RMC No. 89-2021: Circularizes RA No. 11534, titled “An Act Reforming the Corporate Income Tax and Incentives System, Amending for the Purpose Sections 20, 22, 25, 27, 28, 29, 34, 40, 57, 109, 116, 204 and 290 of the National Internal Revenue Code of 1997, as Amended, and Creating Therein New Title XIII, and for Other Purposes”, otherwise known as “Corporate Recovery and Tax Incentives for Enterprises Act” or CREATE”

Key points

1. Corporate income tax rates. Effective July 1, 2020, the rate falls from 30% to 20% for domestic corporations with net taxable income not exceeding ₱ 5 Million and total assets not exceeding ₱ 100 Million. All other domestic corporations and resident foreign corporations pay 25%, and the rate for non-resident foreign corporations falls from 30% to 25% effective January 1, 2021.
2. Temporary reductions. From July 1, 2020 to June 30, 2023, the MCIT falls from 2% to 1% and Percentage Tax from 3% to 1%. The rate for proprietary educational institutions and hospitals falls from 10% to 1% for the same period.
3. Other tax changes. The Improperly Accumulated Earnings Tax (IAET) is repealed. The definition of reorganization for tax-free exchange under Section 40(C)(2) is expanded, and prior BIR ruling or confirmation is not required to avail of the exemption.
4. Incentives. Qualified export enterprises get 4 to 7 years of Income Tax Holiday (ITH), then 10 years of 5% Special Corporate Income Tax (SCIT) or Enhanced Deductions. Qualified domestic market enterprises get 4 to 7 years of ITH, then 5 years of Enhanced Deductions.
5. Duty and VAT on registered projects. Registered enterprises are exempt from customs duty on capital equipment, raw materials, spare parts or accessories directly and exclusively used in the registered project or activity. VAT exemption on importation and VAT zero-rating on local purchases apply only to goods and services directly and exclusively used in that project or activity.
6. Prior investments and vetoed items. Enterprises granted only an ITH keep it for the remaining period, while those with an ITH plus 5% Gross Income Tax (GIT), or currently enjoying 5% GIT, may avail of the 5% GIT for 10 years. Vetoed items include the higher VAT-exempt thresholds for residential lots and house and lot, the 90-day period for general tax refunds, and automatic approval of incentive applications.

Deadlines and effectivity

• Corporate rates effective July 1, 2020
• Non-resident foreign corporation rate effective January 1, 2021
• MCIT, Percentage Tax and educational institution and hospital reductions: July 1, 2020 to June 30, 2023