Corporate Recovery & Tax Incentives For Enterprises Act (CREATE)

Corporate Recovery & Tax
Incentives for Enterprises

Act (CREATE)
17 March 2021
The SGV Purpose

Nurture leaders and enable businesses for a better Philippines. #SGVforABetterPhilippines
Tax Reform Package 2
TRAIN 2 TRABAHO CITIRA CREATE
March 2018: September 2018: September 2019: May 2020:

Filed in HR Approved by HR Passed by HR DOF submitted proposed
(3rd Reading) (3rd Reading) amendments in line with
COVID-19
November 2020:
Senate passed version
(SB No. 1357)
February 3 2021
Ratified by Bicam
February 24 2021
Submitted to Office of the
President
Page 2 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Objectives of CREATE
1 Improve the equity and efficiency of the corporate tax system
2
Develop a more responsive and globally-competitive
tax incentives regime that is performance-based,
targeted, time-bound, and transparent
3 Provide support to businesses in their recovery
4 Create a more equitable tax incentive system

Salient Features of CREATE Bill
1 Adjustments in corporate tax and

other taxes
2 Rationalization of fiscal
incentives

Proposed adjustments
in corporate tax
and other taxes

Corporate tax adjustments
Tax Code CREATE

Income Tax Rates for Domestic Corporations
Effective July 1, 2020
30%
Total Assets** Taxable Income Tax Rate
P100 Million P5 Million and

and below below 20%
of the net taxable income Otherwise 25%
**Excluding the value of land on which the particular business
entity’s office, plant and equipment are situated.
*For fiscal year:

• Taxable income shall be computed without regard to the
specific date when specific sales, purchases and other
transactions occur.
• Income and expenses for the fiscal year shall be deemed to
*shall include ONE PERSON CORPORATIONS have been earned and spent equally for each month of the
period.

Tax Code CREATE

Income Tax Rates for Foreign Corporations
Effective July 1, 2020

Resident Resident
30% 25%
of taxable income of taxable income
Effective January 1, 2021

Non-resident Non-resident
30% 25%
of gross income of gross income

Tax Code CREATE

Minimum Corporate Income Tax (MCIT)
Beginning on the 4th taxable year immediately following
the year in which such corporation commenced its business operations
Effective July 1, 2020 until June 30, 2023
Domestic and resident foreign Domestic and resident foreign

corporations: corporations:
2%
of gross income
1%
of gross income
*applicable only when the MCIT is greater than the tax due for the taxable year

Tax Code CREATE

Intercorporate Dividends
Domestic Domestic Domestic Domestic
EXEMPT EXEMPT
Foreign Domestic Foreign Domestic
30% RCIT EXEMPT*

if conditions are met

Foreign Domestic
Conditions for exemption of foreign-sourced dividend

The domestic corporation holds directly at least 20% of the outstanding shares of
the foreign corporation and has held the shareholdings for a minimum of 2 years at
the time of dividend distribution;
Funds are reinvested in the business operations of the domestic corporation in the
Philippines
Reinvested within the next taxable year from the time the dividends were received;
and
Reinvestment shall be limited to funding the working capital requirements, capital

expenditures, dividend payments, investment in domestic subsidiaries and infrastructure
projects.

Tax Code CREATE

Income Tax Rates for Resident foreign corporation
Regional Operating Headquarters (ROHQs)
Effective January 1, 2022
10% of their taxable

income
ROHQs shall be subject to the Regular
Corporate Income Tax.

Tax Code CREATE

Income Tax Rates for foreign corporations
Final Income Tax
7.5% final income tax rate

₱ for interest income derived
under the expanded foreign
15%
currency deposit system
Capital gains from sale of

₱ shares of stock not traded in
the stock exchange
5% 10%
< P100K on excess of
P100K

Tax Code CREATE

Imposition of Improperly Accumulated Earnings Tax (IAET)
Section 29 (A) of the 1997 Tax Code

Imposition of 10% IAET
on the improperly accumulated taxable
Income (Sec. 29)
is hereby repealed

Tax Code CREATE

Deductions from Gross Income
Training Expenses
+50%
Deduction of the value of labor training expenses
for skills development of enterprise-based trainees
enrolled in public senior high schools, public higher
education institutions, or public technical and
No Provision for deduction vocational institutions imitation:
of labor training expenses
Requirements:
A. Covered by apprenticeship agreement
B. Secure proper certification from the DEPED, TESDA, or CHED
C. Not to exceed 10% of direct labor wage

Tax Code CREATE

Deductions from Gross Income
Interest Arbitrage
of the
33%
interest reduction
20% interest
income
subjected to
final tax
If Interest Income Tax is adjusted in the future,

the rate shall be adjusted accordingly.

Exchange of Property
Tax-free exchange [Section 40 (C) (2) of the Tax Code]
Non-recognition of gain or loss
VAT exempt on the sale or exchanges of property

used for business for shares of stocks
Prior BIR confirmation or tax ruling shall not

be required for purpose of availing the tax
exemption

Transfer
The transferee is a corporation
The transferee exchanges its shares of stock for property/ies of the

transferor
The transfer is made by a person, acting alone or together with others,

not exceeding four
The transferor/s, collectively, gains or maintains 51% of the total voting power of all
classes of stock of the transferee corporation after the transfer of property

A Merger or Consolidation
Control and B
Further Control
Reorganization
C Acquisition of
substantially all
properties
Recapitalization D E Reincorporation
VAT Exempt Transactions
Tax Code TRAIN 1 CREATE

Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business
or real property utilized for low-cost and socialized housing*
January 1, 2021 Treatment? Effectivity?

Threshold selling price Threshold selling price Threshold selling price
to be VAT-exempt to be VAT-exempt to be VAT-exempt
Residential lot Residential lot Residential lot
PhP 1,500,000* No Exemption PhP 2,500,000

and below and below
Residential house & lot and other dwellings Residential house & lot and other Residential house & lot and other dwellings
dwellings
PhP 2,500,000** PhP 2,000,000 PhP 4,200,000

and below and below and below
Beginning 1 January 2024 and every 3 years

* P1,919,500 thereafter, the amount stated shall be adjusted to
** P3,199,200 its present value
(RR No. 13-2012)

Sale or Importation of Prescription Drugs and Medicines
Diabetes, high cholesterol, and

hypertension beginning 1
January 2020
within sixty (60)

Cancer, mental illness, days from the
tuberculosis, and kidney diseases effectivity of this
beginning 1 January 2021 Act

Sale or Importation of the following beginning 1 January 2021 to 31 December 2023
Capital equipment, its spare parts and raw materials, All drugs, vaccines and medical devices specifically
necessary for the production of PPE components for prescribed and directly used for the treatment of COVID-19
COVID-19 prevention and drugs for the treatment of COVID-19 approved by FDA
for use in clinical trials, including raw materials directly
necessary for the production of such drugs
DTI Certification that such equipment, spare parts or raw materials DOH shall issue a list of prescription drugs and medical devices
for importation are: covered by this provision within 60 days from the effectivity of
- Not locally available or insufficient in quantity; or this act, and every 3 months
- Not in accordance with the quality or specification required
*Exemption claimed shall be subject to post audit by BIR and BOC as may be applicable
Additional VAT exemption
Sale, importation, printing or publication of books, and any newspaper,

magazine, journal, review bulletin, or any such educational reading material
covered by the UNESCO agreement on the importation of educational,
scientific and cultural materials, including the digital or electronic format.
Provided, that the materials enumerated herein are not devoted principally
to the publication of paid advertisements;

Other Percentage Tax
Tax Code CREATE

Other Percentage Tax
Effective 1 July 2020 until 30 June 2023
3%
of the gross quarterly sales or
1%
of the gross quarterly sales or
receipts receipts

Withholding Tax at source
Additional provision
The Department of Finance shall review,

at least once every 3 years
regulations and processes for the withholding of creditable tax under this
Code, and direct the BIR to amend rules and regulations for the same, should it
be found during the review that the existing rules, regulations, and processes
for the withholding of creditable tax under this Code adversely and materially
impact the taxpayer.

Credit or Refund of Taxes Erroneously or Illegally Received or Penalties
Imposed Without Authority
Additional Provision
Within ninety (90 days), the Commissioner shall grant refund for taxes or
penalties from the date of complete submission of the documents in
support of the application filed*
Within thirty (30) days from the receipt of the decision denying the
claim, the taxpayer affected may appeal the decision with the Court of
Tax Appeals in case of full or partial denial of the claim
*Provided, furthermore, that should the Commissioner find that the grant of refund is not proper,
the Commissioner must state in writing the legal and factual basis for the denial.

Proposed rationalization
of fiscal incentives

Investments Promotions Agencies
14
Investments Promotions Agencies
(IPAs)
• Shall maintain function and powers

under own Charter, unless repealed by
CREATE
• DOF, BIR, BOC shall retain respective

mandates

Authority to grant incentives
Power to approve/disapprove the grant of incentives
Investment Capital* Granting Authority

Fiscal Incentives Review Board (FIRB)
Exceeding P1 Billion
chaired by DOF Secretary
Not exceeding P1 Billion IPA, as delegated by FIRB
Note: FIRB may increase the amount of threshold.

Application for tax incentives shall be deemed approved if not acted upon within twenty
(20) days from the date of submission of the application and complete relevant supporting
documents to the FIRB or IPAs.
*Value of investment indicated in Philippine currency, excluding the value of land and working
capital, that shall be used to carry out a registered project or activity, except that land shall be
included as investment capital for registered real estate development.

SGV Webinar on CREATE Bill
Qualifications of a Registered Business Enterprise (RBE)
for Tax Incentives
Qualifications of a Registered Business Enterprise for Tax Incentives
Be engaged in a project or activity

Target performance metrics
included in the SIPP
Submit annual reports of

Install an adequate accounting Comply with the e-receipting and
beneficial ownership and related
system e-sales requirement
parties

Domestic and Export Enterprises (Bicam Version)
Enterprise
any enterprise other than

Domestic export enterprise
Export
1 Critical Domestic Market Enterprises (CDME)
2 Non-Critical Domestic Market Enterprises (NCDME) 70%

NCDME Direct Export Indirect Export
<PhP 500M Investment Capital
NCDME
>PhP 500M Investment Capital

Fiscal Incentives
✓ Export Enterprise
✓ CDME ✓ NCDME <PhP500M
✓ NCDME >PhP500M
ITH SCIT
or ITH ED
ITH ED

Qualifications on industry and location
Industry prioritization (among others)

Tier I • Agriculture, fishing, forestry, agribusiness activities, including handicrafts for export
• Energy
• Ecozone and freeport zone development
• Manufacturing of medical supplies, devices and equipment
• Construction of healthcare facilities and infrastructure
• Manufacturing and services industries that are emerging resulting from innovation, upgrading or addressing
gaps in the supply and value chain
• Mass housing, as well as infrastructure, transportation, utilities, logistics and support services
• Provision of cybersecurity services
• Planned developments that use technologies and digital solutions that are crucial to country’s development
Tier II • Activities that produce supplies, parts and components

• Intermediate services that are not locally produced but are critical to industrial development
• Import-substituting activities, including crude oil refining
Tier III • Research and development resulting in demonstrably significant value-added, higher productivity, improved
efficiency, breakthroughs in science and health and high-paying jobs.
• Generation of new knowledge and intellectual property registered or licensed in the Philippines
• Commercialization of patents, industrial designs, copyrights and utility models
• Highly technical manufacturing
• Activities critical to the structural transformation of the economy and require substantial catch-up efforts
• Agriculture, fishing, forestry, agribusiness, and other activities and services that indispensable require the
employment of knowledge processing, modern science, data analytics

Proposed rationalization of fiscal incentives
Period of Availment
Income Tax Holiday (ITH) – for exporters, CDME and NCDMEs (all enterprises)
Location Tier I Tier II Tier III

National Capital Region (NCR) 4 years 5 years 6 years
Metropolitan areas or areas
5 years 6 years 7 years
contiguous and adjacent to NCR
All other areas 6 years 7 years 7 years
Special Corporate Income Tax (SCIT)/Enhanced Deduction (ED)
10 years 5 years
For exporters and CDMEs For NCDMEs*
(NCDME with <PhP 500M
investment is only entitled to ED) Source: DOF website

Summary of Period of Availment
Registered Enterprise Tax Incentive Period
Exporter ITH 4 to 7 years*
CDME SCIT or ED 10 years
ITH 4 to 7 years*
NCDME >PhP500M
SCIT or ED 5 years
ITH 4 to 7 years*
NCDME <PhP500M
ED 5 years
*depending on location or industry priorities
Source: DOF website

Additional Incentives Provided to Tiers 1, 2 and 3
Condition Incentive
Projects or activities of registered enterprises
located in areas recovering from armed conflict
or a major disaster
+2 years ITH
Project or activities registered prior to effectivity
of this Act, or under the incentive system
provided herein that shall, in the duration of their +3 years ITH
incentives, completely relocate from the NCR
Special Corporate Income Tax
5%
shall be imposed on the gross
income earned, in lieu of all
national local taxes
3% Effective 1 July 2020

2%
share of the LGU which has
jurisdiction over the place of
share
the registered activity of
to the national
the registered business
government
enterprise outside ecozones
and freeports.
If applicable, the shares of the LGUs and the IPAs under their
governing special laws (e.g. Authority of the Freeport Area of Bataan;
Aurora Pacific Economic Zone and Freeport Authority) shall be
observed and shall not result in the diminution of their respective
shares.

Enhanced Deductions
Depreciation Allowance Direct Labor Expense R&D Costs
Building Machineries
& Equipment
ADDITIONAL
10% 20% 150% 200%

This is only limited to assets that are directly This shall not include salaries, wages, Limited to local expenditure incurred for
related to the production of goods and benefits and other personnel costs incurred salaries of Filipino employees and
services other than administrative and for managerial, administrative, consumables and payments to local research
support services. indirect labor and support services. and development organizations.

Enhanced Deductions
Enhanced Deductions
Training Expense Domestic Inputs Purchased Power Expense
200% 150% 150%

Provided, that it shall only apply to trainings,
as approved by the IPAs based on the SIPP, This is limited to those directly related to
This is limited to power utilized for the
given to the Filipino employees engaged and actually used in the registered export
registered project or activity.
directly in the RBE’s production of goods project or activity.
and services.

Enhanced Deductions
Enhanced Deductions
Reinvestment Allowance to Manufacturing

Net Operating Loss Carry-Over (NOLCO)
Industry
Maximum Carried over within the next consecutive
50%
of reinvested profit
5 years
(within five years from time of reinvestment)
Reinvestment in any of the projects or activities

Incurred during first three (3) years
listed in the Strategic Investment Priorities Plan
(SIPP)

Summary of Enhanced Deductions
Type of expense Deduction under CREATE

Additional 10% for buildings
Depreciation allowance
Additional 20% for machineries and equipment
Direct labor expense 150% deduction
R&D costs 200% deduction
Training expense 200% deduction
Domestic inputs purchased 150% deduction
Power Expense 150% deduction
Reinvestment allowance to Maximum 50% of reinvested profit
manufacturing industry (within five years from time of reinvestment)
Incurred during first three years;
NOLCO carried over within the next five consecutive
years

Transitory provisions for existing registered activities
Current incentives Transitory period
A. Granted with ITH only Finish remaining ITH period
B. Granted with ITH and 5% GIT after ITH
C. Currently availing of 5% GIT

} 5% GIT for 10 years
After the expiration of the transitory period under item C, the export enterprises
registered prior to the effectivity of the CREATE shall have the option to reapply
and avail of the tax incentives under Section 294 (B) for the same period provided
under the Section and may still be extended for a certain period not exceeding 10
years at any one time, subject to the conditions and qualifications under the SIPP
and performance review by the FIRB.
Page 41 SGV Webinar on CREATE Bill

Customs Incentives
Incentives CREATE
Customs Duty Exemption Directly and exclusively used in the registered activity
for Capital Equipment,
Raw Materials, Spare Part of the direct cost
Parts and Accessories Not produced or manufactured domestically in sufficient
quantity or of comparable quality and at reasonable prices
IPA approval prior to the importation is secured
Utilization in non-registered project:
• With prior approval from the IPA - Payment of duties on
the imported items (for part-time utilization, payment is in
proportion to the utilization for non-registered project is
required).

Customs Incentives
Incentives CREATE
Customs Duty Exemption

Raw Materials, Spare
1 Sale/transfer within 5 years
Sale or transfer is allowed under the following:

Parts and Accessories
1
To enterprise availing of customs
2
Donated to TESDA, SUCs or DepEd
duty exemption and CHED-Accredited Schools
3
To enterprise not availing of duty
4 5
Proven technical
Exportation
exemption provided duties will be paid obsolescence

Customs Incentives
Incentives CREATE

1 Sale/transfer within 5 years
Parts and Accessories With prior approval from the IPA – Payment of duties
on the imported items is required.
• For sale or transfer to enterprise not availing of duty
exemption, the taxes and duties shall be based on
the net book value
• Donation to TESDA among others is exempt from
duties and taxes including donor’s tax
Without prior approval from the IPA - RBE, vendee,

transferee or assignee shall be solidarily liable to pay
twice the amount of the duty exemption that should
have been paid during its importation.

Customs Incentives
Incentives CREATE

2 Sale/transfer after 5 years
Parts and Accessories • Prior notice to the IPA is required. Payment of

duties on imported goods shall be made in case of
violation of any of the registration terms and
conditions.

VAT Incentives
Incentives CREATE
VAT Exemption on
importation and VAT zero- Directly and exclusively used in the registered
rating on local purchases activity by a registered enterprise

Other provisions
Job Generation Performance Commitments
RBEs whose performance

commitments include job
creation shall maintain
employment levels to the
extent practicable.
In the case of reduced

employment, the RBEs must
submit to their respective
IPAs and FIRB their
justification.

Other provisions
Modified Set of Incentives
The President of the Philippines has the power to
1 Modify the mix, period or manner of availment of incentives
2 Craft the appropriate financial support* package for a

highly desirable project or specific industrial activity
*Financial support includes utilization of government resources such as

land use, water appropriation, power provision, budgetary support
provision under the annual general appropriations act, and the like.
The grant of ITH shall not exceed 8 years and thereafter, 5% SCIT may be granted
provided that the total period of incentive availment shall not exceed 40 years

Other provisions
Modified Set of Incentives
In recommending, the FIRB shall consider the following:
The project has a comprehensive Minimum Investment Capital of

sustainable development plan Php 50 Billion or its equivalent in
with clear inclusive business US dollars OR a minimum direct
approaches high level of local employment generation of at
sophistication and innovations least 10,000 within 3 years from
the issuance of the Certificate of
Entitlement.
If the project fails to substantially meet the projected impact on the economy and agreed performance
target, the FIRB shall recommend to the president the cancellation of the tax incentive or financial
support package or the modified period or manner of availment of incentives, after due hearing and an
adequate opportunity to substantially comply with the agreed performance targets and outputs.

Other provisions
Implementing Rules and Regulations
The Secretary of Finance, upon the recommendation of the CIR,

shall promulgate the necessary rules and regulations for its
effective implementation within 90 days from its effectivity.
Failure to promulgate the rules and regulations shall not prevent

the implementation of this Act upon its effectivity.
The Act shall take effect 15 days after its complete publication in
the Official Gazette or in a newspaper of general circulation.

Next steps to consider
Identify strategic Consider priority Study optimization

locations aligned with industries to maximize of tax incentives
logistics and supply incentives (ITH+SCIT
chain integration vs. Enhanced
Deductions)

Questions?

Thank you!

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Corporate Recovery & Tax

Incentives for Enterprises

The SGV Purpose

TRAIN 2 TRABAHO CITIRA CREATE

March 2018: September 2018: September 2019: May 2020:

Page 2 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

1 Improve the equity and efficiency of the corporate tax system

3 Provide support to businesses in their recovery

4 Create a more equitable tax incentive system

Page 3 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

1 Adjustments in corporate tax and

Page 4 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Page 5 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

Effective July 1, 2020

P100 Million P5 Million and

*For fiscal year:

Page 6 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

Effective July 1, 2020

Effective January 1, 2021

Page 7 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

Effective July 1, 2020 until June 30, 2023

Domestic and resident foreign Domestic and resident foreign

Page 8 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

Domestic Domestic Domestic Domestic

Foreign Domestic Foreign Domestic

30% RCIT EXEMPT*

Page 9 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Conditions for exemption of foreign-sourced dividend

Reinvestment shall be limited to funding the working capital requirements, capital

Page 10 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

Effective January 1, 2022

10% of their taxable

Page 11 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

7.5% final income tax rate

Capital gains from sale of

Page 12 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

Section 29 (A) of the 1997 Tax Code

Page 13 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

Page 14 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax Code CREATE

If Interest Income Tax is adjusted in the future,

Page 15 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax-free exchange [Section 40 (C) (2) of the Tax Code]

Non-recognition of gain or loss

VAT exempt on the sale or exchanges of property

Prior BIR confirmation or tax ruling shall not

Page 16 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax-free exchange [Section 40 (C) (2) of the Tax Code]

The transferee is a corporation

The transferee exchanges its shares of stock for property/ies of the

The transfer is made by a person, acting alone or together with others,

Page 17 SGV Webinar on CREATE Bill #SGVforABetterPhilippines

Tax-free exchange [Section 40 (C) (2) of the Tax Code]

Tax Code TRAIN 1 CREATE

January 1, 2021 Treatment? Effectivity?