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  • Deductions Under CREATE Law

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    Angelica Delfin
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    This document summarizes new tax laws in the Philippines related to interest expense deductions and additional deductions for apprenticeship training expenses. For interest expense, domestic corporations subject to a 20% tax rate can fully deduct interest expenses, while those subject to 25% will have interest expenses reduced by 20% of interest income subject to tax. Expenses are calculated on a monthly basis and prorated between the old and new rates. For apprenticeship training, companies can deduct up to 50% of training expenses or 10% of direct labor costs, whichever is less, if they have certification from the appropriate authorities.

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    Deductions under CREATE Law

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    This document summarizes new tax laws in the Philippines related to interest expense deductions and additional deductions for apprenticeship training expenses. For interest expense, domestic corporations subject to a 20% tax rate can fully deduct interest expenses, while those subject to 25% will have interest expenses reduced by 20% of interest income subject to tax. Expenses are calculated on a monthly basis and prorated between the old and new rates. For apprenticeship training, companies can deduct up to 50% of training expenses or 10% of direct labor costs, whichever is less, if they have certification from the appropriate authorities.

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    14 views8 pages

    Deductions Under CREATE Law

    Uploaded by

    Angelica Delfin
    This document summarizes new tax laws in the Philippines related to interest expense deductions and additional deductions for apprenticeship training expenses. For interest expense, domestic corporations subject to a 20% tax rate can fully deduct interest expenses, while those subject to 25% will have interest expenses reduced by 20% of interest income subject to tax. Expenses are calculated on a monthly basis and prorated between the old and new rates. For apprenticeship training, companies can deduct up to 50% of training expenses or 10% of direct labor costs, whichever is less, if they have certification from the appropriate authorities.

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    of 8

    DEDUCTIONS (UNDER

    CREATE LAW)
    INTEREST EXPENSE
    ARBITRAGE
    BEFORE CREATE LAW
    •Taxpayer’s interest expense shall be reduced by 33% of the interest income subject
    to final tax.
    UNDER CREATE LAW (effectivity: July 2020)
    •Domestic and resident foreign corporation subject to 25%
    ❑Interest expense shall be reduced by 20% of the interest income subject to final tax.

    •Domestic corporation subject to 20%


    ❑Interest expense shall be fully deductible.
    COMPUTATION OF INTEREST
    EXPENSE ARBITRAGE
    1. Divide the gross interest income subjected to final tax for the year by 12 months:
    Interest income subjected to final tax /12 months.
    2. Multiply the number of months applicable to old arbitrage rate by the resulting
    monthly gross interest income subjected to final tax; then, multiply the product by
    the old arbitrage rate: number of months applicable x (1) x 33%
    3. Multiply the number of months applicable to new arbitrage rate by the resulting
    monthly gross interest income subjected to final tax; then, multiply the product by
    the new arbitrage rate: number of months applicable x (1) x (20% or 0%, as the case
    may be)
    4. Add the computed interest arbitrage under items (2) and (3) above to get the amount
    to be deducted from the interest expense claimed to arrive at the allowable interest
    ADDITIONAL DEDUCTION FOR
    APPRENTICESHIP TRAINING EXPENSES
    Additional deduction of ½ of labor training expense (but not to exceed 10% of direct
    labor wage) for skills development of enterprise-based trainees enrolled in public
    senior, high schools, public higher educational institutions, or public technical and
    vocational institutions duly covered by an apprenticeship agreement and certified by
    the Technical Education and Skills Development Authority (TESDA), the
    Commission on Higher Education (CHED), or the Department of Education (DepEd).
    CONDITIONS FOR ADDITIONAL
    DEDUCTION FOR APPRENTICESHIP
    TRAINING EXPENSES
    1. Secure “certification” from the DepEd, TESDA, or CHED.
    2. Deduction shall not exceed 10% of direct labor wage.
    ADDITIONAL DEDUCTION FOR
    APPRENTICESHIP TRAINING EXPENSES
    DETERMINING THE CAP ON ADDITIONAL TRAINING
    EXPENSE:
    ❑ Additional 50% deduction = P1,500,000 (50% of
    P3,000,000)
    ❑ The P1,500,000 may be claimed as additional deduction, since
    it did not exceed 10% of the direct labor wage (10% x
    P20,000,000 = P2,000,000
    ❑ If direct labor is P10,000,000, the additional deduction may
    be claimed is only P1,000,000 because limit is P1,000,000
    (10% x P10,000,000 direct labor = P1,000,000)
    THANK YOU!!!

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