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BIR Updates: Understanding CREATE Bill



  • CREATE Bill Status Update

  • Extension of ITR filing for Corporations

Reforms on Corporate Income Tax

  • Reduction of corporate income tax

  • Corporate income tax rate (1997-CREATE)

  • Corporate vs Individual

  • Experience with changes in tax rates

  • Adjustment in the interest expense arbitrage rate

  • Reduction of MCIT 

  • Reduction of corporate income tax for educational institution and hospitals, ROHQ, and OBU

  • Repeal of 10% IAET

  • Additional deductions of labor training expense

  • Inclusion of HDMF in the list of tax exemptions

  • Inclusion of “one-person corporation”

  • CREATE Disclosures in the AFS

Reforms on Taxation of Passive Income

  • Tax exemption of foreign-sourced dividends

  • Tax on gains on sale of shares of stocks not listed and traded on the stock exchange

  • Final withholding tax on interest income on foreign currency bank deposits


Reforms on Value-Added Tax and Percentage Tax

  • Reduction of percentages tax for non-VAT taxpayers

  • Increase in the VAT-exemption threshold on the sale of residential house and lot and other dwellings

  • COVID-19 related tax reliefs

  • VAT exemption of publications, medicine and crude oil


Reforms on Fiscal Incentives

  • Tax incentives for registered business enterprises under CREATE

  • List of enhanced deductions

  • Qualifications of registered business enterprises

  • Categories of registered business enterprises and tax incentives entitlements

  • Summary of income tax incentives for register enterprises under CREATE

  • Strategic investment priority plan (SIPP)

  • Location of the Project/Activity

  • Industry Tiers

  • Duration of tax incentives based on location and industry tiers

  • Fiscal Incentives Review Board

  • Delegated Authority

  • Power of the President to Grant Incentives

Other Reform Measures

  • Tax exemption of transactions under Section 40 (C)(2)

  • 90-Day refund for erroneously paid taxes

  • Others 


Transition Rules

  • Transition rules under Section 311 for existing enterprises enjoying tax incentives

  • What’s next after the expiration of the transition period

  • Expansion of new project of existing register enterprises

  • Relocated projects of existing registered enterprises

  • Facebook

The President signed into law today, 26 March 2021, Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, with line-item vetoes.  

CREATE introduces reforms in the areas of corporate income tax, value-added tax (VAT), and tax incentives, aside from providing COVID-19 related tax reliefs to taxpayers. Effective 1 July 2020, domestic corporations with total assets not exceeding P100 million and net taxable income of P5 million and below shall be subject to 20% tax; other domestic corporations and resident foreign corporations will be subject to 25% tax.  

COVID-19 related tax relief measures to assist taxpayers during the pandemic include the temporary reduction – from 2% to 1% – of the minimum corporate income tax beginning 01 July 2020 to 30 June 2023; reduction of percentage tax for non-VAT taxpayers from 3% to 1% starting 1 July 2020 until 30 June 2023; exemption from import duties, taxes, and fees of imported COVID-19 vaccines; and VAT exemption starting 1 January 2021 until 31 December 2023 of drugs for treatment of COVID-19 and equipment, its spare parts, and raw materials for the production of personal protective equipment components for COVID-19 prevention.

The following are the provisions of CREATE that were vetoed by the President, along with the explanation for the veto. 

1.  Increase in VAT-exemption threshold on sale of residential lot from P1.5 million to P2.5 million, and residential house and lot and other dwellings from P2.5 million to P4.2 million [Section 109(P)] - The provision is prone to abuse, will not benefit the intended target for VAT exemption, and will lead to revenue loss. 

2. 90-day period to process refunds of erroneously paid taxes (Section 204) - The provision is administratively difficult to implement and will cause delay or erroneous processing of refunds.

3.  Definition of investment capital, which excludes the value of land and working capital [new Section 293] - To ensure current operational administrative processes are not disturbed, the measures currently used by the investment promotion agencies to determine the scale of investment should be maintained. Excluding land and operating expenses from the measure of investment’s total scale may lead to an underestimation of investment promotion performance. 

4.  Tax incentives for domestic enterprises (Sections 294, 295 and 296) - The special corporate income tax rate for domestic enterprises is redundant, unnecessary, and weakens the fiscal incentives system. Domestic-oriented enterprises are market-seeking enterprises that invest in selling goods and services to a market where viable demand exists, with or without tax incentives.  

5. Availment of incentives of existing registered enterprises under CREATE Act (Sections 294 and 296) - Allowing additional 14 to 17 years of incentives and another 10-year extension for the same activity on top of the original period of incentives availment is fiscally irresponsible and unfair to the ordinary taxpayer and to unincentivized enterprises.

6. Limitations on power of Fiscal Incentives Review Board (FIRB) to grant tax incentives to projects or activities of more than P1 billion [new Section 297] - The role of the FIRB is to exercise policy-making and oversight functions on all registered business enterprises and investment promotion agencies. CREATE is clear that the power of investment promotion agencies to grant incentives only stems from a delegated authority from the FIRB.

7.  Enumeration of activities under industry tiers [new Section 296(B)] - Certain activities in the enumeration either do not merit support through incentives or are expected to become obsolete in the short-term. Activities and projects should not be hard coded in the law to maintain flexibility, and so as not to keep incentivizing obsolete industries and close the doors to technological advances and industries in the future.

8. Power of the president to exempt any investment promotion agency from the coverage of CREATE Act under certain conditions (new Section 301 of the Tax Code) -  The provision allowing the future president to exempt an investment promotion agency from the coverage of CREATE Act disregards the objective in rationalizing fiscal incentives and can become a political tool. It can be used as an escape from accountability measures institutionalized in the law and opens a wide path for discretion and capture by vested interests.

9. Automatic approval of application if not acted upon within 20 days from date of application [new Section 297(B)] - The automatic approval of applications runs counter to the policy of approval or disapproval of applications based on merit. The FIRB and investment promotion agencies should be allowed to carefully review applications for tax incentives.

Except for the provisions with retroactive effect, CREATE shall take effect 15 days after its publication in the Official Gazette or in a newspaper of general circulation.

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