CREATE Law (RA 11534) - Corporate Recovery and Tax Incentives for Enterprises
Updated June 13, 2026
Definition
The CREATE Law (Republic Act No. 11534) is the Corporate Recovery and Tax Incentives for Enterprises Act, approved on March 26, 2021 and in effect from April 11, 2021. It cut the regular corporate income tax rate from 30% to 25% effective July 1, 2020 and overhauled the tax incentives given to registered business enterprises.
The CREATE Act is the corporate income tax and incentives reform that followed the TRAIN Law. It lowered the corporate income tax rate and replaced the old incentive rules with one system administered through the Fiscal Incentives Review Board and the Investment Promotion Agencies. Key provisions include: - Regular corporate income tax of 25% from July 1, 2020, and 20% for domestic corporations with net taxable income of ₱5,000,000 or less and total assets of ₱100,000,000 or less, excluding land - Minimum corporate income tax of 1% from July 1, 2020 to June 30, 2023, back to 2% after that - Percentage tax under Section 116 of 1% from July 1, 2020 to June 30, 2023, back to 3% after that - For registered business enterprises: income tax holiday of 4 to 7 years, followed by a 5% special corporate income tax on gross income or enhanced deductions - Transitory rules for enterprises with incentives granted before the law took effect The rate cut applies to domestic corporations and to resident and nonresident foreign corporations. The incentives apply only to registered business enterprises. Later laws, including RA 12066 (CREATE MORE, 2024), amended parts of the incentive rules.
Why it matters
CREATE changed every corporation's income tax and how incentives are granted. For businesses, it means: - Lower tax: a 5 percentage point cut in the regular rate, from 30% to 25% - A 20% rate for small domestic corporations that pass both tests - Clearer incentive rules for registered business enterprises, with set periods for each incentive - Lower quarterly income tax payments under the new rates For the economy, the law aims to attract investment and support business recovery after 2020.
How it works
CREATE implementation involves several key mechanisms: **Tax Rate Application:** 1. Regular domestic corporations: 25% of taxable income from July 1, 2020 2. Small domestic corporations: 20% if net taxable income is ₱5,000,000 or less and total assets excluding land are ₱100,000,000 or less 3. Minimum Corporate Income Tax (MCIT): 2% of gross income, 1% from July 1, 2020 to June 30, 2023 **Incentive System:** 1. Register the project or activity with the appropriate Investment Promotion Agency (IPA) 2. Qualify under the Strategic Investment Priority Plan 3. Avail of an income tax holiday, then the 5% special corporate income tax or enhanced deductions for the period the law sets 4. Meet the conditions and reporting requirements of the IPA **Enhanced Deductions (registered business enterprises only):** 1. Additional depreciation of 10% on buildings and 20% on machinery and equipment used in production 2. 50% additional deduction on qualified labor, domestic input and power expenses 3. 100% additional deduction on qualified research and development and training expenses 4. Reinvestment allowance for manufacturing enterprises, up to 50% of the amount reinvested
Examples
Large Corporation Tax Savings
ABC Manufacturing Corp. with ₱100 million taxable income Before CREATE (30% rate): ₱100,000,000 × 30% = ₱30,000,000 After CREATE (25% rate): ₱100,000,000 × 25% = ₱25,000,000 Annual savings: ₱5,000,000 Filed on BIR Form 1702-RT; for 2020 a calendar-year corporation applied 30% to the first six months and 25% to the last six, an effective 27.5%
Small Corporation Benefits
XYZ Trading Corp. with ₱4 million net taxable income and ₱8 million total assets excluding land Qualifies for 20% rate (net taxable income ₱5M or less, total assets excluding land ₱100M or less) Tax liability: ₱4,000,000 × 20% = ₱800,000 vs. old 30% rate: ₱4,000,000 × 30% = ₱1,200,000 Savings: ₱400,000 (33% reduction) Files BIR Form 1702-RT applying the 20% rate
R&D Enhanced Deduction
Registered export enterprise under the enhanced deductions regime spending ₱10 million on qualified research and development Regular deduction: ₱10,000,000 With 100% additional deduction: ₱20,000,000 Additional tax savings: ₱10,000,000 × 25% = ₱2,500,000 Available only to registered business enterprises that chose enhanced deductions; the expense must relate directly to the registered activity
Export Enterprise Incentive
Export manufacturer registered with an Investment Promotion Agency - 4 to 7 year income tax holiday, depending on location and industry - Then 10 years of either the 5% special corporate income tax on gross income or enhanced deductions - The 5% special rate is in lieu of all national and local taxes Incentives depend on registration with the IPA and on the Strategic Investment Priority Plan
Transition from Old Incentives
PEZA company with existing 5% gross income tax incentive - Enterprises already enjoying the 5% gross income tax may keep it for 10 years - Enterprises with only an income tax holiday keep it for the remaining period of their registration - After that, they may apply under the CREATE rules Governed by the transitory rules in Section 311 of the Tax Code as added by CREATE
Common misconceptions
- Myth: All corporations automatically get 25% tax rate
- Fact: The 25% rate is the general rate for corporations, but qualifying small domestic corporations pay 20%, special rates apply to some entities, and the MCIT applies when it is higher
- Myth: Small corporations always pay 20%
- Fact: The 20% rate needs net taxable income of ₱5 million or less and total assets of ₱100 million or less excluding land; if either is exceeded, the whole taxable income is taxed at 25%
- Myth: CREATE incentives replace all existing incentives immediately
- Fact: Enterprises already enjoying the 5% gross income tax may keep it for 10 years, and holders of only an income tax holiday keep it for its remaining period
- Myth: Enhanced deductions are automatic
- Fact: They apply only to registered business enterprises that chose them, for qualified expenses directly related to the registered activity
Questions people ask
What is CREATE Law (RA 11534)?
CREATE is the Corporate Recovery and Tax Incentives for Enterprises Act. It reduced the corporate income tax rate from 30% to 25% effective July 1, 2020 and reformed tax incentives. It was approved on March 26, 2021 and took effect on April 11, 2021.
How much will my corporation save under CREATE Law?
Regular corporations save 5 percentage points (from 30% to 25%). For a corporation with ₱10 million taxable income, that is ₱500,000 a year. Qualifying small corporations pay 20%.
Who qualifies for the 20% small corporation rate under CREATE?
Domestic corporations with net taxable income of ₱5,000,000 or less and total assets of ₱100,000,000 or less, excluding the land where the office, plant and equipment stand. Both tests must be met; if either is exceeded, the whole taxable income is taxed at 25% (NIRC §27(A)).
Can my company keep existing PEZA or BOI incentives under CREATE?
Enterprises already enjoying the 5% gross income tax may continue it for 10 years. Those granted only an income tax holiday keep it for the remaining period of their registration (Section 311 of the Tax Code as added by CREATE).
What are enhanced deductions under CREATE Law?
Enhanced deductions are extra deductions for registered business enterprises that chose them instead of the 5% special rate: for example, an additional 100% for qualified research and development and training expenses and an additional 50% for qualified labor, domestic input and power expenses. Ordinary corporations without registered incentives do not get them.
When do I start using the new CREATE tax rates?
The 25% and 20% rates apply from July 1, 2020. A calendar-year corporation's 2020 rate was computed by months: 30% for January to June and 25% for July to December. From 2021 the full new rates apply.
How does CREATE Law affect my quarterly tax payments?
Quarterly income tax is computed using 25% (or 20% for qualifying small corporations), compared with the MCIT where applicable. Moving from 30% to 25% lowers regular income tax by about 16.7%.
What happens if I don't comply with CREATE Law requirements?
Underpaying the corporate income tax results in a 25% surcharge on the unpaid tax, interest at 12% a year and, for willful violations, criminal liability. Incorrect use of rates or incentives can lead to deficiency assessments.
Can foreign corporations benefit from CREATE Law?
Yes. Resident foreign corporations pay 25% of Philippine-source taxable income, and nonresident foreign corporations pay 25% of gross Philippine-source income, subject to tax treaties. Branch profit remittances of resident foreign corporations remain subject to the branch profit remittance tax.
How do I claim enhanced deductions for R&D expenses?
Only registered business enterprises that chose enhanced deductions can claim them. The research and development must relate directly to the registered activity and is limited to local spending, such as salaries of Filipino employees, consumables and payments to local research organizations.
Next steps
Learn more
Corporate Income Tax Calculator
Small Corporation Tax Calculator
Enhanced Deduction Calculator
Quarterly Tax Payment Calculator
BIR Form 1702 Annual Corporate Income Tax Return
BIR Form 1702 MX Annual Income Tax Return For Corporations With Mixed Income Subject To Special And Regular Rates
BIR Form 2551Q Quarterly Percentage Tax Return
Enhanced Deduction Schedule
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Sources & References (3)
Primary sources and the laws, regulations, and official issuances this page relies on. Each citation links directly to the issuing authority’s document.
- LawPhil Project (Arellano Law Foundation). “RA 11534 (CREATE): full enacted text; CIT cut to 25%/20%, MCIT, incentives.” lawphil.net. Republic Act No. 11534, Corporate Recovery and Tax Incentives for Enterprises Act. Accessed .
- Official Gazette of the Philippines. “Official Gazette: RA 11534 as enacted.” officialgazette.gov.ph. Official Gazette, Republic Act No. 11534. Accessed .