RMC No. 62-2021: Clarifies certain provisions of Revenue Regulations No. 5-2021 relative to Corporate Income Taxation

Summary

RMC No. 62-2021 clarifies provisions of RR No. 5-2021 on corporate income taxation, covering the 20% rate asset test, educational institutions, dividends, MCIT timing and the labor training deduction.

Key points

1. Total assets test for the 20% rate. Total assets must not be more than P 100,000,000, exclusive of land, and are net of depreciation and allowance for bad debts. Only the land where the office, plant and equipment sit during the taxable year is excluded, so land held for sale to customers or for investment stays in.
2. Valuing the excluded land. If the Financial Statements show land at cost, that cost is excluded. If they show it at fair market value, that value is excluded. The excluded amount is the percentage of floor area devoted to the entity’s office multiplied by the total value of the land.
3. Educational institutions. Private educational institutions that distribute dividends to shareholders pay the regular rates of 25% or 20%. The preferential rate of 10% or 1% from July 1, 2020 to June 30, 2023 is for Proprietary Educational Institutions, meaning non-profit private schools with a permit to operate from DepEd, CHED or TESDA. CREATE only cut the rate from 10% to 1% and set no new treatment for them or private hospitals.
4. Dividends. If the Certification states the dividends were not used, the unutilized dividends are taxable income, with interest, surcharges and penalties on the tax due. Dividends from a resident foreign corporation depend on its sources of income under Section 42(A)(2)(b), and are treated as Philippine-source unless less than 50% of its gross income for the three-year period came from Philippine sources.
5. MCIT start year. The 4th year of business operations in RR No. 5-2021 means the fourth taxable year immediately following the year operations began. A corporation that began in 2017 may face MCIT from 2021 if it exceeds the regular income tax, and the starting year is the year of BIR registration per RR No. 9-98.
6. Labor training deduction. Any industry may claim the additional deduction of one-half of labor training expenses, if expenses are not more than 10% of the Direct Labor Wage and are for enterprise-based trainees in public schools under a PD No. 442 apprenticeship agreement. The company must be authorized to offer the training by DepED, TESDA or CHED, and training of supervisory, managerial, administrative and support employees is left out.

Who is affected

• Corporations claiming the reduced 20% rate
• Proprietary Educational Institutions
• Companies claiming the labor training deduction

Deadlines and effectivity

• Preferential 1% rate for educational institutions: July 1, 2020 to June 30, 2023

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.