On March 26, 2021, Pres. Rodrigo Duterte signed the Corporate Recovery and Tax Incentives for Enterprises or the CREATE bill into law. The law was designed to accelerate the recovery of businesses from the crippling effects of the COVID-19 pandemic. However, it also contains widely encompassing and long lasting provisions that go beyond the immediate needs of businesses to bounce back from the crisis.
Here are some of the most important provisions of the law:
- Lower business income taxes
- Effective July 1, 2020, income tax for large corporations was reduced from 30% to 25%, and income tax for small and medium corporations was reduced to 20%.
- Minimum CIT for businesses operating at a net loss or zero taxable income is reduced from 2% to 1% of the gross income for the period from July 1, 2020 to June 30, 2023.
- Percentage tax for applicable businesses is decreased from 3% to 1% for the period from July 1, 2020 to June 30, 2023
- Improperly accumulated earnings tax (IAET) is repealed
- New tax incentives for qualified export and domestic market enterprises
- Qualified export and domestic market businesses can enjoy an income tax holiday of four to seven years, adding a two-year sunset provision to companies already registered with the Philippine Investment Promotion Agencies
- The income tax holiday is followed by a special corporate income tax rate of 5% based on gross income. After the sunset period, registered enterprises are subject to the same tax rate as other corporations.
- Additional deductions for qualified enterprises, including:
- 10% for building depreciation and 20% for machinery and equipment depreciation
- 50% on labor expenses
- 100% on research and development expenses
- 100% on training expenses
- 50% on domestic input expenses
- 50% on power expenses
- 50% on reinvestment allowance
- Additional three year income tax holiday for projects or activities that are completely relocated from the National Capital Region
- VAT exemptions and income tax incentives to qualified activities
- The income tax rate for proprietary educational institutions and hospitals is reduced to 1% from 10% for the period from July 1, 2020 to June 30, 2023
- The sale, importation, printing, or publication of books, newspapers, and magazines is now VAT exempt (previously subject to 12% VAT) for the period from January 1, 2021 to December 31, 2023
- The sale or importation of drugs and medicines for cancer, mental illness, tuberculosis, and kidney diseases are VAT exempt beginning January 1, 2021
- The sale or importation of drugs and medicines for diabetes, high cholesterol, and hypertension are VAT exempt beginning January 1, 2020
- The sale or importation of equipment and raw materials for the production of PPEs, as well as drugs, vaccines, and medical equipment to treat COVD-19 are VAT exempt for the period from January 1, 2021 to December 31, 2023
- VAT-exempt taxpayers with gross annual sales not exceeding P3 million shall be taxed 1% instead of the previous 3% on their gross quarterly sales or receipts for the period from July 1, 2020 to June 23, 2023
If you need more information and clarification about the CREATE law and its impact on your business, don’t hesitate to call us at (632) 478 5826.