Corporation Definition, Classification and Basic Taxes

Definition

 an artificial being created by operation of law, having the right of succession and
the powers, attributes, and properties expressly authorized by law or incident to
its existence.
 Includes one-person corporations, partnerships (no matter how created or
organized), joint stock companies, joint accounts, associations or insurance
companies, mutual fund companies, regional operating headquarters of
multinational corporations
 Excludes general professional partnerships, joint venture consortiums
undertaking construction projects or engaged in petroleum, coal, geothermal and
other energy operations pursuant to an operating consortium agreement under a
service contract with the government

Classification and Taxable Income

Classification Tax Base Taxable Income

Philippines and
Domestic Corporation Net income
abroad
Resident Foreign Corporation Net income Philippines only
Non-Resident Foreign Gross
Philippines only
Corporation income

Types of Income

1. Ordinary or regular income

2. Passive income
3. Income from sale of properties

Basic Corporate Income Tax Rates

Rat
Type
e
1
Regular Corporate Income Tax 25%
.
RCIT for MSME 20%
2 Minimum Corporate Income
1%
. Tax

Exercise Problems

1. Amita Corporation have the following data for the current year:

Gross income,
P 1,000,000
Philippines
Expenses, Philippines 750,000
Gross Income, Thailand 1,000,000
Expenses, Thailand 800,000
Interest on bank deposit 50,000

Required: Determine the income tax due assuming the regular corporation is a

1. Regular domestic corporation

2. MSME domestic corporation
3. Resident foreign corporation
4. Non-resident foreign corporation

2.  Tacademy, Inc. has the following data for its 6th year of operations:

Gross income,
P 2,000,000
Philippines
Expenses, Philippines 1,500,000
Gross Income, Singapore 2,000,000
Expenses, Singapore 1,600,000
Interest on bank deposit 100,000
Required: Determine the income tax due assuming the regular corporation is a

1. Regular domestic corporation

2. MSME domestic corporation
3. Resident foreign corporation
4. Non-resident foreign corporation

3. Printex Corporation started its operations in 2016. It provides the following data for
its latest operations:

2021 2022 2023

Gross income P11,000,000 P14,000,000 P16,000,000
Allowable deductions 10,500,000 14,200,000 15,000,000

Required: Determine the income tax payable for 2021, 2022 and 2023.

4. Metafab Corporation computed its RCIT, MCIT and income taxes withheld from 1st to
4th quarters including excess MCIT and excess withholding taxes from prior years as
follows:
Quarte Taxes withheld Excess MCIT Excess withholding tax of
RCIT MCIT
r during the year prior year prior year
P200,00 160,00
1 40,000 60,000  20,000
0 0
500,00
2 240,000 60,000  
0
200,00
3 500,000 80,000  
0
200,00
4 400,000 70,000  
0

Required: Determine the income tax payable for the first 3 quarters and for the year.
5. Agrimax Corporation computed its RCIT, MCIT and income taxes withheld from 1st to
4th quarters including excess MCIT and excess withholding taxes from prior years as
follows:
Quarte Taxes withheld Excess MCIT Excess withholding tax of
RCIT MCIT
r during the year prior year prior year
P200,00 160,00
1 40,000 60,000  20,000
0 0
500,00
2 240,000 60,000  
0
200,00
3 500,000 80,000  
0
240,00
4 100,000 70,000  
0

Required: Determine the income tax payable for the first 3 quarters and for the year.
3. Classification of Corporations

A. Domestic Corporations

1. Regular
a. Micro, Small and Medium Enterprises

2. Special Corporations
a. Private Education Institutions and Non-Profit Hospitals
b. Subcontractors of service contractors in Petroleum Operations
c. Ecozone, PEZA, BOI or TIEZA -registered enterprises
d. FCDUs and EFCDUs interest income derived from foreign currency loans
granted to residents other than EFCDUs and OBUs

3. Exempt Corporations
a. Non-Profit Corporations under Sec 30 of the NIRC (11)
b. Government agencies and instrumentalities
c. Certain Government-Owned or Controlled Corporations
d. Cooperatives

B. Resident Foreign Corporations

 1. Regular
2. Special
a. Regional Operating Headquarters of Multi-National Companies
b. Subcontractors of service contractors in Petroleum Operations
c. Ecozone, PEZA, BOI or TIEZA -registered enterprises
d. International Carriers
e. Offshore Banking Units (OBUs) and EFCDUs

3. Exempt
a. Regional Area Headquarters of multi-national companies

C. Non-Resident Foreign Corporations

1. Regular
2. Special
a. Cinematographic film owner, lessor or distributor
b. Lessor of vessels chartered by Philippines nationals
c. Owner or lessor of aircraft, machineries and equipment

Exempt Corporations under Sec 30 of the NIRC

a. Labor, agricultural or horticultural organizations not organized principally for

profit
b. 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 the quantity of produce finished by them;
c. 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
d. 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;
 e. 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 mutual aid association or a nonstock 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;
f. 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
stock-holder, or individual;
g. 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
h. Civic league or organization not organized for profit but operated exclusively for
the promotion of social welfare;
i. Cemetery company owned and operated exclusively for the benefit of its
members;
j. A nonstock and nonprofit educational institution;
k. Government educational institution;

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 tax imposed
under this Code. 

Exercise Problems

6. Fruitas Corporation provided the following data for the previous calendar year:

Gross income,
P6,000,000
Philippines
Deductions, Philippines P4,000,000
Gross income, USA $50,000
Deductions, USA $20,000
Conversion $50=P1 

Required: Determine the income tax due assuming Fruitas is a special corporation of the
following type:

Taxable Tax Income

Income Rate Tax
1 Private Educational Institution
2 Non-Profit hospital
Subcontractor of service contractors in petroleum
3
operations
4 Ecozone, PEZA, BOI or TIEZA-registered enterprise
5 National Grid Corporation of the Philippines
6 Microfinance non-government organization
7 Regional Area Headquarter
8 Regional Operating Headquarter
9 International Airline/Carrier
1
Cinematographic file owner, lessor or distributor
0
1
Lessor of vessel chartered by a Filipino
1
1
Owner or lessor or aircraft, machineries or equipment      
2

7. A branch of foreign Cocotex Corporation engaged in servicing reported the following

for the previous year:

Service fees P5,000,000

Gain on sale of fully depreciated
500,000
property
Dividend income 60,000
Capital gain on sale of stocks, net of tax 100,000
Less:  Allowable business expenses 4,600,000
Income before tax P   940,000
Less:  Income tax due 318,000
Net Income P  622,000

The branch earmarked 60% of the net profits for remittance to the home office abroad.

Required:  Determine the Branch Profit Remittance Tax

8. Lumbermax Corporation, a domestic corporation, reported the following for the
previous year:

1st 2nd 3rd 4th

Quarter Quarter Quarter Quarter
Sales 600,000 500,000 800,000 700,000
Cost of
310,000 260,000 410,000 360,000
Sales
Expenses 150,000 110,000 180,000 170,000

Other income:
1st Quarter: Royalty income, net of withholding tax, P120,000
2nd Quarter: Dividend from foreign corporation, P300,000
3rd Quarter: Dividend from domestic corporation, P100,000
4th Quarter: Gain on sale of capital asset stocks sold directly to buyer, P400,000
4th Quarter: Gain on sale of ordinary asset, P200,000

Required: Compute the following:

a. Income tax payable for the 1st quarter

b. Income tax payable for the 2nd quarter
c. Income tax payable for the 3rd quarter
d. Income tax payable for the year
e. Total final taxes paid for the year