The Philippines just reached a milestone in corporate taxation: with the final tranche of the CREATE Law taking effect, small and medium enterprises (SMEs) can now enjoy the lowest corporate income tax rate in our history — 20%.
For many entrepreneurs, this sounds like a win. Lower taxes mean more room for growth, reinvestment, and job creation.
But here’s the catch: the benefit only applies if your records, asset classification, and compliance are in order.
What the Final Tranche Does
Small corporations (net taxable income ≤ ₱5M and assets ≤ ₱100M, excluding land) now pay 20% corporate income tax.
Large corporations remain at the 25% rate.
Proprietary educational institutions and hospitals return to a 10% preferential rate (after enjoying 1% until mid-2023).
This is a massive shift. The Philippines, once known for having one of the highest tax rates in ASEAN, is now in the mid-range — more competitive for business.
Why It’s Not All Good News
The lower rate doesn’t mean the BIR will relax. In fact, the opposite is true. With billions in revenue at stake, expect tighter monitoring of income declarations and asset thresholds.
This means:
Businesses that “misclassify” themselves to qualify for the 20% may become audit targets.
Poor documentation or sloppy record-keeping can disqualify you from the lower rate.
A Letter of Authority (LOA) audit can easily wipe out the savings you thought you gained.
What Businesses Need to Do Now
- Re-forecast 2025 taxes with the new CIT rates.
- Review your asset size — stay mindful of the ₱100M threshold.
- Tighten compliance — ensure reconciliations, withholding, and VAT filings are clean.
- Prepare for audits — the BIR is watching companies closely as CREATE’s incentives roll out.
Where to Learn More?
Comprehensive Tax Updates & Compliance Masterclass
On September 16, the Entrepreneurs Accounting Academy (EAA) is hosting a one-day Comprehensive Tax Updates & Compliance Masterclass.
We’ll go beyond CREATE and cover:
- The final tranche of CREATE Law and how to maximize the 20% rate.
- The new 12% VAT on digital services — how it affects SaaS, ads, and cloud costs.
- Withholding tax rules and common pitfalls.
- Audit strategies to prepare for LOAs, PANs, and FANs.
- Practical tools: worksheets, checklists, and case studies from real BIR assessments.
CHECK OUT OUR UPCOMING COMPREHENSIVE TAX SEMINAR
