Law Summary
Transparency and Reporting Requirements
- The Commissioner of Internal Revenue shall submit pertinent tax-related information on entities receiving incentives to the Secretary of Finance, subject to confidentiality provisions.
- Submit biannual reports to Congressional Oversight Committee regarding tax incentive administration.
Expanded Definition of Corporation
- Includes one-person corporations, partnerships, joint-stock companies, associations, excluding general professional partnerships and certain joint ventures related to specific industries.
Taxation on Nonresident Alien Individuals
- Tax rate of 20% on dividends, interests, royalties, and winnings with specified exceptions and lower rate for royalties on books and music.
- Exemptions on interest from certain long-term deposits subject to pre-termination penalties.
Corporate Income Tax Rates
- General corporate income tax rate set at 25% effective July 1, 2020.
- Reduced 20% rate for corporations with net taxable income ≤ P5 million and total assets ≤ P100 million.
- Proprietary nonprofit educational institutions and hospitals taxed at 10%, reduced to 1% until June 30, 2023, with conditions.
- Government-owned or controlled corporations taxed similarly to corporations in similar industries, with specified exceptions.
- Intercorporate dividends generally exempt; foreign-sourced dividends exempt if reinvested under conditions.
- Imposition of Minimum Corporate Income Tax (MCIT) of 2%, with a 1% reduced rate until June 30, 2023.
Taxation on Foreign Corporations
- Foreign corporations engaged in business in the Philippines taxed at 25%, and minimum corporate income tax applies.
- Specific provisions for regional or area headquarters and regional operating headquarters of multinational companies.
- Final tax rates on interest, royalties, capital gains on non-listed shares, and intercorporate dividends.
- Nonresident foreign corporations taxed on gross income at 25% with certain final withholding taxes.
Repeal of Improperly Accumulated Earnings Tax
- Section imposing this tax repealed.
Allowable Deductions from Gross Income
- Ordinary and necessary business expenses allowed; certain additional deductions for labor training within limits.
- Allowable deductions include interest, taxes, losses, bad debts, depreciation, depletion, charitable contributions, research and development expenses.
- Optional Standard Deduction (OSD) maintained.
Tax-Free Exchange of Property
- No gain or loss recognized on reorganizations involving exchanges solely for stocks or securities under specified circumstances.
- Conditions defined for control and permissible transactions.
- Exemption from value-added tax on certain sales or exchanges.
Withholding Tax Review
- Department of Finance to review withholding tax regulations every three years, with adjustments to rules as needed.
Value-Added Tax (VAT) Exemptions
- Exemption from VAT on sales of low-cost to mid-priced residential properties, educational materials, specific prescription drugs and medicines, and certain COVID-19 related equipment and drugs.
- Threshold sales amount exemptions related to gross annual sales.
Gross Receipts Tax for Non-VAT Persons
- Tax set at 3% of gross quarterly sales or receipts for persons exempt from VAT, with cooperatives exempted.
- Transitional reduced rate of 1% until June 30, 2023.
Authority of the Commissioner on Tax Refunds and Compromises
- Refund claims require filing within two years after payment.
- Commissioner to grant refunds within 90 days or provide written denial with legal basis.
- Right of appeal to the Court of Tax Appeals.
Congressional Oversight Committee
- Composition: Chairs of Senate and House Ways and Means Committees plus designated members.
- Functions include legislative aid and oversight of the Fiscal Incentives Review Board.
Creation of New Title XIII - Tax Incentives
- Scope covers all Investment Promotion Agencies (IPAs) unless exempt.
- IPAs retain special law functions; DOF, BIR, and BOC retain mandates.
- Tax incentives granted only to registered projects under approved Strategic Investment Priority Plan.
Definitions Related to Tax Incentives
- Capital equipment, direct local employment, domestic input, export and domestic market enterprises, freeport zones, investment capital, and other relevant terms clearly defined.
- Registered business enterprises exclude certain services like consultancy, financial services, retail, and restaurants.
Tax and Duty Incentives Offered
- Types include Income Tax Holiday (ITH); Special Corporate Income Tax (SCIT) of 5% for qualifying enterprises; Enhanced Deductions (ED) on capital expenditure, labor, R&D, training, domestic input, power, reinvestment allowance, and net operating loss carry-over.
- Duty exemption on importation of capital equipment and raw materials.
- VAT exemption on importation and zero-rating on local purchases.
- Specific conditions apply for each incentive type.
Conditions for Incentives Availment
- ITH followed by SCIT or ED; cannot obtain SCIT and ED simultaneously.
- Stricter conditions on labor, domestic input, and power expense deductions.
- Duty exemptions conditional on exclusivity, local production status, usage, and prior approval.
- Prohibitions and liabilities on unauthorized disposition within five years.
- COVID-19 vaccine importations exempt from duties and taxes.
- Petroleum product importers not entitled to incentives, paying applicable duties and taxes instead.
Period of Incentive Availment
- Export and critical domestic market enterprises: ITH of 4-7 years plus 10 years of SCIT or ED.
- Non-critical domestic market enterprises: ITH 4-7 years plus 5 years SCIT or ED.
- Additional years for projects in conflict or disaster areas or relocating from NCR.
- Location and industry tier classifications determine periods; tiers reviewed every three years.
The Fiscal Incentives Review Board (FIRB) - Powers and Functions
- Policy-making and oversight on incentives granted by IPAs and other agencies.
- Sets target performance metrics and reviews compliance.
- Conducts monitoring, evaluation, audits, and cost-benefit analyses.
- Approves/disapproves incentives and tax subsidies; hears appeals from adverse decisions.
- Publishes firm-level incentive data and maintains masterlist of incentive-entitled products/services.
FIRB Composition and Support Structure
- Chair: Secretary of Finance; Co-Chair: Secretary of Trade and Industry; Members include Executive Secretary, Budget Secretary, and NEDA Director General.
- Technical committee with representatives from various government agencies.
- Secretariat managed by National Tax Research Center.
- Creation of specialized groups for fiscal incentives management, monitoring, evaluation, and legal matters.
Strategic Investment Priority Plan (SIPP)
- Formulated by Board of Investments with input from FIRB, IPAs, government agencies, and private sector.
- Valid for three years; focuses on investment, employment, exports, technology, innovation, environmental sustainability, supply chain enhancement, and market competitiveness.
- Includes priority sectors, location tiers, and terms for enhanced deductions.
- Projects must be listed in SIPP for incentive eligibility.
Presidential Powers
- President may modify incentive mix, period, and manner for highly desirable projects upon FIRB recommendation.
- Conditions include comprehensive sustainable development plan and minimum investment of P50 billion or employment of 10,000 workers.
- Powers suspended during fiscal deficit emergencies.
- May exempt IPAs or modify threshold requirements upon justified request.
Amendments and Publication
- BOI may update SIPP including additions, suspensions, or alterations subject to criteria and publication.
Qualifications For Registered Enterprises
- Must be engaged in SIPP-listed project.
- Meet performance metrics.
- Maintain adequate accounting and comply with electronic filing requirements.
- Submit annual beneficial ownership reports.
Tax Incentives Management and Reporting
- Registered enterprises must file tax returns electronically and submit annual tax incentives and benefits reports to IPAs and FIRB.
- IPAs to submit consolidated reports to BIR.
- BIR and BOC to provide actual tax and duty incentives data to DOF and maintain single database.
- FIRB to publish cost-benefit analyses and submit annual reports to President and Congress.
Evaluation and Monitoring
- FIRB mandated to conduct impact evaluations including cost-benefit analysis.
- Third-party peer reviews allowed subject to data sharing agreements.
Penalties for Noncompliance
- Graduated fines: P100,000 (1st violation), P500,000 (2nd), and cancellation of registration (3rd).
- Registrations may be cancelled or incentives suspended for material misrepresentations or violations.
- FIRB may order business closure for violations of excise and offenses provisions.
- Government officials failing to provide data may face fines, suspension, or criminal/administrative penalties.
Transitory and Miscellaneous Provisions
- Registered projects in economic zones/freeports must operate within geographical boundaries.
- IPAs must establish one-stop centers for project facilitation.
- Enterprises granted incentives before the Act remain eligible under specified conditions.
Repealing and Amendatory Clauses
- Repealed various inconsistent laws and provisions regarding tax incentives and IPA powers.
- Expanded FIRB's powers and membership, harmonizing overlapping laws.
Separability and Appropriation
- If any provision is invalid, rest of Act remains effective.
- P100 million initial appropriation for National Tax Research Center supporting FIRB.
Implementing Rules and Regulations
- DOF Secretary to promulgate rules within 90 days; joint promulgation with DTI for Title XIII provisions.
- Non-promulgation will not prevent Act's implementation.
Effectivity
- Act effective 15 days after full publication.
This comprehensive reform establishes a more equitable, transparent, and performance-based corporate income tax and incentives system intended to p
...continue reading