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Corporate Recovery and Tax Incentives For Enterprises (Create) Bill

The key points are: 1) The CREATE Bill aims to help the Philippine economy recover from COVID-19 by significantly reducing corporate income tax rates and providing various tax incentives for businesses. 2) It lowers corporate income tax rates to 20% for small businesses and 25% for others. It also reduces incentives for regional operating headquarters. 3) The bill provides tax holidays, deductions, and import tax exemptions to newly registered businesses for up to 17 years depending on location and investment size.

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Ronn Robby Rosales
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78 views15 pages

Corporate Recovery and Tax Incentives For Enterprises (Create) Bill

The key points are: 1) The CREATE Bill aims to help the Philippine economy recover from COVID-19 by significantly reducing corporate income tax rates and providing various tax incentives for businesses. 2) It lowers corporate income tax rates to 20% for small businesses and 25% for others. It also reduces incentives for regional operating headquarters. 3) The bill provides tax holidays, deductions, and import tax exemptions to newly registered businesses for up to 17 years depending on location and investment size.

Uploaded by

Ronn Robby Rosales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 15

CORPORATE RECOVERY AND

TAX INCENTIVES FOR


ENTERPRISES (CREATE) BILL
An Overview

Issue No. 14
S
I. The need for a new tax reform package

 The Philippines currently has the highest Corporate Income Tax


(CIT) rate in the ASEAN region
I. The need for a new tax reform package

 The need to recover economically from the COVID-19 crisis


 The amendments make the proposed bill the first ever “revenue-eroding” tax
reform package proposed by the Department of Finance (DOF) and the largest
fiscal stimulus program for enterprises in the Country’s history.
 In the second half of this year alone, the accelerated reduction in the CIT rate will
result in the reduction of government revenues estimated at around P40 billion, that
all firms, especially the micro, small, and medium enterprises (MSMEs), can use to
fund their operations and retain their employees.
 For the succeeding five years, the total estimate is about P600 billion in foregone
government revenues that these firms can invest in the revitalization of their
businesses and to create even more jobs for Filipino workers. 1

1 Tax Reform, Department of Finance.


I. The need for a new tax reform package

 The Philippines has been too generous in granting tax incentives to a few investors,
in perpetuity and without a regular and in-depth review of the cost and benefits of
doing so.
II. Salient features of the CREATE Bill

 Hugely in favor of Corporate Taxpayers;

 Encourages investment and spending;

 Incentives are performance-based;

 Provides tax benefits to priority industries and priority areas (less


developed areas);

 Time-bound; and

 Transparent
III. Key Amendments in the Tax Code1

 Corporate Income Tax (CIT)


 Amended the definition of a ‘corporation’ to include One Person Corporations (OPCs);
 Adoption of a graduated CIT rate effective 1 July 2020:
a. 20% CIT rate for domestic corporations with total assets of P100M and below (excluding
land) AND with net taxable income of P5M and below;
b. 25% CIT rate for other domestic corporations;
c. 25% CIT rate for resident and non resident foreign corporations;
d. Reduction of the Minimum Corporate Income Tax (MCIT) rate of 2% to 1% from 1 July
2020 to 30 June 2023

1 Tax Alert No. 91, PwC Philippines.


III. Key Amendments in the Tax Code1

 How about for Fiscal Year Corporations?


 The taxable period shall be computed without regard to the
specific date when specific sales, purchases and other transactions
occur.
III. Key Amendments in the Tax Code1

d. Reduction of CIT rate for proprietary, non profit educational institutions and hospitals from
10% to 1% from 1 July 2020 to 30 June 2023;
e. Tax exemption of foreign-sourced dividends of domestic corporations subject to certain
conditions:
 Reinvested in the business of the domestic corporation within the next taxable year from the
time of the receipt of the foreign dividends;
 The domestic corporation holds directly at least 20% of the outstanding shares of the
foreign corporation and has held it for at least 2 years from the time of the dividend
distribution
f. Clarifications on the types of reorganizations covered by tax-free exchanges under Section
40(C)(2) of the Tax Code;
g. Repeal of the Improperly Accumulated Earnings Tax (IAET);
h. Repeal of the 10% special income tax rate on regional operating headquarters (ROHQ)
starting 1 January 2022 (will be subject to regular corporate income tax).
III. Key Amendments in the Tax Code1

 Non resident alien engaged in trade or business within the


Philippines
 Prizes (except prizes amounting to P10,000 and below which shall be
subject to the regular income tax for individuals) and winnings
(except winnings from the PCSO amounting to P10,000 or less which
is exempt) – 20%;
 Not amended in the TRAIN Law. Prior to CREATE, ALL income
from winnings are subject to the 20% final tax.
III. Key Amendments in the Tax Code1

 Fiscal Incentives
a. Uniform fiscal incentives to newly registered business enterprises (RBEs):
i. Income tax holiday (ITH) for 4 to 7 years;
ii. 5% Gross income tax or enhanced deductions for 10 years;
b. Total period of incentive availment has been increased to a maximum of 17 years. The length
of the period of incentive takes into account the location and type of the registered activity;
c. Highly desirable projects with a minimum investment capital of P50B or those that can
generate 10,000 employees can enjoy a superior incentive package of up to 40 years which
include an ITH for a maximum of 8 years;
d. Sunset period for existing RBEs;
i. Firms enjoying ITH can continue to enjoy the same within the remaining ITH period;
ii. Firms enjoying 5% GIT can continue to enjoy the same for 10 years.
III. Key Amendments in the Tax Code1

e. Existing RBEs may reapply for the fiscal incentives under the CREATE
Bill after the lapse of the sunset period;

f. Approval of fiscal incentives for new projects or activities with investment


capital of P1Billion and below shall be delegated to their respective
Investment Promotion Agencies (IPA). Fiscal incentives applications for
projects or activities with investment capital exceeding P1Billion shall be
subject to the approval of the Fiscal Incentives Review Board (FIRB);

g. Duty exemption on certain importations, VAT exemption on importations


and VAT zero-rating on local purchases shall still apply.
III. Key Amendments in the Tax Code1

 Value Added Tax (VAT) and Percentage Tax


a. VAT exemption on the sale or importation of digital or electronic
reading material;
b. VAT exemption on the sale or importation of drugs, vaccines and
medical devices specifically prescribed and directly used for the
treatment of COVID-19 registered with and approved by the FDA
from 1 January 2021 to 31 December 2023;
c. VAT exemption on the sale or importation of medicines for cancer,
mental illness, tuberculosis, and kidney diseases to take effect on 1
January 2021;
III. Key Amendments in the Tax Code1

d. Reduction of percentage tax for non-VAT txpayers from 3% to 1%


starting 1 July 2020 to 30 June 2023.
IV. Other Pertinent Information about the Bill

 Approved by the Bicameral Conference Committee last 03 February 2021;

 The Bill was submitted to the Office of President Duterte last 27 February 2021;

 If left unsigned by the President, the bill will lapse into law on 27 March 2021;

 Principal author of the House version of the Bill is Albay 2nd District Rep. Joey Salceda while
the Senate’s version was authored by Sen. Pia Cayetano;

 Signed into law as Republic Act No. 11534 on 26 March 2021 with veto message on certain
items;

 The Bill shall be sent to the House of Representatives where its members can override the veto
by a vote of 2/3 of all its members. The Bill will be then submitted to the Senate and if the said
House votes to override the veto by a vote of 2/3 then the Bill becomes a law.
Thank you.

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