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Module 06 Taxation of Corporations Regular Corp.
Module 06 Taxation of Corporations Regular Corp.
Module 06 Taxation of Corporations Regular Corp.
II. Content
A. DEFINITION OF CORPORATION
For income tax purposes, the term “corporation”
1. shall include:
one person corporations
partnerships, no matter how created or organized
joint-stock companies
joint accounts (cuentas en participation)
associations,
insurance companies
2. does not include:
general professional partnerships
joint venture or consortium formed for the purpose of undertaking construction projects pursuant to
Presidential Decree (PD) No. 929 (dated 4 May 1976) to assist local contractors in achieving
competitiveness with foreign contractors by pooling resources in undertaking big construction projects
joint venture or consortium engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating consortium agreement under a service contract with the Government. (Sec.
4 B, RA 11534) CREATE
B. CLASSIFICATION OF CORPORATIONS
1. Domestic Corporation. A corporation created or organized in the Philippines or under its laws.
2. Foreign Corporation. A corporation, which is not domestic.
a. Resident Foreign Corporation. A corporation engaged in trade or business within the Philippines.
b. Non-Resident Foreign Corporation. A corporation not engaged in trade or business within the
Philippines. (Sec. 22 C,D,H,I, NIRC)
C. SOURCES OF INCOME
Within the Philippines Without the Philippines
Corporation
Domestic Corporation Taxable Taxable
Resident Foreign Corporation Taxable
Non-Resident Foreign Corporation Taxable
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D. CLASSIFICATION OF INCOME AND TAX RATES
Domestic Resident Non-resident
Corporation Corporation Corporation
Capital gain:
1. Capital gains from sale of shares of stock of a On the On the On the
domestic corporation not listed and traded thru net capital gain: net capital gain: net capital gain:
a local stock exchange, held as capital asset. 15% Final Tax 15% Final Tax 15% Final Tax
(CREATE) (CREATE)
2. Capital gains from sale of land and/or building
held as capital asset in PH.
On the gross selling price or FMV prevailing at 6% Final Tax RCIT RCIT
the time of sale,
zonal value, whichever is higher
Passive income:
1. From sources within the Philippines, on
passive income of:
Interest under the expanded foreign 15% Final Tax 15% Final Tax Exempt
currency deposit system (FCDS) (CREATE)
2. From sources within the Philippines, on
passive income of:
Interest on any currency bank deposit, yield or
other monetary benefit from deposit substitute,
trust fund and similar arrangement, royalty 20% Final Tax 20% Final Tax RCIT
3. Dividend from domestic corp. Exempt;
(Inter-company dividend) Div. from RFC* Exempt 25%; 15%**
4. Dividends from NRFC Exempt from income Without Without
tax subject to below (Not Taxable) (Not Taxable)
conditions:
I. reinvestment in the
domestic corporation
II.20% or more
ownership; and
III. 2 years or more
holding period. (CREATE)
5. Interest on foreign loans 20% Final tax
*Domestic Corporation receive dividends from a RFC, and fifty (50) percent or more of the said RFCs gross income
for the past three (3) years prior to the dividend declaration is derived from sources within the Philippines, it may be
considered as tax-exempt income by the domestic corporation. Otherwise, the domestic corporation would have to
prove through the required sworn affidavits and certifications that it has utilized the said dividend income.
**Tax Sparing Credit. Dividends from domestic corporations if the country in which the foreign corporation is
domiciled does not impose income tax on such dividends, or allows a tax deemed paid credit of 15%. (10% beginning
1 July 2020 or the difference between the CIT and 15% tax on dividends). (CREATE starting July 1, 2020).
Domestic Resident Non-resident
Corporation Corporation Corporation
Regular income: Taxable Income Taxable Income Gross Income
within & without Within within
25% or 20% 25% 25% Final Tax
Regular Corporate Income Tax (RCIT) subject to conditions* (OBUs & ROHQs)**
But, beginning on the fourth year from start 2% Gross Income 2% Gross Income
of operations; whichever is higher of: (1% Gross Income (1% Gross Income
RCIT or MCIT July 1, 2020 – June 30, July 1, 2020 – June
2023 Create) 30, 2023 Create)
*i. Net Taxable Income of not more than ₱5M; and
ii. Total assets of not more than ₱100M (excluding land on which the business entity’s office, plant and equipment
are situated)
** Offshore Banking Units refers to a branch, subsidiary or affiliate of a foreign banking corporation which is
duly authorized by the BSP to transact offshore banking business in the Philippines in accordance with the
provisions of Presidential Decree (PD) No. 1034, as amended. "Offshore Banking" shall refer to the conduct of
banking transactions in foreign currencies involving the receipt of funds from external sources and the utilization
of such funds as provided in this Decree.
2
Regional Operating Headquarters (ROHQs) of Multinational Corporation shall mean a branch established in
the Philippines by multinational companies which are engaged in any of the following services: general
administration and planning; business planning and coordination; sourcing and procurement of raw materials
and components; corporate finance advisory services; marketing control and sales promotion; training and
personnel management; logistic services; research and development services and product development; technical
support and maintenance; data processing and communications; and business development. (Sec. 22 EE, ibid.)
E. TAX FORMULA
DC DC RFC NRFC
MSME
Gross Sales/Revenues/Receipts/Fees ₱xx ₱xx ₱xx ₱xx
Less: Sales returns, allowances & discounts ( xx ) ( xx ) ( xx ) ( xx )
Cost of sales/services ( xx ) ( xx ) ( xx ) ( xx )
Gross income xx xx xx xx
Add: Other taxable income not subject to final tax xx xx xx xx
Total taxable income xx xx xx xx
Less : Allowable deductions for expenses or OSD ( xx ) ( xx ) ( xx )
Net taxable income subject to regular income tax xx xx xx
X Tax rate 25% 20% 25% 25%
Income tax due xx xx xx xx
Less : Tax credit / payment / withheld ( xx ) ( xx ) ( xx )
Income tax payable xx xx xx
Note:
OSD is based on total taxable income
MCIT is based on total taxable income
Illustration 1
J&J Corporation had the following data for the current year its first year of operation:
Compute the income tax due on regular income and the final tax if J&J Corporation is a:
1. Domestic corporation
2. Resident foreign corporation
3. Non-resident foreign corporation
3
Illustration 2
Excellence Inc. is a domestic corporation engaged in service activity. During 2024 taxable year (fifth year of
operations), it had:
Gross revenues……………………………………… ₱42,000,000
Discounts and allowances …………………………. 750,000
Cost of services...…………………………………… 15,900,000
Selling expenses …………………………………… 8,800,000
Administrative expenses ………………………….. 6,300,000
Compute the income tax due.
Illustration 3
Excellence Inc. is a domestic corporation engaged in service activity. During 2024 taxable year (fifth year of
operations), it had:
Gross revenues……………………………………… ₱42,000,000
Discounts and allowances …………………………. 750,000
Cost of services...…………………………………… 25,900,000
Selling expenses …………………………………… 8,800,000
Administrative expenses ………………………….. 6,300,000
Total assets (including land valued at ₱40,000,000 on which the
company’s office, plant, and equipment are
situated)…………………………………………….. 120,000,000
Compute the income tax due.
Passive income with final tax and capital gains with capital gain tax are not included in the quarterly and year-end
computations.
If the sum of the quarterly tax payments made during the year is not equal to the total tax due on the final return, the
corporation may: a) pay the balance of the tax still due or b) carry-over the excess tax credit or c) be credited or
refunded with the excess payment.
Illustration 4
Angeles Corporation an MSME corporation in its fifth year of operations had the following non-cumulative balances
at the end of each quarter for 2024 taxable year:
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H. EXCESS MCIT CARRY-FORWARD
Any excess of the minimum corporate income tax over the regular tax of a year will be carried forward and credited
against the regular corporate income tax for the three (3) immediately succeeding taxable years. In the year to which
carried forward, the regular tax should be higher than the minimum corporate income tax. (Sec. 27 E2, NIRC)
Illustration 5
A domestic corporation had the following data on computations of the regular corporate income tax (RCIT) and
minimum corporate income tax (MCIT) for five years:
Year 5 Year 6 Year 7 Year 8 Year 9
RCIT ₱25,000 ₱37,500 ₱50,000 ₱25,000 ₱87,500
MCIT 100,000 62,500 37,500 50,000 43,750
Compute the income tax due from years 5 to 9.
Journal entries:
Date Account titles and explanation Debit Credit
Year 5 (1) Provision for income tax
Income tax payable
~To record income tax liability using the regular tax rate~
5
III. Activity
Problem 1
The following data were provided by Makibaka Corporation, a domestic corporation, for 2024 taxable year:
Gross sales – Philippines………………. ₱12,000,000
Cost of goods sold – Philippines ………. 3,700,000
Operating expenses – Philippines ……… 2,400,000
Other income – Philippines ……………. 500,000
Required: Determine the income tax due assuming the company’s assets amounted to ₱80,000,000.
Problem 2
The following data were provided by Matatag Corporation, a domestic corporation, for 2024 taxable year:
Gross sales – Philippines………………. ₱12,900,000
Cost of goods sold – Philippines ………. 5,600,000
Operating expenses – Philippines ……… 2,800,000
Required: Determine the income tax due assuming:
1. The company’s assets amounted to ₱80,000,000.
2. The company’s assets amounted to ₱150,000,000.
3. The company’s assets amounted to ₱125,000,000 including land valued at ₱40,000,000.
Problem 3
The following data were provided by Mine Corporation for 2024 taxable year:
Gross sales – Philippines………………. ₱8,000,000
Cost of goods sold – Philippines ………. 3,400,000
Operating expenses – Philippines ……… 2,200,000
Other income – Philippines ……………. 750,000
Gross sales – USA……………………… 4,600,000
Cost of goods sold – USA……………… 1,430,000
Operating expenses – USA……………. 1,250,000
Gross sales – Australia ………………… 3,300,000
Cost of goods sold – Australia ………… 900,000
Operating expenses – Australia………… 700,000
Required: Determine the income tax due assuming:
1. The corporation is a domestic corporation
2. The corporation is a resident corporation
3. The corporation is a non-resident corporation
Problem 4
Selected cumulative balances were taken from the records of a domestic corporation in 2024:
Q1 Q2 Q3 Q4
Gross profit from sales ………………. ₱1,600,000 ₱3,200,000 ₱4,800,000 ₱6,700,000
Capital gain-direct sale to buyer of shares of
Domestic Corporation ……… 100,000 100,000 100,000 200,000
Dividend from Domestic Corporation…. 50,000 50,000 100,000 100,000
Interest-PH bank deposit……………… 10,000 20,000 30,000 40,000
Business expenses……………………. 1,200,000 2,400,000 3,400,000 4,200,000
Income tax withheld …………………. 30,000 70,000 130,000 230,000
Additional Data: The corporation started its operations in 2016. The company's assets never exceeded ₱100,000,000 and
its net taxable income for the previous taxable years were not higher than ₱5M.
Problem 5
ABC Company (Domestic Corporation) had the following data on computations of regular corporate income tax and
minimum corporate income tax:
Year 5 Year 6 Year 7 Year 8 Year 9
MCIT ₱100,000 ₱60,000 ₱50,000 ₱40,000 ₱20,000
RCIT 30,000 70,000 60,000 30,000 80,000
Required: How much is the income tax due for years 5, 6, 7, 8, and 9?