[6] Investment promotion agencies refer to government bodies responsible for promoting investment, granting and managing tax and non-tax incentives, and supervising the operations of different economic zones such as BOI, PEZA, BCDA, SBMA, CEZA, APECO, TIEZA and all other similar existing authorities, or which may be established by law, unless expressly stated otherwise by the scope of the Tax Code. is excluded. as amended by the CREATE Act. While investment promotion agencies such as the Board of Investments and the Philippine Economic Zone Authority continue to maintain their functions and powers under the special laws they have established, the management and granting of tax incentives will be transferred and will be subject to the supervision of the Tax Incentive Review Board. The Philippine President vetoed the following provisions of the bicameral version of the CREATE Act: [2] The provision in the Tax Code granting exemption from OBUs and tax privileges has been removed. *The deduction is 200% if the activity is located in less developed areas. However, this incentive does not apply to TIEZA, SBMA, CDC and APECO. (b) the duty-free importation of capital goods, raw materials, spare parts or accessories used directly and exclusively in the registered project or activity; and not surprisingly, I`ve already talked in a few webinars this week about the Comprehensive Collection and Tax Incentives for Business (CREATE) Act (Republic Act 11534), where the ink of presidential approval is barely dry. I would like to share important knowledge about CREATE with my readers based on the questions I have received so far from our clients and the public. [7] The Strategic Priority Investment Plan („SRP“) sets out priority projects or activities, the scope and scope of site and industry levels, and the conditions for granting increased deductions. The SIPP is formulated by the Board of Investments in consultation with other government agencies and approved by the President of the Philippines.
The RHP is valid for three years and can then be reviewed and amended every three years. Alexander B. Cabrera is President and Senior Partner of Isla Lipana & Co./PwC Philippines. He is President of the Integrity Initiative, Inc. (II, Inc.), a non-profit organization that promotes common and acceptable ethical standards of integrity. Email your comments and questions to ph_aseasyasabc@pwc.com. This content is provided for general information purposes only and should not be used as a substitute for consulting professional advisors. It is essential that taxpayers are aware of the changes introduced by the CREATE Act to ensure appropriate and timely compliance with tax regulations. In addition, companies can consider the above tax planning reforms to maximize potential tax efficiency. The extended tax-exempt exchange provision under Article 40(C)(2) of the Tax Code is also an important aspect of a corporate restructuring. On March 26, 2021, the second package of the Philippine government`s comprehensive tax reform program was enacted as Republic Act No. 11534 or the Corporate Tax Collection and Incentives for Business Act (the „CREATE Act“).
The CREATE Act follows and complements the first reforms introduced in 2018 by Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act („TRAIN Act“). DOES CREATE now allow purely electronic invoicing, especially in this pandemic? This was not addressed in CREATE, but if the previous TRAIN law is to be respected, the government has until January 2023 (five years after TRAIN came into force) to set up the system necessary for storing and processing data. This may happen earlier, but today BIR rules still require printed copies of all invoices, receipts, books and records because, among other things, the BIR is not yet ready to perform digital audits. Will we attract investors with CREATE? The lower corporate tax rate, while not the lowest in the region, leaves the Philippines close to our neighbors. That is enough, because investors who come here to do business do so because of our dynamic domestic market and the lower tax rate will not be a departure. However, exporters now have a longer sunset period and they will stay in place because 10 years is a lot of time, and in 10 years a lot can happen, commercially or politically. Alexander B. Cabrera President Emeritus, PwC Philippines 04 Apr 2021 „I LOVE this resource.
Absolutely the best and most reliable single source for what is happening affecting our business. THANK YOU!! As the first SPP has not yet been published, the Board of Investments` (BOI) 2020 Priority Investment Plan serves as a transitional SPP until the first SPP is issued. Since the tax reduction for ordinary corporate income tax is long overdue, its full and retroactive granting will provide immediate and necessary tax relief to the companies concerned and stimulate the country`s economic recovery and development in the long term. Overall, the changes introduced by the CREATE Act ensure a fairer and more balanced tax system that generally allows the Philippines to remain competitive with its ASEAN neighbors. [3] Conditions for exemption of dividends from foreign sources: This article was originally published in the Philippine STAR. In summary, all companies that apply for tax incentives will continue to deal with investment promotion agencies or APIs. Incentives are approved by the IPA, unless the proposed project or activity exceeds a one billion pesos investment capital threshold. Above this threshold, applications for incentives are decided by the Tax Incentive Review Board, an inter-agency agency agency at the Cabinet level that oversees the provision of tax incentives. The CREATE Act reduces ordinary corporate tax on the net taxable income of domestic companies and resident foreign companies (e.g.
branches) from 30% to 25% as of July 1, 2020. In addition, the standard corporate tax rate for domestic MSMEs (i.e. Micro, small and medium-sized enterprises whose total assets do not exceed 100 million Philippine pesos, excluding the land where their offices, facilities and equipment are located) with a net taxable income not exceeding 5 million Philippine pesos for the tax year, the standard corporate tax rate from 1 July 2020 is only 20%. Similarly, the ordinary corporate tax on the gross taxable income of non-resident foreign companies (paid as final withholding) has been reduced from 30% to 25%, but this reduced rate will not apply until January 1, 2021, a later date compared to the tax reduction that has been extended to domestic and resident foreign companies. Regional operational headquarters („ROHQ“) can only benefit from the preferential tax rate of 10% on their taxable income until the end of 2021. Thereafter, ROHQs will be subject to 25% corporate income tax as of January 1, 2022. On the other hand, the tax-exempt status of the regional territorial headquarters remains unchanged. Important tax reforms introduced by the CREATE Act include: [4] The create amendment has been corrected, which was overlooked by Tax Reform Package 1 (i.e. the TRAIN Act), which entered into force in 2018. According to the TRAIN law, natural and national companies are already subject to a flat tax rate of 15%. The CREATE Act is the second set of the government`s tax reform program, the first being the TRAIN Act (Republic Act No.
10963 or Tax Reform Act for Acceleration and Inclusion), which came into force on January 1, 2018. The TRAIN Act introduced reforms in the areas of personal taxation, property transfer tax, indirect taxes, excise duties, stamp tax on documents and other types of taxes. The CREATE Act, on the other hand, focuses on the taxation of corporate income and the rationalization of tax incentives granted under existing investment promotion laws. What is the new VAT exemption threshold for houses and land or apartments under CREATE? The CREATE law provided for the increase of the VAT exemption threshold for housing to 4.2 million pesos. However, this was one of the provisions that the president vetoed. While the veto notice alluded to the fact that the VAT exemption should remain at 2.5 million pesos, as it is the law on tax reform for acceleration and inclusion (TRAIN), this is inaccurate because the threshold under the TRAIN law fell to 2 million pesos from 2021. Since the president can only veto but cannot pass legislation, new laws are needed to raise the current threshold. (If it`s not on 4.2 million pesos, as veto, then on 3.5 million pesos?) (c) Exemption from import VAT and zero VAT rate on local purchases of goods and services used directly and exclusively in the registered project or activity.
The lower tax rate of 25% applies retroactively to July 1, 2020.Can we apply the 25% tax rate to our income for the past six months? Quarterly returns are not final, as taxes are levied on annual income. Therefore, the effective tax rate of 27.5% should be applied to your taxable income in 2020. Domestic corporations benefit from the repeal of the Tax on Unfairly Accumulated Income („IAET“) for taxation or taxation years ending after the entry into force of the CREATE Act. How is the expiry period calculated for registered companies? You can enjoy your income tax holiday (ITH) without being disturbed, but you can only take advantage of the five percent GIT for the next 10 years after itH.