Tax Alert No. 91 [Senate Bill (SB) No. 1357 or The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE)]

27 November, 2020

An Act Reforming the Corporate Income Tax and Incentives System, Amending for the Purpose Sections 20, 22, 25, 27, 28, 29, 34, 40, 109, 116 and 290 of the National Internal Revenue Code of 1997, as amended, and Creating Therein New Title XIII, and for Other Purposes

On 26 November 2020, the Senate has approved SB No. 1357 or the Corporate Recovery and Tax Incentives for Enterprises Act (herein referred to as “CREATE”). The CREATE bill seeks to lower corporate income tax rates and to rationalize fiscal incentives.

The key amendments in the Tax Code under the CREATE bill include, but not limited to, the following:

  1. Corporate income tax (CIT)
    1. Adoption of graduated CIT rate effective 1 July 2020:
      1. 20% CIT for domestic corporations with total assets of PHP100m and below, and with net taxable income of PHP5m and below
      2. 25% CIT for other domestic corporations
    2. 25% CIT for resident and non-resident foreign corporations effective 1 July 2020
    3. Reduction of minimum corporate income tax (MCIT) to 1% from 1 July 2020 to 30 June 2023
    4. Reduction of CIT for proprietary, non-profit educational institutions and hospitals to 1% from 1 July 2020 to 30 June 2023
    5. Tax exemption of foreign-sourced dividends of domestic corporations subject to certain conditions
    6. Clarification on the types of reorganizations covered by tax-free exchanges under Section 40(C)(2) of the Tax Code
    7. Repeal of improperly accumulated earnings tax (IAET)
    8. Repeal of 10% special income tax rate on regional operating headquarters (ROHQ) starting 1 January 2022
  2. Fiscal incentives
    1. Uniform fiscal incentives for newly registered business enterprises (RBE)
      1. Income tax holiday (ITH) for 4 to 7 years
      2. 5% gross income tax (GIT) or enhanced deductions for 10 years
    2. Total period of incentive availment has been increased to a maximum of 17 years. The length of the period of incentives takes into account the location and type of the registered activity
    3. Highly-desirable projects with a minimum investment capital of PHP50bn or those that can generate at least 10,000 employees, can enjoy a superior incentive package for up to 40 years which includes ITH for a maximum of 8 years
    4. Sunset period for existing RBEs:
      1. Firms enjoying ITH can continue to enjoy the same within the remaining ITH period
      2. Firms enjoying 5% GIT can continue to enjoy the same for 10 years
    5. Existing RBEs may re-apply for the fiscal incentives under the CREATE bill after the lapse of the sunset period
    6. Approval of fiscal incentives for new projects or activities with investment capital of PHP1bn and below shall be delegated to their respective Investment Promotion Agencies (IPA). Fiscal incentives application for projects or activities with investment capital exceeding PHP1bn shall be subject to the approval of the Fiscal Incentives Review Board (FIRB)
    7. Duty exemption on certain importations, VAT exemption on importations, and VAT zero-rating on local purchases shall still apply
  3. Value-added tax (VAT) and Percentage Tax
    1. VAT-exemption on the sale or importation of digital or electronic reading materials
    2. 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
    3. VAT-exemption on the sale or importation of medicines for cancer, mental illness, tuberculosis, and kidney diseases to take effect on 1 January 2021 instead of 1 January 2023
    4. Adjustment on the threshold of VAT-exemption on sale of real property to account for inflation, as follows:
      1. Residential lots from PHP1.5m to PHP2.5m
      2. House and lot, and other residential dwellings from PHP2.5m to PHP4.2m
    5. Reduction of percentage tax for non-VAT taxpayers from 3% to 1% starting 1 July 2020 to 30 June 2023

Congressman Joey Salceda, chairman of the House Ways and Means Committee, said that a Bicameral Conference Committee will not be necessary since the House will adopt the approved version of the Senate.

We are monitoring the official release of the CREATE bill as approved by the Senate. A copy of the bill shall be circulated in a separate tax alert once available.

Contact us

Lyn Golez-Geronan

Lyn Golez-Geronan

Tax Librarian, PwC Philippines

Tel: +63 (2) 8845 2728

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