TAX UPDATES UNDER R.A.

11534 (CREATE LAW) IN THE PHILIPPINES

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) July 1, 2020 -
2% 1%
for Domestic Corporations June 30, 2023
Domestic Corporations with Net Taxable
Income not exceeding ₱5M and total 30% 20% July 1, 2020
assets 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
30% 25% January 1, 2021
(NRFCs)
Regional Operating Headquarters
10% 25% July 1, 2020
(ROHQs)

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 5% / 10% 15%
stock 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

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