PARTNERSHIP

JOINT VENTURE
Partnerships
 PARTNERSHIP
Partnership is defined as “a contract whereby two or more
persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among
themselves”.
Two or more persons may also form a partnership for the
exercise of profession
ORDINARY PARTNERSHIP GENERAL PROFESSIONAL
PARTNERSHIP
TAXABLE like corporation EXEMPT from income tax
Partner’s share are subject to final Partners’ share are subject to Net
tax like dividend income Income Tax like ordinary business
income
 General Professional Partnerships

❑ Exempt entity

❑ Partners of a GPP shall be liable for income tax only in

their separate and individual capacities:
❏ To compute the distributive shares of the partners – the
Net income of GPP shall be computed like a corporation
❏ Each partner shall report as Gross Income his
distributive share (Net income from operations of GPP)
 General Professional Partnerships

❑ Allowable deductions to GPP

- taxed like a corporation thus, it can claim Itemized

Deductions or Optional Standard Deductions (40% of Gross
Income in lieu of itemized deductions)
 General Professional Partnerships

❑ Allowable Deductions to the Partners of GPP

The share of a partner in the net income of a GPP, actually or

constructively received, shall be reported as taxable income
of each partner
- they can no longer claim further deductions from their
distributive share in the net income of a GPP
- they are not allowed to avail the 8% income tax rate
SAMPLE COMPUTATION OF A PARTNER’S DISTRIBUTIVE SHARE IN THE NET
INCOME OF A GPP
Income from Passive Capital TOTAL
Operations income net of gains net
FT of CGT
Gross Income of P1M
GPP Total Distributable Income of the GPP
Deductions 400K
Net Income of GPP 600K 80K 20K 700K
X Partner’s P/L% *50% 50% *50%
Share in income 300K 40K 10K 350K
Total Distributive share of a Partner of a GPP
SAMPLE COMPUTATION OF A PARTNER’S TAXABLE NET INCOME

Income from
Operations
Gross Income of PARTNER 800K
Gross business income 2.4M
Deductions from business (1.2M)
income
Share in Net Income of GPP ? P300,000

Partner’s Taxable Income ?

P2,300,000
SAMPLE COMPUTATION OF A PARTNER’S DISTRIBUTIVE SHARE IN THE NET
INCOME OF A GPP
Income from Passive Capital TOTAL
Operations income net of gains net
FT of CGT
Gross Income of P1M Total Distributable Income
GPP of the GPP
Share in the net income of
Deductions 400K
the GPP in computing a
Partner’s
Net Income of Taxable
GPP Income
600K 80K Total20K 700K
Distributive share of a
Partner of a GPP
X Partner’s P/L% *50% 50% *50%
Share in income 300K 40K 10K 350K
SAMPLE COMPUTATION OF A PARTNER’S TAXABLE NET INCOME

The partner’s Income from Operations

distributive share
from GPP income
Gross Income of PARTNER 800K
can no longer be
Gross business
subjected income
to further 2.4M
deduction (whether
Deductions from business (1.2M)
the GPP claimed
income
OSD or itemized
Share in Net Income of GPP
deduction) P300,000
Partner’s Taxable Income P2,300,000
 General Professional Partnerships
❑ Income payments to Partners of GPP are subject to
CWT of:
• 15% CWT if the amount of gross income is more than
P720,000
• 10% CWT if the amount of gross income is not more than
P720,000

Total Distributive share of a Partner of a GPP x CWT %

= CWT on Income Payments to Partners of GPP
SAMPLE COMPUTATION OF A PARTNER’S INC TAX DUE & INC TAX PAYABLE
Income from Operations
Gross Compensation Income 800K
Gross business income 2.4M
Deductions from business income (1.2M)
Share in Net Income of GPP P300,000
Partner’s Taxable Income P2,300,000
Apply graduated tax rate:
First 2M 402,500
Excess of 2M (30% X 300,000) 90,000
Income tax due 492,500
 Income from Operations
SAMPLE
Gross COMPUTATION OF
Compensation A PARTNER’S INC
Income TAX DUE & INC TAX PAYABLE
800K
Gross business income 2.4M
Deductions from business income (1.2M)
Share in Net Income of GPP P300,000
Partner’s Taxable Income P2,300,000
Apply graduated tax rate:
First 2M 402,500
Excess of 2M (30% X 300,000) 90,000
Income tax due 492,500
- CWT (15% X 350,000) (52,500)
Income Tax payable 440, 000
ORDINARY PARTNERSHIP

❑ For tax purposes, taxable partnerships are taxed,

in all respects, similar to a corporation
❑ Partners are considered shareholders
❑ TOTAL Profits distributed to the partners are
considered DIVIDENDS subject to FWT
SAMPLE COMPUTATION OF A PARTNER’S DISTRIBUTIVE SHARE IN THE NET
INCOME OF AN ORDINARY/ TAXABLE Partnership
Income from Passive Capital TOTAL
Operations income net of gains net of
FT CGT
Gross Income of GPP P10M
Deductions (4M)
Net Income of GPP 6M
- Corporate Income (1.5M) Total Distributable Income of the OP
Tax Due (6M * 25%)
Net Income after tax 4.5M 80K 20K 4.6M
X Partner’s P/L% *50% 50% *50%
Share in income 2.25M 40K 10K 2.3M
Total Distributive share of a Partner of a OP
SAMPLE COMPUTATION OF A PARTNER’S TAXABLE NET INCOME
The total distributive share of a partner is subject to
FINAL TAX not Basic Income tax, thus:
Resident Citizen taxpayer Income from Operations
Total Distributive share of a partner P2.3M
X FWT rate on dividend income 10%
FWT of the partner800K
Gross Income of PARTNER 230k

Gross business income 2.4M

Deductions from business income (1.2M)

Share in Net Income of OP ? N/A

Partner’s Taxable Income ?

P2,000,000
 Joint Venture
Definition of Joint Venture - two or more
companies join together to collaborate on a
particular project
 KINDS OF JOINT VENTURE
TAXABLE JOINT VENTURE
Generally, joint ventures are
taxable
Treated as: Taxable partnership
Joint venturer’s share in the profits Share of joint venturer is subject to Net
are exempt from tax like
intercorporate dividends if such
joint venturers are corporate
taxpayers
EXEMPT JOINT VENTURE
Those engaged in construction projects
and in petroleum, coal, geothermal, and
other energy operations pursuant to a
consortium agreement under a service
contract with Government
Treated as: GPP
Income Tax like ordinary business
income
subject to final tax of 10%, 20%, or 25%
if such joint venturers are individual
taxpayers
 COMPARE

PARTNERSHIP ESTATE & TRUST

Tax like a corporation Tax like individuals
Proportional tax Progressive Tax