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Tax Notes

Bicameral conference committee report on the proposed Corporate Recovery and Tax Incenti.....

BELOW are the highlights and relevant provisions of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE):

A. Corporate Income Tax (CIT)

1. Starting July 1, 2020, CIT rate for corporations will be reduced as follows:

i. Reduced CIT rate of 20 percent shall be applicable to domestic corporations with net taxable income not exceeding P5,000,000 and with total assets not exceeding P100 million (excluding land on which the business entity’s office, plant and equipment are situated)

ii. Reduced CIT rate of 25 percent shall be applicable to all other domestic and resident foreign corporations.

2. Effective Jan. 1, 2021, nonresident foreign corporations shall be subject to 25 percent income tax based on gross income.

3. For the period beginning July 1, 2020 until June 30, 2023, minimum corporate income tax rate shall be one percent, instead of two percent.

4. Improperly accumulated earnings tax is repealed.

5. The option to be taxed at 15 percent of gross income if allowed by the President subject to certain conditions is repealed.

B. Deductions from gross income

1. An additional deduction equal to 50 percent of the 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 duly covered by an apprenticeship agreement and for which a proper certification must be secured from the Department of Education, Technical Education and Skills Development Authority or Commission on Higher Education shall be allowed, provided that such deduction shall not exceed 10 percent of direct labor wage.

2. Due to the proposed reduction in CIT rate, interest arbitrage shall be reduced to 20 percent of interest income subjected to final tax, and will be further adjusted in case final tax on interest income will be adjusted in the future.

C. VAT exempt transactions

1. Adjustment of threshold for VAT exempt sale of residential real property:

  • Residential lot – P2,500,000 and below
  • House and lot and other residential dwellings – P4,200,000 and below

Effective Jan. 1, 2024 and every three years thereafter, the above thresholds shall be adjusted to its present value using the PSA’s consumer price index.

2. Additional VAT exempt transactions:

a. Sale, importation, printing or publication of books, any newspaper, magazine, journal, or any educational reading material covered by the United Nations Educational, Scientific and Cultural Organization agreement on the importation of educational, scientific and cultural materials, including the digital or electronic format thereof (requirement to appear at regular intervals is removed)

b. Sale or importation of the following goods from Jan. 1, 2021 to Dec. 31, 2023:

  • capital equipment, its spare parts and raw materials, necessary to produce personal protective equipment component;
  • all drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of Covid-19;
  • drugs, including raw materials, for the treatment of Covid-19 approved by the Food and Drugs Authority for use in clinical trials

3. VAT exemption of sale or importation of prescription drugs and medicines for cancer, mental illness, tuberculosis, and kidney diseases will start on Jan. 1, 2021 instead of Jan. 1, 2023.

D. Refund of taxes

1. The 90-day period to grant refund shall also apply to applications for refund of taxes erroneously or illegally paid or penalties imposed without authority under Section 204 (C) of the Tax Code. In case of full or partial denial, the taxpayer may appeal the decision to the CTA within 30 days from receipt of denial. (currently applicable to VAT refund only).

E. Percentage tax

For the period from July 1, 2020 to June 30, 2023, the rate of percentage tax shall be one percent (currently three percent).


P&A Grant Thornton

Certified Public Accountants


As published in SunStar Cebu, dated 18 February 2021