Pursuant to the enactment of Republic Act (R.A.) No. 12066, otherwise known as the CREATE MORE (Maximize Opportunities for Reinvigorating the Economy) Act, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 7-2025 to implement the reduced income tax rates for domestic and resident and resident foreign corporations classified as Registered Business Enterprises (RBEs) under the Enhanced Deduction Regime (EDR) and additional allowable deductions from gross income under Section 34(C)(8) of the Tax Code.
An RBE refers to any individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine law and registered with an Investment Promotion Agency, excluding service enterprises such as those engaged in customs brokerage, trucking or forwarding services, janitorial services, security services, insurance, banking and other financial services, consumers’ cooperatives, consultancy services, retail enterprises, restaurants, or such other similar services, as may be determined by the Fiscal Incentives Review Board, irrespective of location, whether inside or outside the zones, duly accredited or licensed by any of the Investment Promotion Agencies and whose income delivered within the economic zones shall be subject to taxes under the National Internal Revenue Code of 1997, as amended.
Income Tax Rates
The following are subject to the 20% income tax, effective November 28, 2024:
A. Domestic corporations classified as RBEs under the EDR as provided in Sec. 294(C) of the Tax Code; and
B. Resident foreign corporations classified as RBEs under the EDR as provided in Sec. 294(C) of the Tax Code.
The corporate income tax rate of 20% for RBEs under the EDR shall only cover the taxable income derived from registered projects or activities during each taxable year. Income from non-registered projects or activities shall be subject to the applicable income tax rates.
For RBEs who availed of the EDR and completed the filing of their annual income tax return covering calendar year 2024 or fiscal year ending on or before the effectivity of RR No. 7-2025, the excess income tax payments as a result of the reduction of tax rate from 25% to 20% may be carried forward to the succeeding taxable quarter/year.
On the other hand, the following corporate income tax rates have remained unchanged since July 1, 2020:
A. 25% income tax rate for domestic corporations, in general;
B. 20% income tax rate for domestic corporations with net taxable income not exceeding P5,000,000.00 and with total assets not exceeding P100,000,000.00, excluding land and building on which the particular business entity’s office, plant and equipment are situated, during the taxable year for which tax is imposed; and
C. 25% income tax rate for resident foreign corporations, in general.
Deductibility of Input Tax from VAT-Exempt Sales
Input tax paid on local purchases attributable to VAT-exempt sales shall be deductible from the gross income of the taxpayer in accordance with Section 34(C)(8) of the Tax Code.
Effectivity
RR No. 7-2025 shall take effect on March 14, 2025, which is 15 days following its publication in the Official Gazette or the BIR official website on February 27, 2025.
Please be guided accordingly.
Source:
P&A Grant Thornton
Certified Public Accountants
P&A Grant Thornton is the Philippine member firm of Grant Thornton International Ltd.
As published in SunStar Cebu, dated 19 March 2025
