Salient Features of the

Corporate Recovery and Tax

Incentives for Enterprises Act
(“CREATE”)
covering Income Tax
 Tax Rates
Individuals - Nonresident Alien Engaged in Trade or Business:

1. PCSO and Lotto Winnings:

NIRC CREATE – Effective April

11, 2021
Exempt PCSO and lotto winnings
of P10,000.00 and below
exempt from final tax
 Tax Rates
Domestic Corporations:

1. Regular Corporate Income Tax:

NIRC CREATE – Effective July 1, 2020

30% 25% in general

20% for corporations with net taxable income not

exceeding Five Million Pesos (P5,000,000.00) AND
total assets not exceeding One Hundred Million
(P100,000,000.00), excluding the land on which
the particular business entity’s office, plant and
equipment are situated
 Tax Rates
Domestic Corporations:

2. Minimum Corporate Income Tax:

NIRC CREATE
2% 1% - July 1, 2020 to June
30, 2023

2% - July 1, 2023
 Tax Rates
Domestic Corporations:

3. Proprietary Educational Institutions and Hospitals:

NIRC CREATE
10% 1% - July 1, 2020 to June
30, 2023

10% - July 1, 2023

 Tax Rates
Resident Foreign Corporations:

1. Regular Corporate Income Tax:

NIRC CREATE – Effective July

1, 2020
30% 25%
 Tax Rates
Resident Foreign Corporations:

2. Minimum Corporate Income Tax:

NIRC CREATE
2% 1% - July 1, 2020 to June
30, 2023

2% - July 1, 2023
 Tax Rates
Resident Foreign Corporations:

3. Capital Gains from Sale of Shares of Stock of a Domestic Corp.:

NIRC CREATE – Effective April

11, 2021
5%/10% 15%
 Tax Rates
Resident Foreign Corporations:

4. Interest Income on Deposits from Foreign Currency Deposit Units:

NIRC CREATE – Effective April

11, 2021
7.5% 15%
 Tax Rates
Resident Foreign Corporations:

5. Offshore Banking Units:

NIRC CREATE – Effective April

11, 2021
10% 25%
 Tax Rates
Resident Foreign Corporations:

6. Regional Operating Headquarters:

NIRC CREATE – Effective

January 1, 2022
10% 25%
 Tax Rates
Non-Resident Foreign Corporations:

1. In General:

NIRC CREATE – Effective

January 1, 2021
30% 25%
 Tax Rates
Non-Resident Foreign Corporations:

2. Capital Gains from Sale of Shares of Stock of a Domestic Corp.:

NIRC CREATE – Effective April

11, 2021
5%/10% 15%
 Tax Rates
Non-Resident Foreign Corporations:

3. Cash and/or Property Dividends Received from a Domestic Corp.:

NIRC CREATE – Effective

January 1, 2021
30%/15% 25%/15%

Sparing Credit Sparing Credit

Requirement – 15% Requirement – 10%
 Others
Foreign Source Dividends:

Dividends received by a Domestic Corporation from a Non-Resident

Foreign Corporation are exempt provided:

1. Funds are reinvested in the business operations of the domestic

corporation in the Philippines within the next taxable year from the
time the foreign-sourced dividends were received and shall be limited
to funding the working capital requirements, capital expenditures,
dividend payments, investment in domestic subsidiaries, and
infrastructure project; and,
2. Domestic corporation holds directly at least twenty percent (20%) of
the outstanding shares of the foreign corporation and has held the
shareholdings for a minimum of two (2) years at the time of the
dividends distribution.
 Others
Deductions:

1. Additional Deduction of 1/2 of the Value of Labor Training Expenses:

a. For skills development of enterprise-based trainees enrolled in

public senior high schools, public higher education institutions, or
public technical and vocational institutions;
b. Covered by an apprenticeship agreement;
c. For the additional deduction for enterprise-based training of
students from public educational institutions, the enterprise shall
secure proper certification from the DEPED, TESDA, or CHED; and,
d. Deduction shall not exceed ten percent (10%) of direct labor wage.
 Others
Deductions:

2. Interest Expense:

a. Allowable deduction for interest expenses shall be reduced by

twenty percent (20%) of the interest income subjected to final tax.
b. If interest income tax is adjusted in the future, the interest expense
reduction rate shall be adjusted accordingly based on the prescribed
standard formula as defined in the rules and regulations to be
promulgated by the SOF, upon the recommendation of the CIR.
 Others
Tax Free Exchange under Sec. 40(C)(2):

1. No gain or loss on reorganizations:

a. Mergers and Consolidation;

b. Recapitalization; and,
c. Reincorporation.
 Others
Tax Free Exchange under Sec. 40(C)(2):

2.a. New concepts of Recapitalization and Reincorporation:

Recapitalization means an arrangement whereby the stock and bonds

of a corporation are readjusted as to amount, income, or priority or an
agreement of all stockholders and creditors to change and increase or
decrease the capitalization or debts of the corporation or both.

Examples:

a. Conversion of common shares to preferred shares (CIR vs. CA, GR

No. 108576 dated January 20, 1999)
b. Conversion of debt to equity.
 Others
Tax Free Exchange under Sec. 40(C)(2):

2.b. New concepts of Recapitalization and Reincorporation:

Reincorporation means the formation of the same corporate business

with the same assets and the same stockholders surviving under a new
charter.
 Others
Tax Free Exchange under Sec. 40(C)(2):

3. Clarification of the term “Control”:

Control means ownership of stocks in a corporation after the transfer

of property possessing at least fifty-one percent (51%) of the total
voting power of all classes of stocks entitled to vote. Provided, that the
collective and not the individual ownership of all classes of stocks
entitled to vote of the transferor or transferors under said section shall
be used in determining the presence of control.

Maintenance and further control not an issue anymore in both

reorganizations and transfers to controlled corporations.
 Others
Tax Free Exchange under Sec. 40(C)(2):

4. Confirmatory BIR No Longer Required:

Prior BIR confirmation or tax ruling shall not be required for purposes
of availing of the tax exemption. The concerned parties can implement
the transaction by, but not limited to, the issuance of the Certificate
Authorizing Registration by the Revenue District Office (“RDO”) where
the property is located, in case of real properties, or to the RDO where
the business is registered, in case of shares of stocks, subject to post-
transaction audit by the BIR.
 Others
Improperly Accumulated Earnings Tax:

NIRC CREATE – Effective Fiscal

Year ending March 31,
2021
10% Repealed