Week 16

Tax Incentives
Tax Incentives
Republic Act No. 11534, otherwise known
as the “Corporate Recovery and Tax
Incentives for Enterprises” (CREATE) Act is
the second package of the Comprehensive
Tax Reform Program that reduces corporate
Income tax rates.
The CREATE Act also provides other tax relief
measures that will help businesses, particularly
those organized as corporations (including One
Person Corporations) recover from the effects of
the pandemic as well as measures that will
rationalize the grant of fiscal incentives to
targeted investors.
The CREATE law reduces the Regular Corporate Income
Tax (RCIT) rates effective July 1, 2020 as follows:
Domestic corporations with net taxable
income not exceeding PhP 5 Million and with
total assets not exceeding PhP 100 Million
From 30% to 20%
All other domestic corporations and resident foreign
corporations
From 30% to 25%
Effective January 1, 2021, the income tax rate for
non-resident foreign corporations is reduced from
30% to 25%
Minimum Corporate Income Tax (MCIT) rate is also
reduced from 2% to 1% of gross income (revenue less cost of
sales) effective July 1, 2020 to June 30, 2023. Note that the
MCIT is imposed if a corporation has negative taxable
income, or the MCIT is higher than 30% Regular Corporate
Income Tax (RCIT). The MCIT applies to the corporation on
its fourth year of operation after the year of its BIR
registration. The excess of the MCIT over RCIT could be
carried over to three (3) succeeding taxable years until the
corporation becomes liable to pay RCIT.
Repeal of Improperly Accumulated Earnings Tax
Improperly accumulated earnings (IAE) are the profits of
a corporation that are permitted to accumulate instead
of being distributed by a corporation to its shareholders
for the purpose of avoiding the income tax with respect
to its shareholders or the shareholders of another
corporation. Previously, a tax of 10% is imposed on IAE.
This has been repealed in the CREATE Act.
Rationalization of Fiscal Incentives
The CREATE Act provides measures that rationalize
the grant of fiscal incentives to targeted investors
given that for decades, the Philippines has been too
generous in granting tax incentives to a few investors,
in perpetuity, and without a regular and in-depth
review of the costs and benefits of doing so.
Some of the key incentives in the CREATE Act include:

Qualified export enterprises shall be entitled to 4 to 7

years Income Tax Holiday (ITH) to be followed by 10
years 5 % Special Corporate Income Tax (SCIT) OR
Enhanced Deductions

Qualified domestic market enterprises shall

be entitled to 4 to 7 years ITH to be followed by 5 years
Enhanced Deductions
 Registered enterprises are exempt from customs
duty on importation of capital equipment, raw
materials, spare parts, or accessories directly and
exclusively used in the registered project or activity
VAT exemption on importation and VAT
zero-rating on local purchases shall only apply to
goods and services directly and exclusively used in
the registered project or activity by a Registered
Business Enterprise (RBE)
Sunset Provision for Existing Registered Business
Enterprises

One of the items vetoed by the President is the removal of the

extension of availment of tax incentives by existing RBEs
because the “extension of incentives for existing projects is
unfair to ordinary taxpayers / un-incentive enterprises and
further, only new activities and projects deserve fresh
incentives.”
So, for investments prior to effectivity of CREATE, they
may continue to avail of the incentives granted to them,
as follows:
RBEs granted only an ITH (income tax holiday)
Continue with the availment of the ITH

for the remaining period of the ITH

RBE(registered buss.enterprises) granted an ITH + 5%
Gross Income Tax (GIT
or currently enjoying 5% GIT
Allowed to avail of the 5% GIT for 10 years
BMBE (Barangay Micro-Business
Enterprise) Registration: Why, What &
How?
● The BMBE Law was enacted last November
13, 2002 under former President Gloria
Macapagal Arroyo. It recognizes that small
businesses and micro-enterprises are crucial
components of economic development in the
country. They provide livelihoods for Filipinos
and improve the quality of life. As such, the
BMBE provides the following incentives:
● · Income tax exemption from
income arising from the operations of
the business
● · Minimum wage law exemption
(note that BMBE employees will still
receive the same SSS and Philhealth
benefits)
● ·
● Access to a special credit window which was
established for the financing of BMBEs
● Access to tech transfer, production and
management training, and marketing
assistance programs
● LGUs may also offer reduction OR exemption
of local taxes, fees, and other charges
 What are the Eligibility Requirements?

Based on the BMBE law, you can be eligible for BMBE

registration under the following criteria:
· Your business centers on trading, services, and
producing products, including agro-processing.
· Your total assets must not exceed P3 million,
including those arising from your loans but not the
land on which your manufacturing plant and tools are
located.
·
 What are the Eligibility Requirements?

· Your business cannot be connected with the

exercise of your profession (ex. a professional duly
licensed by the government like lawyers or doctors).
· Your operations are not a branch or subsidiary of
a larger corporation.
 What Documents to Prepare?
Whether you are a first-time BMBE registrant or are
renewing, your registration will occur in the Office of
the Treasurer of the city or municipality where your
business is established. These are the necessary
documents:
·
Filled out and signed BMBE Form 1 in triplicate
·
Three passport size photos
For assets equal to or less than P300,000) add the
following:
1. Registration as a business entity in the appropriate
government agency (e.g. Securities and Exchange
Commission (SEC) registration for corporations;
Cooperative Development Authority (CDA) registration for
cooperative; Department of Trade and Industry (DTI)
business name registration for sole proprietors
2. Mayor’s Permit or City/ Municipal Business Permit.
For assets more than P300,000 and up to
P3,000,000.00 include:
1. Registration as a business entity (as above)
2. Taxpayer Identification Number (TIN)
3. Certificate of Registration from the Bureau of Internal
Revenue (BIR)
4. Mayor’s Permit or City/Municipal Business Permit
5. Affidavit executed by the sole proprietor or the
President of the company stating the business is
barangay-based and a micro-business in nature and
scope
6. Sworn Statement of Assets and Liabilities with
corresponding documents
7. Pictures of your place of business and other assets,
other than cash, receivables, and other intangibles
8. Copy of Loan Contract/s (if any) and duly notarized
Certification of Amortization Payments on the Loan
9. Income Tax Return (ITR).
 Additional Requirements for renewal of BMBE
registration for ALL:
· Comply with the documents mentioned above
· Include your Annual Information Return (for the
year immediately preceding the renewal of registration)
duly filed with the BIR
· Submit required attachments with the tax return
How to Finalize Registration?
The process to fully register as BMBE is as follows:

Step 1: Accomplish BMBE Form 01 in triplicate. Affix

your signature.
Step 2: Collect all the required documents and then
submit to the Municipal or City Treasurer Office.
Step 3: The said office will evaluate the application, and
it will be processed within 15 working days upon
submission.
Step 4: Pay administrative costs, if any. The registration
and issuance of Certificate of Authority of the LGU
should be free of charge, but they are allowed to levy a
minimal admin fee of no more than P1,000 to defray
expenses.
Step 5: Wait for the release of your Certificate of
Authority as proof of registration. This is valid for two
years and must be renewed thereafter
Final Wrap Up

If you are ready to take on the challenge of being a

business owner, knowing ways to save money will help
you. Starting things right will ensure you establish a
solid foundation for your operations. Remember, it takes
commitment to grow your business. If you find all these
details overwhelming, you can hire professionals to get
all the pertinent details accomplished.
End of slides