1. What are the rules on the exclusion of land in the computation of the PhP100 million threshold on total assets in order to qualify for the reduced corporate income tax rate of 20% under the CREATE Law?

The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular No. 62-2021 dated April 30, 2021 (RMC No. 62-2021) to clarify certain provisions of Revenue Regulations No. 5-2021 relative to corporate income taxation under Republic Act No. 11534, or the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Law). Section 27 (A) of the National Internal Revenue Code, as amended (Tax Code), and as amended further by the Create Law imposes an income tax rate of 25% on domestic corporations. However, a lower income tax rate of 20% is imposed on domestic corporations with net taxable income not exceeding PhP5 million and total assets not exceeding PhP100 million, excluding the land on which the particular business entity’s office, plant and equipment are situated. 

RMC No. 62-2021 makes the following clarifications on the exclusion of land in the computation of the PhP100 million threshold on total assets for a domestic corporation to qualify for the reduced corporate income tax (CIT) rate of 20%:

1. the value of the land to be used must be net of depreciation and allowance for bad debts;
   
   
2. the amount to be deducted may either be the cost of acquisition or the fair market value of the land, depending on which value is reflected in the financial statements;
   
   
3. the land whose value shall be excluded is limited to the particular land where the corporation’s office, plant and equipment are situated during the taxable year in which the 20% CIT is imposed; the value of land held primarily for sale to customers or held for investment purposes, shall not be excluded in the determination of the corporation’s total assets; and
   
   
4. in order to determine the value of the land that shall be excluded in the computation of total assets, the total value of the land shall be multiplied by the percentage of the floor area devoted to the corporation’s office.                                                                                                                                                                                                                                                            

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