Tax Guide on CREATE Law


(1st of 2 parts)

On March 26 this year, President Duterte signed into law RA 11534, otherwise known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. It is another landmark legislation of the Duterte Administration which took effect on April 11.

The CREATE Act is the second package of the Comprehensive Tax Reform Program that reduces the corporate income tax (CIT) rate from 30% to 20%. The following are its salient features:

1. CIT rate is reduced from 30% to 25% for large corporations, and 20% for small and medium corporations with net taxable income not exceeding P5 million, and total assets not exceeding P100 million (excluding land) effective July 1, 2020;

2. Minimum CIT (MCIT) rate is reduced from 2% to 1% effective July 1, 2020 to June 30, 2023;

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

4. The improperly accumulated earnings tax shall no longer be imposed on corporations upon the effectivity of the CREATE onwards;

5. Qualified export enterprises shall be entitled to four to seven years Income Tax Holiday (ITH) to be followed by 10 years 5% Special CIT (SCIT) or enhanced deductions;

6. Qualified domestic market enterprises shall be entitled to four to seven years ITH to be followed by five years enhanced deductions;

7. 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 project or activity;

8. Value-Added Tax (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);

9. For investments prior to the 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.

The Bureau of Internal Revenue (BIR) issued several revenue regulations to fully implement the CREATE Law. For easy reference, here’s a summary list of revenue issuances dated April 8, 2021:

a. RR No. 2-2021 which amends certain provisions of RR No. 2-98, as amended, to implement the amendments introduced by the CREATE Act to the National Internal Revenue Code (NIRC) of 1997, as amended, relative to the Final Tax on certain passive income;

b. RR No. 3-2021 prescribes the rules and regulations to implement Section 3 of the CREATE Act, amending Section 20 of NIRC of 1997;

c. RR No. 4-2021 implements the provisions on VAT and Percentage Tax under the CREATE Act, which further amended the NIRC of 1997, as amended, as implemented by RR No. 16-2005, as amended;

d. RR No. 5-2021 implements 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 the CREATE Act, which further amended the NIRC of 1997.

To serve as a tax guide especially for small and medium enterprises (SMEs), here are some of the most frequently asked questions on the CREATE Law:

1. Will small businesses benefit from CREATE law? How about one-person corporations?

Yes. Small corporations including one-person corporations with net taxable income not exceeding P5 million and total assets not exceeding P100 million (excluding land) will be subject to only 20% CIT effective July 1, 2021.

2. Is the reduced percentage tax from 3% to 1% applicable even to individual taxpayers?

Yes. It’s applicable to all non-VAT registered taxpayers with annual gross sales of P3 million and below, effective July 1, 2021 to June 30, 2023.

3. If you filed an annual income tax return before the issuance of revenue regulations on CREATE law, can you amend it to apply the reduced CIT rate?

Yes. RMC 46-2021 allows amendment of filed tax returns on or before May 15, 2021 without penalty. Any excess payment due to the reduced tax rate may be carried over as credit in the next period or may be filed for refund.

4. Is there a reduced income tax rate of 20% applicable to foreign corporations?

No. It’s only for domestic MSME corporations. Foreign corporations subject to the regular rate will use 25% similar to other domestic corporations.

5. Are non-stock and non-profit proprietary educational institutions still exempt under the CREATE law? How about the non-profit and proprietary educational institutions and hospitals?

Yes. The income tax exemptions granted to non-stock and non-profit proprietary educational institutions were not repealed. Non-profit and proprietary educational institutions will be subject to a reduced special rate of 1% effective July 1, 2020 to June 30, 2023.

To know more about the CREATE law, you can watch the BIR’s free webinar on its Facebook and YouTube channel. You may also join the Elite Taxpayer Circle and attend the exclusive CREATE webinar for free which was organized by the Asian Consulting Group. For inquiries, send an e-mail to or call +632 7622-7720.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.

Raymond “Mon” A. Abrea is a member of the MAP Ease of Doing Business Committee, the Founding Chair and Senior Tax Advisor of the Asian Consulting Group and the Co-Chair of the Paying Taxes — EODB Task Force. He is Trustee of the Center for Strategic Reforms of the Philippines — the advocacy partner of the Bureau of Internal Revenue, Department of Trade and Industry, and Anti-Red Tape Authority on ease of doing business and tax reform.