Corporate Taxation, Taxation

1. Corporate Income
Taxation

2. CREATE LAW
Republic Act (RA) No. 11534, otherwise known as the Corporate
Recovery and Tax Incentives for Enterprises (CREATE) Act was created
by the Philippine Congress in response to the COVID-19 pandemic as a
fiscal relief to domestic and foreign corporations doing business in the
Philippines.
It seeks to amend several provisions in the old Tax Code, with a central
focus on lowering corporate income tax rates and rationalizing fiscal
incentives to better attract local and foreign investments in the
Philippines.

3. CREATE LAW
Before the COVID-19 pandemic, CREATE Act was initially known as TRABAHO bill (or Tax Reform
for Attracting Better and Higher-quality Opportunities).
When the bill failed to pass Congress, it was renamed to CITIRA (or Corporate Income Tax and
Incentives Reform Act), which also failed to pass Congress because it was deemed as a non-
priority and non-urgent bill during the outbreak of COVID-19.
The addition of COVID-19 related provisions propelled the passage of the bill into law.

4. CREATE LAW

5. CREATE LAW

6. Classification of Corporations
• incorporated under the laws of the Philippines.
Domestic Corporation
• One formed, organized, or existing under any laws
other than those of the Philippines
Foreign Corporation

7. Types of Foreign Corporation
Resident Foreign
Corporation
•Those engaged in
trade or business
within the
Philippines.
Non – Resident
Foreign Corporation
•Those not engaged
in trade or business
within the
Philippines.

8. Sources of Taxable Income
Type of Corporation Sources of Taxable Income
Within the
Philippines
Outside the
Philippines
Domestic ✅ ✅
Resident Foreign ✅ ❎
Non - Resident Foreign ✅ ❎

9. Classification of Corporations
Corporation Tax Base
Domestic Taxable Income from all sources within and
outside the Philippines
Resident Foreign Taxable Income from sources within the
Philippines
Non - Resident
Foreign
Gross Sales/Receipts from sources within the
Philippines

10. Income Tax Rule on Regular Corporation
Domestic Corporation 20% or 25% Regular Corporate
Income Tax subject to the
Minimum Corporate Income Tax.
Resident Foreign
Corporation
25% Regular Corporate Income Tax
subject to the Minimum Corporate
Income Tax.

11. Tax Base
Tax Base for RCIT purposes is taxable
income which is the gross income less
allowable deductions.
Tax base for MCIT, is the gross income. Gross
income as contemplated in the tax code, is Net
sales or receipts (Gross Sales/Receipt less sales
returns, discounts and allowances) less any
Cost of Sales or Cost of Services.

12. Tax Base
• For Non – resident Foreign
Corporation, the tax base is
the Gross Sales or Receipts
which generally connotes
Sales/Receipts less discounts,
returns & allowances, or Net
Sales/Receipts.

13. Tax Base

14. Corporate Income Taxation
Regular Corporate Income Tax
• Applies to all corporations in
general.
• It covers all taxable income of
corporations that are not
subject to final tax and capital
gains tax.
Minimum Corporate Income Tax
• Applies to domestic corporation.
• MCIT does not apply to non-
resident foreign corporations.
However, resident foreign
corporations are also liable for
MCIT.

15. Regular Corporate Income Tax
Income Tax rate for all corporate is 30% notwithstanding if they are
domestic or foreign.
Beginning July 1, 2020, the effective rate shall be 25%, under the CREATE
Law.
A reduced rate of 20% will apply to a
domestic corporation (MSMEs) with:
Net taxable income not exceeding P5,000,000;
and
Total assets not exceeding P100,000,000.

16. Regular Corporate Income Tax

17. Regular Corporate Income Tax
Assuming the Jean Company is a
MSME

18. Minimum
Corporate
Income Tax
The MCIT is 2% of Gross Income.
However, under the CREATE Law, the rate shall be 1%
beginning July 1, 2020 until June 30, 2023.
A company is liable for MCIT starting the 4th year
immediately following the year in which it commenced
its operation.
MCIT is implemented on domestic and resident foreign
corporations when:
• They have zero or negative taxable income; or
• MCIT is greater than the regular corporate income tax due.

19. Minimum
Corporate
Income Tax

20. Minimum
Corporate
Income Tax

21. Sample
Problem

23. Sub-Classification of Corporate Income
Taxpayers
• Domestic Corporations
• Exempted domestic Corporation
• Government agencies & instrumentalities
• Certain GOCCs
• Special domestic Corporation
• Proprietary Educational institutions and non-profit hospital
• Subject to 10% tax on world taxable income subject to the predominance
test
• Under CREATE, effective Jul. 1, 2020 – Jun. 30, 2023 the tax rate is 1%.

24. Sub-Classification of Corporate Income
Taxpayers
• Foreign Corporations
• Special resident foreign corporations
• International carrier
• Offshore banking unit
• Branch profit remittances
• RAHQs and ROHQs
• Special non-resident foreign corporations
• Non-resident cinematographic film owner, lessor or distributor
• Non-resident lessor of vessels, chartered by Philippine nationals
• Non-resident owner or lessor of aircraft, machineries and other equipment

25. Special resident
foreign
corporations
• Under CREATE LAW, OBU
is treated as regular foreign
corporation.
Tax
Rate
Tax Base
International carrier 2.5% Gross Philippine Billings
Offshore banking unit 25% Taxable Income
Branch profit remittances 15% Total profit applied or
earmarked for remittance
RAHQs (RAH or RHQ) Exempt
ROHQs 10% Taxable Income

26. Special non-resident foreign corporations
Tax Rate Tax Base
Non-resident cinematographic film
owner, lessor or distributor
25% Gross income from all sources
within the Philippines
Non-resident lessor of vessels,
chartered by Philippine nationals
4.5% Gross rentals, lease or charter fees
Non-resident owner or lessor of
aircraft, machineries and other
equipment
7.5% Rentals, lease or charter fees