Faqs - Create Law
Faqs - Create Law
Faqs - Create Law
TO : VALUED CLIENTS
FROM : ACUBELAW
1. Who are covered by the new Corporate Recovery and Tax Incentives for
Enterprises (“CREATE”) Law?
For domestic corporations, CREATE Law lowered the tax rate effective
July 1, 2020.
If the taxpayer’s net taxable income does not exceed FIVE MILLION
PESOS (Php5,000,000.00) and its total assets do not exceed ONE
HUNDRED MILLION PESOS (Php100,000,000.00), the applicable income
tax rate is 20%. 2
However, if its net taxable income exceeds FIVE MILLION PESOS (Php
5,000,000.00) or its total assets exceeds ONE HUNDRED MILLION PESOS
(Php 100,000,000.00), the applicable income tax rate is 25%.
1
Section 4, CREATE Law.
2
Section 6 (A), CREATE Law.
However, starting January 01, 2021 onwards, the tax imposed is 25%.3
4. How about dividends received by the non-resident foreign corporation
from a domestic corporation?
shall allow a credit against the tax due from the said non-resident
foreign corporation which are equivalent to taxes deemed to have
been paid in the Philippines equal to ten percent (10%) effective
January 1, 2021, which represents the difference between the
regular income tax rate for non-resident foreign corporation under
Section 28(8)(1) of the NIRC of 1997, as amended, and the fifteen
percent (15%) tax on dividends as herein provided; or
does not impose any income tax on dividends received from a
domestic corporation.4
3
Section 1, F, BIR Revenue Regulation No. 2-2021
4
Section 1, F, (6), BIR Revenue Regulation No. 2-2021
5
Section 7, (5(, (b), CREATE Law.
2
6. The taxpayer is a Resident Foreign Corporation receiving interest income
from deposits and yield or other monetary benefit from deposit substitutes,
trust funds, and similar arrangements and royalties, are those interest
incomes taxable?
Yes. The interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and
similar arrangements and royalties which are derived from sources within
the Philippines are subject to a final income tax of 20%.
However, the interest income derived from a depository bank under the
expanded foreign currency deposit system are subject to an increased final
income tax of 15%.6
7. What about the capital gains from sale of share of stock not traded in the
stock exchange earned by resident foreign corporations?
The CREATE Law made the final tax for Capital Gains from Sale of Shares
of Stock not traded in the Stock Exchange uniform at a final tax of 15%.
The CREATE Law lowered the tax rate from 30% to 25% of gross income
from sources within the Philippines effective January 1, 2021. 8
9. What if the taxpayer is a Regional Operating Headquarter (“ROHQ”), is it
subject to the normal corporate tax?
ROHQs as defined under prevailing laws are subject to 10% income tax.
However, the CREATE Law provides that effective January 1, 2022,
ROHQs shall be subject to the regular corporate income tax. 9
6
Section 7, (6), (a), CREATE Law.
7
Section 7, (6), (c), CREATE Law.
8
Section 7, B, (1), CREATE Law.
9
Section 7, 5, (a), CREATE Law.
10
Section 6 (b), CREATE Law.
3
Date Tax Imposed
July 1, 2020 – June 30, 2023 1%
July 1, 2023 onwards 10%
11. What if the gross income of the Hospital or and Educational Institution
from ”unrelated trade, business or other activities exceeds 50% of its total
gross income?
The tax prescribed for Domestic Corporations the applicable income tax
rate is 20%, provided that net taxable income does not exceed FIVE
MILLION PESOS (Php5,000,000.00) and its total assets do not exceed ONE
HUNDRED MILLION PESOS (Php100,000,000.00).11
12. What if the corporation does not have income for the first (1 st) four (4) years
of its operations, is it still subject to the same tax?
Even if the corporation has net income, if the MCIT is higher than the
regular corporate income tax, the MCIT is still the one to be paid.
Example:
The corporation has Five Million Pesos (Php 5,000,000.00) gross income
and Four Hundred Thousand Pesos (Php 400,000.00) net taxable
income.
Since the tax liability under MCIT is higher, that is the one to be paid.
For easier reference, below are the summary of the changes brought about the
Corporate Recovery and Tax Incentives for Enterprises or CREATE Act for
DOMESTIC CORPORATIONS AND FOREIGN CORPORATIONS.
11
Section 6 (b), CREATE Law.
12
Section 6, (E) (1), CREATE Law.
4
Type of Corporation Regular MCIT
Rate Effectivity Rate Effectivity
Domestic Corporations 25% July 1% July
1,2020 1,2020 to
June
30,2023
2% July 1,
2023
2% July 1,
2023
5
Offshore Banking 25% 1% Upon the
Unit (OBUs) Upon the effectivity
(Note: OBUs shall effectivity of the
now be taxed as of the CREATE
resident foreign CREATE until June
corporation upon 30, 2023
effectivity of the
CREATE) 2% July
1,2023
Regional Operating 25% January 1, January 1,
Headquarters 2022 1% 2022 to
(ROHQ) June 30,
2023
2% July 1,2023
Non-Resident Foreign 25% Not applicable
Corporation July 1,2023
13. The corporation has labor training expenses, can these be deducted from
the taxable income?
Yes. Under the CREATE Law, 50% of the value of labor training expenses
incurred for the skills development or enterprise-based trainees enrolled
in public senior high schools, public higher educational institutions, or
public technical and vocational institutions and duly covered by an
apprenticeship agreement under the Labor Code. However, the deduction
cannot exceed 10% of the direct labor wage and the enterprise or
corporation should secure the proper certification from DepEd, TESDA, or
CHED. 13
14. What if the taxpayer has interest expenses and interest income, how are
these relevant in the computation of its tax liability?
Interest Expenses are deductible from the taxable income. However, if the
taxpayer has income interest, the allowed deduction will be reduced by
20% of the interest income subjected to final tax. The reduction was
reduced by the CREATE Law from 33% to 20%.
Additionally, if the interest income tax is adjusted in the future, the
reduction rate shall also be adjusted based on the standard formula
provided for by the rules and regulations made by the Secretary of
Finance.14
13
Section 9, 34, (A), (v), CREATE Law.
14
Section 9, (B), (1), CREATE Law.
6
15. The taxpayer corporation has recently decided to reorganize wherein there
will be exchange of properties, what is the tax implication of this decision?
Generally, the entire amount of the gain or loss realized from the sale
or exchange of property is recognized. However, there are exceptions,
and such exceptions were expanded under the CREATE Law.
Under the CREATE Law, no gain or loss shall be recognized on a
corporation or on its stock or securities if such corporation is a party to
a reorganization and exchanges properties pursuant to a plan of
reorganization solely for stock or securities in another corporation that
is a party to the reorganization.15
15
Section 10, (2), (e), CREATE Law.
16
Section 10, (2), e, CREATE Law.
7
The CREATE Law retained most of the transactions exempted under the
NIRC, as amended, but added or revised the following:
For the period beginning January 1, 2021 to December 31, 2023, the sale
or importation of the following:
Capital equipment, its spare parts and raw materials, which are
necessary for the production of personal protective equipment
components for COVID-19 prevention;
All drugs, vaccines and medical devices specifically prescribed
and directly used for COVID-19 treatment. The DOH will issue
every 3 months a list of drugs and medical devices to be covered
by this exception; and
Drugs for COVID-19 treatment approved by the Food and Drug
Administration (FDA) for use in clinical trials, including raw
materials directly necessary to produce such drugs. However,
the Department of Trade and Industry (DTI) should certify that
the equipment, spare parts or raw materials to be imported are
not available locally or if available, there is not enough supply
or does not meet the qualifications. 17
17. The taxpayer is exempt from VAT, what tax does it pay?
8
July 1, 2023 onwards 3% on gross quarterly
sales
TAX INCENTIVES
(New title added to the National Internal Revenue Code by the CREATE LAW)
19. As an export enterprise, is the taxpayer subject to the same regular
corporate income tax?
The CREATE Law added new deductions to those already provided for by
the NIRC, as amended, that export enterprises may be allowed to deduct,
these are as follows:21
19
Section 6, BIR Revenue Regulation No. 5-2021
20
Section 16, Section 294 (B), CREATE LAW
21
Section 16, Section 294 (C), CREATE LAW
9
Enhanced Net Operating Loss Carry-Over
The net operating loss of the registered project or activity during
the first 3 years from operation which has not been previously
used as deduction from gross income may be carried over as
deduction from gross income within the next 5 consecutive
taxable years immediately following the year of the loss.22
22
Section 16, Section 294 (8), CREATE Law.
10
For the deduction for reinvestment allowance in the
manufacturing industry, it shall be determined in the Strategic
Investment Priority Plan.23
21. What if the taxpayer has an existing project or activity, what is the effect of
the CREATE Law on its projects or activities?
Under the CREATE Law, existing registered projects or activities may still
qualify to register and avail of the incentives granted by such law
depending on the criteria provided for by the Strategic Investment Priority
Plan.
22. What about with regard to duties, are there also incentives or exemptions?
Within the first 5 years from importation, approval of the Investment Promotion
Agency must be secured prior the sale, transfer, or disposition of the capital
equipment, raw materials, spare parts, or accessories, and shall only be allowed
under the following circumstances:25
23
Section 16, section 295, (B), (1), CREATE Law.
24
Section 295, (C), (1), CREATE Law.
25
Section 295, (C), (2), CREATE Law.
11
Exportation of capital equipment, raw materials, spare parts, or
accessories, source documents or those required for pollution
abatement and control;
Proven technical outdatedness of the capital equipment, raw materials,
spare parts, or accessories; or
If donated to the TESDA, State Universities and Colleges, or DepEd
and CHED-accredited schools. Provided that the donation is exempt
from import duties and taxes, and donor’s tax.
Provided, that the vaccines shall not be intended for resale or other
commercial use and shall be distributed without consideration from
persons to be vaccinated.26
24. What are requirements for the qualified entities to avail the exemption
from VAT, excise tax, and donor’s tax from the procurement, importation,
donation, storage, transport, deployment, and administration of COVID-19
vaccines?
12
In addition to the foregoing requirements, the following shall be presented
for COVID-19 vaccines donated to the abovementioned entities:
The increase of the threshold for VAT exemption for residential lots
from One Million Five Hundred Thousand Pesos (Php 1,500,000.00) to
Two Million Five Hundred Thousand Pesos (Php 2,500,000.00) and for
house and lots and other residential dwellings from Two Million Five
Hundred Thousand Pesos (Php 2,500,000.00) to Four Million Two
Hundred Thousand Pesos (Php 4,200,000.00);
The automatic action on tax refunds within 90 days.;
The grant of Special Corporate Income Tax to Domestic Market
Enterprises and the creation of the categories of Domestic Market
Enterprises;
The grant of 3% share to the government from the gross income of
export enterprises.
The extension of availing tax incentives;
The definition of Investment Capital and suggested to just adopt the
current measures being used;
The provision listing the specific activities that are included in Tier I
and Tier III;
The mandatory exercise of the functions of the Fiscal Incentives Review
Board when investment capital exceeds One Billion Pesos (Php
1,000,000,000.00);
The power of the President to exempt an Investment Promotion
Agency; and
The automatic approval of applications for incentives.
We trust that you find the foregoing informative for purely advisory purposes.
Should you have further concerns, please do not hesitate to let us know.
27
Section 4, BIR Revenue Regulations No. 1 – 2021.
13