Pursuant to the enactment of Republic Act 12066, otherwise known as the Create More (Maximize Opportunities for Reinvigorating the Economy) Act, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) 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 percent income tax, effective Nov. 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 percent 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 the calendar year 2024 or the fiscal year ending on or before the effectivity of RR 7-2025, the excess income tax payments as a result of the reduction of the tax rate from 25 percent to 20 percent 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 percent income tax rate for domestic corporations, in general;
B. 20 percent income tax rate for domestic corporations with net taxable income not exceeding P5,000,000 and with total assets not exceeding P100,000,000, 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 percent 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 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 Feb. 27, 2025.
Please be guided accordingly.
Source:
P&A Grant Thornton
Certified Public Accountants