How the CREATE Act Impacts Corporate Tax Rates in the Philippines

The passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act marked one of the most significant reforms in the Philippine tax system. Signed into law in March 2021, the CREATE Act aimed to provide tax relief for businesses, stimulate economic recovery, and make the Philippines a more attractive destination for foreign and local investments. 

This article examines how the CREATE Act impacts corporate tax rates and explores how businesses can maximize its benefits with the help of XMC Asia. 

Overview of the CREATE Act

The CREATE Act introduced sweeping reforms to the corporate tax system in the Philippines. These changes include: 

  • Reducing corporate income tax rates. 
  • Enhancing fiscal incentives for specific industries and investments. 
  • Simplifying tax compliance for businesses. 

The reforms were designed to support businesses in recovering from the economic effects of the COVID-19 pandemic and to enhance the country’s competitiveness in the global market. 

Key Changes to Corporate Tax Rates

Reduced Corporate Income Tax Rates

The CREATE Act lowered the corporate income tax (CIT) rate from 30%, previously one of the highest in Southeast Asia, to: 

  • 25% for large corporations with taxable income exceeding ₱5 million and total assets above ₱100 million. 
  • 20% for micro, small, and medium enterprises (MSMEs) with taxable income not exceeding ₱5 million and total assets below ₱100 million¹. 

This reduction aligns the Philippines more closely with the regional average of corporate tax rates, making it competitive with neighboring countries like Vietnam (20%) and Thailand (20%)². 

Minimum Corporate Income Tax (MCIT)

The MCIT rate was reduced from 2% to 1% of gross income until June 30, 2023, to provide temporary relief to businesses affected by the pandemic³. 

Enhanced Fiscal Incentives

The CREATE Act also revamped fiscal incentives to attract investments in priority sectors:

Impact on Businesses

Relief for MSMEs

The lower 20% tax rate for MSMEs provides much-needed financial relief, enabling them to reinvest savings into operations, innovation, and growth. MSMEs account for 99.5% of businesses in the Philippines and employ over 62% of the workforce⁶, making their recovery critical to the overall economy. 

Increased Competitiveness

By lowering the CIT rate to 25%, the CREATE Act addresses the long-standing concern of foreign investors regarding high taxes. This reform positions the Philippines as a more attractive destination for investment compared to its regional peers. 

Support for Recovery

Temporary reductions in the MCIT and expanded deductions provide immediate financial relief for businesses hit hardest by the pandemic, supporting recovery and sustainability.

Challenges in Maximizing Benefits

Despite its benefits, the CREATE Act also presents challenges for businesses, including: 

  • Navigating Incentive Qualifications: Determining eligibility for ITH, SCIT, or enhanced deductions can be complex. 
  • Compliance with New Rules: Changes to tax rates and reporting requirements may lead to compliance issues without proper guidance. 

How XMC Asia Can Help Businesses

Navigating the complexities of the CREATE Act requires expertise, and XMC Asia is here to help.

Tax Compliance and Planning

We ensure your business takes full advantage of the reduced tax rates and available incentives while staying compliant with updated regulations. 

Incentive Application

XMC Asia guides businesses through the process of applying for ITH, SCIT, or enhanced deductions, maximizing savings under the CREATE Act.

Audit Support

Our team provides support during tax audits, ensuring your records and reports align with the requirements of the BIR. 

The CREATE Act has significantly reshaped the corporate tax landscape in the Philippines, offering relief to businesses and making the country more competitive for investments. By understanding and leveraging the benefits of the CREATE Act, businesses can reduce costs, enhance compliance, and focus on growth. 

With XMC Asia, you have a trusted partner to navigate the complexities of the CREATE Act and unlock its full potential for your business. Contact us today to learn how we can help you thrive in this new tax environment.

References 

  1. Department of Finance (DOF). CREATE Act Overview
  2. PricewaterhouseCoopers (PwC). Philippine Tax Reforms and Regional Comparison
  3. Bureau of Internal Revenue (BIR). Minimum Corporate Income Tax Guidelines
  4. Philippine Economic Zone Authority (PEZA). Incentives Under the CREATE Act
  5. Deloitte Philippines. Enhanced Deductions Under the CREATE Act
  6. Department of Trade and Industry (DTI). MSME Statistics in the Philippines
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