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Intax 02
Intax 02
LEARNING OBJECTIVES
1. Definition of corporation
2. Classification of corporation
3. Final withholding tax on corporation
4. Capital gains tax on corporation
5. Regular corporate income tax on corporation
6. Minimum corporate income tax on corporation
7. Special Domestic Corporation
8. Special Resident Foreign Corporation
9. Special Non-resident Foreign Corporation
CORPORATION
For tax purposes, a corporation is defined under the Revised Corporation Code shall include:
a. Partnerships, no matter how created or organized
(this only includes the commercial partnership a.k.a. partnership in trade, commercial partnership, general
partnership)
b. Joint-stock companies
c. Joint accounts,
d. Association
e. Insurance companies
Under R.A. 11534 “Corporate Recovery and Tax Incentives for Enterprise (CREATE) Act” included One
Person Corporation (OPC) in the definition. Corporation can be classified into three (3) such as:
CORPORATION CLASSIFICATION
Corporation are taxes differently according to its classification:
a. Domestic Corporation (DC) – is a corporation that is organized in accordance with Philippine law. DC are
taxable on income earned within and without the Philippines. Domestic corporation are taxable on income
earned from within and without the Philippines with a tax rate of 20% or 25% (30% before CREATE) based
on net income.
b. Resident Foreign Corporation (RFC) – a foreign corporation which operates and conducts business in the
Philippines through a permanent establishment (i.e., branch). RFC are taxable only on income earned from
within the Philippines with a tax rate of 20% or 25% (30% before CREATE) based on net income.
c. Non-resident Foreign Corporation (NRFC) – A foreign corporation which does not operate or conduct
business in the Philippines. NRFC are taxable only on income earned from within the Philippines with a final
tax rate of 25% (30% before CREATE) based on gross income.
Unlike in financial account, Gross income for taxation purposes pertains to sales revenue and cost of goods
sold are not deducted.
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FINAL TAX ON PASSIVE INCOME OF CORPORATION
b. Dividend income:
Received by Received by Received by
DC RFC NRFC
From DC Exempt Exempt 10% or 20%2
Exempt Exempt
From RFC Exempt
(with condition1) (with condition1)
Exempt Exempt
From NRFC Exempt
(with condition1) (with condition1)
1
Condition for exemption:
a. Funds from such dividends actually received or remitted into the Philippines are reinvested in the
business operations of the domestic corporation in the Philippines.
b. Reinvestment should be made within the next taxable year from the time the foreign sourced
dividends were received.
c. Reinvestment is limited to funding the working capital requirements, capital expenditure, dividend
payment, investment in domestic subsidiaries, and infrastructure project.
d. The DC holds directly at least 20% of the outstanding shares of the foreign corporation
e. Has held the shareholders for a minimum of 2 years at the time of dividends distribution.
If the above requisites are not satisfied, the foreign sourced dividends shall be taxable – regular tax.
2
NRFC shall be subject to a 15% final tax on dividend income instead of the general final tax of 30% if the
country of domicile of the NRFC credits against the tax due of such NRFC taxes presumed to have been
paid by such NRFC.
c. Royalties:
DC RFC NRFC
Books, literary works, and musical composition 20% 20% 30%
The exemption rule for the Capital gains tax on Real properties is not applicable to corporations.
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ORDINARY CORPORATION:
Ordinary Corporation are corporations paying the Regular Corporation Income Tax (RCIT) of 25% of net income
(unless the Corporation is earning less than P5,000,000 sales revenue and assets are less than P100,000,000,
20%) or the Minimum Corporate Income Tax (MCIT) of 1% of gross income (Under R.A. 11534 CREATE, MCIT
rate will be 2% after June 30, 2023).
Computation – RCIT:
Gross income P XX
Less: Allowable deductions ( XX)
Net income (Taxable Income) P XX
Times: Tax rate 25%
RCIT P XX
Timing of Imposition:
MCIT is imposed beginning on the fourth taxable year (Year of incorporation + 4 years = Year of MCIT imposition).
For example, a certain entity started operation on February 14, 2021, the MCIT will apply on year January 1,
2025 (2021+4).
b. Sale of Services – Gross income from sale of services means gross receipts plus non-operating income less
sales return, sales discount and cost of service.
MCIT Computation:
Gross sales P XX
Add: Non-operating income XX
Less: Sales discount and sales return ( XX)
Less: Cost of goods sold ( XX)
MCIT – Gross income P XX
Times: MCIT tax rate 1%
MCIT P XX
Gross receipt P XX
Add: Non-operating income XX
Less: Sales discount and sales return ( XX)
Less: Cost of goods sold ( XX)
MCIT – Gross income P XX
Times: MCIT tax rate 1%
MCIT P XX
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MCIT Suspension:
The secretary of Finance is authorized to suspend the imposition of minimum corporate income tax on any
corporation due to:
a. Losses on account of prolonged labor disputes
b. Force majeure
c. Legitimate business reverses
SPECIAL CORPORATION:
Special Corporation for tax purposes are corporations not paying the regular corporate income tax of 20%, 25%
but given a special tax rate in lieu of the 20%-25% RCIT. The following are the Special corporation under the
Revised Tax Law:
1. Exempt Corporation – 0%
a. Government Agencies – Such as departments and bureaus are inherently non-profit because of their
public service functions; hence, they are exempt from income tax.
b. Cooperatives – is an autonomous association of persons who voluntarily joined together to achieve their
social, economic and cultural needs and aspirations making equitable contributions to the capital
required, patronizing their products and services, and accepting a fair share of risks and benefits of the
undertaking.
Income of whatever kind from any of their activities conducted for profit shall be subject to tax imposed
under the Tax Code.
d. Government Owned and Controlled Corporation (GOCC) – Are taxable like a normal corporation except
for the following GOCC which are exempt:
- SSS and GSIS
- Philippine Health Insurance Corporation (PHIC)
- Local Water Districts
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2. Private (Proprietary) Education Institution – 1% of net income (Will return to 10% on June 30, 2023)
Proprietary Educational Institution is any private school maintained and administered by private individuals
or groups with an issued permit to operate from Department of Education (DepEd), or the Commission on
Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA) as the case
may be, in accordance with existing laws and regulations.
3. Non-profit Hospitals – 1% of net income (Will return to 10% on June 30, 2023)
Are foreign corporation that transport passengers, mails and excess cargoes or baggage from the Philippines
to any destination abroad and vice versa.
Gross Phil Billing – means gross revenue derived from carriage of persons, excess baggage, cargo and mail
origination 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 document.
Connecting flights
A connecting flight is a interrupted flights with stopover before going to the final destination.
The taxable GPB is the value of the ticket from the Philippines up to the stopover. While if the stopover
happened in the Philippines, the value of the ticket from the Philippines to the final destination is not taxable
unless the stopover exceeds 48 hours. Exception to the exception, if the 48 hours delay is due to force
majure.
2. Offshore Banking Unit (OBU) – 25% Regular Corporate Income Tax (Before CREATE it is 10% FT)
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DISCUSSION:
DEFINITION OF CORPORATION:
1. Which is not a characteristic of corporate income tax?
A. Progressive tax C. General tax
B. Direct tax D. National tax
2. For the purposes of income taxation, which of the following is not considered as a corporation?
A. General partnership in trade
B. General professional partnership
C. Mutual fund company
D. Regional operating headquarters of multinational company
3. For the purposes of income taxation, which of the following is considered as c corporation?
A. General partnership in trade
B. General professional partnership
C. Joint venture or consortium for construction project
D. Joint venture of consortium for engaging in energy operations under a service contract with the
government.
CLASSIFICATION OF CORPORATION:
4. Statement 1 – The term “domestic”, when applied to a corporation, means created or organized in the
Philippines or under its law.
Statement 2 – The term “resident foreign corporation” applies to a foreign corporation not engaged in trade
or business within the Philippines.
A. True, true
B. True, false
C. False, true
D. False, false
5. Which of the following is taxable based on income from all sources, within and without?
A. Domestic corporation C. Non-resident Foreign Corporation
B. Resident Foreign Corporations D. All of the choices
6. The term applies to a foreign corporation engaged in trade or business in the Philippines.
A. Resident foreign corporation
B. Non-resident foreign corporation
C. Multinational corporation
D. Petroleum contractor
7. Which of the following corporation shall pay a tax equal to thirty percent (25%) of the gross income received
during each taxable year from all sources within the Philippines?
A. Domestic corporation
B. Resident foreign corporation
C. Non-resident foreign corporation
D. All of the choices
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FINAL TAX ON CORPORATION:
10. Aside from the ordinary corporation income tax of 25%, what other taxes may be imposed on corporation
under the Philippine income tax law?
A. Minimum corporate income tax
B. Passive income tax
C. Capital gains tax
D. All of the above
11. The following passive income received by a domestic corporation shall be subject to 20% final withholding
tax, except:
A. Interest income from peso bank deposit
B. Yield from deposit substitute
C. Dividend income from another domestic corporation
D. Royalties
12. Lenovo, Inc., a domestic corporation, has earned the following income during the year:
Interest income
Current account, BDO 600,000
Saving deposit, ABN bank, UK 700,000
FCDU deposit 800,000
Royalty income
From various domestic corporation 100,000
The total final tax on passive income assuming the taxable year is 2018 is
A. 200,000 C. 328,000
B. 260,000 D. 1,088,000
14. Kris Inc. sold its vacant lot to Moca Corporation for P10,000,000 which it acquired at a cost of P5,000,000.
The fair market value of the sold property per tax declaration is P12,000,000, while its zonal value is
P15,000,000. How much is the income tax applicable on the transaction?
A. P600,000 Capital gains tax C. P1,250,000 Regular corporate income tax
B. P900,000 Capital gains tax D. P720,000 Capital gains tax
Numbers 15-17:
In 2021, East Star Inc., sold shares of stock for P250,000. The shares, acquired in 2018 at a cost of P100,000,
were held as investment, and were sold directly to a buyer.
16. How much is the capital gains tax due assuming the shares were sold by a foreign corporation?
A. 10,000 C. 22,500
B. 15,000 D. 45,000
17. Assuming the shares sold were not held for investment purposes and the seller is a dealer in securities, how
much is the capital gains tax?
A. 10,000 C. 22,500
B. 15,000 D. 0
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REGULAR CORPORATE INCOME TAX (RCIT):
Numbers 18-20:
Sobra You Corporation, a domestic corporation engaged in business in the Philippines and aboard has the
following data for the current year:
18. Determine the income tax payable (due), if the corporation is domestic:
A. 1,367,500 C. 1,430,000
B. 1,094,000 D. 1,417,500
19. Determine the income tax payable (due), if the corporation is resident foreign corporation:
A. 750,000 C. 800,000
B. 600,000 D. 812,500
20. Determine the income tax withheld, if the corporation is non-resident foreign corporation:
A. 2,437,500 C. 750,000
B. 2,500,000 D. 600,000
Numbers 21-24:
Kulang You Corporation, a corporation in the Philippines and aboard has the following data for the current
year:
21. Determine the income tax payable (due), if the corporation is domestic:
A. 400,000 C. 1,616,000
B. 500,000 D. 310,000
22. Assume that the Noncurrent Asset includes a land amounting to P5,000,000. Determine the income tax
payable (due), if the corporation is domestic:
C. 400,000 C. 1,616,000
D. 500,000 D. 310,000
23. Assume that the Noncurrent Asset includes a land amounting to P5,000,000. Determine the income tax
payable (due), if the corporation is resident foreign corporation:
A. 387,500 C. 400,000
B. 302,800 D. 500,000
24. Determine the income tax withheld, if the corporation is non-resident foreign corporation:
C. 1,325,000 C. 310,000
D. 1,060,000 D. 400,000
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MINIMUM CORPORATE INCOME TAX:
25. Statement 1 – A domestic corporation that registers with the BIR in the year 2015 shall be covered by MCIT
starting 2019.
Statement 2 – The tax due shall be lower between the regular corporate income tax and the minimum
corporate income tax.
A. True, true
B. True, false
C. False, true
D. False, false
26. A domestic corporation was registered with the BIR 2019. What year would the first MCIT will be imposed
on such corporation?
A. 2021 C. 2023
B. 2022 D. 2024
27. Statement 1 – The minimum corporation income tax is imposed on all corporations excluding non-resident
foreign corporation.
Statement 2 – The 2% MCIT is based on the gross income from Philippines and outside sources in case of
domestic corporation and gross income from Philippines sources in case of resident foreign corporation.
A. True, true
B. True, false
C. False, true
D. False, false
28. The following information were taken from the 2021 records of ABC Inc., a domestic corporation already in
its 5th year of operations:
Numbers 29-30:
A domestic corporation, already on its 5th year of operation as of 2022, has the following data:
2021 2022
Sales 1,700,000 2,300,000
Cost of sales 1,050,000 1,425,000
Operating expenses 620,000 800,000
29. The income tax payable in 2021 was:
A. 6,500 C. 7,500
B. 17,000 D. 6,000
30. The income tax payable in 2022 was:
A. 15,000 C. 8,750
B. 23,000 D. 14,500
31. A domestic corporation, already in its 4th year of operation as of 2024, immediately following the taxable year
in which the corporation commenced its operation. It provided the following data:
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SPECIAL DOMESTIC CORPORATION:
32. A proprietary private education institution provided the following data for taxable year 2021:
Income from tuition fees P 3,500,000
School miscellaneous fees 1,500,000
Interest income from bank deposit 2,000,000
Interest income from accounts receivable 2,000,000
Rent income 2,000,000
Operating expenses 4,000,000
The income tax payable of the school is:
A. 1,500,000 C. 50,000
B. 70,000 D. 30,000
33. A proprietary private educational institution has presented the following data for the year:
Numbers 36-37:
Philippine Airlines, a domestic corporation engaged in local and international operations has the following data
for the current year. Gross income and expenses from international operations, P10,000,000 and P4,000,000
respectively.
36. The income tax due of the corporation is
A. 250,000 C. 1,800,000
B. 1,500,000 D. 3,000,000
37. Assume the carrier is an international carrier (a resident foreign corporation), the income tax due is
A. 250,000 C. 1,800,000
B. 1,500,000 D. 3,000,000
38. Teri Yaki Corporation., a Japanese Corporation having no business in the Philippines is engaged in ship
building. It leases some of its newly constructed ships (vessels) to Super Fairy Inc., a Philippine Carrier. What
is the tax rate will apply to the rental payments to the lessor?
A. 30% basic income tax C. 7.5% final tax
B. 25% final tax D. 4.5% final tax
39. Rentals, charters and other fees derived by a non-resident lessor of aircraft, machineries and other
equipment in the Philippines shall be subject to a tax of:
A. 25% C. 4.5%
B. 7.5% D. 2.5%
40. A cinematographic film owner, lessor or distributor shall pay a tax, based on its gross income from all
sources within the Philippines, of:
A. 25% C. 4.5%
B. 7.5% D. 2.5%
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