On 8 April 2021, the Bureau of Internal Revenue (BIR) Officially published final revenue regulations (Revenue Regulations No. 2-2021, Revenue Regulations No. 4-2021, Revenue Regulations No. 5-2021) for the implementation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. On 26 March 2021, the President, signed into law the proposed CREATE Act to attract more investments and maintain fiscal prudence and stability. The BIR also issued Revenue Regulations No. 3-2021, which highlights rules for the submission of tax-related information by the Commissioner of Internal Revenue to the Finance Department for granting of tax incentives. However, the BIR has not yet issued the final regulations for the new tax incentives regime introduced by CREATE.
Corporate income tax
The Revenue Regulations No. 5-2021 includes income tax changes. This Regulation includes the following changes:
- A reduction in the corporate tax rate from 30% to 25%, which applies retroactively from 1 July 2020 for domestic corporations and resident foreign corporations. The effective date for non-resident foreign corporations is from 1 January 2021.
- Under the Act, corporations with net taxable income not exceeding PHP5 million and with total assets not exceeding PHP100 million, excluding land on which the particular business entity’s office, plan, and equipment are situated during the taxable year for which the tax is imposed, shall be taxed at 20%.
- A minimum corporate income tax of 2% of the gross income as of the end of the taxable year is imposed on the entitled taxable corporation beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations.
- Foreign corporations, based on the CREATE Act, will be subject to an income tax equivalent to 25% of the taxable income derived in the preceding taxable year from all their sources within the Philippines.
- A minimum corporate income tax of 2% of gross income will be imposed on a resident foreign corporation.
Withholding tax
The Revenue Regulations No. 2-2021 covers the withholding tax and passive income changes.
