RA 11534 – CORPORATE RECOVERY & TAX INCENTIVES FOR
ENTERPRISES ACT (CREATE) (“Retroactive application shall not be allowed unless the law itself
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.
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.)
Ä 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.
Ä 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).
Ä 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.)
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%)

8. Intra-corporate dividends earned by NRFC from domestic 16.
corporation at 10% starting July 1, 2020 provided the required
tax credit in the domicile country is 15%. (OLD – 15%)
17.
9. NOLCO sustained in 2020 and 2021 may be carried over to the
succeeding five (5) years. [OLD three (3) years]
Improperly Accumulated Earnings Tax (IAET) of 10% is
repealed.
Definition of reorganization for purposes of applying the tax-free
exchange provision under Sec. 40(C)(2) of the Tax Code is
expanded.

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.]
Ä 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.
Ä Prior BIR Ruling or confirmation shall not be required for
purposes of availing the tax exemption of the exchange.

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18. Medicine for diabetes, cholesterol-control, and hypertension 26.
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. 27.
19. Sales or importation of capital equipment, its spare parts and
raw materials necessary for the production of PPEs (Personal 28.
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.
29.
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.
30.
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 VETOED ITEMS by President Duterte:
project or activity.
1.
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 2.
registered business enterprise (RBE).
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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.
Additional tax incentives to corporation relocating their
operations outside the NCR.
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.
Enhanced deductions for depreciation, labor training, Research
& Development expenses, domestic input expense, power
expense, investment allowance.
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.
Increasing threshold of house and lot to Php 4.2M for VAT
exemption. (Still at Php 2.5M)
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)
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.
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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
JPL/March 31, 2021
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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.
Ä 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.
 Ä The release of subject articles shall not be subject to the
issuance of Authority to Release Imported Goods (ATRIG)
from the Bureau of Customs.
Ä 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.
Ä 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 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.
Ä 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.
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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.
Ä The Notice of Informal Conference (NIC) is now replaced
by Notice of Discrepancy (NOD)
(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.
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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
Ä Donations of identified equipment (personal computers,
tablets, laptops, mobile phones, printers) to PUBLIC
schools shall be exempt from Donor’s Tax.
Ä The acquisition cost of such donated equipment shall be
deductible from gross income of the donor.
Ä If such donated item is imported by DepEd, CHED or
TESDA the importation shall be exempt from VAT, excise
tax and other fees.
Ä The input tax on purchase of equipment may be credited
against the output tax of the donor.
Ä If the donor is a PEZA Registered Enterprise, it shall enjoy
the same privileges herein provided.
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.
Ä Exemptee must have Certificate of License to operate
issued to the manufacturer-buyer by the FDA-DOH.
Ä 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:
RR No. 30-2020, October 30, 2020
(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.
Ä 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.
Ä 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.
Ä 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.
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(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.
New taxes introduced applicable to gaming and non-
gaming operations as additional stimulus measures to
address the impact of COVID 19 in our country.
Ä 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.
Ä Regular income tax and other applicable taxes imposed on
income from non-gaming operations.
Ä Violators shall be subject to penalties under Sec. 248 -(B),
249(B), 253 and 255 of the Tax Code.
Ä BIR is authorized to implement closure orders against
violators that fail to pay the taxes.
Ä 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.
Ä 1% on purchase of goods (tangible only)
Ä 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.
Ä 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.
Ä 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 overclaimed
deductions by more than 30%, or (2) a verifiable
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information to the BIR that taxpayer withheld taxes but
failed to remit the same.
Ä 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.
Ä 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.
Ä 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.
Ä 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.
 Ä The maximum purchase subject to 5% special discount is
Php 1,300.00 per week.
Ä The said amount shall be spent on at least four (4) kinds
of items listed as basic and prime commodities.

ALL RIGHTS RESERVED

JPL/March 23, 2021

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