries. This is one big factor why we could not readily attract foreign investors to
consider our country as among their investment prospects. This long-awaited tax
reform aims to attract more investments and maintain fiscal prudence and stability.
It introduces reforms to the corporate income tax, it plugs leakages through
rationalization of the fiscal incentives granted to our inventors; it shifts
administration of such incentives towards a system that is performance-based,
targeted, time bound and transparent.

Our country’s economy contracted by a record 9.5% in 2020, the steepest

economic contraction in the country’s history, making the nation one of the worst
affected in the region.

This new law has amended thirteen (13) sections of our Tax Code (Secs. 20,
22, 25, 27, 28, 29, 34,40, 57, 109, 116, 204 and 290.) Sections 291 and 292 are
deleted and it added a new TITLE XIII with 21 sections to our Tax Code, beginning
from Sections 291 to Sec. 311)

The new law provides for retroactive application of its provisions to July 1,
2020. This is an example of the exception to the Doctrine of Non-retroactive
Application of Tax Law. (“Retroactive application shall not be allowed unless the law
itself so provides.)

Salient changes introduced are:

1. Effective July 1, 2020 Micro small and medium enterprises (MSMEs) with net
taxable income not exceeding Php 5.0M and with total assets not exceeding Php
100M excluding land on which the particular business entity’s office, plant and
equipment are situated shall be taxed at 20%. (OLD – 30% corporate income
tax on net taxable income.)

2. All other corporations (domestic and resident foreign) shall be taxed at 25%
starting July 1, 2020. (OLD – 30% corporate income tax on net taxable income.)
 ⮲ For corporations adopting the fiscal year of accounting period, the taxable
income shall be computed without regard to the specific date when specific
sales, purchases and other transactions occur.
⮲ The corporate income tax rate shall be applied on the amount computed by
multiplying the number of months covered by the new rate within the fiscal
year by the taxable income of the corporation for the period, divided by
twelve (12).
⮲ Corporation’s income and expenses for the fiscal year shall be deemed to
have been earned and spent equally for each month of the period.

3. Effective January 1, 2021 Non-resident Foreign Corporations (NRFC) shall be

taxes at 25%. (OLD 30% on gross income earned from within the Philippines.)

4. Passive income earned by corporations from their foreign currency deposits shall
be subject to final withholding tax of 15%. (OLD – 7.5% FWTax)

5. Final Tax of 20% on interest arbitrage. (OLD – 33% of interest arbitrage.)

6. Net income earned by NRFC from disposition of unlisted shares of stocks shall be
subject to 15% Capital Gains Tax on unlisted shares. (OLD – 5% on the first
Php 100K of net gain and 10% in excess thereof.)

7. Intra-corporate dividends from NRFC earned by a domestic corporation

exempt from income tax provided: (a) reinvestment in the DC, (b) 20% or
more ownership, and (c) 2 years or more of holding period. (OLD – 30% regular
corporate income tax.)

8. Intra-corporate dividends earned by NRFC from domestic corporation at 10%

starting July 1, 2020 provided the required tax credit in the domicile country is
15%. (OLD – 15%)

9. NOLCO sustained in 2020 and 2021 may be carried over to the succeeding five
(5) years. [OLD three (3) years]

10. Regional Operating Headquarters (ROHQs) of Multi-National Corporations shall be

subject to corporate income tax at 10% for 2021; however, starting January 1,
2022, they shall be taxed at 25%. (OLD – they are only subject to 10%
corporate income tax.)

11. Offshore Banking Units (OBUs) are now subject to the regular corporate income
tax of 25% and other taxes. [OLD – (a) they are taxed at 10% on gross
interest income from residents, (b) exempt from income tax on interest earned
from non-residents, and (c) exempt from other taxes.]

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12. Proprietary educational institutions and non-profit hospitals will be taxed of 1%
from July 1, 2020 to June 30, 2023. (OLD – 10% or 30% subject to the
Predominance Test Rule)

13. Additional 50% deduction for labor training expense of educational institutions
subject to: (a) not to exceed 10% of direct labor wage, (b) covered by
apprenticeship agreement, and (c) supported by DepEd, TESDA and CHED
Certification. (OLD – no such deduction)

14. Minimum corporate income tax (MCIT) of 1% effective July 1, 2020 until June
30, 2023. (OLD – 2%)

15. Percentage tax of 1% effective July 1, 2020 to June 30, 2023. (OLD – 3%)

16. Improperly Accumulated Earnings Tax (IAET) of 10% is repealed.

17. Definition of reorganization for purposes of applying the tax-free exchange

provision under Sec. 40(C)(2) of the Tax Code is expanded.

⮲ Types of Reorganization now shall include: (a) Merger or consolidation, (b)

Stock acquisition from a corporation if there is an immediate control to the
acquired corporation, (c) Property acquisition from a corporation in
exchange of shares, (d) Recapitalization, and (e) Reincorporation.

⮲ Prior BIR Ruling or confirmation shall not be required for purposes of

availing the tax exemption of the exchange.

18. Medicine for diabetes, cholesterol-control, and hypertension shall be exempt from
12% VAT beginning January 1, 2020 and medicines for cancer, mental-illness,
tuberculosis, kidney medicines shall be exempt from 12% VAT beginning January
1, 2021.

19. Sales or importation of capital equipment, its spare parts and raw materials
necessary for the production of PPEs (Personal Protection Equipment) shall be
exempt from 12% VAT and import taxes from January 1, 2021 to December 31,
2023.

20. Sales and importation of drugs including those for use in clinical trials, vaccines
and medical devises prescribed and used for the treatment of COVID 19 shall be
exempt from 12% VAT and import taxes from January 1, 2021 to December 31,
2023.

21. Better taxpayer experience with creditable withholding taxes.

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22. Qualified export enterprises shall be entitled to entitled to 4 – 7 years ITH
thereafter to SCIT of 5% on gross income earned for 10 years or to enhanced
deduction for 10 years.

23. Qualified domestic market enterprises shall be entitled to 4 – 7 years ITH and
thereafter to 5 years enhanced deduction.

24. 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.

25. VAT exemption on importation and VAT Zero rating on purchases shall only apply
to goods and services directly and exclusively used in the registered project or
activity by a registered business enterprise (RBE).

26. Additional tax incentives of 2 years ITH shall be given to export and domestic
market enterprise recovering from major disasters or areas with armed conflicts.

27. Additional tax incentives to corporation relocating their operations outside the
NCR.

28. Available income tax incentives under CREATE:

a) Income tax holiday (ITH) followed by SCIT of 5% on gross income earned.
b) Regular corporate income tax with enhanced deductions of the export
enterprise or domestic market enterprise under strategic industries.
c) Qualified domestic market enterprise shall be entitled to 4 – 7 years income
tax holiday to be followed by 5 years enhanced deductions.

29. Enhanced deductions for depreciation, labor training, Research & Development
expenses, domestic input expense, power expense, investment allowance.

30. For existing registered projects/activities prior to CREATE – existing registered

enterprises may still avail of ITH for the remaining period if granted ITH only. If
granted ITH and 5% GIT after the ITH, existing registered enterprises may avail
of 5% GIT for 10 years.

VETOED ITEMS by President Duterte:

1. Increasing threshold of house and lot to Php 4.2M for VAT exemption. (Still at
Php 2.5M)

2. 90-day period for processing of general tax refunds under the 0% VAT as
impracticable. The Congress, DoF, and BIR is given time to come up with
mechanism to streamline the process of tax refunds in a separate tax
administration bill. (120-day period still applicable)

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3. The automatic approval of applications for tax incentives after a certain number
of days. The FIRB or the IPA should be allowed to carefully review the
application for tax incentives since these are privilege granted by the State. The
declared policy is to approve or disapprove application based on merits.

4. Specific share of the National government and LGUs in the gross income earned
using the special corporate income tax (SCIT) rate.

5. The additional SCIT for domestic enterprises which is in lieu of all local and
national taxes is redundant. It is unnecessary and it weakens the fiscal incentives
system.

6. Allowing registered companies to further apply for new incentives for the same
activities they already enjoy.

7. Allowing export enterprises prior to CREATE to avail of further extension of new

incentives for the same activities.

8. Limiting the power of the FIRB (Foreign Investment Review Board) over projects
and activities with an investment capital of above Php 1.0B. – The oversight
functions of the FIRB will ensure the proper grant and monitoring of tax
incentives. These powers must remain plenary over those of the investment
promotion agencies (IPA).

9. Allowing the President to exempt an investment promotion agency from the

coverage of the CREATE Act. This could become a political tool.

10. The exclusion of the value of the land and working capital from the definition of
investment capital – this may lead to an under estimation of investment
promotion performance.

ALL RIGHTS RESERVED

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 RECENT BIR REGULATIONS AND UPDATES IN
TAXATION

RR No. 2-2020, January 15, 2020

Bangko Sentral ng Pilipinas (BSP) is exempt from income tax on income derived
from its governmental functions. Whereas income derived from its proprietary
functions shall be subject to the normal income tax of 30%.

RR No. 6-2020, March 30, 2020

Under RA 11469 (Bayanihan to Heal as One Act) the President is given the power to
liberalize the grant of tax incentives for the manufacture or importation of critical and
needed equipment or supplies which shall include healthcare equipment, medical tools
and kits, instruments, and medicines intended to combat COVID 19 public health
emergency.

⮲ In response thereto, the BIR issued Rev. Regulation No. 6-2020 exempting the
manufacture and/or importation of the same articles from VAT, Excise Tax and other
fees, provided that the importing manufacturer is included in the Master List of the
DTI and other incentive granting bodies of the government.

⮲ The release of subject articles shall not be subject to the issuance of Authority to
Release Imported Goods (ATRIG) from the Bureau of Customs.

⮲ Donations of these imported articles to and for the use of the National Government
or any entity created by any of its agencies which is not conducted for profit or to
any political subdivisions of the government shall be exempt from Donor’s Tax and
subject to the ordinary rules of deductibility under existing rules and issuances.

⮲ This shall be in effect unless extended or withdrawn by Congress or ended by

Presidential Proclamation.

RR No. 9-2020, April l7, 2020

Granting further benefits on donations during the period of enhanced community

quarantine or National State of Emergency for the sole and exclusive purpose of

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 combating Covid 19 from Donor’s tax. The acquisition costs of the donation are fully
deductible against the gross income of the donor-corporation of donor-individual.

⮲ Donations may be in cash, healthcare equipment and supplies, relief goods, such as
food package and/or water, or use of property, whether real or personal, such as
shuttle service, use of lots and buildings.

RR No. 13-2020, May 27,2020

Sales to national athletes and coaches of articles needed in their sports activities
shall be entitled to 20% discount but subject to VAT. The seller may claim the 20%
discounts as allowable deductions from gross income.

RR No. 14-2020, May 28, 2020

Tax Credit Certificate which remains unutilized for more than one (1) year at any
given interval of time during its validity shall be converted to cash with prior written
notice to the BIR subject to availability of funds.

RR No. 16-2020, June 25, 2020

The ninety-day (90) period given to the CIR to resolve the validity of taxpayer’s
claim for tax refund or tax credit of unutilized input taxes under the 0% VAT in areas
where the ECQ or MCQ is in force is suspended until further notice. Hence, the
one-hundred-twenty-day period (120) of the Tax Code shall still apply.

RR No. 18-2020, July 8, 2020

Beginning January 1, 2020 Sales and importation of drugs and medicines

prescribed for diabetes, high cholesterol and hypertension shall be exempt from 12%
VAT. Whereas drugs and medicines for cancer, mental illness, tuberculosis and kidney
diseases shall be exempt from 12% VAT beginning January 1, 2023.

RR No. 20-2020, August 17, 2020

Provides for rules in the determination of the fair market value of common shares
or preferred shares of stocks not listed in the exchanges.

RR No. 22-2020, September 16, 2020

Due process requirement for the issuance of a deficiency tax assessment.

⮲ The Notice of Informal Conference (NIC) is now replaced by Notice of Discrepancy

(NOD)

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 (a) If discrepancies are found or discovered in taxpayer’s tax return, the revenue
examiner/investigator shall inform the taxpayer in writing of the discrepancies,
(b) The taxpayer must respond to the NOD within thirty (30) days from receipt for
the discussion of the discrepancy,
(c) If the taxpayer disagrees with the detected discrepancy during the
investigation, he is allowed to submit supporting documents after discussion but
must do so within the thirty (30) day period from receipt of the NOD,
(d) If the taxpayer does not address the discrepancy through payment for
deficiency tax or he does not agree with the findings of the tax investigator, the
examiner shall endorse the case to the reviewing officer, thereafter, the
approving officer of the National office or Regional Revenue Office shall cause
the issuance of the Preliminary Assessment Notice (PAN) to the taxpayer within
ten (10) days from the conclusion of the discussion.

RR No. 23-2020, September 30, 2020

Shares of stocks of closely held corporation sold through IPO in the exchanges
shall no longer be subject to the imposable tax of 1%, 2% or 4% of authorized capital
stocks sold effective September 15, 2020 under the Bayanihan Act II (RA 11494),
Thus, S127(B) of the Tax Code is amended.

RR No. 24-2020, September 30, 2020

Salary, personal, housing, commercial, motor vehicles loans, card payments and
pawnshops loans due on or before December 31, 2020 but needs to be extended or
restructured shall be exempt from additional Documentary Stamps Tax (DST).
However, interbank loans and band borrowings shall be subject to Documentary
Stamps Tax.

RR No.25-2020, September 30, 2020

The Net Operating Loss sustained in the years 2020 and 2021, may be carried
over to the next succeeding FIVE (5) years instead of three (3) as provided under Sec.
34(D)(3) of the Tax Code.

RR No. 27-2020, October 6, 2020

⮲ Donations of identified equipment (personal computers, tablets, laptops, mobile

phones, printers) to PUBLIC schools shall be exempt from Donor’s Tax.
⮲ The acquisition cost of such donated equipment shall be deductible from gross
income of the donor.
⮲ If such donated item is imported by DepEd, CHED or TESDA the importation shall
be exempt from VAT, excise tax and other fees.
⮲ The input tax on purchase of equipment may be credited against the output tax of
the donor.
⮲ If the donor is a PEZA Registered Enterprise, it shall enjoy the same privileges
herein provided.

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RR No. 28-2020, October 15, 2020

Exemption from VAT, excise tax and other fees on sale of locally manufacture or
imported equipment or apparatus for COVID 19 use and treatment.

⮲ Exemptee must have Certificate of License to operate issued to the

manufacturer-buyer by the FDA-DOH.
⮲ Manufacturer must submit sworn declaration that the manufactured essential goods
of medical grade are related to the mitigation or containment of Covid 19.

RR No. 29-2020, October 15, 2020

Exclusions from gross income:

(a) Retirement Benefits received from private forms from June 5, 2020 – December
31, 2020 shall be excluded from gross income and not subject to income tax and
withholding tax, provided they shall not be later re-employed by the same
employer and their related parties during the succeeding twelve (12) month period
from retirement.

⮲ The rule on Optional Retirement Benefits under the Tax Code (“50-10” Rule)
shall not be applied provided the retirement plan is duly registered with the
BIR or provided in the CBA of the company.
⮲ Mandatory retirement benefits under the SSS/GSIS are exempt from income
tax and withholding tax and they are not covered by the re-employment
prohibition.
⮲ If the retiring employee is between 60 – 65 years old and he/she has rendered
more than five (5) years of service with the same employer, the retirement
benefit is exempt from tax and withholding tax even if the retirement plan is
not registered with the BIR.

(b) COVID 19 Risk Allowances given to public and private health workers
(c) Actual Hazard Duty Pay
(d) Compensation paid to private/public health workers who have contracted COVID
19 in the line of duty or dies while fighting Covid 19 amounting to (1) Php 1.0 M in
case of death of (2) Php 100,000 in case of severe or critical sickness or (3) Php
15,000 in case of mild or moderate sickness
(e) The compensation given to heirs in case of death of Php 1.0Million shall not be
included as part of the gross estate of decedent subject to estate tax.

RR No. 30-2020, October 30, 2020

New taxes introduced applicable to gaming and non-gaming operations as

additional stimulus measures to address the impact of COVID 19 in our country.

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 ⮲ Franchise tax of 5% on the gross bets or turnovers, or from the agreed
pre-determined minimum monthly revenues from all gaming operations, whichever
is HIGHER, earned by offshore gaming, licensees, operators, agents, service
providers and gaming support providers.
⮲ Regular income tax and other applicable taxes imposed on income from
non-gaming operations.
⮲ Violators shall be subject to penalties under Sec. 248 -(B), 249(B), 253 and 255 of
the Tax Code.
⮲ BIR is authorized to implement closure orders against violators that fail to pay the
taxes.
⮲ The collection of subject taxes shall continue even after the treaty of Covid 19 shall
have been lifted until further amendment.

RR No. 31-2020, December 18, 2020

Large withholding agents must withhold taxes in every purchase of Php 10,000
and above from suppliers whom it has dealt with for at least six (6) transactions.

⮲ 1% on purchase of goods (tangible only)

⮲ 2% on purchase of services

RR No. 32-2020, December 21, 2020

The Tax Amnesty Program (RA 11213) of the government on delinquency and
deficiency assessment for 2017 and prior years is further extended to June 30, 2021

RR No. 33-2020, December 21, 2020

Voluntary Assessment and Payment Program (VAPP) for taxable year 2018 is
extended to June 30, 2021.

⮲ Taxpayer’s benefits in case of availment of VAPP:

a) Exempt from BIR audit for 2018
b) VAPP on withholding taxes is allowed to claim deduction on the
corresponding income payment pursuant to RR 6-2018
c) Taxpayer with pending audit for 2018 shall be suspended if availment of
VAPP is valid all pending assessment shall be terminated, withdrawn and
cancelled.
d) If availment is invalid, assessment shall be resumed.

⮲ Even if there is already a Certificate of Availment, the same may be cancelled, if (1)
there is a finding that the taxpayer has under declare sales, receipts or income or

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 overclaimed deductions by more than 30%, or (2) a verifiable information to the
BIR that taxpayer withheld taxes but failed to remit the same.
⮲ Cancellation of the Certificate of Availment may be appealed to the Regional
Director, Assistant Commissioner – Large Taxpayer Service within thirty (30) days
from receipt of N=notice of cancellation.

RMC No. 36-2021, January 15, 2021

There is now a shift from FINAL to a CREDITABLE system on the VAT withheld on
sales to government or to any of its political subdivisions, instrumentalities or
agencies, including GOCCs, this is in line with Sec. 37 of RA 10963 (TRAIN Law),
amending Sec. 114 of the Tax Code.

⮲ Government shall before making payment on account of each purchase of goods or

services which are subject to VAT under Sections 106 and 108 deduct and withhold
a final VAT at 5% of the gross payment thereof, that BEGINNING JANUARY 1,
2021, the VAT withholding system shall be shifted to a CREDITABLE system.
⮲ Note must be given in the use of BIR forms to this effect. Wrong use of forms in
the filing of returns shall result in disallowance of the withheld amount and
forfeiture of the same in favor of the government.
RR No. 7-2019, August 27, 2019
Granting to persons with disability (PWD) the same incentives as those granted to
Senior Citizens in the purchase of their basic necessities and prime commodities.

⮲ There is no 20% discount on their purchase of basic necessities and prime

commodities for their own consumption and use but only to 5% special discount
of the regular retail price without exemption from 12% VAT.
⮲ The maximum purchase subject to 5% special discount is Php 1,300.00 per week.
⮲ The said amount shall be spent on at least four (4) kinds of items listed as basic
and prime commodities.

ALL RIGHTS RESERVED

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