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THE CORPORATE RECOVERY and TAX INCENTIVES for ENTERPRISES (CREATE)
Republic Act No. 11534
 
To attract more investments and maintain fiscal stability, the Corporate Recovery Tax Incentives for Enterprises (CREATE) Act has been signed into a law. This Act initiates reforms to the corporate income tax and incentives systems.
 
PROVISIONS
 
Corporate Income Tax (CIT)
  • Effective on July 1, 2020, the RA 11534 will cut corporate income tax (CIT) rate from 30% to 20% for domestic corporations with net taxable income not exceeding P5million and with total assets not exceeding P100million. For other domestic corporations and for resident and non-resident foreign corporations, the corporate income tax rate will be reduced to 25%.
  • From July 1, 2020 to June 30, 2021, the minimum corporate income tax (MCIT) shall be reduced to 1% from 2%.
 
Tax Rates for Specified Corporations
  • Non-profit proprietary educational institutions and hospitals taxes shall be reduced from 10% to 1% starting from July 1, 2020 to June 30, 2023.
 
Final Tax Rates
  • Interest income earned by a Resident Foreign Corporation (RFC) shall be subject to 15% final tax.
 
Gross Income Deductions
  • Interest arbitrage shall be reduced to 20% of interest income subjected to final tax.
  • Additional deduction of 50% of the value of labor training expenses incurred for skills development of enterprise-based trainees provided that it shall not exceed 10% of direct labor wage, under:
    • Public Senior High Schools
    • Public Higher Education Institutions
    • Public Technical and Vocational Institutions which are secured from DepEd, TESDA or CHED
 
Types of Reorganizations
  1. Merger or consolidation
  2. Stock acquisition from a corporation, if there is an immediate control to the acquired corporation
  3. Property acquisition from a corporation in exchange of shares
  4. Recapitalization
  5. Reincorporation
 
Prior BIR Ruling or confirmation shall not be required for purposes of availing the tax exemption of the exchange.
 
VAT Exempt Transactions and Percentage Tax
  • Sale or importation from January 2021 to December 31, 2023 of these:
  • Capital equipment and components needed to produce personal protective equipment including the spare parts and raw materials
  • Drugs, vaccines, and medical devices directly used for COVID-19 treatment
  • Drugs, including raw materials, for COVID-19 treatment approved by FDA for clinical trial usage
  • Effective January 1, 2021, VAT exemption for sale or importation of prescription drugs and medicines of cancer, mental illness, tuberculosis, and kidney diseases
  • Starting July 1, 2020 to June 30 2023, reduced rate of percentage tax from 3% to 1%.
 
Qualifications of a Registered Business Enterprise
  1. Engage with an activity with Strategic Investment Priority Plan (SIPP)
  2. Meet the target performance metrics within an agreed time frame
  3. Installed adequate accounting systems that can identify the investments, revenue, costs and profits for each activity
  4. Comply with e-receipting and e-sales requirement
  5. Submit annual reports of beneficial ownership or the organization and related parties
  • The Fiscal Incentives Review Board (FIRB) shall grant incentives pursuant to the Tax Code on their approved registered project/activity.
 
Available Income Tax Incentives
 
  • Income tax holidays followed by Special Corporate Income Tax (SCIT) of 5% from gross earned
 
  • Regular CIT with enhanced deductions of the export enterprise or domestic market enterprise under strategic industries
  • Qualified domestic market enterprises shall be entitled to 4 to 7 years ITH to be followed by 5 years enhanced deductions.
  • Enhanced deductions for depreciation, labor, training, R&D, domestic input expense, power expense, investment allowance and claiming of NOLCO for the next 5 years.
 
Provisions granting the President the power to grant ITH shall not exceed 8 years and thereafter, 5% SCIT may be granted, provided that the total period of availment shall not exceed 40 years.
 
For existing registered projects/ activities prior to the CREATE, existing registered enterprise may still avail of ITH for the remaining period if granted ITH only. If granted ITH and 5% (Gross Income Tax) after the ITH, existing registered enterprise may avail of 5% GIT for 10 years.
 
EFFECTIVITY
 
The law is set to take effect 15 days after its complete publication in the Official Gazette or in a newspaper of general circulation.
 
 
Duterte signs CREATE bill into law, https://www.pna.gov.ph/articles/1135049
Tax Alert No. 91 [Senate Bill (SB) No. 1357 or The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)], https://www.pwc.com/ph/en/tax-alerts/2020/tax-alert-91.html
 
 
Compiled by: Abapo, Jessa
PFA Secretariat
www.franchisefinderph.com