PAMANTASAN NG

INCOME TAX ON
CORPORATION

LUMGSOD NG MAYNILA
Paul Cedrick R. David
Corporation Defined

The Corporation code of the Philippines define

“corporation” as an artificial being created by operation
of law, having the right of succession and the powers
of, attributes and properties expressly authorized by
law or incident to its existence.

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Overview of Corporate Taxes

A corporation may be liable for at most seven (7) types of

income taxes, namely:

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DEFINITION

Under Section 22(B) of the NIRC, the term “corporation” shall include:

a.)Partnership, no matter how created or organized

b.)Joint stock companies
c.)Joint accounts
d.)Associations
e.)Insurance Companies

However, the term does not include:

a.) General Professional partnerships (GPP)

b.) Joint venture or consortium – formed for the purpose of a) undertaking
construction project or b) engaging in energy operations pursuant to an operating or
consortium agreement under a service contract with the government
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Classification of Corporations

1.) Domestic Corporations in general includes:

a. GOCC EXCS: SSS, GSIS, PHILHEALTH etc.
b. Taxable partnerships
c. Proprietary educational institutions/Non-profit hospitals
d. FCDUs of domestic banks
e. Service contractors/subcontractors engaged in petroleum
operations
f. Ecozone enterprises
g. Exempt corporations

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2.) Resident Foreign Corporations in general includes:
a. Resident international carriers
b. OBUs
c. ROHQs/RHQs
d. Service contractors/subcontractors engaged in
petroleum operations
e. Ecozone enterprises

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3.) Non-resident foreign corporations in general includes:

a. Non-resident owners/lessors of vessels chartered by

Philippine Nationals
b. Non-resident owners/lessors of aircraft, machineries and
other equipment
c. Non-resident cinematographic film owner, lessor or
distributor

4.) Exempt Corporations

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ORDINARY INCOME / Net Income
ORDINARY INCOME / Net Income
PASSIVE INCOME
INTERCORPORATE DIVIDEND
CAPITAL GAINS TAX ON CAPITAL GAINS

1. Sale, Exchange or other disposition of domestic shares of stock:

(A) Not traded at stock exchange:

By Domestic Corporation: Net capital gain 15%

By Foreign Corporation: Net gain not over P 100,000 5%
Amount in excess of P 100,000 10%

(B) Shares listed and traded at the stock exchange:

6/10 of 1% based on the gross selling price

NOTES:
1) Final tax on capital gains on the sale of shares of stock applies to all
corporate taxpayers
2) The exceptions for individual taxpayers also apply for corporate taxpayers
2. Sale of Real property Classified as Capital Asset :

(A) Transaction subject – the sale, exchange or other disposition of lands and
building which are not actually used in the business of the corporations and treated
as “capital assets”

(B) Tax rate and base

1. Seller is Domestic Corporation – Final tax of 6% based on the GSP or FMV,

which ever is higher.
2. Seller is RFC – Gain on sale is returnable and subject to normal tax rate (25%).
3. Seller is NRFC – Final tax of 25% on the capital gain realized on the sale.
Exercise:
P. Noval provided the following information for taxable year 2023:
Gross Income Operations, Philippines – P 1,000,000, COGS, Philippines –
P 300,000, Other taxable income subjected to final tax, Ph – P 200,000,
Other taxable income not subject to final tax, Ph – P 500,000, Expenses,
Ph – 600,000, Gross Income Operations, Japan – P 500,000 and
Expenses, Japan – P 300,000.

1.Determine the income tax due assuming P. Noval is:

a. Domestic Corporation
b. Resident Foreign Corporation
c. Non – Resident Foreign Corporation
Minimum Corporate Income Tax (MCIT)

1. Who are subject?

(A) Domestic Corporations

(B) Resident Foreign Corporations

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2. Rate and Base – Two percent (2%) of gross income. The taxpayer
shall pay whichever is higher between the MCIT and the regular
corporate income tax (RCIT).

GROSS INCOME (sale of goods) – The term “gross income” shall mean
gross sales less sales returns, discounts and allowances and cost of
goods sold. “Cost of goods sold” shall include all business expenses
directly incurred to produce the merchandise to bring them to their
present location and use.
GROSS INCOME (sale of services)

In the case of taxpayers engaged in the sale of services, “Gross

Income” means gross receipts less sales returns, allowances, discounts
and cost of services. “Cost of services” shall mean all direct cost and
expenses necessarily incurred to provide the services required by
customers and clients, including (a) salaries and employee benefits of
peronnel, consultants and specialist directly rendering the service and
(b) cost of facilities directly utilized in providing the service such as
depreciation or rental of equipment used and cost of supplies.
1. Effectivity
– The fourth (4th) taxable year immediately following the year in which
such corporation commenced its business

2. Carry forward of excess minimum tax

– Any excess of the MCIT over the regular corporate income tax (RCIT) in
a particular year shall be carried forward and credited against the
regular income tax for the three (3) immediately succeeding taxable
years.
1. Determine the MCIT assuming Taxlord Corporation is a domestic
corporation.
2. Assuming Taxlord Corporation, incorporated 6 years ago, determine
the total tax due/liability assuming it is a domestic corporation.
3. Assuming Taxlord Corporation, incorporated 6 years ago, determine
the total tax due/liability assuming it is a Resident foreign
corporation.
4. Assuming Taxlord Corporation, incorporated 6 years ago, determine
the total tax due/liability assuming it is a Non – resident foreign
corporation.
 1. Net Operating Loss Carry-Over (NOLCO)

Excess of allowable deductions ( excludes NOLCO and any item of

incentive deduction under special laws that does not involve any cash
outlay) over gross income in a taxable year.

a) Can be availed of by individual taxpayers engaged in trade, business or

a profession, estates and trust, domestic and resident foreign corporations
subject to the normal income tax and special corporations subject to
preferential tax rates.
Taxpayers NOT entitled to NOLCO:

1) OBUs and FCDUs of domestic or foreign banking corporations

2) , SBMA, CDA, etc. registered enterprises with respect to their

registered businesses

3) Foreign corporations engaged in international shipping or air

carriage business in the Philippines.
B) NOLCO if net operating loss was incurred in a year during
which taxpayer was exempt from income tax. EX. Corporations
enjoying income tax holiday incetive like PEZA is not entitled to
NOLCO

A loss in one line of business which is tax-exempt is not permitted

as a deduction in another line of business which is taxable.

C) Net operating loss can be carried over and deducted from

gross income for the next 3 consecutive taxable years.
d.) NOLCO shall be allowed only if there has been no substantial
change in the ownership of the business.

“No substantial change” means ≥ 75% in value of the outstanding

shares or ≥ of the paid-up capital of a corporation, is held by or on
behalf of the same persons.

e) For mines, other than oil and gas wells, NOL incurred without
the benefit of incentives provided under the Omnibus Investment
Code, in any of the first 10 years of operations can be carried over
as a deductions for the next 5 years following the year of loss.
f) Carry-over of operating loss for prior taxable year is not
allowed if the basis of tax due for the year that NOLCO is
claimed is the MCIT, at the same time, the 3 year reglementary
period on the carry-over of NOLCO shall continue to run.
EXCESS MCIT OR MCIT CARRY OVER

Any excess of the minimum corporate income tax over th

normal corporate income tax shall be carried forward and
credited against the regular income tax for three succeeding
taxable years, provided that the normal tax should be higher
than the minimum corporate tax in the year to which the excess
MCIT is forwarded.
3.) International Carriers
International carriers doing business in the Philippines shall pay a tax
of two and one-half percent (2%) of Gross Philippine Billings (GPB")

GPB - Gross revenue derived from karringe 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 document:
Rules:

(1)Tickets revalidated, exchanged and/or indorsed to another

international airline form part of the Gross Philippine Billings if the
passenger boards a plane in a port or point in the Philippines;

(2) Provided, that for a flight or voyage which originates from the
Philippines, but transhipment of passenger takes place at any port
outside the Philippines on another carrier, only the aliquot portion of
the cost of the ticket corresponding to the leg flown from the
Philippines to the point of transhipment shall form part of the Gross
Philippine Billings.
(1) Where a passenger, his excess baggage, cargo, and/or mail originally commencing his flight
or voyage from a foreign port alights or is discharged in any Philippine port, and thereafter boards
or is loaded on another airplane/vessel owned by the same international carrier, the flight or
voyage from the Philippines to any foreign port shall be considered "originating from the
Philippines" if the time intervening between arrival to and departure from the Philippines exceed
forty-eight (48) hours.

(a) If the failure to depart within 48 hours is due to reasons beyond the control of the passenger
such as when the next available flight or voyage leaves beyond 48 hours, or such failure is due to
force majeure the flight or voyage from the Philippines shall not be considered "originating from
the Philippines";

(b) If the second aircraft/vessel belongs to a different international carrier, the flight/voyage
from the Philippines shall be considered originating from the Philippines regardless of the length
of the intervening period between arrival to and departure from the Philippines.
Preferential Rates

Under R.A. No. 10378, an international carrier or shipper is subject to the

Gross Philippine Billings Tax of 22%, unless it is subject to a preferential
rate or exemption on the basis of an applicable tax treaty or international
agreement to which the Philippines is a signatory or on the basis of
reciprocity.
4.) Offshore Banking Units

An offshore banking unit ("OBU") shall mean 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.

a) Income from foreign currency loans granted to Philippine residents, (other than
OBUS or other depository banks) -10% final tax
b) Interest income from foreign currency interbank deposits-10% final tax
c) Income from foreign currency transactions with non-residents, OBUS. local
commercial banks, and branches of foreign banks authorized to transact business
under the FCDS-Exempt
5.) Regional or Area Headquarters, and Regional Operating
Headquarters of Multinationals

(a) Regional or area headquarters ("RHQ") of multinationals shall not be subject

to income tax.

(b) Regional operating headquarters ("ROHQ") shall pay a tax of ten percent
(10%) of their taxable income (in the ITR).

Note: Any income derived from Philippine sources by an ROHQ when remitted
to the parent company shall also be subject to the tax on branch profit
remittances.
6.) Service Contractors/Subcontractors Engaged in Petroleum Operations
Liable to an eight percent (8%) final tax on gross income derived from such contract
in petroleum operations

Note: Any income received from all other sources within the Philippines in the case
of foreign subcontractors shall be subject to the regular income tax under the Tax
Code.

7.) Ecozone Enterprises and TIEZA-registered enterprises

Such enterprises availing the preferential 5% GIT shall be taxed at 5% of gross
income from registered activities in lieu of all taxes, national or local (see pages 8
and 9).
NON-RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX
RATES

In general, a non-resident foreign corporation is subject to a final

withholding tax of 30% based on enumerated gross income from all
sources within the Philippines, except

(1) Non-resident cinematographic film owner, lessor, or distributor -

25% ET on its gross income from all sources within the Philippines
(2) Non-resident owner or lessor of vessels chartered by Philippine
nationals - 4 ½ % ET on gross rentals or charter fees from leases or charters
to Filipinos or corporations, as approved by the Maritime Industry Authority

(3) Non-resident owner or lessor of aircraft, machineries, and other

equipment - 7% ET on gross rentals or fees

(4) Interest on foreign loans contracted on or after August 1, 1986 - 20%

FT on the amount of interest

(5) Income from transactions with depository banks under the expanded
Foreign Currency Deposit System – EXEMPT