Topic 1:

CREATE LAW

Corporate Recovery and Tax Incentives for Enterprises Act

We will be talking about …

Introduction to CREATE Law

Corporate Income Tax (CIT) Reforms

under CREATE Act

Fiscal Incentive Reforms under CREATE

Law

VAT and Percentage Tax Reforms under

CREATE Act

Vetoed Provisions in CREATE Act

01
Introduction to
CREATE Law
CREATE Law

On March 26, 2021, former

President Rodrigo Roa Duterte
signed into law Republic Act
(RA) No. 11534 otherwise
known as the Corporate
Recovery and Tax Incentives for
Enterprises (CREATE) Act.
 CREATE Law

Previously known as the Corporate Income Tax and

Incentives Reform Act (CITIRA), CREATE Act is
the second package of the Comprehensive Tax
Reform Program (CTRP), a fiscal stimulus
program of the Duterte Administration.
 CREATE Law

The act seeks to amend several provisions in the old

Tax Code, primarily focusing on lowering corporate
income tax rates and rationalizing fiscal incentives
to better attract local and foreign investments in the
Philippines.
 CREATE Law

CREATE Act shall take effect 15 days

from its publication in the Official Gazette
or in a newspaper of general circulation in
the Philippines.
02
Corporate Income Tax
(CIT) Reforms under
CREATE Act
Under the CREATE Act, the CIT rate for
domestic corporations and resident foreign
corporations (RFCs) will be reduced from the
current 30% to 25% effective July 1, 2020. The
CIT will be reduced further by 1% every year
from 2023 to 2027.
 Provision CITIRA CREATE (Revised CITIRA)

Tax Benefit for Business Enterprises

1% per year: Outright drop to 25% until 2022;
followed by 1% reduction yearly
until 2027:
29% – 2020 25% – July 1, 2020
28% – 2021 25% – 2021
27% – 2022 25% – 2022
26% – 2023 24% – 2023
Accelerated CIT rate reduction 25% – 2024 23% – 2024
24% – 2025 22% -2025
23% – 2026 21% – 2026
22% – 2027 20% – 2027 onwards
21% – 2028
20% – 2029 onwards
 Domestic Corporations
Regular Corporate Income Tax

NIRC CREATE Law

25% General Rule

30% on taxable 20% - with total assets of ₱100M

Income and below, and with net taxable
income of ₱5M and below

Effective July 1, 2020

 Domestic Corporations – Intercorporate Dividends

NIRC
Declaring Corporation Recipient of Dividend Tax Liability

Domestic Corporation Domestic Corporation Exempt

Resident Foreign Dividend is subject to RCIT

Corporation

Non-Resident Foreign
Corporation
 Domestic Corporations – Intercorporate Dividends

CREATE Law

Declaring Corporation Recipient of Dividend Tax Liability

Domestic Corporation Domestic Corporation Exempt

Resident Foreign Dividend is subject to RCIT

Corporation
Exempt-, when conditions
Non-Resident Foreign are met
Corporation
 Exemption of Foreign-Sourced Dividends
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.

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.
In case the foreign corporation has been in existence for less than two (2) years at the time of dividends
distributions, 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 oof the corporation.
 Domestic Corporations
Minimum Corporate Income Tax

NIRC CREATE Law

The rate of 1% is effective from

July 1, 2020 to June 30, 2023.
2% of Gross Income
Repeal of the
optional CIT of
15% of gross
income for
domestic
corporations and
RFCs
 Proprietary Educational Institutions and
Hospitals
● Proprietary Education Institutions – refers to
any private schools, which are non-profit,
maintained and ministered by private individuals
or groups.
● Proprietary Hospitals – refers to any private
hospitals, which are non-profit, maintained and
ministered by private individuals or groups.
Proprietary Educational Institutions and
Hospitals

NIRC CREATE Law

10% General Rule

Preferential rate of The preferential rate of 1% is

10% on taxable effective from July 1, 2020 to
June 30, 2023.
Income
 Resident Foriegn Corporations
Regular Corporate Income Tax

NIRC CREATE Law

25%
30% on taxable
Income Effective July 1, 2020
 Resident Foriegn Corporations
Minimum Corporate Income Tax

NIRC CREATE Law

The rate of 1% is effective from

July 1, 2020 to June 30, 2023.
2% of Gross Income
 Regional Operating Headquarters

An extension of a foreign firm that is

permitted to generate money in the Philippines
by providing qualified services to its head
office, affiliates, and subsidiaries
 Regional Operating Headquarters

NIRC CREATE Law

Subject to a CIT rate of 25%

Liable to pay 10% on effective January 1, 2022

taxable income.
 Offshore Banking Units

branch, subsidiary, or affiliate of a foreign

banking organization that has been properly
approved by the Central Bank of the
Philippines to do offshore banking activity in
the Philippines
 Offshore Banking Units

NIRC CREATE Law

Subject to a RCIT rate of 25%

Subject to Final Tax effective April 11, 2021

of 10%
 Non- Resident Foriegn Corporations
Gross Income Tax

NIRC CREATE Law

25% of Gross Income

30% of Gross Income Effective January 1, 2021

Repeal of
improperly
accumulated
earnings tax
(IAET)
03
Fiscal Incentive
Reforms under
CREATE Law
 Income Tax

Income Tax Holiday (ITH) shall be granted for

a period of 4 to 7 years, followed by the Special
Corporate Income Tax (SCIT) rate of 5% on
the gross income earned, in lieu of all taxes,
both national and local, or enhanced
deductions for 5 or 10 years
 Customs Duty Incentives

Five-year maximum period to avail exemption

from customs duty on importation of capital
equipment, raw materials, spare parts, or
accessories directly and exclusively used in the
registered activity.
 Value-Added Tax (VAT) Incentives

VAT-exemption on importation and VAT zero-

rating on local purchases shall apply to goods
and services directly and exclusively used in
the registered project or activity by the
registered business enterprise.
 Transitory Provisions for Existing Registered
Activities

01 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
02 of their registration.

Those granted an ITH prior to the effectivity of the law and are entitled to 5% tax on
03 Gross Income Earned (GIE) shall be allowed to continue to avail of the 5% GIE incentive
for 10 years

04 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
04
VAT and Percentage
Tax Reforms under
CREATE Act
 VAT and Percentage Tax Reforms

VAT-exemption on the sale or importation of medicines for cancer, mental

01 illness, tuberculosis, and kidney diseases (shall be effective on January 1,
2021 instead of January 1, 2023)

VAT-exemption of COVID-19 health-related materials and drugs (shall be

02 effective from January 1, 2021 until December 31, 2023)

Reduction of percentage tax for non-VAT taxpayers from 3% to 1% (shall

03 be effective from July 1, 2020 until June 30, 2023)
05
Vetoed Provisions in
CREATE Act
 The President vetoed several provisions
in the CREATE Act, including:

90-day period for

processing of general tax Definition of investment
Increasing the VAT- capital
refunds, requirements in
exempt threshold on sales
case of denial by the
of real property and the
Commissioner, and
adjustment in the
remedy of taxpayer in
threshold amount every 3
case of denial
years
 Domestic market Specific share of the Availment of a new set
enterprises’ national government of incentives and its
and local government corresponding period of
entitlement to special
units in the gross availment for qualified

Vetoed
corporate income tax expansions or entirely
income earned using the
(SCIT) rate SCIT rate new project or activity

Provis-
ions Allowing export Exercise of power by the Specific
enterprises registered Fiscal Incentives Review
prior to CREATE Act Board (FIRB) in granting
industries
to avail of further incentives to registered mentioned under
extension of new projects or activities with
activity tiers
incentives for the a total investment capital
of more than ₱1B
same activity
 Vetoed Provisions

Provision granting the Automatic

President the power to
exempt any investment approval of
promotion agency (IPA) applications for
from coverage of Title incentives in case
XIII of CREATE Act
of inaction
Thank you!
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