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Questions and Answers
What primary goal did the Philippine Congress aim to achieve by creating the CREATE Act in response to the COVID-19 pandemic?
What primary goal did the Philippine Congress aim to achieve by creating the CREATE Act in response to the COVID-19 pandemic?
- To eliminate all tax incentives for investors.
- To delay the implementation of new tax regulations.
- To increase corporate income taxes for all businesses.
- To provide fiscal relief to domestic and foreign corporations. (correct)
Which of the following best describes the impact of the CREATE Act on corporate income taxes for MSMEs in the Philippines?
Which of the following best describes the impact of the CREATE Act on corporate income taxes for MSMEs in the Philippines?
- Maintained the corporate income tax rate at 30%.
- Decreased the corporate income tax rate to 20% under certain conditions. (correct)
- Eliminated corporate income taxes altogether.
- Increased the corporate income tax rate to 35%.
Besides lowering corporate income taxes, what other key objective does the CREATE Act aim to achieve regarding fiscal incentives?
Besides lowering corporate income taxes, what other key objective does the CREATE Act aim to achieve regarding fiscal incentives?
- Rationalizing fiscal incentives to plug tax leakages. (correct)
- Removing all fiscal incentives to simplify the tax system.
- Ignoring fiscal incentives to focus on corporate tax rates.
- Expanding fiscal incentives without any restrictions.
What was the change in the corporate income tax rate for domestic corporations under the CREATE Act?
What was the change in the corporate income tax rate for domestic corporations under the CREATE Act?
Which of the following taxes was repealed under the CREATE Act?
Which of the following taxes was repealed under the CREATE Act?
Until what period did the CREATE Law provide a temporary reduction in the income tax rate for private schools and hospitals?
Until what period did the CREATE Law provide a temporary reduction in the income tax rate for private schools and hospitals?
How did the CREATE Act change the capital gains tax on stock sales outside the stock exchange?
How did the CREATE Act change the capital gains tax on stock sales outside the stock exchange?
Which of the following was granted VAT exemption under the CREATE Act, effective from January 1, 2021?
Which of the following was granted VAT exemption under the CREATE Act, effective from January 1, 2021?
What is the new tax rate for winnings from the Philippine Charity Sweepstakes Office (PCSO) under the CREATE Act?
What is the new tax rate for winnings from the Philippine Charity Sweepstakes Office (PCSO) under the CREATE Act?
Under the CREATE Act, what is the effectivity date of the new income tax rate for domestic corporations?
Under the CREATE Act, what is the effectivity date of the new income tax rate for domestic corporations?
What was the temporary reduction of the Minimum Corporate Income Tax (MCIT) rate according to the CREATE Act, and until when was it effective?
What was the temporary reduction of the Minimum Corporate Income Tax (MCIT) rate according to the CREATE Act, and until when was it effective?
If a domestic corporation has a gross income of $$840$ million and allowable deductions of $$799$ million, what is the income tax payable under the CREATE Act's calendar year computation, considering both the regular income tax and MCIT?
If a domestic corporation has a gross income of $$840$ million and allowable deductions of $$799$ million, what is the income tax payable under the CREATE Act's calendar year computation, considering both the regular income tax and MCIT?
For a proprietary educational institution with a taxable income of $$40$ million, what is the income tax payable under the CREATE Act's calendar year computation?
For a proprietary educational institution with a taxable income of $$40$ million, what is the income tax payable under the CREATE Act's calendar year computation?
Under the CREATE Act, what is the new income tax rate for Resident Foreign Corporations (RFCs)?
Under the CREATE Act, what is the new income tax rate for Resident Foreign Corporations (RFCs)?
How did the CREATE Act change the taxation of interest income derived from a depository bank under the expanded foreign currency deposit system for RFCs?
How did the CREATE Act change the taxation of interest income derived from a depository bank under the expanded foreign currency deposit system for RFCs?
According to the CREATE Act, what is the income tax rate for Non-Resident Foreign Corporations (NRFCs)?
According to the CREATE Act, what is the income tax rate for Non-Resident Foreign Corporations (NRFCs)?
What is the allowable deduction for labor training expenses under the CREATE Act?
What is the allowable deduction for labor training expenses under the CREATE Act?
What was the change in the tax rate on persons exempt from VAT under the CREATE Act?
What was the change in the tax rate on persons exempt from VAT under the CREATE Act?
Which of the following items are VAT-exempt under the CREATE Act?
Which of the following items are VAT-exempt under the CREATE Act?
According to the CREATE Act, what is the primary purpose of allowing corporations to accumulate earnings instead of distributing them to shareholders?
According to the CREATE Act, what is the primary purpose of allowing corporations to accumulate earnings instead of distributing them to shareholders?
What is the duration of the Income Tax Holiday (ITH) given to registered businesses, as specified in the CREATE Act?
What is the duration of the Income Tax Holiday (ITH) given to registered businesses, as specified in the CREATE Act?
Under what condition can companies that received ITH (Income Tax Holiday) before CREATE continue to avail it?
Under what condition can companies that received ITH (Income Tax Holiday) before CREATE continue to avail it?
Which type of enterprises can avail the Special Corporate Income Tax (SCIT) under the CREATE Act?
Which type of enterprises can avail the Special Corporate Income Tax (SCIT) under the CREATE Act?
What is a key feature of the Enhanced Deductions (ED) incentive offered under the CREATE Act?
What is a key feature of the Enhanced Deductions (ED) incentive offered under the CREATE Act?
According to the sunset provisions of the CREATE Act, what happens to registered business enterprises with incentives granted before the law's effectivity?
According to the sunset provisions of the CREATE Act, what happens to registered business enterprises with incentives granted before the law's effectivity?
Flashcards
CREATE Act
CREATE Act
RA 11534, fiscal relief for domestic and foreign corporations in the Philippines due to COVID-19, published March 27, effective April 11, 2021.
CREATE Act Goal
CREATE Act Goal
Making the Philippines more ASEAN competitive by reducing corporate income taxes.
CREATE Corporate Tax
CREATE Corporate Tax
From 30% to 25% for corporations.
MSME Tax Rate (CREATE)
MSME Tax Rate (CREATE)
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Improperly Accumulated Earnings Tax (IAET)
Improperly Accumulated Earnings Tax (IAET)
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Income Tax Holiday (ITH)
Income Tax Holiday (ITH)
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Special Corporate Income Tax (SCIT)
Special Corporate Income Tax (SCIT)
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Enhanced Deductions (ED)
Enhanced Deductions (ED)
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Duty Exemption (CREATE)
Duty Exemption (CREATE)
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VAT Exemption (CREATE)
VAT Exemption (CREATE)
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Sunset Provisions (CREATE)
Sunset Provisions (CREATE)
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CREATE Law
CREATE Law
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Percentage Tax
Percentage Tax
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CREATE Law in corporate tax.
CREATE Law in corporate tax.
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Study Notes
- Republic Act (RA) No. 11534, also known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, was established by the Philippine Congress
- CREATE Act was a response to the COVID-19 pandemic to serve as fiscal relief for domestic and foreign corporations operating in the Philippines
- The Act was published on March 27, and became effective on April 11, 2021
Aims of CREATE Act:
- To enhance the Philippines' competitiveness in ASEAN
- To lower corporate income taxes to 25% and 20% for small, medium, and micro enterprises (SMEs)
- To address tax leakages by refining fiscal incentives for investors
- To shift the administration of investments toward a performance-based, targeted, and time-bound system
- To provide a fiscal relief and recovery measure for Filipino businesses affected by the COVID-19 pandemic
Provisions of the CREATE Law (RA No. 11534):
- Corporate Income Tax was reduced from 30% to 25% for corporations
- Corporate Income Tax was reduced rom 30% to 20% for MSMEs with net taxable income ≤ ₱5M and total assets ≤ ₱100M
- 15% Optional CIT and 10% tax on offshore banking units was removed
- There is now exemption for foreign-sourced dividends under certain conditions
- Improperly Accumulated Earnings Tax (IAET) was repealed
Temporary Tax Reductions (Until June 2023):
- Income tax was reduced to 1% for private schools & hospitals
- Minimum corporate income tax (MCIT) was reduced to 1%
- Percentage tax for non-VAT taxpayers was reduced to 1%
Capital Gains & Final Tax Adjustments:
- Capital gains tax on stock sales (non-stock exchange) increased from 5% or 10% to 15%
- Interest income tax (RFCs) increased from 7.5% to 15%
Other Provisions:
- Additional tax deduction on labor training expenses is permitted
- Periodic reviews of withholding tax regulations are established
- VAT exemption on medicine (cancer, mental illness, tuberculosis, kidney disease) began from Jan. 1, 2021
Changes in Corporate Tax Rates:
- Winnings from Philippine Charity Sweepstakes Office (PCSO) are only tax-exempt if the winnings are ₱10,000 or less
- Income tax rate on domestic corporations was reduced from 30% to 25% and took effect on July 1, 2020
- Income tax rate on proprietary educational institutions and hospitals was reduced from 10% to 1% for the period of July 1, 2020 - June 30, 2023
Changes in Corporate Tax Rates:
- Income tax rate on RFCs was reduced from 30% to 25% and took effect on July 1, 2020
- Regional Operating Headquarters (ROHQ) now have RCIT at 25% since January 1, 2022
- Interest income derived from a depository bank under the expanded foreign currency deposit system increased 7.50% to 15%
- Capital gains tax from sale of shares of stock not traded in the stock exchange became 15%
Changes in Corporate Tax Rates:
- Income tax rate on NRFCs decreased from 30% to 25% and took effect on January 1, 2021
- Capital gains tax from sale of shares of stock not traded in the stock exchange became 15%
Changes in Corporate Tax Rates:
- One-half of the value of labor training expenses is an additional deduction for labor training expenses, but shall not exceed 10% of direct labor wage
- The interest expense limitation is at 20%
- Tax on persons exempt from VAT is 1%
Value-Added Tax (VAT) Exemptions:
- Sale or distribution, importation, printing, or publication of any educational material covered by the UNESCO agreement including digital and electronic format
- Sale of prescription drugs and medicines for cancer, mental illness, tuberculosis, diabetes, high cholesterol, hypertension, and kidney disease from January 1, 2021 instead of January 1, 2023
- Effective January 1, 2021, until December 31, 2023
- Capital equipment, its spare parts, and raw materials for the production of personal protective equipment for COVID-19 prevention
- All drugs, vaccines, and medical devices prescribed and used for the treatment of COVID-19
- Drugs for the treatment of COVID-19 approved by the FDA for use in clinical trials, including raw materials directly necessary for the production of such drugs
Repeal of Improperly Accumulated Earnings Tax
- Improperly accumulated earnings (IAE) are profits of a corporation allowed to accumulate instead of being distributed to shareholders for avoiding income tax
- Previously, a 10% tax was imposed on IAE and was repealed in the CREATE Act
Rationalization of fiscal incentives
- The Philippines was generous in granting tax incentives to a few investors, in perpetuity, without a regular review of the costs and benefits
- The CREATE Act aims to rationalize the grant of fiscal incentives to targeted investors
Income Tax Holiday :
- It is a temporary tax exemption given to registered businesses for 4 to 7 years, depending on location and industry
- There is an additional 3 years for businesses relocating outside NCR and an additional 2 years for businesses in disaster or conflict-affected areas
- The policy encourages business growth outside Metro Manila, boosting development in provinces
- Companies with an approved ITH can continue until their granted period ends
Special Corporate Income Tax (SCIT)
- It is a fixed 5% tax on gross income, in place of all national and local taxes
- SCIT is available for export enterprises for 10 years, but not for domestic enterprises due to the President’s veto
- Businesses can continue using the 5% tax for 10 years if they were already enjoying it before CREATE
Enhanced Deductions (ED)
- Businesses can acquire additional benefits that invest in job creation, training, research, and local materials
- ED encourages companies to hire more workers, train employees, and use local materials
- Businesses can obtain extra allowances by using depreciation, labor expenses, research & development (R&D), training expenses, use of local raw materials, electricity costs, manufacturing reinvestment and net operating loss carry over (NOLCO)
- ED cannot be used at the same time as SCIT (businesses must choose one)
Duty Exemption
- No import duties on materials and equipment used for business projects
VAT Exemption
- Businesses do not need to pay VAT on imported materials or local purchases directly related to their registered project
- VAT Exemptionencourages businesses to invest in new projects without the added cost of VAT
- VAT Exemption reduces operating expenses and keeps businesses competitive
Sunset Provisions:
- Registered business enterprises with incentives before the act can continue with its availment for the remaining period, as specified in the terms and conditions of their registration
- Those granted an ITH before the Act and are entitled to five percent (5%) tax on Gross Income Earned (GIE), can avail of the 5% GIE incentive
- Those availing of the 5% tax on GIE before the act will continue availing the incentive for ten (10) years
Changes in Percentage Tax Rates:
- CREATE lowered taxes for certain taxpayers to lessen COVID-19 effects
- Percentage tax reverted, in 2023, to its original tax rate
- Any person with is exempt from VAT and is not VAT-registered, shall pay a tax equivalent to 3% of his or her gross quarterly sales or receipts, as stated by Section 116 of the Tax Code, as amended
Significant Tax Rate Reduction under CREATE Law
- Corporate Income Tax Rate decreased from 30% to 20-25%
- Percentage Tax Rate decreased from 3% to 1%
- Minimum Corporate Income Tax (MCIT) decreased from 2% to 1%
- The decrease in percentage tax and MCIT was temporary for 3 years, beginning from July 1, 2020, and ending June 30, 2023
Sample Tax Savings brought by CREATE Law to Non-VAT Taxpayer subject to Percentage Tax
- If taxpayer is Non-VAT Registered and subject to Percentage Tax, the Percentage tax is equal to Total Sales multiplied by tax rate
- Without CREATE transition rate of percentage tax (3%), P1,000,000 sales incur ₱30,000 tax dues
- With CREATE transition rate of percentage tax (1%), P1,000,000 sales incur ₱10,000
- Tax Savings to Non-VAT of ₱20,000
Sample Tax Savings Brought by CREATE Law to Non-VAT Taxpayer subject to Minimum Corporate Income Tax
- Corporations registered for more than 4 years before 2020 is subject to Minimum Corporate Income Tax (MCIT)
- Minimum Corporate Income Tax = Gross income x tax rate
- Without CREATE transition rate of MCIT (2%), P1,000,000 Gross Income incurs ₱20,000 tax dues
- With CREATE transition rate of percentage tax (1%), P1,000,000 Gross Income incurs ₱10,000
- Tax Savings is ₱10,000
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