Question & AnswerQ&A (Republic Act No. 11534)
The short title of Republic Act No. 11534 is the "Corporate Recovery and Tax Incentives for Enterprises Act" or "CREATE."
The State aims to develop the national economy towards global competitiveness by improving equity and efficiency of the corporate tax system, developing a more responsive and globally competitive tax incentives regime, supporting businesses in recovery from unforeseen events such as pandemics, creating a more equitable tax incentive system for inclusive growth, and ensuring ease of grant for applicants especially in least developed areas.
The term 'corporation' includes one person corporations, partnerships, joint-stock companies, joint accounts (cuentas en participation), associations, or insurance companies but excludes general professional partnerships and joint ventures or consortiums for construction projects or energy operations under government service contracts.
A corporate income tax rate of twenty-five percent (25%) is imposed on taxable income of domestic corporations effective July 1, 2020, with a reduced rate of twenty percent (20%) for corporations with net taxable income not exceeding Five million pesos and total assets not exceeding One hundred million pesos excluding land.
CREATE imposes a minimum corporate income tax of two percent (2%) of gross income beginning the fourth taxable year following the commencement of business operations, increased from one percent (1%) after June 30, 2023. The MCIT applies when it is greater than the regular income tax computed.
Tax incentives include Income Tax Holiday (ITH), Special Corporate Income Tax (SCIT) Rate at five percent (5%) for qualifying enterprises, Enhanced Deductions (ED) including additional deductions on labor, capital, R&D, training, domestic input and power expenses, duty exemptions on importations, and VAT exemptions on importation and local purchases for goods directly used in registered projects.
The enterprise must engage in a project included in the Strategic Investment Priority Plan; meet target performance metrics; have an adequate accounting system for registered projects; comply with e-receipting and e-sales requirements; and submit annual beneficial ownership reports.
FIRB exercises policy-making and oversight on the administration of tax incentives, approves or disapproves incentive grants based on recommendations, conducts monitoring and evaluation (including cost-benefit analysis), enforces compliance, cancels incentives for violations, maintains masterlists, publishes data, and submits reports to the President and Congress.
An export enterprise is an entity registered with an Investment Promotion Agency engaging in manufacturing, assembling, processing, or services such as IT/BPO, with at least 70% of its total production or output sold/exported to another registered export enterprise or as part of the final export products or services.
Penalties include a first violation fine of One hundred thousand pesos (P100,000), a second violation fine of Five hundred thousand pesos (P500,000), and a third violation may lead to cancellation of registration by the Fiscal Incentives Review Board. Penalties from fines accrue to the general fund.
Yes. Enterprises with income tax holidays prior to CREATE's effectivity may continue for the remaining period as specified in their registration, and those entitled to the 5% tax on gross income after the ITH may continue availing this for ten years.
Such transactions within five years from importation require prior approval from the Investment Promotion Agency. Unauthorized sales or transfers will render the parties solidarily liable to pay twice the amount of exempted duties. After five years, prior notice must be given. Violations may result in payment of duties on net book value.
Title XIII covers all existing Investment Promotion Agencies unless exempted. It maintains their functions under special laws but also subjects them to oversight by the Fiscal Incentives Review Board. It also covers tax incentives given to registered enterprises within and outside economic zones, subject to CREATE's provisions.
Registered enterprises in such areas may be granted two additional years of income tax holiday as an incentive to support recovery and development.
A sector or project must demonstrate potential for substantial investment, employment generation (especially in less developed areas), export generation, use of advanced technology, innovation, contribution to sustainable development, address supply chain gaps, promote competitiveness, enhance capabilities of enterprises and professionals, and align with national development plans.