Corporate tax reform bill (the Bill) was presented to the Philippine House of Representatives on 21^st March 2018, which provides for graduated cuts in the corporate income tax (CIT) rate and the modernization of investment incentives, would level the playing field for business and make corporate income taxation transparent, more accountable and more equitable for both large and small corporations.

The key proposed amendments are given below:

Corporate income tax rate:

Accordingly, the bill provides for a 1% point reduction in the current 30% CIT every year for domestic corporations, resident foreign corporations and non-resident foreign corporations starting 1^st January 2019, provided that the cut would not reach lower than 20%, while modernizing fiscal incentives to make them performance-based, targeted, time bound, and transparent. The optional standard deduction1 rate applicable to corporations is also proposed to be reduced from the 40% to 20% of gross income.

Withholding tax rates:

• A 15% withholding tax rate (current 7.5%), is proposed on interest income of foreign corporations’ branches in Philippine.
• Withholding tax on dividends, royalties and service income by reduced 1% point every year starting 1^st January 2019, provided that the rate will not be lower than 20%.
• A capital gains tax rate on the sale is planned to be increased to 15% rate (current rate, 5%) for gains up to Php100,000, and 10% for gains above Php100,000.

Incentives:

• Under the bill’s simplified and harmonized menu of incentives, the income tax holiday granted up to for three years;
• A reduced CIT rate of 15% up to 5 years inclusive of the income tax holiday;
• A 50% tax allowance for qualified capital expenditures, along with varied rates of tax deductions for research and development, training, labor expenses, infrastructure development, and reinvestment;
• A 200% deduction for research and development expenses incurred for the year .