13/02/2021

A REVIEW OF THE CREATE BILL

Richard R. Ibarra

Problem 1: Highest CIT in the ASEAN Region

Solution felt by the government -

CREATE seeks to vigorously fight the impact of COVID-19 and help get
business back on their feet as quickly as possible.

The revenue loss as a result of the CIT reduction will translate to:
• Companies can use it to fund their operations and employees
• Will boost cost competitiveness in doing business
• Closer CIT rate with the ASEAN neighboring countries

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Problem 2: Tax Incentives are too generous

Problem 2: Tax Incentives are too generous

Modernizing the fiscal incentive will allow the government to offer
superior incentives that are based on performance-based, strategically
targeted, time-bound, and fully transparent.

Ensuring that every peso granted as a tax incentive yields a net positive
benefit to society.

Forgone revenue

DOF website

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Solution felt by the government -

Modernizing the fiscal incentive system will allow the government to offer
superior incentives that are performance-based, strategically targeted, time
bound, and fully transparent.

It will encourage business to invest in industries and sector aligned with the
Philippine development agenda; and create higher-value jobs; incentives
upskilling and employee training, and promote investment in less developed
areas, and areas recovering from calamities or armed conflict.

Tax Reform 2 calls for

DOF website

Tax Reform 2 calls for

DOF website

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Tax Reform 2 calls for

DOF website

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Tax Reform 2 calls for

DOF website

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Corporate Recovery and Tax Incentives for

Enterprises Act (CREATE)

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CREATE (closer to becoming law)

• Corporate Recovery and Tax Incentives for Enterprises Bill

• CREATE has been approved by the bicameral conference committee

last February 3, 2021. Next is for the signature for the President.

• Prior bill term as TRABAHO and CITIRA

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Salient Feature of the CREATE BILL

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One Person Corporation (RA 11232 | RCC)

Term inclusion on the definition of the Corporation –

The term ‘corporation’ shall include ONE PERSON

CORPORATIONS, partnership, no matter how it was crated or
organized ….

Section 4 (Bill) which amends Section 22 (Tax Code)

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PCSO winning by a Non-

Non-Resident Alien

Aside from lotto winnings, winnings from other PSCO games

amounting to P10,000 or less by a nonresident alien individual shall
be exempt from income tax.

Section 5 (Bill) which amends Section 25 (Tax Code)

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Corporate Income Tax by a Domestic Corporation

Starting July 1, 2020, CIT will be reduced:

25% to domestic and resident foreign corporations

Section 6 (Bill) which amends Section 27 (Tax Code)

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Corporate Income Tax by a Domestic Corporation

Starting July 1, 2020, CIT will be reduced:

20% to domestic corporation with net taxable income not exceeding
P5M and with total assets not exceeding P100M (excluding land on used
in business)

Section 6 (Bill) which amends Section 27 (Tax Code)

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HDMF tax exemption

Home Development Mutual Fund (HDMF) shall be exempt from

income tax.

Section 6 (Bill) which amends Section 27 (Tax Code)

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Non-
Non-stock, Non-
Non-profit

For the period July 1, 2020 until June 30, 2023

Non-profit proprietary educational institutions and hospital shall
be taxed at 1%, instead of 10%

Section 6 (Bill) which amends Section 27 (Tax Code)

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Foreign source dividends

All dividends received by a domestic corporation shall be exempt
from income tax with the following exemption:

• Dividends were reinvested in the business operations in the

Philippines within the next taxable year from receipt date
• Dividends shall be used to funding of the working capital, capital
expenditures, dividend, investment in domestic subsidiaries, and
infrastructure project.

Section 6 (Bill) which amends Section 27 (Tax Code)

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Foreign source dividends

All dividends received by a domestic corporation shall be exempt
from income tax with the following exemption:

• hold directly at least 20% of the outstanding shares of the foreign

corporation for a minimum of 2 years at the time of dividend
distribution
• Dividends are actually received or remitted into the Philippines

Section 6 (Bill) which amends Section 27 (Tax Code)

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MCIT

For the period July 1, 2020 until June 30, 2023 :

MCIT shall be 1%, instead of 2%

Section 6 (Bill) which amends Section 27 (Tax Code)

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25% Tax Rate to NRFC

Effective January 1, 2021 :

Non-resident foreign corporations shall be subject to 25% of the
taxable income tax

Section 7 (Bill) which amends Section 28 (Tax Code)

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ROHQ subject to regular CIT

Starting January 1, 2022

Regional Operating Headquarter (ROHQ) will now be subject to
regular corporate income tax.

Section 7 (Bill) which amends Section 28 (Tax Code)

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Interest income derived by NRFC

Interest income earned by a resident foreign corporation under the

expanded foreign currency deposit system shall be subject to final
tax from 7.5% to 15%

Section 7 (Bill) which amends Section 28 (Tax Code)

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Capital Gain Tax

Capital gains from sale of shares of stocks not traded in the stock
exchange earned by a resident foreign corporation (RFC) and
nonresident foreign corporation (NRFC) shall be subject to final tax
from 5%/10% to 15%

Section 7 (Bill) which amends Section 28 (Tax Code)

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IAET

Improperly Accumulated Earning Tax is repealed.

Section 8 (Bill) which amends Section 29 (Tax Code)

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Additional deduction

Additional deduction equal to 50% of the value of labor training

expenses incurred for skills development of enterprise-based
trainees enrolled in public senior high schools, public higher
education institutions, or public technical and vocational
institutions duly covered by an apprentice agreement and for
which a proper certification from DepEd, TESDA, or CHED, provided
that such deduction shall not exceed 10% of direct labor wage.

Section 9 (Bill) which amends Section 34 (Tax Code)

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Interest Arbitrage

Interest arbitrage shall be reduced to 20% of interest income

subjected to final tax (currently at 33%).

Subject to further adjustment incase final tax on interest income

will be adjusted in the future.

Section 9 (Bill) which amends Section 34 (Tax Code)

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Tax free exchange on Reorganization

a. Merger or consolidation
b. Acquisition by a corporation of stock of another corporation in
exchange for shares, if immediately after the acquisition, the
acquiring control has control of the acquired corporation
c. Acquisition by a corporation in exchange for shares, of substantially
all of the properties of another corporation
d. Recapitalization
e. Reincorporation

Section 10 (Bill) which amends Section 40 (Tax Code)

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Tax free exchange on reorganization

BIR confirmation or ruling shall not be required for

purpose of availing the tax exemption

Section 10 (Bill) which amends Section 40 (Tax Code)

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Review of Withholding Tax Rules

DOF to review of the regulations and process for creditable

withholding taxes once every three years and amend the rules and
regulations for the same if found that they adversely impact the
taxpayers.

Section 11 (Bill) which amends Section 57 (Tax Code)

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VAT exempt threshold

• Residential lot - P2.5M and below (currently at P1.5M)

• House and lot and other residential dwellings - P4.2 and below
(currently at P2.5M)

Effective January 1, 2024 and every 3 years thereafter, the above

threshold shall be adjusted to its present value using the PSA’s consumer
price index.

Section 12 (Bill) which amends Section 109 (Tax Code)

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VAT exempt threshold

Start of January 1, 2021

Sale or importation of prescription drugs and medicines for cancer,

mental illness, tuberculosis, and kidney diseases.

Section 12 (Bill) which amends Section 109 (Tax Code)

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VAT exempt threshold

Start of January 1, 2021 to December 31, 2023

• Capital equipment, its spare parts and raw materials, necessary to

produce personal protective equipment components;
• All drugs, vaccines and medical devices specifically prescribed and
directly used for the treatment of COVID-19
• Drugs, including raw materials, for the treatment of COVID 19
approved by FDA for clinical trials

Section 12 (Bill) which amends Section 109 (Tax Code)

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Percentage tax lowered rate

For the period July 1, 2020 until June 30, 2023

The rate of Percentage Tax shall be adjusted from 3% to 1%.

Section 13 (Bill) which amends Section 116 (Tax Code)

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Refund

The 90-day period to grant refund shall apply also to applications

for refund of taxes erroneously or illegally paid or penalties
imposed without authority under Section 204(C) of the Tax Code.

In case of full or partial denial, the taxpayer may appeal the

decision to the CTA within 30 days from receipt of denial.

Section 14 (Bill) which amends Section 116 (Tax Code)

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Title XIII (NIRC) - Tax Incentives

• Introduction of new title in the Tax Code

• Re-sectioned / renaming existing Titles XIII and XIV

Section 16

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Chapter I
General Provision on Tax Incentives

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Chapter I: Tax and Duty Incentives

Section Discussion
291 Scope and Coverage
292 Extent of Authority to Grant Tax Incentives
293 Definitions

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Scope and Coverage

• Shall cover all existing investment promotion agencies.

• The Investment Promotion Agencies shall maintain their function
and powers.
• DOF, BIR , BOC shall still its mandate, powers, and function

Title VIII – Tax Incentives, Section 291

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Extent of authority to grant tax incentives

Fiscal Incentives Review Boar (FIRB) or the Investment Promotion

Agencies (IPAs) under the delegated authority from the FIRB, shall
grant incentives pursuant to the Tax Code based on the approved
activities under Strategic Investment Priority Plan (SIPP)

Title VIII – Tax Incentives, Section 292

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Term definitions

a. Capital Equipment
b. Direct Local Employment
c. Domestic Input
d. Domestic Market Enterprise
e. Export Enterprise
f. Freeport zones

Title VIII – Tax Incentives, Section 293

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Term definitions

g. Investment capital
h. Investment promotion agencies
i. Metropolitan Areas
j. Other government agencies
k. Other registered entities
l. Qualified capital expenditures

Title VIII – Tax Incentives, Section 293

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Term definitions
m. Registered business enterprise
n. Research and development
o. Sophisticated
p. Sophistication
q. Source documents
r. Special economic zone
s. Trainings

Title VIII – Tax Incentives, Section 293

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Chapter II
Tax and Duty Incentives

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Chapter II: Tax and Duty Incentives

Section Discussion
294 Incentives
295 Conditions of Availment
296 Period of Availment

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Incentives
A. Income Tax Holiday
B. Special Corporate Income Tax
C. Enhanced Deductions
D. Duty Exemption on Importation of Capital Equipment
E. VAT Exemption on importation and Zero-rating on local
purchases

Title VIII – Tax Incentives, Section 294

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Enhanced Deductions (additional deduction)

1. Depreciation allowance (i.e., 10% on building and 20% on
machineries and equipment)
2. 50% on the Labor Expense
3. 100% Research and Development
4. 100% Training Expense
5. 50% Domestic Input Expense

Title VIII – Tax Incentives, Section 294

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Enhanced Deductions (additional deduction)

6. 50% Power Expense
7. Reinvestment Allowance to Manufacturing Industry
8. Enhanced NOLCO for 5 years

Title VIII – Tax Incentives, Section 294

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Availment conditions

The ITH shall be followed by the Special Corporate Income Tax

(SCIT) or Enhanced Deductions (ED).

Title VIII – Tax Incentives, Section 295

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Availment conditions - ED
No Incentives Conditions
1 Depreciation Allowance Directly used to the related projects
(10% / 20%) / activities other than the admin and
support services
2 Labor Expense Shall not include salaries and
(50%) benefits received by managerial,
administrative, indirect labor, and
support services

Title VIII – Tax Incentives, Section 295

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Availment conditions - ED
No Incentives Conditions
3 Research and Development Apply to directly related to the
(100%) registered projects /activities
Limited to local expenses e.g.
salaries of Filipinos, consumables
4 Training Expense As approved by the IPA based on the
(100%) SIPP

Title VIII – Tax Incentives, Section 295

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Availment conditions - ED
No Incentives Conditions
5 Domestic Input Expense Utilized for the registered
(50%) activities/projects

6 Power Expense Utilized for the registered

(50%) activities/projects

7 Reinvestment Allowance Based on the SIPP

Title VIII – Tax Incentives, Section 295

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Availment conditions – Duty exemptions

1. Capital equipment, raw materials, spare parts are directly and
reasonable needed in the registered activities; and are not
produced or manufactured locally

2. With the approval of the IPA

Title VIII – Tax Incentives, Section 295

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Availment conditions – VAT exemptions

VAT exemption on importation and VAT zero-rating on local

purchases of goods and services directly and exclusively used in the
registered project or activity by a registered enterprise located
inside an ecozone or freeport.

Title VIII – Tax Incentives, Section 295

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Period of Availment
a. Export enterprise and domestic enterprise engaged in “critical”
activities – ITH of 4 to 7 years depending on location and
industry priorities, followed by SCIT or regular CIT with
enhanced deduction for 10 years

Critical activities are industries identified by NEDA to be crucial for

the national development.

Title VIII – Tax Incentives, Section 296

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Period of Availment

b. Domestic enterprise not engaged in “critical” activities - ITH of 4 to

7 years depending on location and industry priorities, followed by
SCIT or regular CIT with enhanced deduction for 5 years.

Note to avail of SCIT, the domestic enterprises must have a minimum

investment of capital of P500M.

Title VIII – Tax Incentives, Section 296

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Incentives will be based

1. Location of the registered activities

2. Industry of the registered activities

Title VIII – Tax Incentives, Section 296

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Location

1. National Capital Region

2. Metropolitan Areas or areas contagious and adjacent to NCR
3. All Other Areas

*Metropolitan areas shall be determined by NEDA

Title VIII – Tax Incentives, Section 296

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Industry

1. Tier I
2. Tier II
3. Tier III

Title VIII – Tax Incentives, Section 296

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Industry – TIER I
1. Have high potential job creation
2. Take place in sectors with market failure resulting in under
provision of basic goods and services
3. Generate value creation through innovation, upgrading or moving
up the value chain
4. Provide essential support for sectors that are critical to industrial
development
5. Emerging to potential comparative advantage

Title VIII – Tax Incentives, Section 296

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Industry – TIER I
• Agriculture
• Fishing
• Forestry
• Agribusiness Activities

Title VIII – Tax Incentives, Section 296

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Industry – TIER II

Activities that produce supplies, parts and components and

intermediate services that are not locally produced but are critical to
industrial development and import-substituting activities including
crude oil refining.

Title VIII – Tax Incentives, Section 296

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Industry – TIER III

1. Research and Development
2. Generation of new knowledge and intellectual property registered
in the Philippines
3. Commercialization of Patents
4. Highly Technical Manufacturing
5. Critical to the structural transformation of the economy and require
substantial catch-up efforts.

Title VIII – Tax Incentives, Section 296

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Industry – TIER III

• Agriculture
Require the employment of
• Fishing knowledge processing, modern
• Forestry science, data analytics, creative
content, engineering state, state
• Agribusiness Activities
of the art technologies.
• Other activities and services

Title VIII – Tax Incentives, Section 296

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Period of Incentives
For exporters and critical domestic market activities

Location TIER I TIER II TIER III

NCR 14 15 16
Metropolitan 15 16 17
Areas
All Other Areas 16 17 17

Title VIII – Tax Incentives, Section 296

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Period of Incentives
For Domestic Market Enterprise (Investment Capital is < P500M)

Location TIER I TIER II TIER III

NCR 4 ITH + 5 ED/SCIT 5 ITH + 5 ED/SCIT 6 ITH + 5 ED/SCIT

Metropolitan 5 ITH + 5 ED/SCIT 6 ITH + 5 ED/SCIT 7 ITH + 5 ED/SCIT

Areas
All Other Areas 5 ITH + 5 ED/SCIT 7 ITH + 5 ED/SCIT 7 ITH + 5 ED/SCIT

Title VIII – Tax Incentives, Section 296

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Industry – TIER III

1. Research and Development
2. Generation of new knowledge and intellectual property registered
in the Philippines
3. Commercialization of Patents
4. Highly Technical Manufacturing
5. Critical to the structural transformation of the economy and require
substantial catch-up efforts.

Title VIII – Tax Incentives, Section 296

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Chapter III
The Fiscal Incentive Review Board

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Chapter III : The Fiscal Incentive Review Board (FIRB)

Section Discussion
297 Expanded Function of the FIRB
298 Composition of the FIRB
299 Structure and Staffing Pattern

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Chapter IV
Qualified Projects or Activities for Tax
Incentives

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Chapter IV : Qualified Projects or Activities for Tax

Incentives

Section Discussion
300 Strategic Investment Priority Plan
301 Power of the President to Grant Incentives
302 Amendments of the SIPP
303 Publications
304 Qualification of Registered Business Enterprise for
Tax Incentives

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Strategic Investment Priority Plan (SIPP)

• BOI, FIRB, IPA, Other Gov’t Agencies, Private Sectors shall formulate the
SIPP to be endorsed to the President.

• Includes recommendation for types of non-fiscal support needed to

create a high-skill jobs to grow a local pool of enterprise

Title VIII – Tax Incentives, Section 300

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Strategic Investment Priority Plan (SIPP)

MSME (Micro, Small, Medium Enterprise)

• Increase sophistication of product and services

• Expand domestic supply and reduce dependence to importation
• Attract significant foreign capital investment

Title VIII – Tax Incentives, Section 300

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Strategic Investment Priority Plan (SIPP)

SIPP is valid for 3 years and subject to review every 3 years.

A. Priority Projects (Phil Development Plan)

B. Scope and Coverage of location and industry
C. Terms and conditions on the enhanced grant of deductions

Title VIII – Tax Incentives, Section 300

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Publication

SIPP is to be published at least one newspaper in general circulation

Title VIII – Tax Incentives, Section 303

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Power of the President

• Powers of the President to grant tax incentives

• The President may modify the mix, period or manner of availment of
incentives for a highly desirable project subject to certain conditions
and recommendations of the FIRB. The grant of ITH shall not exceed
8 years and thereafter, 5% SCIT may be granted, provided that the
total of availment shall not exceed 40 years.

Title VIII – Tax Incentives, Section 301

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Qualification of a registered business enterprise

a. Should engaged in activity under the SIPP

b. Should meet the target performance metrics after agreed time
period
c. Should install adequate accounting systems that can identify the
investments, revenue, costs and profit for each activity or establish
a separate corporation for each registered project activity
d. Should comply with e-receipting and e-sales requirement
e. Should submit annual reports of beneficial ownership of the
organization and related parties

Title VIII – Tax Incentives, Section 304

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Chapter V
Tax Incentives Management and
Transparency

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Chapter V: Tax Incentives Management and

Transparency
Section Discussion
305 Filing of tax Returns and submission of tax incentives
306 Monitoring, Evaluation, and Reporting of Tax
Incentives
307 Conduct of impact of evaluation on tax incentives
308 Penalties for non-compliance with filing and
reportorial requirements

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Filing of Tax Returns

a. Use of the electronic system for filing and payment with BIR
b. File annual tax incentives report and annual benefits to respective
IPA

Title VIII – Tax Incentives, Section 304

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Penalties for non-

non-compliance

Non-compliance with the filing and reportorial requirements:

1st offense – P100K

2nd offense – P500K
3rd offense – Cancellation

Title VIII – Tax Incentives, Section 308

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Chapter VI
Transitory and Miscellaneous Provision

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Chapter VI: Transitory and Miscellaneous Provision

Section Discussion
309 Prohibition on Registered Activities
310 Establishment of one-step action centers
311 Investment prior to the effectivity of the Act

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Prohibition of Registered Activities

• Enterprises shall be exclusively operated within the geographical

boundaries.

• Outside the geographical boundaries are not entitled to the

incentives.

Title VIII – Tax Incentives, Section 309

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Establishment of one Stop Action Center

Ensuring the Ease of Doing Business and Efficient Government Service
delivery Act of 2018

All IPA + Coordinating LGU Bodies + Other Government Agencies

Title VIII – Tax Incentives, Section 310

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Investment prior to CREATE

If granted ITH only, existing registered enterprise may still avail of the
ITH for the remaining ITH period

Title VIII – Tax Incentives, Section 311

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Investment prior to CREATE

If granted ITH and 5% GIT, after the ITH or if granted 5% GIT only,
existing registered enterprise may avail of 5% GIT for 10 years

Title VIII – Tax Incentives, Section 311

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Investment prior to CREATE

Registered Business Enterprise currently availing of the 5% GIT prior to

the effectivity of this ACT shall be allowed to continue availing of the
said tax incentives at the rate of 5% for 10 years.

Title VIII – Tax Incentives, Section 311

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End of
Presentation

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