Corporate Income Tax in the Philippines (CREATE Law)

Corporate income tax is the tax a corporation pays on its net taxable income — gross income less the deductions allowed by the National Internal Revenue Code (NIRC). It is distinct from value-added tax, percentage tax, and the withholding taxes a corporation remits as a withholding agent.

Since 1 July 2020, corporate income tax has been governed primarily by the CREATE Act (Republic Act No. 11534, the Corporate Recovery and Tax Incentives for Enterprises Act), which amended the NIRC. CREATE cut the headline rate, introduced a lower rate for small domestic corporations, and temporarily reduced the minimum corporate income tax. Later refinements came through the CREATE MORE Act (RA 12066) and the Ease of Paying Taxes Act (RA 11976).

Two amounts matter for any corporation in a given year: the regular corporate income tax (RCIT), computed on net taxable income, and the minimum corporate income tax (MCIT), computed on gross income. A corporation generally pays whichever is higher once MCIT becomes applicable.

The regular corporate income tax rate for domestic corporations is 25% of net taxable income. CREATE reduced this to 20% for smaller domestic corporations that satisfy two conditions at the same time: net taxable income not exceeding ₱5,000,000 AND total assets not exceeding ₱100,000,000.

The ₱100,000,000 total-assets test EXCLUDES the value of the land on which the corporation's office, plant, and equipment are situated. Both tests must be met; a corporation that breaches either the income ceiling or the asset ceiling pays the full 25%.

The 20% rate is available only to DOMESTIC corporations. Resident foreign corporations (for example, a Philippine branch of a foreign company) are taxed at a flat 25% on net taxable income from Philippine sources, with no 20% small-corporation option.

The MCIT is a floor tax of 2% of gross income, imposed so that a corporation with deductions that wipe out net income still pays something. It applies beginning the 4th taxable year following the year the corporation began business operations.

CREATE temporarily LOWERED the MCIT to 1% from 1 July 2020 to 30 June 2023 as pandemic relief. Effective 1 July 2023 the MCIT REVERTED to its regular 2% rate. For 2026, the current MCIT rate is 2% — the 1% rate no longer applies.

In any year MCIT applies, the corporation computes both RCIT and MCIT and pays whichever is higher. Where MCIT exceeds RCIT, the excess MCIT may be carried forward and credited against normal RCIT for the three immediately succeeding taxable years, subject to NIRC rules.

"Gross income" for MCIT is defined narrowly — broadly gross sales less sales returns, discounts, allowances, and cost of goods sold (or cost of services) — not the broader gross income used elsewhere. The exact composition follows Sec. 27(E) of the NIRC and BIR regulations.

Corporations file the annual income tax return on BIR Form 1702. There are variants: 1702-RT for corporations subject to the regular rate, 1702-EX for those exempt or taxed at a special rate, and 1702-MX for mixed-income corporations with multiple rate regimes.

Quarterly income tax is filed on BIR Form 1702Q for the first three quarters, with cumulative computation. The annual return then trues up the full-year liability against the quarterly payments and any creditable withholding taxes (supported by BIR Form 2307 certificates).

This corporate framework is separate from the individual regime. Sole proprietors, professionals, and other self-employed individuals file BIR Form 1701 and may choose the 8% option or graduated rates — neither the 8% option nor the 20%/25% corporate rates cross over. If you operate as an individual, see our BIR Form 1701 guide.

Under the Ease of Paying Taxes Act (RA 11976), returns are filed and taxes paid through any authorized agent bank, Revenue District Office collection agent, or electronic channel — the former rule tying payment to the RDO of registration has been relaxed.

The annual income tax return (1702) is due on the 15th day of the 4th month following the close of the taxable year — 15 April for a calendar-year corporation. Quarterly returns (1702Q) are due within 60 days after the close of each of the first three quarters.

Net taxable income for RCIT is gross income less allowable deductions: cost of sales, ordinary and necessary business expenses, and either itemized deductions or the Optional Standard Deduction (OSD) of 40% of gross income. The choice between itemized and OSD is made on the first quarterly return and is irrevocable for the taxable year.

Late filing or payment triggers a 25% surcharge (50% in cases of fraud or willful neglect), interest equal to double the BSP-prescribed legal interest rate (currently 12% per year) under the TRAIN-amended NIRC (Sec. 249), and a compromise penalty. Keeping books and the BIR Certificate of Registration current avoids most of these exposures.

The CREATE MORE Act (RA 12066, enacted late 2024 with implementing rules rolling out through 2025) refined the incentives regime and clarified several CREATE provisions — for example, the treatment of registered business enterprises (RBEs) under incentive regimes and certain deductibility rules. For most ordinary domestic corporations, the core RCIT (25%/20%) and MCIT (2%) figures are unchanged.

Separate special rates sit outside the standard RCIT track: proprietary educational institutions and non-profit hospitals are taxed at a preferential rate on related income (10%, with a temporary reduction to 1% that, like the MCIT relief, expired on 30 June 2023 and reverted), and offshore or specially registered entities follow their own regimes. Confirm your classification before applying any rate.

Registered business enterprises enjoying an Income Tax Holiday (ITH) or the 5% Special Corporate Income Tax (SCIT) / enhanced deductions under CREATE follow the incentive rules of their Investment Promotion Agency, not the ordinary RCIT/MCIT schedule, for the activities and period covered.