2020/2021 TAX INCENTIVES AND RELIEFS UNDER CREATE BILL (BICAM VERSION): CREATE BILL’s KEY FEATURES (20%~25% CIT, 1% MCIT, 20% Interest Arbitrage, Introduction of FIRB and 5% SCIT on Gross Income, 5 years NOLCO, Tax Free Exchange Availment sans BIR Ruling, among others.
The key features of the reforms for corporate and Tax Incentives were highlighted under Senate Bill No. 1357 and House Bill No. 4157, otherwise known as CREATE (Corporate Recovery and Tax Incentives for Enterprises) Bill, are:
1. LOWER CORPORATE INCOME TAX (CIT)
– An income tax rate of 35% is reduced to 25% effective July 1,2020 is imposed upon a Taxable income derived during each taxable year from all sources within and without the Philippines by every corporation organized and existing under the laws. Domestic Corporations however will be entitled to 20% CIT if their net taxable income does not exceed P5.0 million and their total assets for the year does not breach P100.0 million.
2. PROPRIETARY EDUCATIONAL INSTITUTIONS AND HOSPITALS
– Non-profit organization shall pay a tax of 1% beginning July 1, 2020 until June 30, 2023.
3.MINIMUM CORPORATE INCOME TAX ON DOMESTIC CORPORATIONS (MCIT)
– Effective July 1, 2020 until June 30, 2023 the rate is 1% from 2% of the gross income as of the end of the taxable year.
4. RATES OF INCOME TAX ON RESIDENT FOREIGN CORPORATIONS (RFC)
– A Corporation organized, authorized or existing under the laws of any foreign country engaged in trade or business within the Philippines (RFC) shall be subject to an income tax equivalent to 25% of the taxable income tax derived in the preceding taxable year from all sources within the Philippines from 35 % effective July 1, 2020.
5. MINIMUM CORPORATE INCOME TAX OF RESIDENT FOREIGN CORPORATIONS
– Effective July 1, 2020 until June 30, 2023, the rate shall be 1% from 2%.
6. TAX ON NON-RESIDENT FOREIGN CORPORATION (NRFC)
–A foreign corporation not engaged in trade or business in the Philippines, effective January 1, 2021 shall pay a tax equal to 25% of the gross income received from each taxable year such as interests, dividends, rents, royalties, salaries, premiums, annuities, emoluments or other fixed determinable annual, periodic, casual gains, profits and income.
– starting July 1, 2020, the credit against the tax due shall be equivalent to the difference between the regular income tax rate and 15% tax on dividends.
STOCKS NOT TRADED IN THE STOCK EXCHANGE
– A final tax at the rate of 15% is imposed upon the capital gains realized during taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation except shares sold, or disposed of through the stock exchange.
–allowable deduction for interest expense shall be reduced by 20% from 42% of the interest income subjected to final tax.
8. Improperly Accumulated Earnings Tax (IAET) is repealed.
9. EXEMPT TRANSACTIONS
Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low cost and socialized housing and other related laws, residential lot valued at Php 2.5 million from Php 1. 5 million and below; house and lot and other residential valued at Php 4.2 million from Php 2. 5 million beginning January 1, 2024 and every three (3) years thereafter.
10. TAX ON PERSONS EXEMPT FROM VAT (VALUE-ADDED TAX)
-Cooperatives shall exempt from the 3% gross receipts tax effective July 1, 2020 until June 30, 2023, the rate shall be 1%.
11. TAX DUTY AND INCENTIVES
–Domestic Enterprise engaged in activities classified as strategic industries as maybe defined, a tax rate equivalent to 5% effective July 1, 2020 based on the gross income earned.
12. TAX FREE EXCHANGES – BIR Confirmation or ruling shall no longer be required to avail tax exemption on a tax-free exchange.
13. Incentives for exporters and critical domestic enterprises
– up to 17 years of incentives for exporters and critical domestic enterprises, within 4 – 7 years of income tax holiday (ITH) and 10 years of 5% Special Corporate Income Tax (SCIT) on gross income earned, in lieu of all taxes, for Enterprises with investment capital not less than Php 500.0 million and/or 5 years of enhanced deductions otherwise.
14. INCENTIVES FOR DOMESTIC ENTERPRISES
– up to 12 years of incentives with 4-7 years of ITH and 5 years of 5% SCIT on gross income earned, in lieu of all taxes, for Enterprises with investment capital not less than Php 500.0 Million and/or 5 years of enhanced deductions otherwise.
15. PERFORMANCE BASED ENHANCED DEDUCTIONS
CREATE encourages job creation, value-added, research and development, training and the use of local materials with several performance based on enhanced deductions. These include:
- DEPRECIATION ALLOWANCE FOR ASSETS ACQUIRED FOR THE PRODUCTION OF GOODS AND SERVICES (Qualified capital expenditures of additional 10% for buildings and additional 20% for machineries and equipment.)
- 50% additional deduction on labor expense
- 100% additional deduction on training expense
- 50% additional deduction on domestic input expense
- 50% additional deduction on power expense
- 100% additional deduction on research and development.
- Reinvestment allowance for manufacturing
- Enhance NOLCO Net Operating Loss not yet offset from Gross Income operations can be carried over as deduction from Gross Income within 5 next years following the loss.
- More incentives for relocation outside NCR
– registered enterprises that fully relocate outside of NCR will be entitled to an additional of 3 years of ITH.
- More incentives for locating in disaster or conflict area
-registered enterprises that locate in areas recovering from disasters or conflict will be entitled to an additional 2 years of ITH.
COVID 19 AND HEALTH INCENTIVES
- VAT Exemption for medicines – VAT Exemption for medicines for diabetes, cholesterol, hypertension cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021.
- VAT and duty-free importation of COVID-19 vaccines.
- VAT free importation and sale of COVID – 19 medicines and PPE components up to 31 December 2023.
EASE OF TAXPAYER EXPERIENCE
- Faster VAT Refunds, no bottlenecks in cash flows. CREATE requires the DOF to review revenue guidelines (RRs) for the withholding of creditable tax and direct BIR to amend RR’s if adverse to taxpayers.
- Better taxpayer experience on creditable withholding tax system. Requiring the BIR to review processes for creditable withholding tax every 3 years to improve such process if they materially impact the taxpayer.
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