Special InTAX: April 2021 Issue 1 | Volume 7

 

Department of Finance

 

The Department of Finance (DOF) issued RR No. 5-2021, 8 April 2021, to implement the new income tax rates on the regular income of corporations on certain passive incomes and additional allowable deductions of persons engaged in business or practice of profession as provided for in the CREATE Law.

Salient points of RR No. 5-2021 are as follows:

Type of Corporation	The higher between the “Regular” or “Minimum Corporate Income Tax (MCIT)” rates
	Regular		MCIT
	Rate	Effectivity	Rate	Effectivity
Domestic Corporation:
Domestic corporations, in general	25%	1 July 2020	1%	1 July 2020 to 30 June 2023
			2%	1 July 2023
For corporations with net taxable income not exceeding Five Million Pesos (Php5,000,000) AND total assets not exceeding One Hundred Million (Php100,000,000), excluding the land on which the particular business entity’s office, plant and equipment are situated	20%	1 July 2020	1%	1 July 2020 to 30 June 2023
			2%	1 July 2023
Proprietary Educational Institutions and Hospitals	1%	1 July 2020 to 30 June 2023	Not Applicable
	10%	1 July 2023
Foreign Corporation [on taxable income (e.g., net or gross income, as applicable) derived from all sources within the Philippines]:
Resident Foreign Corporation	25%	1 July 2020	1%	1 July 2020 to 30 June 2023
			2%	1 July 2023
Offshore Banking Units (OBUs) (Note: OBUs shall now be taxed as resident foreign corporations upon the effectivity of the CREATE Law)	25%	Upon the effectivity of the CREATE Law	1%	Upon the effectivity of the CREATE Law until 30 June 2023
			2%	1 July 2023
Regional Operating Headquarters (ROHQ)	25%	1 January 2022	1%	1 January 2022 to 30 June 2023
			2%	1 July 2023
Non-Resident Foreign Corporation	25%	1 January 2021	Not applicable

 

• The cost of land in which the particular business entity's office, plant and equipment are situated, shall be accounted separately in the domestic corporation’s Annual Financial Statements (AFS) for domestic corporations.

• Regular tax rates on domestic corporations shall apply to the entire taxable income of proprietary educational institutions or hospitals if its gross income from "unrelated trade, business or other activity" exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources

• GOCCs, agencies and instrumentalities except GSIS, SSS, HDMF and PHIC are subject to income tax rate similar to those imposed upon corporations or associations engaged in a similar business, industry, or activity.

• The RR also includes new income tax rates applicable to certain passive incomes of individuals and corporations, such as:

 

Type of Individual/ Corporation	Nature of Income	Rate	Effectivity
Non-Resident Alien Individual	Winnings from Philippine Charity Sweepstake Office (PCSO) games amounting to more than Php10,000.00	20%	Upon the effectivity of the CREATE Law
	Winnings from PCSO games amounting to Php10,000.00 and below	Exempt
Domestic Corporation	Intercorporate Dividends (domestic and foreign source dividends)	From another domestic corporation - Exempt From foreign corporations - 25%, 20% or exempt, as the case may be	For foreign source dividends, these will be exempt from income tax upon the effectivity of the CREATE Law, subject to the conditions for exemptions under section 5 of RR No. 5-2021 such as the reinvestment requirement into the domestic corporation within the next taxable year from the time of remittance among others. Otherwise, such shall be taxable.
Resident Foreign Corporation	Interest income from a depositary bank under the expanded foreign currency deposit system	15%	Upon the effectivity of the CREATE Law
	Capital gains from sale of shares of stock   not traded in the stock exchange	15%	Upon the effectivity of the CREATE Law
Non-resident Foreign Corporation (NRFC)	Gross income received from all sources within the Philippines, etc., and capital gains, except capital gains from sale of shares of stock not traded in the stock exchange	25%	1 January 2021
	Intercorporate dividend received from a domestic corporation, in general	25%/15%	1 January 2021
	Capital gains from sale of shares of stock not traded in the stock exchange	15%	Upon the effectivity of the CREATE Law

 

•  Improperly Accumulated Earnings Tax (IAET) shall no longer be imposed on corporations upon the effectivity of the CREATE Law onwards (i.e., for the entire taxable year for all fiscal years/taxable years ending after the effectivity of CREATE Law).

• For tax free exchanges under Section 40(C)(2), no gain or loss shall be recognized on a corporation or on its stock or securities if such corporation is a party to a reorganization and exchanges property in pursuance of a plan of reorganization solely for stock or securities in another corporation that is a party to the reorganization. Sale or exchanges of property used for business for shares of stocks shall not be subject to VAT. Prior confirmation or tax ruling shall not be required in order to avail of the exemption.

• Guidelines to compute interest arbitrage and income tax due for corporations for taxable year 2020 are provided in the RR (RGM & Co Note: There is also a table in the RR, summarizing the applicable transitory rates of the interest arbitrage).

• Another option for taxpayers to implement CREATE Law in the computation of income tax during the transition period is to use the rates in the table below:

 

TRANSITORY RATES
Annual Accounting Period (Transition TY 2020)	Regular Corporate Income Tax Rates	Other domestic corporations with net taxable income ≤5M & total assets ≤100M, exclusive of land	MCIT	Proprietary Non-profit Educational Institution/Hospital
	30% / 25%	30% / 20%	2% / 1%	10% / 1%
FY   7-31-20	29.58%	29.16%	1.91%	9.25%
FY   8-31-20	29.16	28.33	1.82	8.50
FY   9-31-20	28.75	27.50	1.73	7.75
FY   10-31-20	28.33	26.66	1.64	7.00
FY   11-31-20	27.91	25.83	1.55	6.25
CY   12-31-20	27.50	25.00	1.50	5.50
FY   1-31-21	27.08	24.16	1.41	4.75
FY   2-28-21	26.66	23.33	1.32	4.00
FY   3-31-21	26.25	22.50	1.23	3.25
FY   4-30-21	25.83	21.66	1.14	2.50
FY   5-31-21	25.41	20.83	1.05	1.75
FY   6-30-21	25.00	20.00	1.00	1.00

 

• For taxpayers who have already filed their income tax returns for taxable year 2020 (CY 2020; FY ending from 31 July 2020 to FY ending 28 February 2021), they may amend their income returns using the transitory rates per the above matrix.

• Any resulting excess/overpayment can be claimed for refund or tax credit certificate, or carried over to the next taxable year, at taxpayers' option.

• This RR is effective immediately upon publication in the Official Gazette or in any 2 newspapers of general circulation, whichever comes earlier.

(RGM & Co. Note:  The RR was published in the Philippine Star and Malaya Business Insight on 9 April 2021)

 

Bureau of Internal Revenue

 

The BIR issued Revenue Memorandum Circular (RMC) No. 50-2021, 5 April 2021, to prescribe the guidelines in the filing and payment of Annual Income Tax Return (AITR) by non-individual taxpayers with taxable years ending 31 July 2020 to 30 June 2021 which was affected by the passing of the CREATE Law.

Salient points of the RMC are as follows:

• Non-individual taxpayers, whether eFPS or non-eFPS filers, shall file its Annual ITR using the offline eBIRForms package v7.9 which is downloadable from www.bir.gov.ph and www.knowyourtaxes.ph. The RMC contains how to download and use eBIR Forms.

• Automatic computation of tax due has been disabled hence the taxpayers need to manually indicate the rate of tax applicable to them based on the transitory rates table provided under the RMC.

• Non-eFPS Filers can either pay manually (i.e., any Authorized Agent Banks or Revenue Collection Officer under jurisdiction of any Revenue District Office, as applicable) or online (i.e., GCash/PayMaya, Landbank Link.BizPortal, Development Bank of the Philippines Tax Online, Union Bank Online Web and Mobile Payment Facility or PESONet through LBP Link.BizPortal)

• For eFPS Filers, once the return has been submitted through eBIRForms, they shall proceed to payment using the eFPS facility. They shall fill out and e-file BIR Form No. 0605 then proceed to e-Payment to pay their income tax due using the following codes:

1.     Tax Type Code – Income Tax (IT)

2.     Alphanumeric Tax Code (ATC) – MC 200 Miscellaneous Tax.

 

Attached are the full texts of the issuances.

Revenue Regulations No. 5- 2021

Revenue Memorandum Circular No. 50-2021