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Notes in Tax on Corporations
I.
Classification of corporate taxpayers
a. Domestic corporation
b. Resident foreign corporation
c. Non-resident foreign corporation
II.
Income subject to tax and type of tax
a. Taxable Income
- Normal Tax (NIT)
- Gross Income Tax (GIT)
- Minimum Corporate Income Tax (MCIT)
b. Passive Income
- Final Tax (FT)
c. Capital Gain
- Capital Gain Tax (CGT)
III.
Domestic Corporation and applicable income taxes
(A) For taxable Income
Type of Tax
Tax Base
a. Normal Tax
Taxable Income
b. Gross Income Tax
Gross Income
c. Minimum Corporate Income tax
Gross Income
(B) For Passive Income
a. Interest on currency bank deposit
b. Royalties
c. Interest income derived by a domestic corporation
from a depository bank under the expanded
foreign currency deposit system
Tax Rate
30%
15%
2%
20%
20%
7½%
d. Dividends received by a domestic corporation from
another domestic corporation
Exempt
Notes:
1. Passive income shall include income derived from sources within the Philippines.
2. Income derived by a depository bank under the expanded foreign currency deposit
system from foreign currency loans granted by such depository banks under said
expanded foreign currency deposit system to residents are subject to final income tax
at the rate of 10%.
Any income of non-residents whether individuals or corporations, from transactions
with depository banks under the expanded system is exempt from income tax.
(C) For Capital Gain
a. Capital Gain from sale of shares of stock not traded in the stock exchange
Not over P100, 000
5%
On any amount in excess of P100, 000
10%
b. Capital Gain from Sale of Real Property
6% of gross selling price or the fair market value, whichever is higher.
(D) Special Rules for special corporations
Taxpayer
a. Proprietary Educational institution
b. Hospitals which are non-profit
c. Government owned and controlled
corporations
Tax Base
Taxable Income
Taxable Income
(See notes)
Rate
10%
10%
(See notes)
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Notes:
1. If the gross income from unrelated trade, business or other activity of a proprietary
educational institution or non-profit hospital exceeds 50% of the total gross income
derived by such educational institutions or hospitals from all sources, the tax prescribed
on ordinary corporations shall be imposed on the entire taxable income.
The term “unrelated trade or business or other activity” 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 or its primary purpose or
function.
2. Government owned or controlled corporations are subject to the same tax imposed on
ordinary corporations engaged in similar business or industry.
The following government owned or controlled corporations are exempt from income
tax:
a. Government Service Insurance System (GSIS)
b. Social Security System (SSS)
c. Philippine Health Insurance Corporation (PHIC)
d. Philippine Charity Sweepstakes Office (PCSO)
IV.
Resident foreign corporation and applicable income taxes
(A) For taxable income
Type of Tax
Tax Base
a. Normal Tax
Taxable Income
b. Gross Income Tax
Gross Income
c. Minimum Corporate Income tax
Gross Income
Tax Rate
30%
15%
2%
Notes:
1. Taxable income shall include income derived from sources within.
2. Rules on GIT applicable to domestic corporations are also applicable to resident foreign
corporations.
3. Rules on MCIT applicable to domestic corporations are also applicable to resident
foreign corporations.
4. Branch profit remittance tax. Any profit remitted by a branch to its head office shall be
subjected to a tax of 15% which shall be based on the total profits applied or earmarked
for remittance without any deduction for the tax component thereof.
Interests, dividends, rents, royalties, including remuneration for technical services,
salaries, wages, premiums, annuities, emoluments, or other fixed or determinable
annual, periodic or casual gains, profits, income or capital gains received by a foreign
corporation during each taxable year from all sources within the Philippines shall not be
treated as branch profits unless the same are effectively connected with the conduct of
its trade or business in the Philippines.
(B) For Passive Income
a. Interest on currency bank deposit
b. Royalties
c. Interest income derived by a domestic corporation
from a depository bank under the expanded
foreign currency deposit system
20%
20%
7½%
d. Dividends received by a domestic corporation from
another domestic corporation
Exempt
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Notes:
3. Passive income shall include income derived from sources within the Philippines.
4. Income derived by a depository bank under the expanded foreign currency deposit
system from foreign currency loans granted by such depository banks under said
expanded foreign currency deposit system to residents are subject to final income tax
at the rate of 10%.
Any income of non-residents whether individuals or corporations, from transactions
with depository banks under the expanded system is exempt from income tax.
(C) For Capital Gain
a. Capital Gain from sale of shares of stock not traded in the stock exchange
Not over P100, 000
5%
On any amount in excess of P100, 000
10%
b. Capital Gain from Sale of Real Property
6% of gross selling price or the fair market value, whichever is higher.
(D) Special rules for special corporations
Taxpayer
a. International carrier doing business in the
Philippines
b. Regional or area headquarters of
Multinational Companies
c. Regional
operating
headquarters
of
Multinational Companies
V.
Tax Base
Gross Philippine
Billings
Exempt
Rate
2½%
Exempt
Taxable Income
10%
Non-resident foreign corporation and applicable income taxes
(A) For Taxable Income
Taxable Income
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 subject to CGT
Tax Base
Tax Rate
Gross Income
30%
Notes:
1. Taxable income shall include income derived from sources within.
2. Rules on GIT applicable to domestic corporations are not applicable to non-resident
foreign corporations.
Rules on MCIT applicable to domestic corporations are not applicable to nonresident foreign corporations
(B) For passive income
a. Interest on foreign loans
b. Dividends received from a domestic corporation
20%
15%
Note: Passive income shall include income derived from sources within the Philippines.
(C) For Capital Gain
a. Capita Gain from sale of shares of stock not traded in the stock exchange
Not over P100, 000
5%
On any amount in excess of P100, 000
10%
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b. Capital Gain from Sale of Real Property
6% of gross selling price or the fair market value, whichever is higher
(D) Special Rules for special corporations
Taxpayer
a. Non-resident Cinematographic Film Owner, Lessor or
Distributor
b. Non-resident Owner or Lessor of Vessels Chartered by
Philippine Nationals
c. Non-resident owner or lessor or aircraft, machineries
and other equipment
VI.
Tax Base
Rate
Gross Income
Gross rental, lease
or charter fees
Gross rental fees
25%
4½%
7½%
Improperly accumulated earnings tax (IAE Tax)
Improperly accumulated taxable income
10%
Notes:
1. Improperly accumulated taxable income is computed using the following formula:
Taxable Income
xx
Add:
Income exempt from tax
xx
Income excluded from gross Income
xx
Income subject to final tax
xx
Amount of net operating loss carry over deducted xx
Less:
Dividends actually or constructively paid
xx
Income tax paid for the taxable year
xx
Amount reserved for the reasonable needs of the
business emanating from the covered year’s
taxable income (Revenue regulation)
xx
Improperly accumulated Income
xx
2. Improperly accumulated earnings tax shall be imposed on every corporation formed or
availed for the purpose of avoiding income tax with respect to its shareholders or the
shareholders of any other corporation by permitting earnings and profits to accumulate
instead of being divided or distributed.
3. The fact that the earnings or profits of a corporation are permitted to accumulate beyond
the reasonable needs of the business shall be determined of the purpose to avoid the tax
upon its shareholders or members unless the corporation proves to the contrary.
4. The term ‘reasonable needs of the business’ means reasonably anticipated needs of the
business.
5. The fact that any corporation is a mere holding company or investment company shall be a
prima facie evidence of a purpose to avoid the tax upon its shareholders or members.
6. The Improperly Accumulated Earnings Tax does not apply to the following corporations:
a. Banks and other non-bank financial intermediaries.
b. Insurance companies.
c. Publicly-held corporations
d. Taxable partnerships.
e. General Professional partnerships.
f. Non-taxable joint ventures
g. Enterprise duly registered with the Philippine Economic Zone Authority (PEZA)
under R.A. 7961 and enterprises registered pursuant to the Bases Conversion and
Development Act of 1992 under R.S. 7227.
***Nothing Follows***