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Updated: Jul 10, 2021

Corporate Recovery And Tax Incentives for Enterprises Act

The Philippine President Rodrigo R. Duterte has signed into law the Republic Act No. 11534, otherwise known as the “Corporate Recovery and Tax Incentives for Enterprises” or CREATE Act, on March 26, 2021.

The CREATE Act is the second package of the Comprehensive Tax Reform Program that reduces Income Tax rates from 30% to 25% for corporate taxpayers in general, and to 20% for other corporate taxpayers, subject to certain qualifications, effective July 1, 2020.

Also, it provides other tax relief measures that will help businesses recover from the effects of the COVID-19 pandemic as well as measures that will rationalize the grant of fiscal incentives to targeted investors.

The CREATE Act took effect on April 11, 2021, fifteen (15) days after its complete publication on March 26, 2021, in the Official Gazette or in a newspaper of general circulation.


1. Effective July 1, 2020, corporate Income Tax rate is reduced from 30% to 20% for domestic corporations with net taxable income not exceeding P5 Million and with total assets not exceeding P100 Million. All other domestic corporations and resident foreign corporations will be subject to 25% Income Tax.

2. Effective January 1, 2021, Income Tax rate for non-resident foreign corporation is reduced from 30% to 25%.

3. Minimum Corporate Income Tax (MCIT) rate is reduced from 2% to 1% effective July 1, 2020 to June 30, 2023.

4. Percentage Tax is reduced from 3% to 1% effective July 1, 2020 to June 30, 2023.

5. Rate of proprietary education institutions and hospitals is reduced from 10% to 1% effective July 1, 2020 to June 30, 2023.

6. Imposition of Improperly Accumulated Earnings Tax (IAET) is repealed.

7. Definition of “reorganization”, for purposes of applying the tax-free exchange provision under Section 40(C)(2), is expanded. Prior BIR ruling or confirmation shall not be required for purposes of availing the tax exemption of the exchange.

8. Qualified export enterprises shall be entitled to 4 to 7 years Income Tax Holiday (ITH) to be followed by 10 years 5% Special Corporate Income Tax (SCIT) OR Enhanced Deductions.

9. Qualified domestic market enterprises shall be entitled to 4 to 7 years ITH to be followed by 5 years Enhanced Deductions.

10. Registered enterprises are exempt form customs duty on importation of capital equipment, raw materials, spare parts, or accessories directly and exclusively used in the registered project or activity.

11. VAT exemption on importation and VAT zero-rating on local purchases shall only apply to goods and services directly and exclusively used in the registered project or activity by a Registered Business Enterprise (RBE).

12. For investments prior to effectivity of CREATE – RBEs granted only an ITH shall continue with the availment of the ITH for the remaining period of the ITH while RBEs granted an ITH + 5% Gross Income Tax (GIT) or currently enjoying 5% GIT shall be allowed to avail of the 5% GIT for 10 years.


1. Increasing VAT-exempt threshold on sale of residential lot from P1.5 Million to P 2.5 Million and house and lot from P2.5 Million to P4.2 Million. – The tax exemption is highly distorting and prone to abuse.

2. 90-day for the processing of general tax refunds – May cause damage or more delays to the prejudice of taxpayers. Legislature, DOF and BIR to come up with mechanism to streamline the processing of tax refunds in a separate bill.

3. Definition of “investment capital” to exclude land and working capital – May lead to an underestimation of investment promotion performance.

4. Redundant incentives for domestic corporations – The Special Corporate Income Tax (SCIT) for domestic enterprise, which is in lieu of all local and national taxes, is redundant, unnecessary, and weakens the fiscal incentives system.

5. Allowing existing registered activities to apply for further extensions of new incentives for the same activity.

6. Limitations on the power of the Fiscal Incentives Review Board (FIRB) – 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.

7. Specific industries mentioned under activity tiers – The CREATE Act must be kept flexible to be able to keep up with the changing times.

8. Provision granting the President the power to exempt any Investment Promotion Agency (IPA) from the reform – Could become a highly political tool.

9. Automatic approval of applications for incentives – The FIRB or the IPA should be allowed to carefully review the application for tax incentives since these are privileges granted by the State.


Following the passage into law of the CREATE Act, the BIR has issued four (4) Revenue Regulations (RRs) on April 8, 2021 to implement the tax provisions of the law. Said regulations are the following:

Ø RR NO. 2-2021 – amends certain provisions of RR No. 2-98, as amended, to implement the amendments introduced by RA No. 11534 (CREATE Act) to the NIRC of 1997, as amended, relative to the Final Tax on certain passive income.

Ø RR No. 3-2021 – prescribes the Rules and Regulations to implement Section 3 of RA No. 11534 (CREATE Act), amending Section 20 of the NIRC of 1997, as amended.

Ø RR No. 4-2021 – implements the provisions on Value-Added Tax (VAT) and Percentage Tax under RA No. 11534 (CREATE Act), which further amended the NIRC of 1997, as amended, as implemented by RR No. 16.-2005, as amended.

Ø RR No. 5-2021 – implements the new Income Tax rates on the regular income of corporations, on certain passive incomes, including additional allowable deductions from gross income of persons engaged in business or practice of profession pursuant to RA No. 11534 (CREATE Act), which further amended the NIRC of 1997.

(Copy of the full digest and full text of the said Revenue Regulations are posted in the BIR website ( under the CREATE section.)


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