Corporate Income Tax Rates in the Philippines: 25% vs 20% for MSMEs Under the CREATE Act

Domestic and resident foreign corporations in the Philippines pay a regular corporate income tax (RCIT) of 25% of net taxable income, reduced to 20% for qualifying micro, small, and medium enterprises (MSMEs), under Republic Act No. 11534 — the CREATE Act — effective July 1, 2020. These remain the applicable general rates in 2026; the later CREATE MORE Act mainly changed incentive and withholding rules for Registered Business Enterprises, not the base corporate rates.

This guide covers who qualifies for the 20% rate, how it’s computed alongside the Minimum Corporate Income Tax, and a worked comparison. For the return used to report this tax, see BIR Form 1702-RT vs 1702-EX vs 1702-MX and How to File BIR Form 1702Q.

What rate applies to which corporation? #

Most corporations pay 25%; a domestic corporation that is small enough on both an income and an asset test pays 20% instead. Under the CREATE Act:

Both tests — net taxable income and total assets — must be met for the 20% rate; a corporation exceeding either threshold pays the standard 25% rate. The asset test explicitly excludes the land on which the corporation’s office, plant, and equipment sit, so land ownership alone does not disqualify an otherwise-small corporation.

Did CREATE MORE change these rates? #

No — the CREATE MORE Act (Republic Act No. 12066), signed into law in November 2024, left the 25%/20% RCIT structure intact and instead focused on incentives and compliance rules for Registered Business Enterprises (RBEs) under the Corporate Recovery and Tax Incentives for Enterprises framework. CREATE MORE’s changes — expanded enhanced deductions, adjusted VAT treatment on local RBE sales, and recalibrated withholding on passive income and MSME thresholds for incentive purposes — apply to enterprises registered with investment promotion agencies and operate alongside, not instead of, the base RCIT rates described here. A corporation not registered as an RBE continues to apply the plain 25%/20% test above. See CREATE MORE Act Incentives for the RBE-specific rules.

How does MCIT interact with the RCIT rate? #

The Minimum Corporate Income Tax (MCIT) of 2% of gross income applies whenever it is higher than the computed RCIT, starting the corporation’s fourth taxable year of operations — regardless of whether the corporation is on the 25% or 20% RCIT track. A corporation compares its RCIT (25% or 20% of net taxable income) against its MCIT (2% of gross income) each year and pays whichever is higher; MCIT exists as a floor so a corporation with heavy deductions and low or no net income in a given year still contributes some tax based on gross revenue. See Minimum Corporate Income Tax (MCIT) for the full mechanics, including the carry-forward of excess MCIT as a tax credit.

Worked example: two domestic corporations compared #

Both corporations report identical net taxable income, but Corporation B’s larger asset base — even with the same income — pushes it into the standard 25% rate, a ₱160,000 difference in this example. This is why the asset test, not just income size, decides eligibility for the reduced rate.

Frequently asked questions #

What is the current regular corporate income tax rate in the Philippines? #

The regular corporate income tax (RCIT) rate is 25% of net taxable income for domestic and resident foreign corporations, under Republic Act No. 11534, the CREATE Act, effective July 1, 2020.

Which corporations qualify for the 20% corporate income tax rate? #

A domestic corporation qualifies for the reduced 20% rate if its net taxable income does not exceed ₱5,000,000 and its total assets do not exceed ₱100,000,000, excluding the land on which its office, plant, and equipment are situated, for the taxable year.

Did the CREATE MORE Act change the 25%/20% corporate tax rates? #

No. The CREATE MORE Act (Republic Act No. 12066), signed into law in November 2024, primarily recalibrated incentives and withholding treatment for Registered Business Enterprises (RBEs); it did not change the general 25% regular corporate income tax rate or the 20% MSME rate under the CREATE Act.

Does a corporation still pay MCIT if it qualifies for the 20% rate? #

Yes. The Minimum Corporate Income Tax (MCIT) of 2% of gross income applies whenever it exceeds the corporation’s regular income tax liability, beginning in the fourth taxable year following the start of business operations, regardless of whether the corporation is taxed at 25% or the reduced 20% rate.

Does the reduced 20% rate apply to branches of foreign corporations? #

No. The reduced 20% rate under the CREATE Act applies only to domestic corporations meeting the net taxable income and total asset thresholds; resident foreign corporation branches are taxed at the regular 25% rate.

Summary #

Under the CREATE Act, a domestic corporation pays 20% RCIT only if it clears both the ₱5 million net taxable income and ₱100 million total-asset (excluding land) tests; everyone else — including all foreign branches — pays the standard 25%, and MCIT can still apply as a floor either way. CREATE MORE reshaped RBE incentives but left this base structure untouched. Confirm both thresholds before assuming a “small” corporation automatically qualifies for 20% — see Minimum Corporate Income Tax (MCIT) and How to File BIR Form 1702Q for the filing mechanics that follow.