Pedrocillo, Anne Abbygail V. CREATE LAW

Anne Abbygail V.
Pedrocillo
BSA-2C
Reduction in the corporate income tax rate
Amendments to corporate income tax and other taxes:
 Effective 1 July 2020, the corporate income tax (CIT) rate is reduced from 30%
to:
 20% for domestic corporations with net taxable income not exceeding PHP5
million (US$100,000) and with total assets (excluding land where the business
entity's office, plant and equipment are situated) not exceeding PHP100 million
(US$2 million)
 25% for all other domestic corporations and resident foreign corporations (e.g.,
branches)
 Effective 1 January 2021, the CIT rate is reduced from 30% to 25% for
nonresident foreign corporations.
 Effective 1 July 2020 until 30 June 2023, the minimum CIT rate is reduced from
2% to 1%. The minimum CIT is applicable to domestic and resident foreign
corporations if the calculated minimum CIT is higher than the regular CIT
amount.
 Effective 1 January 2022, the CIT rate applicable to regional operating

headquarters (ROHQs)3 is increased from 10% to 25%.
 Capital gains derived by foreign corporations from the sale of shares of stock not
traded on the Philippine stock exchange are subject to a flat tax rate of 15%
(previously 5% on the first US$2,000 and 10% in excess thereof).
 Increase of the final income tax rate for interest income derived under the
expanded foreign currency deposit system by resident foreign corporations from
7.5% to 15%.
 Allowance of 150% deduction for labor training expenses incurred for the skills
development of enterprise-based trainees, subject to certain conditions.
 Income tax exemption for foreign-sourced dividends received by domestic

corporations which are reinvested in the Philippines, subject to certain conditions.
 Removal of 1) tax exemption for income derived by offshore banking units

Anne Abbygail V. Pedrocillo
BSA-2C
(OBUs) from foreign currency transactions with nonresidents; and 2) 10% final
tax on interest income derived by OBUs from foreign currency loans granted to
residents. Such income will be subject to the 25% CIT rate.
 Definition of "reorganization" for purposes of non-recognition of gain or loss on

exchanges of property solely for stock is expanded to include: (i) a merger or
consolidation; (ii) an acquisition resulting in gain of control or further control; (iii)
an acquisition of all or substantially all properties of another corporation; (iv) a
recapitalization; and (v) a reincorporation. Prior Bureau of Internal Revenue (BIR)
confirmations or tax rulings are no longer required to avail of the tax exemption
on the exchange.
From July 2020 to 2022, foreign companies will be eligible for a reduction in the
corporate income tax (CIT) rate to 25 percent compared to the regular rate of 30
percent the highest in ASEAN. While the CITIRA Act provides a gradual reduction of
CIT from 2020 to 2029, at a rate of one percentage point per year, the CREATE Act
opts for a five-percentage point reduction once implemented. As a result, the CIT rate
will remain at 25 percent until 2022. Domestic micro, small, and medium-sized
companies will directly benefit from a preferential rate of 20 percent (businesses with
taxable income of up to PHP5 million (US$103,318) and not exceeding PHP100 million
(US$2,066,437).
From 2022 to 2027, the 25 percent CIT will steadily decline by one percent per
year, to finally reach 20 percent in 2027 for foreign companies.
Insights: By diminishing the CIT rate and defending monetary motivators, the CREATE
Act plans to make the Philippine corporate assessment framework responsive,
internationally serious and appealing to unfamiliar financial backers, and
simultaneously, help Philippine organizations recuperate from the financial effect of the
COVID-19 pandemic. Global partnerships hoping to rebuild their association ought to
likewise consider these corrections to accomplish charge effectiveness in their
arranging and future operations.It ought to be noticed that these particular CIT rates will
supplant any remaining public and nearby duties until the due date, as a 'all in one
resource' corporate assessment framework.

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Pedrocillo, Anne Abbygail V. CREATE LAW

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Anne Abbygail V.

Reduction in the corporate income tax rate

Amendments to corporate income tax and other taxes:

 Effective 1 January 2022, the CIT rate applicable to regional operating

 Income tax exemption for foreign-sourced dividends received by domestic

 Removal of 1) tax exemption for income derived by offshore banking units

 Definition of "reorganization" for purposes of non-recognition of gain or loss on

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