Republic Act No.

11534, The Corporate Recovery

and Tax Incentives for Enterprises Act (CREATE)
Online Briefing
13 April 2021
Revenue Regulations No. 5 – 2021

Implementing the New Income Tax Rates on

the Regular Income of Corporations, on
Certain Passive Incomes, Including
Additional Allowable Deductions from
Gross Income of Persons Engaged in
Business or Practice of Profession Pursuant
to Republic Act (RA) No.11534 or the
“Corporate Recovery and Tax Incentives for
Enterprises Act” (CREATE), Which Further
Amended the National Internal Revenue
Code (NIRC) of 1997
SECTION 1. SCOPE
Pursuant to the provisions of Sections 244 and 245 of the National Internal Revenue
Code (NIRC) of 1997, as amended, in relation to Section 21 of Republic Act (RA)
No. 11534 or the “Corporate Recovery and Tax Incentives for Enterprises Act”
(CREATE), these Regulations are hereby promulgated 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.

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SECTION 2. DEFINITION
A. Corporations – shall include one-person corporations, partnerships, no matter
how created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not include general
professional partnerships and joint ventures or consortiums formed for the purpose
of undertaking construction projects or engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating consortium agreement under
a service contract with the Government.
A one-person corporation is a corporation with a single stockholder; Provided,
That only a natural person, trust, or an estate may form a one person corporation.

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SECTION 2. DEFINITION
B. General professional partnerships – are partnerships formed by persons for
the sole purpose of exercising their common profession, no part of the income
of which is derived from engaging in any trade or business.
C. Proprietary Educational Institutions – refer to any private schools, which
are non-profit for the purpose of these Regulations, maintained and
administered by private individuals or groups, with an issued permit to operate
from the Department of Education (DepEd) or the Commission on Higher
Education (CHED) or the Technical Education and Skills Development
Authority (TESDA), as the case may be, under existing laws and regulations.

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SECTION 2. DEFINITION
D. Proprietary Hospitals – refer to any private hospitals, which are non-profit for
the purpose of these Regulations, maintained and administered by private
individuals or groups.
E. Non-profit – as used in the definition of Proprietary Educational Institutions
and Proprietary Hospitals, means that no net income or asset accrues to or
benefits any member or specific person, with all the net income or assets
devoted to the institution’s purposes and all its activities conducted not for
profit.
F. Government-Owned or Controlled Corporations (GOCCs), Agencies or
Instrumentalities – all corporations, agencies, or instrumentalities owned or
controlled by the Government.

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SECTION 2. DEFINITION
G. Resident Foreign Corporation – a corporation organized, authorized, or
existing under the laws of any foreign country, engaged in trade or business
within the Philippines.
H. Non-resident Foreign Corporation – a corporation organized, authorized, or
existing under the laws of any foreign country, not engaged in trade or business
within the Philippines.
I. Reorganization – shall mean any of the following instances:
a. A corporation, which is a party to a merger or consolidation, exchanges
property solely for stock in a corporation, which is a party to the merger or
consolidation; or

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SECTION 2. DEFINITION
b. The acquisition by one (1) corporation, in exchange solely for all or a part of its voting
stock, or in exchange solely for all or a part of its voting stock of a corporation which
is in control of the acquiring corporation, of stock of another corporation if,
immediately after the acquisition, the acquiring corporation has control of such other
corporation, whether or not such acquiring corporation had control immediately before
the acquisition; or
c. The acquisition by one (1) corporation, in exchange solely for all or a part of its voting
stock or in exchange solely for all or part of the voting stock of a corporation which is
in control of the acquiring corporation, of substantially all of the properties of another
corporation. In determining whether the exchange is solely for stock, the assumption
by the acquiring corporation of a liability of the others shall be disregarded; or

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SECTION 2. DEFINITION
d. A recapitalization which shall mean an arrangement whereby the stock and
bonds of a corporation are readjusted as to amount, income, or priority or an
agreement of all stockholders and creditors to change and increase or decrease
the capitalization or debts of the corporation or both; or
e. A reincorporation, which shall mean the formation of the same corporate
business with the same assets and the same stockholders surviving under a
new charter.

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SECTION 2. DEFINITION
J. Control – shall mean ownership of stocks in a corporation after the transfer of
property possessing at least fifty-one percent (51%) of the total voting power of
all classes of stocks entitled to vote: Provided, that the collective and not the
individual ownership of all classes of stocks entitled to vote of the transferor or
transferors shall be used in determining the presence of control.
K. Unrelated Trade, Business or Other Activity of Proprietary Educational
Institutions and Hospitals – means any trade, business, or other activity, the
conduct of which is not substantially related to the exercise or performance by
such educational institution or hospital of its primary purpose or function.

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SECTION 2. DEFINITION

L. Foreign-sourced dividends – are dividends received from non-

resident foreign corporations.
M. Related party/ies – are those which are identified under Section 36
(B) of the Tax Code, as amended.

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SECTION 3. CORPORATE INCOME TAX RATES
The matrix below shows the new income tax rates applicable to the regular taxable income of corporations:
The higher between the “Regular” or “Minimum
Domestic Corporation Corporate Income Tax (MCIT)” rates
Regular MCIT
Rate Effectivity Rate Effectivity
Domestic corporations, in general 25% July 1, 2020 1% July 1, 2020 to
June 30, 2023

2% July 1, 2023
For corporations with net taxable income not exceeding 20% July 1, 2020 1% July 1, 2020 to
Five Million Pesos (P5,000,000) AND total assets not June 30, 2023
exceeding One Hundred Million (P 100,000,000),
excluding the land on which the particular business 2% July 1, 2023
entity’s office, plant and equipment are situated
Proprietary Educational Institutions and Hospitals 1% July 1, 2020 to Not Applicable
June 30, 2023

10% July 1, 2023

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Foreign Corporation [on taxable income (e.g., net or gross income, as applicable) derived from all sources within the
Philippines]: 12
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SECTION 3. CORPORATE INCOME TAX RATES
The higher between the “Regular” or “Minimum Corporate Income
Type of Corporation Tax (MCIT)” rates
Regular MCIT
Rate Effectivity Rate Effectivity
Resident Foreign Corporation 25% July 1, 2020 1% July 1, 2020 to June 30, 2023

July 1, 2023
2%
Offshore Banking Unit (OBUs) 25% Upon the effectivity of 1% Upon the effectivity of the
(Note: OBUs shall now be taxed as the CREATE CREATE until June 30, 2023
resident foreign corporation upon
effectivity of the CREATE) July 1, 2023
2%
Regional Operating Headquarters 25% January 1, 2022 1% January 1, 2022 to June 30,
(ROHQ) 2023

2% July 1, 2023
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Foreign Corporation 25% January 1, 2021 Not applicable 13
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SECTION 3. CORPORATE INCOME TAX RATES

The MCIT is imposed beginning on the fourth taxable year immediately following
the year in which such corporation commenced its business operations, when it is
greater than the regular income tax computed for the taxable year.

Domestic corporations shall account separately in their Annual Financial Statements

(AFS) the cost of the land on which the particular business entity’s office, plant and
equipment are situated, and shall not lump the same in one account title nor
consolidate its cost with other fixed asset accounts.
.

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SECTION 3. CORPORATE INCOME TAX RATES
In the case of proprietary educational institutions or hospitals, if the gross income from
“unrelated trade, business or other activity” (as defined under Section 2 hereof) exceeds
fifty percent (50%) of the total gross income derived by such educational institutions or
hospitals from all sources, the tax prescribed for domestic corporations shall be imposed
on the entire taxable income.

GOCCs, agencies and instrumentalities, except the Government Service Insurance

System (GSIS), the Social Security System (SSS), the Home Development Mutual Fund
(HDMF), the Philippine Health Insurance Corporation (PHIC), and the local water
districts, shall pay such rate of tax upon their taxable income as are imposed upon
corporations or associations engaged in a similar business, industry, or activity.

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 ILLUSTRATIONS

A. DOMESTIC CORPORATION
A.1 LMB Corporation, a retailer, has a gross sales of P1,400,000,000.00 with a cost of
sales of P560,000,000.00 and allowable deductions of 150,000,000.00 for the calendar
year 2021. Its total assets of P180,000,000.00 as of December 31, 2021 per Audited
Financial Statements includes the land costing P50,000,000.00 and the building of
P25,000,000.00 in which the business entity is situated, with an aggregate amount of
P75,000,000.00 as Fixed Assets. Assuming CY 2021 is the 5th year of operation of
LMB Corporation, computation of income tax (Income Tax – whichever is higher
between Regular Rate and MCIT) shall be as follows:

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 ILLUSTRATIONS
REGULAR RATE
Gross Sales 1,400,000,000.00
Less: Cost of Sales 560,000,000.00
Gross Income 840,000,000.00
Less: Allowable Deductions 150,000,000.00
Net Taxable Income 690,000,000.00
REGULAR RATE 25%
TAX DUE 172,500,000.00
MINIMUM CORPORATE INCOME TAX (MCIT)
Gross Income 840,000,000.00
MINIMUM CORPORATE INCOME TAX (MCIT) RATE 1%
TAX DUE 8,400,000.00
* INCOME TAX DUE shall be P 172,500,000.00

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 ILLUSTRATIONS

A.2 JPL Corporation, a manufacturer, has a gross sales of P190,000,000

for CY 2021, its 2nd year of operation. Its total assets amounted to P
50,000,000, net of the value of the land of P6,000,000 where its
manufacturing plant and business operations are situated. Its cost of sales
and allowable operating expenses amounted to P100,000,000 and
P50,000,000, respectively. Compute for its income tax due for CY 2021.

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 ILLUSTRATIONS
Gross Sales 190,000,000.00
Less: Cost of Sales 100,000,000.00
Gross Income 90,000,000.00
Less: Allowable Deductions 50,000,000.00
Net Taxable Income 40,000,000.00
REGULAR RATE 25%
TAX DUE 10,000,000.00

* Although the total assets, net of the value of the land, is less than
P100,000,000.00, its net taxable income is above P5,000,000. Hence, the income
tax rate is 25%. Not subject to MCIT since it is in its 2nd year of operation.

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 ILLUSTRATIONS
A.3 Given the same facts under Illustration A.2, except for the allowable
operating expenses, which amounted to P85,000,000. The net taxable
income will be P5,000,000.00. With this, the income tax rate shall be 20%,
and the income tax due shall be P1,000,000.00.

* In both illustrations A.2 and A.3, the MCIT shall not be applied since it
is only the second year of operation of JPL Corporation.

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 ILLUSTRATIONS
B. PROPRIETARY EDUCATIONAL INSTITUTIONS
Rosa Private School of Values or RPSV is a non-profit private educational institution with an
issued permit to operate from the Commission on Higher Education (CHED). It is maintained and
administered by MCGJ Inc., a private domestic corporation registered under the Securities and
Exchange Commission.

RPSV uses a fiscal year accounting ending July 31st of each year. On July 31, 2021, it recorded
total gross receipts amounting to P18,000,000.00, of which P10,000,000.00 came from education-
related activities, while P8,000,000.00 from other unrelated business activities. Also, RPSV
recorded cost of service and operating expenses from related activities amounting to
P2,000,000.00 and P1,000,000.00, respectively, and from unrelated business activities amounting
to P3,000,000.00 and P2,000,000.00, respectively.

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 ILLUSTRATIONS
Related Unrelated Activities Total
activities
Gross Receipts/Sales 10,000,000.00 8,000,000.00 18,000,000.00
Less: Cost of Service/Sales 2,000,000.00 3,000,000.00 5,000,000.00
Gross Income 8,000,000.00 5,000,000.00 13,000,000.00
Less: Allowable Deductions 1,000,000.00 2,000,000.00 3,000,000.00
NET TAXABLE INCOME 7,000,000.00 3,000,000.00 10,000,000.00
REGULAR RATE 1%
TAX DUE 1,000,000.00

The educational institution is subject to income tax at the rate of 1% since its gross
income from unrelated activities did not exceed 50% of the total gross income.

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 ILLUSTRATIONS
C. PROPRIETARY HOSPITAL
ILR Hospital, a private non-profit hospital, has gross receipts of
P15,000,000.00 with a cost of P6,000,000.00 and allowable deductions of
P3,250,000.00 from related activities, while for its unrelated activities, it
incurred P5,000,000.00 and P2,000,000.00 as cost of sales and allowable
deductions, respectively, with a gross income of P18,000,000.00, for Calendar
Year 2021.

Computation of tax shall be as follows:

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 ILLUSTRATIONS
Related Unrelated Total
activities Activities
Gross Sales 15,000,000.00 18,000,000.00 33,000,000.00
Less: Cost of Sales 6,000,000.00 5,000,000.00 11,000,000.00
Gross Income 9,000,000.00 13,000,000.00 22,000,000.00
Less: Allowable Deductions 3,250,000.00 2,000,000.00 5,250,000.00
NET TAXABLE INCOME 5,750,000.00 11,000,000.00 16,750,000.00
REGULAR RATE 25%
TAX DUE 4,187,500.00

* ILR Hospital is subject to the regular rate of 25% since its gross income from
non-related activities is more than 50% of its total gross income.

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 ILLUSTRATIONS

D. REGIONAL OPERATING HEADQUARTERS

EBQ Corporation is registered as a Regional Operating Head Quarter (ROHQ) since
2015. For taxable years 2020 to 2023, its operation showed the financial results:

TY 2020 TY 2021 TY 2022 TY 2023

Annual Income 75,000,000.00 120,000,000.00 130,000,000.00 75,000,000.00
Cost of Services 41,250,000.00 66,000,000.00 71,500,000.00 41,250,000.00
Gross Income 33,750,000.00 54,000,000.00 58,500,000.00 33,750,000.00
Allowable 33,625,000.00 41,200,000.00 42,550,000.00 35,125,000.00
Deductions
Net Taxable Income 125,000.00 12,800,000.00 15,950,000.00 (1,375,000.00)

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 ILLUSTRATIONS
Computation of Income Tax Due
Cont…. 2020 2021 2022 2023
Net Taxable 125,000.00 12,800,000.00 15,950,000.00 (1,375,000.00)
Income/Gross Income
Multiply by 10% 10% 25% 25%
Income Tax 12,500.00 1,280,000.00 3,987,500.00 0.00
MCIT: N/A N/A
Gross Income P558,500,000.00 33,750,000.00
MCIT Rate 1% 1.5%*
MCIT 585,000.00 506,250.00
Income Tax Due (since 3,987,500.00 P 506,250.00
2022 higher amount)

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 ILLUSTRATIONS
* The regular rate of 25% shall be effective on January 1, 2022 for ROHQ. It will
also be subject to MCIT beginning on the said date, since EBQ Corp. started its
operations way back in 2015.

* MCIT rate of 1.5% was used since the rate from January 1 to June 30, 2023 is 1%,
and for July 1 to December 31, 2023, the rate is 2%; thus, the average rate is 1.5%,
the income tax rate to be used by EBQ Corporation in computing the income tax
due/payable for TY 2023.

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SECTION 4. INCOME TAX RATES ON
CERTAIN PASSIVE INCOMES
The matrix below shows the new income tax rates applicable to certain passive incomes of individuals and corporations.

Type of Individual/
Nature of Income Rate Effectivity
Corporation
Non-Resident Alien Winnings from Philippine 20% Upon the effectivity of the
Individual Charity Sweepstake Office CREATE
(PCSO) games amounting to
more than P10,000.00

Winnings from PCSO games Exempt

amounting to P10,000.00 and
below
Domestic Corporation Intercorporate Dividends From another domestic For foreign source
(domestic and foreign source corporation – Exempt dividends, these will be
dividends) exempt from income tax
From nonresident foreign upon the effectivity of the
corporation – 25% or CREATE, subject to the
20%, as the case may be conditions imposed under
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SECTION 4. INCOME TAX RATES ON
CERTAIN PASSIVE INCOMES
Type of Individual/
Nature of Income Rate Effectivity
Corporation
Resident Foreign Interest income from a depositary bank under the 15% Upon the
Corporation expanded foreign currency deposit system effectivity of the
CREATE
Capital gains from sale of shares of stock not traded in 15% Upon the
the stock exchange effectivity of the
CREATE
Non-resident Foreign Gross income received from all sources within the Phils., 25% January 1, 2021
Corporation such as interests, dividends, rents, royalties, salaries,
premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual,
periodic or casual gains, profits and income, and capital
gains, except capital gains from sale of shares of stock
not traded in the stock exchange
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 SECTION 4. INCOME TAX RATES ON
CERTAIN PASSIVE INCOMES
Type of Individual/
Nature of Income Rate Effectivity
Corporation
Non-resident Foreign Intercorporate dividend received from a 25% January 1, 2021
Corporation domestic corporation, in general
However, if the country in which the non- 15% January 1, 2021
resident foreign corporation is domiciled,
allows a tax credit equivalent to the
difference between the regular income tax
rate of 25% under Section 28(B)(1) of the
Tax Code (25%) and the fifteen percent
(15%) tax on intercorporate dividends or
does not impose tax on dividends, the rate
to be imposed shall be 15%

Capital gains from sale of shares of stock 15% Upon the effectivity
not traded in the stock exchange
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SECTION 5. EXEMPTION FROM INCOME
TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS
In general, foreign-sourced dividends received by domestic corporations are subject
to income tax. However, the same shall be exempt if all of the following conditions
concur:
A. The dividends actually received or remitted into the Philippines are reinvested in
the business operations of the domestic corporation within the next taxable year
from the time the foreign-source dividends were received or remitted;
B. The dividends received shall only be used to fund the working capital requirements,
capital expenditures, dividend payments, investment in domestic subsidiaries, and
infrastructure project; and

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SECTION 5. EXEMPTION FROM INCOME
TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS
C. The domestic corporation holds directly at least twenty percent (20%) in value of
the outstanding shares of the foreign corporation and has held the shareholdings
uninterruptedly for a minimum of two (2) years at the time of the dividends
distribution. In case the foreign corporation has been in existence for less than two
(2) years at the time of dividends distribution, then the domestic corporation must
have continuously held directly at least twenty percent (20%) in value of the foreign
corporation's outstanding shares during the entire existence of the corporation.

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SECTION 5. EXEMPTION FROM INCOME
TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS
Absent any one of the above conditions, the foreign-sourced dividends shall
be declared as taxable income by the domestic corporation in the year of
actual receipt or remittance, subject to surcharges, interest, and penalties, as
applicable.
For this purpose, to avail of the exemption, the domestic corporation shall:

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SECTION 5. EXEMPTION FROM INCOME
TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS
1. Submit, thru the responsible corporate officers, to the concerned BIR office within
thirty (30) calendar days from actual receipt of the remitted dividends a Sworn
Statement/Affidavit containing (i) the fact of actual receipt of such dividends, (ii)
the amount and the source (non-resident foreign corporation [NRFC]) of such
dividends, including their shareholdings in that NRFC and the holding period at
the time of the dividends distribution, and (iii) a statement that they shall fully
comply with the conditions of the exemptions above stated;

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SECTION 5. EXEMPTION FROM INCOME
TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS
2. In the year of receipt of dividend, attach to the Audited Financial Statements (AFS) an
Independent Auditor Sworn Certification as to (i) the fact of actual receipt of the remitted
dividends, (ii) the amount and the source (NRFC) of such dividends, including their
shareholdings in that NRFC and the holding period at the time of the dividends distribution,
(iii) the fact that the domestic corporation, thru its Board, has decided a plan to reinvest the
dividends in its business operations to fund its working capital requirements, capital
expenditures, dividend payments, investment in domestic subsidiaries, or infrastructure
project, and (iv) if any amount has been disbursed, a statement that said disbursement
complies with the above requirements.

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SECTION 5. EXEMPTION FROM INCOME
TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS
The Sworn Statement/Affidavit in item (1) hereof and the Independent Auditor
Sworn Certification shall be deemed as substantial compliance with the above-
conditions for exemption without the need of securing a written tax exemption
ruling/certificate from the BIR. In addition, a disclosure of the dividends in
the said AFS which shall be attached to the Annual Income Tax Return
(AITR) to be filed in the year of receipt, as well as the amount of dividend
deemed exempt from income tax shall be declared in reconciliation part of the
said AITR.

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SECTION 5. EXEMPTION FROM INCOME
TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS
3. In the immediately following taxable year, attach to the AITR a Sworn
Certification prepared and executed by an Independent Auditor on the
utilization or non-utilization of the dividends received by the corporation. The
Sworn Certification on the utilization of the dividends received shall confirm the
taxpayer's full compliance with the conditions for its exemption. However, if the
Certification will state non-utilization of the dividends received, the
corresponding tax due on the unutilized dividends shall be declared as taxable
income, subject to surcharges, interest, and penalty, if any.

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SECTION 5. EXEMPTION FROM INCOME
TAX OF FOREIGN-SOURCED DIVIDENDS
RECEIVED BY DOMESTIC CORPORATIONS
Further, no credit or deduction under Section 34(C) of the Tax Code shall be
allowed for any taxes of foreign countries paid or incurred by the domestic
corporation in relation to the exempt foreign-sourced dividends. Finally, any taxes
of foreign countries paid or incurred by the domestic corporation in relation to the
exempt foreign-sourced dividends shall be disregarded in computing the limitations
provided under Section 34(C)(4) of the Tax Code.

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 ILLUSTRATIONS
a. RLI Corporation, a domestic corporation, owns twenty percent (20%) of
the outstanding shares of USA Corporation, a non-resident foreign
corporation (NRFC), since August 1, 2015. On June 30, 2021 it
received dividends amounting to P1,000,000.00 from the said NRFC.
The said dividend has not been used until January 13, 2023. In this
case, the P1,000,000.00 shall be declared as taxable income for
calendar year 2021, subject to surcharge, interest, and penalty, since it
was not utilized within the next taxable year, which is in 2022.

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 ILLUSTRATIONS
b. RSDV Corporation, a domestic corporation, owns twenty percent (20%) of the
outstanding shares of UK Corporation, a non-resident foreign corporation
(NRFC), since August 1, 2015. On May 1, 2021, it received dividends
amounting to P1,000,000.00 from the said NRFC. On September 1, 2022,
RSDV Corporation utilized P800,000.00 for its dividend payments. On
January 1, 2023, it utilized the remaining P200,000.00 for its working capital
requirements. In this case, P800,000.00 shall be treated as tax-exempt since
this was properly utilized within 2022. On the other hand, P200,000.00 shall
be declared as taxable income for the taxable year 2021, subject to surcharge,
interest, and penalty, since the utilization is not within the following taxable
year, which is in 2022.

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 ILLUSTRATIONS
c. BKTD Corporation, a domestic corporation, holds 20% of the stocks of EU
Corporation, a non-resident foreign corporation. BKTD is a wholly-owned
subsidiary of GKCM Corporation, a non-resident foreign corporation.
BKTD’s holding in EU Corporation started in 2018, and the holding period
is uninterrupted. On July 1, 2021, BKTD Corporation received dividends
from EU Corporation amounting to P2,000,000 and subsequently paid out
dividends on December 31, 2022, in the amount of P 1,500,000. The
remaining amount of P500,000 has not been used in any qualified activity
for exempt foreign-sourced dividends. In this situation, BKTD Corporation
shall be subject to income tax on the unused amount in the taxable period
2021, subject to surcharge, interest, and penalty.

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SECTION 6. IMPROPERLY
ACCUMULATED EARNINGS TAX

The improperly accumulated earnings tax shall no longer be imposed on

corporations upon the effectivity of the CREATE onwards. This shall apply to
the entire taxable year for all fiscal years/taxable years ending after the
effectivity of CREATE.

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 ILLUSTRATION

JDS Corporation, a domestic corporation, has unappropriated retained

earnings in excess of its paid-up capital stock amounting to P20,000,000
and P50,000,000 as of the fiscal years ending June 30, 2020 and June 30,
2021, respectively. JDS Corporation shall be subject to the 10% improperly
accumulated earnings tax as of June 30, 2020. However, JDS Corporation
shall no longer be subject to improperly accumulated earnings tax for the
entire fiscal year ending June 30, 2021, which is after the effectivity of
CREATE.

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
Under Sec. 34 of the Tax Code, as amended, it was provided that except for
taxpayers earning purely compensation income arising from personal services
rendered under an employer-employee relationship, in computing taxable
income subject to income tax under Sections 24(A), 25(A), 26, 27(A), 27(B),
27(C) and 28(A)(1) of the National Internal Revenue Code of 1997, as amended,
where the person subject to income tax opted to claim itemized deductions, there
shall be allowed the following deductions from gross income:

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
A. Expenses
1. Ordinary and Necessary Trade, Business or Professional Expenses – In
general, there shall be allowed as deductions from gross income all the
ordinary and necessary expenses paid or incurred during the taxable year in
carrying on or which are directly attributable to, the development,
management, operation and/or conduct of the trade, business or exercise of a
profession, including:

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
a. A reasonable allowance for salaries, wages, and other forms of
compensation for personal services rendered, including the gross-up
monetary value of fringe benefit furnished or granted by the employer to
the employee: Provided, that the income tax imposed on such salaries and
fringe benefits has been paid;
b. A reasonable allowance for travel expenses, here and abroad, while away
from home in the pursuit of trade, business or profession;

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
c. A reasonable allowance for rentals and/or other payments which
are required as a condition for the continued use or possession,
for purposes of the trade, business or profession, of property … ;
d. A reasonable allowance for entertainment, amusement and
recreation expenses during the taxable year, that are directly
connected to the development, management and operation of the
trade, business or profession of the taxpayer, or that are directly
related to or in furtherance of the conduct of his or its trade,
business or exercise of a profession not to exceed such ceilings
as prescribed… ;
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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
e. Upon the effectivity of the CREATE, an additional deduction from taxable income
of one-half (1/2) of the value of labor training expenses incurred for skills
development of enterprise-based trainees enrolled in Public Senior High Schools,
Public Higher Education Institutions, or Public Education Institution, or Public
Technical and Vocational Institutions and duly covered by an apprenticeship
agreement under Presidential Decree No. 442, Series of 1974, or the Labor Code of
the Philippines, as amended, shall be granted to enterprises. Provided, further, that for
the additional deduction for enterprise-based training of students from Public
Educational Institutions, the enterprise shall secure proper “certification” from the
Department of Education (DepEd), Technical Education and Skills Development
Authority (TESDA), or Commission on Higher Education (CHED). Provided, finally,
that such deduction shall not exceed Ten Percent (10%) of Direct Labor Wage.

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 ILLUSTRATION
MOC Corporation, a domestic manufacturing corporation, had gross sales of P100,000,000.00 for
Fiscal Year ending June 30, 2021 and incurred cost of sales of P60,000,000.00 and operating
expenses of P17,500,000.00, with the following details:
Cost of Sales
Direct Materials P 30,000,000.00
Direct Labor 20,000,000.00
Manufacturing Overhead 10,000,000.00
Total P 60,000,000.00
Operating Expenses
Salaries and Wages P 7,000,000.00
Taxes 300,000.00
Depreciation 3,500,000.00
Professional Fees 200,000.00
Advertising Expenses 3,000,000.00
Training Expenses 3,000,000.00
Office Supplies 500,000.00
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Total P 17,500,000.00 49
April 2021
 ILLUSTRATION
Assuming MOC Corporation has complied with the withholding tax requirement on all cost and
expenses incurred subject to withholding tax, compute for the corporation’s net taxable income:

Gross Income P 40,000,000.00

Less: Allowable Deductions
Salaries and Wages P 7,000,000.00
Taxes 300,000.00
Depreciation 3,500,000.00
Professional Fees 200,000.00
Advertising Expenses 3,000,000.00
Training Expenses 3,000,000.00
Office Supplies 500,000.00
Expenses before additional deduction P 17,500,000.00
on Training Expenses
Additional Allowable Deductions 1,500,000.00 P 19,000,000.00
on Training Expenses (see Note)
NetBUREAU OF INTERNAL REVENUE
Taxable Income P 21,000,000.00
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April 2021
 ILLUSTRATION
Note: The amount of P1,500,000.00, which is one-half of the value of the actual
training expenses of P3,000,000.00, can be claimed as additional deduction, since
it did not exceed ten percent (10%) of the Direct Labor Wage. In this scenario,
the corporation’s direct labor wages incurred was P20,000,000.00. Thus, the one-
half value of the actual training expenses of P1,500,000.00 did not exceed the
P2,000,000.00 (10% of P20,000,000.00) threshold. Provided further, that all the
prescribed requirements in this section has been complied with (e.g.,
Apprenticeship Agreement, Certification from DepEd or TESDA or CHED,
whichever is applicable). If the company’s direct labor wage is only
P10,000,000.00, the additional deduction that can be allowed shall be
P1,000,000.00 and not P1,500,000.00.

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS

2. Expenses allowable to Private Educational

Institutions. – xxx

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
B. Interest. – Interest paid or incurred within a taxable year on indebtedness in
connection with the taxpayer’s profession, trade or business shall be allowed as
deduction from gross income, provided the same also satisfied the following
criteria:
1. The indebtedness must be that of the taxpayer;
2. The interest must have been stipulated in writing;
3. The interest must be legally due;
4. The interest payment arrangement must not be between related taxpayers as
mandated in Sec. 34(B)(2)(b), in relation to Sec. 36(B) both of the Tax Code
of 1997;
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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
5. The interest must not be incurred to finance petroleum operations; and
6. The interest was not treated as “capital expenditure”, if such interest was incurred in
acquiring property used in trade, business or exercise of profession.
Provided, further, that the taxpayer’s otherwise allowable deduction for interest expense
shall be reduced by an amount equivalent to twenty percent (20%) of interest income
subjected to final tax. However, if the final withholding tax rate on interest income of
20% will be adjusted in the future, the interest expense reduction rate shall be adjusted
accordingly.

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
In the case of corporations, since the income tax rates changed effective July 1, 2020, it follows
that the deduction from the interest expense of 20% shall be effective also on the said date. For
other domestic corporations with net taxable income not exceeding Five Million Pesos
(P5,000,000) and total assets not exceeding One Hundred Million (P 100,000,000), excluding the
land on which the particular business entity’s office, plant and equipment are situated, the
deduction is 0% since there is no difference in the income tax rate on the taxable income (20%)
with the tax rate applied on the interest income subjected to final tax (20%). However, in the case
of individuals engaged in business or practice of profession, such deduction shall take effect
upon the effectivity of CREATE.

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 ILLUSTRATIONS

a. For fiscal year ending June 30, 2021, assuming that JHB Corporation, aside
from the operating expenses of P17,500,000.00, incurred interest expense
of P 400,000.00 which satisfied the prescribed requirement for
deductibility, but it also earned interest income of P 100,000.00, net of
final tax of twenty percent (20%), how shall the taxable income be
computed?

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 ILLUSTRATION
Gross Income P 40,000,000.00
Less: Allowable Deductions
Salaries and Wages P 7,000,000.00
Taxes 300,000.00
Depreciation 3,500,000.00
Professional Fees 200,000.00
Advertising Expenses 3,000,000.00
Training Expenses 3,000,000.00
Interest Expense 400,000.00
Office Supplies 500,000.00
Expenses before additional deduction P 17,900,000.00
Add: Additional Deduction-Training 1,500,000.00
Less: 20% of Interest Income earned 25,000.00 P 19,375,000.00
Net Taxable Income P 20,625,000.00

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 ILLUSTRATION

* Actual interest expense of P400,000 was reduced by an amount of

P25,000, representing 20% of the interest income subjected to final tax.
The net interest income of P100,000 is divided by 80% to get the gross
interest income earned. Thus, the quotient of P125,000 multiply by 20%,
the product is P25,000. Then deduct it from the interest expense incurred
to get the allowable interest expense: P400,000 – P25,000 = P375,000.00.

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 ILLUSTRATION
b. For taxable year 2021, SGC Corp. incurred interest expense of P 500,000 on its
bank loan. For the year, its gross assets amounted to P50,000,000, exclusive of the
cost of the land of P7,100,000. It registered a gross income of P 10,000,000 and
incurred operating expenses of P6,000,000, inclusive of the interest expense. It
had interest income earned for the same year amounting to P150,000.
Compute for the allowable interest expense.
* In this scenario, the corporation is subject to CIT of 20% since its taxable
income did not exceed P5M and its total assets did not exceed P100M,
exclusive of the land. Since the CIT is 20%, and the final tax on interest
income is also at 20%, there is no difference on these two rates. Thus, there
is no interest arbitrage. The allowable interest expense, in this case, is
P500,000.

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
C. Taxes - xxx
D. Losses - xxx
E. Bad Debts - xxx
F. Depreciation - xxx

G. Depletion of Oil and Gas Wells and Mines – xxx

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SECTION 7. ALLOWABLE DEDUCTIONS
FROM GROSS INCOME FOR BUSINESS
PERSONS
H. Charitable and other Contributions – xxx
I. Research and Development – xxx

J. Pension Trusts –xxx

Existing implementing rules and regulations governing the policies in the application
of other allowable deductions, if any, shall remain in effect.

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SECTION 8. NON-RECOGNITION OF GAIN
OR LOSS ON EXCHANGE OF PROPERTY
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 as defined under Section 2 hereof.
No gain or loss shall also be recognized if property is transferred to a corporation by
a person, alone or together with others, not exceeding four (4) persons, in exchange
for stock or unit of participation in such a corporation of which as a result of such
exchange, the transferor or transferors, collectively, gains or maintains control of said
corporation: Provided, that stocks issued for services shall not be considered as
issued in return for property.

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SECTION 8. NON-RECOGNITION OF GAIN
OR LOSS ON EXCHANGE OF PROPERTY
Sale or exchanges of property used for business for shares of stocks covered
under this subsection shall not be subject to value-added tax (VAT). In all of
the foregoing instances of exchange of property, prior Bureau of Internal
Revenue (BIR) confirmation or tax ruling shall not be required for purposes of
availing the tax exemption. The concerned parties can implement the
transaction covered by this Section including, but not limited to, the issuance of
the Certificate Authorizing Registration (CAR) by the Revenue District Office
(RDO) where the property is located, in case of real properties, or to the RDO
where the business is registered, in case of shares of stocks, subject to post-
transaction audit by the Bureau.

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SECTION 9. TRANSITORY PROVISIONS
A. For the rate to be used in the deduction of a certain percentage of interest income
subject to final tax from the claimed interest expense to come up with the
allowable interest expense, or the interest arbitrage, the following shall be
applied for taxable year 2020 by corporations, except non-resident foreign
corporations:

Compute for the interest arbitrage using the applicable rate:

a) Divide the gross interest income subjected to final tax for the year by 12
months:
Interest income subjected to final tax ÷ 12

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SECTION 9. TRANSITORY PROVISIONS
b) 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 (a) x 33%
c) Multiply the number of months applicable to the 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 (a) x (20% or 0%, as the case may be)
d) Add the computed interest arbitrage under items (b) and (c) above to get the
amount to be deducted from the interest expense claimed to arrive at the
allowable interest expense.

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 ILLUSTRATIONS

a. For calendar year ended December 31, 2020, assuming that MTMI
Corporation, aside from the operating expenses of P17,500,000.00,
incurred interest expense of P 400,000.00 which satisfied the
prescribed requirement for deductibility, but it also earned interest
income of P 100,000.00, net of final tax of twenty percent (20%),
how shall the taxable income be computed?

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April 2021
 ILLUSTRATIONS
Gross Income P 30,000,000.00
Less: Allowable Deductions
Salaries and Wages P 7,000,000.00
Taxes 300,000.00
Depreciation 3,500,000.00
Professional Fees 200,000.00
Advertising Expenses 3,000,000.00
Training Expenses 3,000,000.00
Interest Expense 400,000.00
Office Supplies 500,000.00
Expenses before additional deduction P 17,900,000.00
Add: Additional Deduction-Training 1,500,000.00
Less: 33% / 20% of Interest Income 33,125.00 P 19,366,875.00
earned deductible from Interest
Expense
Net Taxable Income P 10,633,125.00
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 ILLUSTRATION
* Actual interest expense of P400,000 was reduced by an amount of
P33,125, representing the interest to be deducted from interest expense.
The net interest income of P100,000 is divided by 80% to get the gross
interest income earned. Thus, the quotient of P125,000 divided by 2 to get
the interest income per six months. This is equal to P62,500, for the first
half of the year, multiply by 33%, the product is P20,625. For the second
half of the year, P62,500 multiply by 20% is P12,500. Add the two
products of P20,625 and P12,500 will equal to P33,125. Then deduct it
from the interest expense incurred to get the allowable interest expense:
P400,000 – P33,125= P366,875.

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 ILLUSTRATIONS
b. GPS Corporation secured in 2018 a bank loan for its business expansion,
and incurred interest expense of P2,000,000 in CY 2020 on the said
bank loan. In the same year, it likewise earned interest income of
P300,000 subjected to final tax of 20%. For CY 2020, its gross income
amounted to P 20,000,000. Its gross assets, excluding the value of the
land where its building and plant are situated, is P 100,000,000. Its
operating expenses amounted to P10,000,000, inclusive of the interest
expense of P2,000,000.

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 ILLUSTRATIONS
To compute for its allowable interest expense:
Interest Expense before interest arbitrage…………………………… P 2,000,000.00
Less: Interest Arbitrage:
P300,000 /2 = P 150,000 X 33% …….……..……P 49,500.00
P300,000/2 = P150,000 X 20%............................... 30,000.00 79,500.00
Allowable Interest Expense… ………………………..…….……….P1,920,500.00
OR:
Allowable Interest Expense Before Deduction P 2,000,000.00
Less: Interest Arbitrage using the
average Interest Arbitrage for CY 2020… 26.5%
Multiply by ………...………… X P 300,000.00……………….……………79,500.00
Allowable Interest Expense ……………….………………………..P 1,920,500.00

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 ILLUSTRATIONS

* The taxpayer is subject to CIT of 25% in the second semester of 2020

even though the total assets did not exceed P100M, excluding the
land, but the taxable income is more than P5M. In this case, the
interest arbitrage for the 2nd semester is 20% since the difference in
the CIT of 25% and the final tax rate on the interest income of
20% is 5%, which is equivalent to 20% (5% ÷ 25%) interest
arbitrage.

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 ILLUSTRATIONS

c. MAFD Corporation incurred interest expense of P 500,000 in CY

2020 on its bank loan. The said loan was secured in 2019 to finance
the construction of its warehouse. In CY 2020, its gross assets
amounted to P50,000,000, excluding the land with a cost of
P5,500,000. It recorded a gross income of P 10,000,000 and incurred
operating expenses of P6,000,000, inclusive of the interest expense. It
had interest income earned for the same year amounting to
P150,000. Compute for the allowable interest expense:

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 ILLUSTRATIONS
To compute for its allowable interest expense:
1. Compute for the interest arbitrage:
P 150,000 x 6/12 X 33% ……………………………….P 24,750.00
P 150,000 X 6/12 X 0%…………………………........... 0.00
Total………….…………………………………………….P 24,750.00

2. Deduct the resulting amount from the interest expense:

Interest Expense before deductions…………………. P 500,000.00
Less: Interest Arbitrage………………………………… 24,750.00
Allowable Interest Expense…………… ……….….P 475,250.00
OR
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 ILLUSTRATIONS
1. Simply multiply the interest income with the prescribed interest arbitrage rate
under the transitory provision
(P 150,000 X 16.50%)…………………………………….….P 24,750.00
2. Deduct the said amount from the interest expense
Interest Expense before deductions……………………...P 500,000.00
Less: Interest Arbitrage……………………………….…… 24,750.00
Allowable Interest Expense……………………………..P 475,250.00

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 ILLUSTRATIONS
* The corporation is subject to 30% Corporate Income Tax (CIT) in the
1st semester. For the 2nd semester the CIT is 20% since the taxable
income did not exceed P5M and the total assets did not exceed
P100M, exclusive of the land.

* The interest arbitrage for the 2nd semester is 0% since the CIT is 20%
and the final tax imposed on the interest income is 20%, there is no
difference between the two rates, thus there is no interest arbitrage
for the 2nd semester.

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April 2021
SECTION 9. TRANSITORY PROVISIONS
Another option in the computation of the interest arbitrage is to use the
rates reflected in the table below (next slide), and multiply the same
with the amount of gross interest income subjected to final tax to find
the amount of interest deductible from the interest expense claimed,
with the allowable interest expense as the end result.

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SECTION 9. TRANSITORY PROVISIONS
Transitory rates for interest arbitrage applicable for TY 2020 for corporations
under itemized deductions:
For the computation of Interest Arbitrage
Other domestic corporations with
Corporations subject to Regular
Annual Accounting Period net taxable income ≤5M & total
Rates
assets ≤100M, exclusive of land
(Transition TY 2020) 30% / 25% 30% / 20%
FY 7-31-20 31.92 % 30.25 %
FY 8-31-20 30.83 27.50
FY 9-31-20 29.75 24.75
FY 10-31-20 28.67 22.00
FY 11-31-20 27.58 19.25
CY 12-31-20 26.50 16.50
FY 1-31-21 25.42 13.75
FY 2-28-21 24.33 11.00
FY 3-31-21 23.25 8.25
FY 4-30-21 22.17 5.50
FY BUREAU OF INTERNAL REVENUE
5-31-21 21.08 2.75
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FY April 2021
6-30-21 20.00 0.00
SECTION 9. TRANSITORY PROVISIONS
B. In the computation of income tax due of the corporations for taxable year 2020, regardless of
the taxpayers’ annual accounting period, the taxable income shall be computed without regard to
the specific date when sales, purchases and other transactions occur. The income and expenses
shall be deemed to have been earned and spent equally for each month of the period. The
corporate income tax due for taxable year 2020 shall be computed as follows:
1. Compute for the tax due using the regular income tax rate:
a. Divide the taxable income for the year by 12 months
b. Multiply the number of months applicable to old rate by the resulting monthly
taxable income; then multiply by 30%
c. Multiply the number of months applicable to the new rate by the resulting monthly
taxable income; then multiply by either 25% or 20%, as applicable
d. Add the computed regular income tax under item 1.b and 1.c.

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SECTION 9. TRANSITORY PROVISIONS
2. Compute for the income tax due using the MCIT rate, if applicable:
a. Divide the gross income by 12 months;
b. Multiply the number of months applicable to the old MCIT rate by the
resulting monthly gross income; then multiply by 2%
c. Multiply the number of months applicable to the new MCIT rate by the
resulting monthly gross income; then multiply by 1%
d. Add the computed MCIT under 2.b and 2.c

3. Compare the resulting figures under 1.d and 2.d above, and the higher
amount shall be the income tax due/payable.

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 ILLUSTRATIONS
a. MVAA Corporation, a domestic retailer, has gross sales of
P1,400,000,000.00 with cost of sales of P560,000,000.00 and
allowable deductions of 150,000,000.00 for calendar year 2020, its
4th year of business operations. Its total assets of P180,000,000.00
includes the land and building in which the business is situated,
amounting to P50,000,000.00 and P25,000,000.00, respectively.
Computation of Tax (Income Tax – whichever is higher between
Regular Rate and MCIT) shall be as follows:

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 ILLUSTRATIONS
For Calendar Year
Net Taxable Income (P 840,000,000 – 150,000,000) P 690,000,000.00
Divide by 12 months ÷ 12
Taxable Income per month P 57,500,000.00
Tax Due: January 1 to June 30, 2020- (P57,500,000 X 6)X 30% P 103,500,000.00
July 1, 2020 to December 31, 2020 (P57,500,000 X 6) 25% 86,250,000.00
Total Tax Due- Regular P 189,750,000.00
Gross Income P 840,000,000.00
Divide by ÷ 12
Gross Income per month P 70,000,000.00
Tax Due: January 1 to June 30, 2020 (P70,000,000 X 6) 2% P 8,400,000.00
July 1, 2020 to December 31, 2020 (P 70,000,000 X 6) 1% 4,200,000.00
Total Tax Due- MCIT P 12,600,000.00
Income Tax Payable (Higher between Regular and MCIT) P 189,750,000.00

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 ILLUSTRATIONS
For Fiscal Year
If the taxable period of MVAA Corporation is ending on April 30, 2021, the
computation of the income tax due shall be:
Net Taxable Income P 690,000,000.00
Divide by 12 months ÷ 12
Taxable Income per month P 57,500,000.00
Tax Due: May 1 to June 30, 2020- (P57,500,000 X 2)X 30% P 34,500,000.00
July 1, 2020 to April 30, 2021 (P57,500,000 X 10)25% 143,750,000.00
Total Tax Due-Regular P 178,250,000.00
MCIT
Gross Income P 840,000,000.00
Divide by ÷ 12
Gross Income per month P 70,000,000.00
Tax Due: May 1 to June 30, 2020 (P70,000,000 X 2) 2% P 2,800,000.00
July 1, 2020 to April 30, 2021(P 70,000,000 X 10) 1% 7,000,000.00
BUREAU OF INTERNAL REVENUE
Tax Due-MCIT P 9,800,000.00
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April 2021
Tax payable shall be (higher amount under the regular rate) P 178,250,000.00
 ILLUSTRATIONS

b. LMAT Corporation had gross sales of P10,000,000, cost of sales

of P 6,000,000 and operating expenses of P2,000,000 for fiscal
year ending October 31, 2020, its 3rd year of operation. Its total
assets amounted to P5,000,000.00. It does not own the land and
building where its business operations are conducted.
Computation of the income tax for 2020 shall be:

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 ILLUSTRATIONS

Net Taxable Income P 2,000,000.00

Divide by ÷ 12
Taxable Income per month P 166,666.67
Tax Due:
November 1, 2019 to June 30, 2020- (P166,666.67 X 8)X 30% P 400,000.00
July 1, 2020 to October 31, 2020 (P166,666.67 X 4) 20%* 133,333.34
Total Tax Due-Regular P 533,333.34

* 20% was used as the rate since the net taxable income did not exceed P5,000,000.00
and the total assets of the corporation is less that P100,000,000.00. MCIT computation
is not applicable since it is only the 3rd year of operation of the corporation.

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 ILLUSTRATIONS
c. MGLC Company, for calendar year 2020, its 2nd year of business operations, had
net taxable income of P 12,000,000.00. Its total assets, net of the value of the land
where its business is situated, is P 80,000,000.00. Income tax shall be computed as
follows:
Net Taxable Income P 12,000,000.00
Divide by ÷ 12
Taxable Income per month P 1,000,000.00
Tax Due:
January 1 to June 30, 2020- (P1,000,000 X 6)X 30% P 1,800,000.00
July 1 to December 31, 2020 (P1,000,000 X 6) 25%* 1,500,000.00
Total Tax Due-Regular P 3,300,000.00
* 25% was used since its net taxable income exceeds P 5,000,000.00. Not
subject to MCIT at this time.

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 ILLUSTRATIONS

FOREIGN CORPORATION

d. REJ Corporation, a resident foreign corporation, has gross sales of

P500,000,000.00, cost of sales of P 300,000,000.00 and allowable
deductions of P 75,000,000.00 for Fiscal Year ending April 30, 2021, its
fourth year of business operations. Its total assets is P800,000,000.00
which included the land of P50,000,000.00 and other fixed assets of
P200,000,000.00.

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 ILLUSTRATIONS
Gross Sales 500,000,000.00
Less: Cost of Sales 300,000,000.00
Gross Income 200,000,000.00
Less: Allowable Deductions 75,000,000.00
NET TAXABLE INCOME 125,000,000.00
Divide by ÷ 12
Net Taxable Income per month 10,416,666.67
TAX DUE- REGULAR
May 1 to June 30, 2020 (P10,416,666.67 X 2) 30% P 6,250,000.00
July 1, 2020 to April 30, 2021 (P10,416,666.67 X10) 25% 26,041,666.67
INCOME TAX DUE P 32,291,666.67

BUREAU OF INTERNAL REVENUE

87
April 2021
 ILLUSTRATIONS

MCIT:
Gross Income 200,000,000.00
Divide by ÷ 12
Gross Income per month 16,666,666.67
TAX DUE-MCIT
May 1 to June 30, 2020 (16,666,666.67 X 2) 2% P 666,666.67
July 1, 2020 to April 30, 2021 (16,666,666.67 X 10) 1% 1,666,666.67
TOTAL P 2,333,333.34

* The income tax payable shall be P32,291,666.67 (the higher amount between the
regular rate and MCIT).

BUREAU OF INTERNAL REVENUE

88
April 2021
SECTION 9. TRANSITORY PROVISIONS
For ease of computing the income tax due during the transition period, the following
rates reflected in the matrix below may be used:
TRANSITORY RATES
Annual Other domestic
Accounting corporations with net
Regular Corporate Proprietary Non-
Period taxable income ≤5M & MCIT
Income Tax Rates profit Edu/Hosp
total assets ≤100M,
(Transition TY exclusive of land
2020) 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
BUREAU OF INTERNAL REVENUE
FY 5-31-21 25.41 20.83 1.05 1.75 89
FY
April 2021
6-30-21 25.00 20.00 1.00 1.00
SECTION 9. TRANSITORY PROVISIONS

For taxpayers who have already filed their income tax returns for taxable
year 2020 (calendar year 2020; fiscal year ending from July 31, 2020 to
fiscal year ending February 28, 2021) may amend their income returns
using the transitory rates per above matrix, and any resulting
excess/overpayment can be claimed for refund or carried over to the
next taxable year, at taxpayers’ option.

BUREAU OF INTERNAL REVENUE

90
April 2021
 CREATE Project Team
ELENITA B. QUIMOSING LARRY M. BARCELO
ACIR, Project Management & Implementation Service (PMIS) ACIR, Legal Service
Income Tax & Withholding Tax
ROSANNA P. SAN VICENTE
HREA, Assessment Service

Idonah L. Roy Briana Kay T. Delos Santos

ARDO, RDO No. 41 – Mandaluyong City Law & Legislative Division
Rhodora S. Devilla Raymund L. Ipio
ADC, Assessment Div. RR No. 6 – Manila Law & Legislative Division
Ria E. Jacob Ma. Amalia F. Dacumos
ADC, Taxpayers Service Systems Division Taxpayer Service Programs & Monitoring Div.

Head Secretariat: Members:

MA. GENEROSA L. CASTILLO, PMIS Maria Concepcion G. Jimenez, PMIS
Gemia Katrine C. Marinas, PDMD
BUREAU OF INTERNAL REVENUE
91
April 2021
 Website:
www.bir.gov.ph

Email:
[email protected]

BUREAU OF INTERNAL REVENUE

92
April 2021