Corporation
Not a Corporation
CLASSIFICATION OF
CORPORATE
TAXPAYERS
SOURCES OF INCOME
SUBJECT TO INCOME
TAX
EXEMPT
ORGANIZATIONS
HOWEVER, the
income of whatever
kind and character of
the foregoing
organizations from
any of their
properties, real or
personal, or from any
of their activities
conducted for profit
regardless of the
disposition made of
such income, shall be
subject to income tax.
Example:
Canteen at the school
1.
2.
3.
4.
5.
1.
2.
3.
4.
Partnerships, no matter how created or organized;
Joint stock companies;
Joint accounts (cuentas en participacion)
Associations; or
Insurance companies
General professional partnerships; and
A joint venture or consortium formed for the purpose of undertaking;
Construction projects; or
Engaging in petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract with the government.
1. Domestic Corporation (DC)
2. Resident Foreign Corporation (RFC)
3. Nonresident Foreign Corporation (NRFC)
DC, RFC and NRFC may be classified further into:
1. Ordinary Corporation
2. Special corporation
DC – World
RFC and NRFC – Within the Phils. Only
The following organizations shall not be subject to income tax (Section 30, RA 8424):
1. Labor, agricultural or horticultural organization not organized principally for profit;
2. Mutual savings bank not having a capital stock represented by shares, and cooperative
bank without capital stock organized and operated for mutual purposes and without profit;
3. A beneficiary society, order or association, operating for the exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or a mutual
aid association or a non-stock corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits exclusively to the members of such
society, order, or association, or nonstock corporation or their dependents;
4. Cemetery company owned and operated exclusively for the benefit of its members;
5. Nonstock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no
part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person;
6. Business league, chamber of commerce, or board of trade, not organized for profit and no
part of the net income of which inures to the benefit of any private stockholder or
individual;
7. Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
8. A nonstock and nonprofit educational institution;
9. Government educational institution;
10. Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely local
character, the income of which consists solely of assessments, dues, and fees collected
from members for the sole purpose of meeting its expenses; and
11. Farmers’, fruit growers’, or like association organized and operated as a sales agent for the
purpose of marketing the products of its members and turning back to them the proceeds
of sales, less the necessary selling expenses on the basis of quantity of produce finished by
them.
Domestic Corporations – Ordinary Corporations
The following taxes apply:
Final Withholding
Tax
Final Withholding
Tax
Final Withholding
Tax
FWT on certain passive income within the Philippines
* Interest on currency Bank Deposit
* Yield or any monetary benefit from:
- deposit substitutes
- Trust Funds and similar arrangements
Interest income FROM a depository bank under the
expanded foreign currency deposit system (EFCDS)
Train Law RR 11-2018
Interest income derived by a depository bank under
EFCDS from foreign currency transaction with:
Non-residents and other Banks
Residents
Royalties
DIVIDENDS FROM ANOTHER DC
20%
15%
FORMULA:
Passive Income
Rate
Final Withholding Tax
xxx
xx %
xxx
FORMULA:
Tax Base
Rate
CGT
xxx
6%
xxx
0%
10%
20%
0%
Capital Gains Tax on sale of land and/or buildings in the
Philippines
TAX BASE: (whichever is higher)
1. Selling Price
2. Fair Market Value
3. Zonal Value
REQUISITES:
1. The land and/or building must be a capital asset; and
2. It must be located in the Philippines.
Capital Gains Tax on Sale of Shares of Stock
(TRAIN LAW RR 11-2018)
REQUISITES:
1. The shares of stock sold, bartered, exchanged or disposed
must be in a domestic corporation; and
2. The transaction must be not through the stock exchange.
FORMULA:
Selling Price
Cost
Selling Expense
Net Gain
Rate
CGT
Pxxx
(xxx)
(xxx)
Pxxx
15%
Pxxx
Basic Income Tax
Regular Corporate Income Tax (RCIT)
Gross Income - includes all income not subject to final
withholding tax, capital gains tax and not considered exempt
under the law.
Allowable Deductions:
1. Business Expenses & Losses (Itemized Deductions); or
2. Optional Standard Deduction
FORMULA:
Gross Income
Pxxx
Allowable Deductions (xxx)
Taxable Income
Pxxx
Rate
30%
RCIT
Pxxx
Basic Income Tax
Minimum Corporate Income Tax (MCIT)
FORMULA:
Gross Income
Rate
MCIT
Gross
Income
Cost of
Goods
Sold /
Services
Seller of Goods
+ Gross Sales
- Sales Discount
- Sales Returns and
Allowances
- Cost of Goods Sold
Gross Income
Add: Other Income
subject to RCIT
Total Gross Income
Seller of Services
+ Gross Receipts
- Sales Discounts
- Sales Returns and
Allowances
- Cost of Services
Gross Income
+ Invoice Cost of the
goods sold
+ Import Duties
+ Freight
+ Insurance
Cost of Goods Sold
+ Salaries and Benefits of
Personnel/Consultants
+ Cost of Facilities
+ Other Direct Cost
Cost of Services
Pxxx
2%
Pxxx
AMOUNT PAYABLE TO BIR:
 Higher between RCIT and MCIT
CARRY FORWARD OF EXCESS MCIT (MCIT CARRY-OVER)
 Any excess of the MCIT over RCIT shall be carried forward and credited
DOMESTIC CORPORATIONS EXEMPT FROM MCIT:
1. Proprietary educational institutions and hospitals which are non-profit
2. Depository banks under expanded foreign currency deposit system
Domestic Corporations – Special Corporations
PROPRIETARY NON-PROFIT EDUCATIONAL INSTITUTIONS AND HOSPITALS
The rules applicable to ordinary corporations will also apply to proprietary educational institutions and hospitals which are
nonprofit except the following:
1. In computing basic income tax, the rate is 10%.
NOTE: If income not related to its primary purpose or function is more than 50% of its total gross income, the rate
applicable is 30%.
2. It is not subject to MCIT.
3. Expenditures for expansion of school facilities may not be capitalized but instead claimed as outright expense.
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS
All corporations, agencies or instrumentalities owned or controlled by the Government shall be taxable like “ordinary
corporations”.
However, the following shall be exempt:
1. Government Service and Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Philippine Charity Sweepstakes Office (PCSO)
5. Local Water Districts (RA 10026)
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR)
FRANCHISE TAX/INCOME TAX ON PAGCOR OPERATIONS (PD 1869, RMC 33-2013, GR No. 21547-PAGCOR vs. BIR dated Dec.
10, 2014)
Income from “gaming operations” is subject only to five percent (5%) franchise tax under P.D. 1869, as amended,
Income from “other related services” is subject to corporate income tax pursuant to P.D. 1869, as amended; and well as R.A.
No. 9337.
IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)
This tax is only applicable to domestic corporations which are classified as closely-held corporations.
The following shall be exempt:
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; and
g) Enterprises duly registered with the:
i. PEZA
ii. Pursuant to Bases Conversion and Development Act of 1992
iii. Special Economic Zones
TAXABLE EVENT
The taxable event in IAET is the accumulation of earnings BEYOND the reasonable needs of the business.
REASONABLE NEEDS OF THE BUSINESS
The test used in determining the reasonable needs of the business is the so called “Immediacy Test”. It provides that
“reasonable needs” of the business is equivalent to:
Immediate Needs
PXXX
Reasonably anticipated needs
XXX
Reasonable Needs
PXXX
The following constitute accumulation of earnings for the reasonable needs of the business:
1. Earnings reserved for definite corporate expansion projects or programs requiring considerable capital expenditure
as approved by the Board of Directors or equivalent body;
2. Earnings reserved for building, plants or equipment acquisition as approved by the Board of Directors or equivalent
body;
3. Earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate
business agreement;
4. Earnings required by law or applicable regulations to be retained by the corporation or in respect of which there is
legal prohibition against its distribution;
5. In the case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings intended or reserved
for investments within the Philippines as can be proven by corporate records and/or relevant documentary
evidence.
FORMULA:
Resident Foreign Corporations – Ordinary Corporations
The income taxes applicable to ordinary domestic corporations upon generation of income are the same with resident foreign
corporations, except:
a) The general principles as to source of taxable income must be considered; and
b) Sale of land and/ or buildings is not subject to capital gains tax BUT basic income tax.
c) RESIDENT FOREIGN CORPORATIONS EXEMPT FROM MCIT:
i. International carrier
ii. Offshore banking units
iii. Regional or area headquarters
iv. Regional operating headquarters
v. Firms that are taxed under special tax regime (e.g. Covered by PEZA law & Bases Conversion Development Act)
Resident Foreign Corporations – Special Corporations
INTERNATIONAL CARRIER
FORMULA:
Gross Philippine Billings PXXX
Rate
2.5%
Income Tax
PXXX
GROSS PHILIPPINE BILLINGS (GPB):
a) International Air Carrier – refers to the amount of gross revenue derived from carriage of persons, excess
baggage, cargo and mail:
 Originating from the Philippines;
 In a continuous and uninterrupted flight;
 Irrespective of the place of sale or issue and the place of payment of the ticket or passage of document.
NOTE:
1) Tickets revalidated, exchanged and/or indorsed to another international airline form part of the GPB if a
passenger boards a plane in a port or point in the Philippines.
2) Flight which originates from the Philippines, but transshipment of passenger takes place at any port outside
the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg
flown from the Philippines to the point of transshipment shall form part of the GPB.
b) International Shipping – means gross revenue whether for passenger, cargo or mail originating from the
Philippines up to final destination, regardless of the place of sale or payments of the passage or freight
documents.
USE OF PREFERENTIAL RATE OR EXEMPTION (inserted by RA 10378)
International carriers may avail of preferential rate or exemptions on basis of:
a) Tax Treaty
b) International agreement
c) Reciprocity - An international carrier, whose home country grants income tax exemption to Philippine carriers,
shall likewise be exempt from income tax.
OFFSHORE BANKING UNITS
Income derived by offshore banking units (OBU’s) from foreign currency transactions shall be taxed as follows:
NOTE: • If OBU’s earn income other than from foreign currency transactions, it will be subject to basic income tax
(RCIT vs. MCIT, whichever is higher). • Any Income derived by nonresidents (individuals or corporations) from
transactions with OBUs shall not be subject to income tax.
REGIONAL OR AREA HEADQUARTERS
 Regional or area headquarters shall not be subject to income tax.
REGIONAL OPERATING HEADQUARTERS
 The rules applicable to ordinary corporations will also apply to Regional Operating Headquarters except
the following:
1. In computing basic income tax, the rate is 10%.
2. It is not subject to MCIT.
BRANCH PROFIT REMITTANCES TAX (BPRT)
Non-Resident Foreign Corporations – Ordinary Corporations
Non-Resident Foreign Corporations – Special Corporations