Create Law Philippines Lawphil
Additional benefits are granted to qualified companies through the CREATE Act, such as exemption from customs duties on the import of equipment, raw materials, spare parts and exemption from import VAT and a zero VAT rate on local purchases. One of the main objectives of the CREATE Act is to develop a more flexible and globally competitive, performance-based, targeted, time-bound and transparent tax incentive system. In line with this orientation, the CREATE Act introduced many reforms in previous tax incentive schemes offered to investors. These changes include the fact that, from the previous four (4) to six (6) years granted to export and domestic market enterprises, this number is now staggered from four (4) to seven (7) years, subject to industry classification. Industries eligible under the CREATE Act are granted various options in the form of income tax exemptions and five per cent (5%) special corporate income tax on gross income. So far, there have been no restrictions on the use of the special 5% corporate tax for export industries. Under the CREATE Act, the special corporate tax of 5% can only be claimed for ten (10) years. Summary of IRS Rates and Their Effectiveness Under the CREATE Act Extended deductions for exporters and businesses in the domestic market are as follows: Sunset Board for Existing Registered Corporations The following table shows the new tax rates that are regulated by law under the CREATE Act: The main incentives of the CREATE Act include: One of the points that the President vetoed, is the removal of the extension of the use of tax incentives by existing EBRs because “the expansion of incentives for existing projects is unfair to ordinary taxpayers/businesses without incentives and, moreover, only new activities and new projects deserve new incentives”. Under the CREATE Act, extensions of income tax exemptions for an additional two (2) years and for three (3) years for expanding businesses were available options for eligible businesses. These options are no longer available under the CREAT Act. However, if the qualified business relocates its operations outside the National Capital Region or to areas recovering from disasters or conflicts, it is entitled to an additional income tax holiday of three (3) years or two (2) years, in addition to the initial period granted to the company under the law.
This additional incentive can be used by exporters and domestic businesses – a benefit not found in any law or government policy prior to the CREATE Act. The CREATE Act also introduces enhanced deductions that were not available under the previous plan. For export, domestic and domestic essential companies, the following may be allowed as a deduction: The CREATE Act also adopted significantly lower corporate tax rates for certain types of tax, exempted certain taxable activities, and even repealed certain taxes: Corporate tax rates (IRS) for domestic corporations and resident foreign corporations (RFCs) under the Act CREATE will be reduced from the current 30% to 25%. retroactive to July 1, 2020. The CIT will be reduced by 1% per year over the next six years. And should eventually reach 20% by 2027. Prior to the COVID-19 pandemic, the CREATE Act was originally known as the TRABHOHO Act (or tax reform aimed at creating better quality opportunities). When the bill was not passed by Congress, it was renamed CITIRA (or Corporate Income Tax and Incentives Reform Act), which was also not passed by Congress because it was considered a non-priority and non-urgent law during the COVID-19 outbreak. The addition of regulations related to COVID-19 led to the passage of the law. Prior to the passage of the CREATE Act, the Philippines had the highest corporate tax rate among its Southeast Asian neighbors at thirty percent (30 percent), followed by Myanmar and Indonesia at twenty-five percent (25 percent) and Singapore at the bottom of the scale at seventeen percent (17 percent).
CREATED is considered revolutionary and further aims to improve the fairness and efficiency of the corporate tax system by lowering the tax rate, broadening the tax base and reducing tax distortions and losses. The CREATE Act addresses this situation by lowering not only corporate tax, but also other types of tax rates and broadening the tax base. Kristine Anne Mercado-Tamayo is a partner in Torres` tax practice group. She has 13 years of experience assisting clients in tax matters, including corporate restructuring, mergers and acquisitions and other cross-border transactions. Kristine represents clients on behalf of clients in controversies over controversial tax assessments and represents clients before the Bureau of Internal Revenue. Kristine Anne received her PhD in Law from the Ateneo de Manila in 2005. It is recognized by the Legal 500 Asia Pacific as a next-generation tax partner for 2020. She was recently appointed Chair of the Tax and Financial Services Committee of the European Chamber of Commerce of the Philippines.