R.A.

11534 (Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)

R.A. 11534 or CREATE Law was signed into law by President Rodrigo Duterte on
March 26, 2021 and will be effective fifteen (15) days from publication to the
official gazette. The law is intended to recover from economic recession and to
advance towards corporate healing as part of COVID-19 tax stimulus package.

The following are the changes brought about by the CREATE law:

INCOME TAX
PRIOR TO CREATE LAW UNDER THE CREATE LAW
(R.A. 11534) (R.A. 11534)
The definition of corporation does The law recognizes one person corporation as
A. not include one person corporation. part of definition of corporate income taxpayer.
(Sec. 4 amending Sec. 22 [b])
Passive Income of Non-Resident Passive Income of Non-Resident Alien Engaged
B. Alien Engaged in Trade or Business in Trade or Business

PSCO/Lotto Winnings PSCO/Lotto Winnings

Amount is <=P10,000 --Exempt
Amount is > P10,000 --Exempt
C. Corporate income tax is 30%.
D. Proprietary educational institutions
and hospitals taxed at the rate of
10%.
E. Exempt government owned and
controlled corporations (GOCCs)
exclude Home Development Mutual
Fund (HDMF).
Amount is <=P10,000 --- Exempt
Amount is > P10,000 --- 20%
Corporate income tax of domestic corporation
has been reduced to 25% effective July 1,
2020 . But corporations with taxable net income
not exceeding P5,000,000 and with total
assets not exceeding P100,000,000
excluding land on which the particular business
entity’s office, plant and equipment are
situated during the taxable year shall be taxed
at 20%.
Proprietary educational institutions and
hospitals are taxed at 1% beginning July 1,
2020 to June 30, 2023. On July 1, 2023, the
rate will revert to 10%. (Rev. Reg. 5-2021)
Exempt GOCCs now include Home Development
Mutual Fund (HDMF).

Inter-corporate dividend received by

F. Intercorporate dividend received by
domestic corporation from domestic
corporation is exempt.
domestic corporation is exempt.
Provided, that foreign-sourced dividends to be
exempt, the funds from such dividends actually
received or remitted into the Philippines are
reinvested in the business operations of the
domestic corporation in the Phils. within the
next taxable year from the time received,
limited to funding working capital req uirements,
capital expenditures, dividend payments,
investments in domestic subsidiaries &
infrastructure project.

Provided further, the domestic corporation

holds at least 20% of outstanding shares of
the foreign corporation and has held the
shareholdings for a minimum of two (2)
years at the time of dividend distribution .

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 R.A. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)
PRIOR TO CREATE LAW
(R.A. 11534)
G. Minimum Corporate Income Tax
(MCIT) is 2% of gross income.
H. Corporate income tax is 30%.
Regional operating headquarters
I. (ROHQs) of multinational companies
are subject to tax at 10% of taxable
income.
Interest income on expanded
J. foreign currency deposit system.
DC RFC NRFC
15% 7.5% Exempt
Capital gain on sale of shares of
stock not traded in the local stock
H. exchange for both RFC and NRFC is
5% for the first P100,000 and 10%
in excess of P100,000 capital gain.
Non-resident foreign corporations
are taxed at 30% based in gross
I. income. The intercorporate dividend
received from domestic corporation
is 15% subject to tax sparing credit
rule.
J. There is improperly Accumulated
Earnings Tax (IAET)
K. No deduction for labor training
expenses for apprenticeship
program.
The amount of interest paid or incurred
within a taxable year on indebtedness in
connection with the taxpayer's
profession, trade or business shall be
L. allowed as deduction from gross
income: Provided, however, That the
taxpayer's otherwise allowable deduction
for interest expense shall be reduced by
forty-two percent (42%) of the
interest income subjected to final
tax: Provided, That effective January 1,
2009, the percentage shall be thirty-three
percent (33%).
The exceptions on the non-recognition of
gain or loss under Sec. 40 (c) is limited to
M. (a) a corporation, which is a party to a
merger or consolidation, exchanges
property solely for stock in a corporation,
Atty. P.C. De Jesus
UNDER THE CREATE LAW
(R.A. 11534)
Minimum Corporate Income Tax (MCIT) is 1%
of gross income (July 1, 2020 to June 30,
2023). Notably, starting July 1, 2023, the MCIT
will again revert to 2%. Applicable to both
domestic and resident foreign corporations.
(Rev. Reg. 5-2021)
Corporate income tax of resident foreign
corporation has been reduced to 25% effective
July 1, 2020 .
ROHQs of multinational companies are subject
to 10% of taxable income, but beginning
January 1, 2022, ROHQs are subject to
regular corporate income tax.
Interest income on expanded foreign currency
deposit system.
DC RFC NRFC
15% 15% Exempt
Capital gain on sale of shares of stock not
traded in the local stock exchange for both
RFC and NRFC is 15% of the net capital
gain.
Non-resident foreign corporations are taxed at
25% based in gross income. Ho wever,
effective January 1, 2021, the intercorporate
dividend received from domestic corporation
can credit against the tax due equivalent to the
difference between 25% and 15%, which is
10% on dividends.
There is no more IAET and Sec. 29 NIRC has
been repealed by Sec. 8.
There is additional deduction from taxable
income of ½ of 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 covered by apprenticeship program,
provided there is certification fr om DepEd,
TESDA or CHED, and the deduction shall not
exceed 10% of direct labor wage.
The amount of interest paid or incurred within a
taxable year on indebtedness in connection with the
taxpayer's profession, trade or business shall be
allowed as deduction from gross income: Provided,
however, That the taxpayer's otherwise allowable
deduction for interest expense shall be reduced by
twenty percent (20%) of the interest income
subjected to final tax: Provided finally, That if the
interest income tax is adjusted in the future, the
interest expense reduction rate shall be adjusted
accordingly.
It is already recognized that no gain or loss
shall be recognized on a corporation or on its
stock or securities if such corporation is a party
to a reorganization and exchanges property in
pursuance of a plan of reorganization solely for
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 R.A. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)

which is a party to the merger or stock or securities in another corporation that

consolidation; or (b) A shareholder is a party to the reorganization.
exchanges stock in a corporation, which
is a party to the merger or consolidation,
solely for the stock of another
corporation also a party to the merger or x x x
consolidation; or (c) A security holder of
a corporation, which is a party to the That in all of the instances of exchange of
merger or consolidation, exchanges his property, prior BIR confirmation or tax ruling is
securities in such corporation, solely for not required for purposes of availing tax
stock or securities in such corporation, a exemption.
party to the merger or consolidation.

VALUE ADDED TAX AND OTHER PERCENTAGE TAX

PRIOR TO CREATE LAW UNDER THE CREATE LAW
(R.A. 11534) (R.A. 11534)

Exemption under Sec. 109

(P) Sale of real properties not primarily held Retained due to President’s veto.
for sale to customers or held for lease in
A. the ordinary course of trade or business or
real property utilized for low-cost and
socialized housing as defined by Republic
Act No. 7279, otherwise known as the
Urban Development and Housing Act of
1992, and other related laws, residential lot
valued at One million pesos
(P1,500,000) and below, house and lot,
and other residential dwellings valued at
two million five hundred thousand
pesos (P2,500,000) and below: Provided,
That beginning January 1, 2021, the VAT
exemption shall only apply to sale of real
properties not primarily held for sale to
customers or held for lease in the ordinary
course of trade or business, sale of real
property utilized for socialized housing as
defined by Republic Act No. 7279, sale of
house and lot, and other residential
dwellings with the selling price of not more
than Two million pesos (P2,000,000).

(R) Sale, importation, printing or publication of books

(R) Sale, importation, printing or
B. publication of books and any newspaper,
magazine review or bulletin which
appears at regular intervals with fixed
prices for subscription and sale and which
is not devoted principally to the
publication of paid advertisements;
(AA) Sale of or importation of prescription
C. drugs and medicines for: (i) Diabetes,
high cholesterol, and hypertension
beginning January 1, 2020; and (ii)
Cancer, mental illness, tuberculosis, and
kidney diseases beginning January 1,
2023. x x x
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 digital or electronic
format thereof; provided, that the materials
enumerated herein are not devoted principally to the
publication of paid advertisements.
(AA) Sale of or importation of prescription drugs and
medicines for: (i) Diabetes, high cholesterol, and
hypertension beginning January 1, 2020; and (ii)
Cancer, mental illness, tuberculosis, and kidney
diseases beginning January 1, 2021. x x x

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 R.A. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)

The exemption on the sale or

D. importation of capital equipment,
medical supplies, face mask etc.,
medicines, treatments approved by
Food and Drug Administration with
certification from Department of
Trade and Industry is only provided
in R.A. 11494 (Bayanihan to
Recover as One Act).
E. The rate of other percentage tax under
Sec. 116 is 3%.
The exemption on the sale or importation of
capital equipment, medical supplies, face mask
etc., medicines, treatments approved by Food
and Drug Administration with certification from
Department of Trade and Industry is already
integrated in R.A. 11534 (CREATE Law).
Effective July 1, 2020 until June 30, 2023 , the
rate of other percentage tax is 1% (Sec. 13
amending Sec. 16 NIRC).

TAX REMEDIES
PRIOR TO CREATE LAW
(R.A. 11534)
(C) Credit or refund taxes
erroneously or illegally received or
A. penalties imposed without
authority, refund the value of internal
revenue stamps when they are returned
in good condition by the purchaser, and,
in his discretion, redeem or change
unused stamps that have been rendered
unfit for use and refund their value upon
proof of destruction. No credit or refund
of taxes or penalties shall be allowed
unless the taxpayer files in writing with
the Commissioner a claim for credit or
refund within two (2) years after the
payment of the tax or penalty: Provided,
however, That a return filed showing an
overpayment shall be considered as a
written claim for credit or refund. x x x
UNDER THE CREATE LAW
(R.A. 11534)
This has been inserted:
x x x
Provided, furthermore, that should the CIR find
that the grant of refund is not proper, the CIR
must state in writing the legal and factual basi s
for the denial. Provided finally, that in case of
full or partial denial of the claim for tax refund ,
the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying
the claim, appeal the decision with the Court of
Tax Appeals.

INSERT OF NEW TITLE ON “TAX INCENTIVES”

UNDER TITLE XIII
(Covers Investment Promotion Agencies 1)

Creation of the Fiscal Incentives Review Board (FIRB), which shall grant the appropriate tax
incentives to registered business enterprises only to the extent of the approved registered project
or activity under the Strategic Investment Priority Plan and formulate place-specific strategic
investment plans during the periods of recovery from calamities and post-conflict situations.
A.
The grant of tax incentives to registered projects or activities with investment capital of
P1,000,000,000 and below shall be delegated to the concerned Investment Promotion Agency to
the extent of the registered project or activity.
FIRB shall recommend to the President the grant of appropriate non-fiscal incentives in
accordance with the Strategic Investment Priority Plan for highly desirable projects based on
benefit-cost analysis approved by FIRB with schedule of budget.

The President is granted the power to grant incentives, the grant of income tax holiday shall not
exceed eight (8) years and SCIT of five percent (5%) and the total period of incentive
availment shall not exceed forty (40) years.

1Such as Board of Investments (BOI), Regional Board of Investments – Autonomous Region in Muslim Mindanao (RBOI-ARMM),
Philippine Economic Zone Authority (PEZA), Bases Conversion and Development Authority (BCDA), Subic Bay Metropolitan
Authority (SBMA), Clark Development Corporation (CDC), John Hay Management Corporation (JHMC), Poro Point Management
Corporation (PPMC), Cagayan Economic Zone Authority (CEZA), Zamboanga City Special Economic Zone Authority (ZCSEZA),
PHIVIDEC Industrial Authority (PIA), Aurora Pacific Economic Zone and Freeport Authority (APECO), Authority of the Freeport
Area of Bataan (AFAB), Tourism Infrasctructure and Enterprise Zone Authority (TIEZA).

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 R.A. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)

B. Composition of the FIRB: (a) Secretary of Finance, Chairperson, (b) Secretary of Trade and
Industry, Co-Chairperson, (c) Executive Secretary of the Office of the President, Secretary of
Budget and Management, Director General of the national Economic and Development Authority, as
members.

Grant of incentives (a) income tax holiday; (b) special corporate income tax (SCIT) rate of five
percent (5%) in lieu of all national and local taxes for export enterprises; (c) enhanced deductions
C. (ED); (d) duty exemption on importation of capital equipment, raw materials, spare parts or
accessories directly and exclusively used in the registered project or activity with approval of IPA;
(e) VAT exemption on importation and Vat zero-rating on local purchases.
Income tax holiday shall be followed by SCIT and EDs, but in no case that ED be granted
simultaneously with SCIT.

Income tax holiday of four (4) to seven (7) years depending on location and industry priorities
D. and followed by SCIT or EDs for ten (10) years or five (5) years. The period shall commence
from the actual start of commercial operations with the registered business enterprise availing of
the tax incentives within three (3) years from date of registration unless provided in the
Strategic Investment Priority Plan, may be extended for a period not exceeding ten (10) years
at any one time.

In addition to the incentives provided in tiers of projects or activities of registered enterprises

located in areas recovering from armed conflict or a major disaster, as determined by the Office of
the President, shall be entitled to two (2) additional years of income tax holiday and three (3)
years in case of complete relocation from National Capital Region.

The FIRB shall decide on issues, on its own initiative or upon the recommendation of the IPA,
E. after due hearing, concerning the approval or disapproval of tax incentives or subsidy within
ninety (90) days from date submitted for resolution. A business enterprise adversely affected
by the decision of the FIRB may, within thirty (30) days from receipt of decision appeal to
the Court of Tax Appeals.

The following are the vetoed items:

 The VAT-exempt threshold on the sale of real property to up to PHP4.2 million.

 The proposed 90-day period for the processing of general tax funds due to “administrative
impracticability” as it would be difficult for the Bureau of Internal Revenue (BIR) to
implement the proposal.
 The definition of investment capital, which excludes the value of land and working capital.
 The “redundant” incentives for domestic enterprises that is “unnecessary” and “weakens the
fiscal incentives system.” The generous, targeted, and performance-based enhanced
deductions to domestic activities in priority sectors under CREATE law are already sufficient
incentives.
 The proposal to allow existing registered activities to apply for new incentives since this is
fiscally irresponsible and utterly unfair to the ordinary taxpayer and to unincentivized
enterprises. The principle must be: only new activities and projects deserve new incentives.
 Limitation on the power of the Fiscal Incentives Review Board, as well as the enumerated
industries that either do not merit support through incentives or are expected to become
obsolete in the short-term.
 The proposed provision enabling the President to exempt any investment promotion agency
from the reform as it is contrary to the government’s steps in rationalizing our fiscal
incentives system. It can also be used as a highly political tool dismantling and disregarding
studies and discussions based on empirical evidence. Exempting any investment promotion
agency from the CREATE Act, which provides for transparency, accountability, and proper
administration of tax incentives, may be used as an escape from the accountability
measures.
 The automatically approve applications for incentives if not acted within 20 days as it is
contrary to the declared policy to approve or disapprove applications based on merit.

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