INCOME TAX OF CORPORATIONS

An Overview of Corporate Taxes

A corporation may be liable for at most five (5) types of income taxes, namely:

Net Income Tax (on Ordinary Income)

Standard Income Tax Final Withholding Tax (on Passive Income)

Capital Gains Tax (on “Capital Gains”)

Minimum Corporate Income Tax (“MCIT”)1

Penalty Income

Tax Special
Branch Profits Remittance Tax (“BPRT”)2

Income Tax
 Definition

Under Section 22(B) of the NIRC, the term “corporation” shall include:
New
a) One-person corporations;
b) partnerships, no matter how created or organized;
c) joint stock companies;
d) joint accounts (cuentas en participacion);
e) associations; or
f) insurance companies.

However, the term does not include:

a) General professional partnerships

(GPPs) AND

joint venture or consortium formed for the purpose of (1)

undertaking construction projects3 or (2) engaging in energy
operations pursuant to an operating or consortium agreement under
a service contract with the Government.

Classification of Corporations

(1) Domestic corporations.

(a) In general
(b) GOCCs EXC: SSS, GSIS, HDMF (Pag-Ibig), PHIC, LWDs
(c) Taxable partnerships
(d) Proprietary educational institutions/Non-profit hospitals;
(e) FCDUs of domestic banks
(f) Service contractors/subcontractors engaged in petroleum operations
(g) Ecozone enterprises and Enterprises qualified for the 5% SCIT
(h) Microfinance NGOs
(i) Philippine-Based Offshore Gaming Licensees

(2) Resident Foreign corporations.

(a) In general
(b) Resident international carriers
(c) RHQs of MNCs
(d) Service contractors/subcontractors engaged in petroleum operations
(e) Ecozone enterprises / Enterprises qualified for the 5% SCIT
(f) Foreign-Based Offshore Gaming Licensees

(3) Non-resident foreign corporation

(a) In general
(b) Non-resident owners/lessors of vessels chartered by
Philippine nationals;
(c) Non-resident owners/lessors of aircraft, machineries, and
other equipment;
(d) Non-resident cinematographic film owner, lessor, or distributor;
 (4) Exempt Corporations

Types of Income Subject to Tax

(a) Ordinary Income/Net Income – refer to “Ordinary Income” table

(b) Passive Income – refer to “Passive Income” and “Intercorporate

Dividend” tables
(c) “Capital Gains”
Ordinary Income (in ITR)

Source of
Corporate Taxable Tax Base Tax Rates
Taxpayer Income

Within and Net Income

1. Domestic 25%/20% (beg.
without the
(a) July 1, 2020) (b)
Philippines

Within the 25% (beg. July 1,

2. RFC Net Income
Philippines only 2020)

Gross Income Final withholding

Within the
3. NRFC enumerated by tax of 25% (beg.
Philippines only
law Jan. 1, 2021)

(a) Format in the ITR:

Sales, Revenues, Receipts, net xxxxx

Less: COGS/COS (xxxx)
Gross Income from Operations xxxxx
Add: Other taxable income not subject
to final taxes xxxxx
Total Gross Income xxxxx
Less: Itemized Deductions or OSD (xxxx)
Net Taxable Income xxxxx
x Tax Rate x 25%/20%
Regular Corporate Income Tax (RCIT) xxxxx

New (b) Effective July 1, 2020, a domestic corporation shall be subject to a

regular corporate income tax rate of 25% on income included in its
income tax return (“ITR”).

However, a domestic corporation shall be subject to a reduced

corporate income tax rate of 20% when the following conditions
concur:4

(1) Net taxable income during the taxable year of not more than Five
Million Pesos (₱5,000,000); and
 (2) Total net assets5 (excluding the land on which the entity’s office,
plant, and equipment are situated) during the taxable year of not
more than One Hundred Million Pesos (₱100,000,000).

Total Net Assets Net Taxable Income Tax Rate

₱100 Million and below ₱5.0 Million and below 20%
ALL OTHER DOMESTIC CORPORATIONS 25%
PASSIVE INCOME

DOMESTIC
Passive Income and RFC NRFC

Interest on currency bank 20% 25%

deposit

Yield or any other monetary

benefit from:
(1) Deposit substitutes 20% 25%
(2) Trust funds, and 20% 25%
similar arrangements

Royalties 20% 25%

Interest from a depositary

bank under the expanded 15%6 Exempt
foreign currency deposit
system

Prizes/Winnings ITR 25%

Intercorporate Dividend
Payor Recipient Tax
1. Domestic corporation DC Not taxable
2. Domestic corporation RFC Not taxable
3. Domestic corporation NRFC 15% FWT7

100% of dividend is taxable and

4. Foreign corporation
5. Foreign corporation RFC
6. Foreign corporation
included in the ITR of the recipient
DC EXC: Such dividends shall be exempt
when all the requirements under Sec.
27(D)(4) are met.8
GR: Not taxable
EXC: If part of the dividend is
sourced within the Philippines, such
part shall be taxable and shall be
included in the
ITR of the recipient
GR: Not taxable
EXC: If part of the dividend is sourced
NRFC within the Philippines, such part shall
be taxable and shall be subject to a
25% FT.
 BIR Forms filed by the Payor of the Passive Income:9

Monthly Remittance (Form 0619F) Filed not later than the 10 th day of the
month following the month when
withholding was made. Filed for the
first two (2) months of each calendar
quarter.
Quarterly Remittance (Form 1601- Filed not later than the last day of the
FQ) month following the close of the
quarter during which withholding was
made.

Attachment: Quarterly Alphabetical

Quarterly Remittance of FTs
Withheld on Interest paid on
Deposits/Deposit
Substitutes/Trusts/Etc (Form
1602Q)
Annual Information Return of
FWTs (Form 1604-F)
List of Payees (QAP) reflecting the
name of the payees, their TIN, amount
of income paid to each, and FT
withheld from each.
Filed not later than the last day of the
month following the close of the
quarter.
Filed on or before January 31 of the
year following the calendar year in
which the income payments subject to
FWTs were paid or accrued.

Annual alphalist of payees, income

payments, and FWTs shall be reflected
in the Schedules of Form 1604-F.

EXEMPT CORPORATIONS41

The following organizations shall not be subject to income tax in respect

to income received by them as such:

(A) Labor, agricultural, or horticultural organizations not organized

principally for profit;

(B) Mutual savings bank not having a capital stock represented by

shares; and cooperative banks without capital stock organized and
operated for mutual purposes and without profit;

(C) 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 a mutual aid association or a
non-stock 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 non-stock
corporation or their dependents;

(D) Cemetery company owned and operated exclusively for the benefit
of its members;

(E) Non-stock 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;

(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 stockholder or individual;

(G) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;

(H) A non-stock and non-profit educational institution;

(I) Government educational institutions;

(J) 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; and

(K) 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.
OTHER EXEMPT CORPORATIONS

(L) Child-caring or child-placing institutions licensed and accredited

by the Department of Social Welfare and Development (“DSWD”)
to implement the Foster Care Program under R.A. No. 10165,
otherwise known as the “Foster Care Act of 2012.”

(M) Duly registered cooperative on income from transactions with

members and non-members as long as the income is related to its
main business or purpose. Provided, those with accumulated
reserves and undivided net savings exceeding ₱10 Million shall be
exempt only on income from transactions with members.

(N) Homeowners’ Associations (“HOAs”). Generally, fees, dues or

contributions made to HOAs are taxable. However, the same are
exempt when the LGU having jurisdiction over the HOA certifies
the lack of resources for the HOA to render its services.

(O) Non-stock Savings and Loan Associations (“S&Ls”). S&Ls

accumulate savings of its members to be used for long-term loans to
members. These are exempt final taxes on interest income from
 deposits.

(P) Building and loan associations whose accounts are guaranteed by

the Home Guaranty Corporation.

(Q) Other organizations exempt from income tax in accordance with

special laws (exs. Philippine Red Cross; PDIC; Sports Facilities
under the control of the Philippine Sports Commission; Veterans’
Federation of the Philippines; National Commission for Culture
and the Arts, etc.)

PENALTY TAXES IMPOSED ON CORPORATIONS

I. Minimum Corporate Income Tax (“MCIT”)

1. Who are subject?

(a) Domestic corporations, and

(b) Resident foreign corporations.

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”). Provided, that effective July 1,
2020 to June 30, 2023, the MCIT rate shall be one percent (1%). New

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 costs and
expenses necessarily incurred to provide the services required by
the customers and clients, including –

(a) Salaries and employee benefits of personnel, consultants,

and specialists 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.

Provided, that in the case of banks, “cost of services” shall

include interest expense.50

Note: However, according to the regulations, the term “gross

income” will also include all items of gross income
enumerated under Section 32, whether or not derived from the
taxpayer’s core business, except:51

(a) Income exempt from income tax; and

 (b) Income subject to final withholding tax.

3. Effectivity – The fourth (4th) taxable year immediately following the

year in which such corporation commenced its business.52
4. 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.

5. Domestic Corporations Not Subject to MCIT

The minimum corporate income tax (“MCIT”) shall apply only to

domestic corporations subject to the regular corporate income tax
(25%/20%).53 Accordingly, the following shall not be subject to
MCIT –

(a) Domestic corporations operating as proprietary educational

institutions which pass the predominance test;

(b) Domestic corporations engaged in hospital operations which are

non- profit and which pass the predominance test;

(c) Domestic corporations engaged in business as depository banks

under the expanded foreign currency deposit system, otherwise
known as Foreign Currency Deposit Units (“FCDUs”) on their –

(1) Income from foreign currency transactions with non-residents,

offshore banking units in the Philippines, local commercial
banks, including branches of foreign banks, and other
depository banks, and

(2) Interest income from foreign currency loans granted to

residents of the Philippines under the expanded foreign
currency deposit system, subject to final tax at ten percent
(10%) of such income.

(d) Firms that are taxed under special income tax regimes such as the
5% GIT incentive.

6. Resident Foreign Corporations Not Subject to MCIT –

The minimum corporate income tax shall apply only to resident

foreign corporations which are subject to the regular income tax
(25%). Accordingly, the MCIT shall not apply to the following –

(a) Resident foreign corporations engaged in business as

“international carrier” subject to tax at 2.5% of their “Gross
Philippine Billings”;

(b) Resident foreign corporations engaged in business as regional

operating headquarters (ROHQs) subject to tax at ten percent
(10%) of their taxable income prior to January 1, 2022;
 Note: Beginning January 1, 2022, ROHQs shall be subject to
the regular corporate income tax rate of 25%, and
therefore shall be also be subject to MCIT.

(c) Firms that are taxed under special income tax regimes such as
the 5% GIT incentive.

7. Relief From the Minimum Corporate Income Tax

The Secretary of Finance, upon the recommendation of the

Commissioner, may suspend imposition of the MCIT upon
submission of proof that the corporation sustained substantial losses
on account of –

(a) A prolonged labor dispute;

(b) Because of “force majeure”;
(c) Because of legitimate business reverses.

Rules in Computation of MCIT

1) Excess MCIT, if any, for the year is computed annually, that is, in
the 4th quarterly (annual) return.

2) The quarterly tax shall be the higher of the RCIT or the MCIT.

3) IF the quarterly tax due is the MCIT , the excess MCIT from
previous taxable year(s) shall not be allowed to be credited.
However, (1) creditable withholding taxes, (2) quarterly income tax
payments paid in the previous quarter(s), and (3) excess tax credits of
the prior year, are allowed as credits against the quarterly MCIT due.

4) If the quarterly tax due is the RCIT, the (1) excess MCIT from
previous taxable year(s), (2) creditable taxes withheld, (3) quarterly
income tax payments paid in previous quarter(s), and (4) excess tax
credits of the prior year, are allowed as credits against the quarterly
RCIT due.
Corporate Income Tax Return (“ITR”)
1. Quarterly and Final Adjusted Returns

With the exception of foreign corporations not engaged in trade or

business in the Philippines (NRFCs), all other corporations shall file
quarterly income tax returns64 and a final adjusted return65 as follows:

1st Quarter - not later than 60 days from the close of the
quarter 2nd Quarter - not later than 60 days from the close
of the quarter 3rd Quarter - not later than 60 days from the
close of the quarter
Final Adj. Return - not later than the 15th day of the 4th month
following the close of the taxable year.
 Note: A GPP may, but is not required to file quarterly income tax
returns or quarterly information returns (BIR Form No.
1702Q) because it is exempt from taxes. It is required,
however, to file an annual income tax return or annual
information return (BIR Form No. 1702EX) setting forth the
items of gross income and deductions, and the names, TINs,
addresses and shares of each partner.

Required Attachments:

(a) BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source)
(b) Summary Alphalist of Withholding Agents of Income
Payments Subjected to Withholding Tax at Source (“SAWT”);
(c) Financial Statements Which Must be Attached to the Annual
Income Tax Return Upon Filing.

If the gross sales, earnings, receipts, or output from business for

the year exceed ₱3,000,000.
(1) Balance Sheet and Profit and Loss Statement certified by
an independent CPA.
(2) Comparative Profit and Loss Statements for the current
and preceding taxable years.
(3) Schedule of income producing properties and
corresponding incomes therefrom.

2. Place of Filing

The quarterly income tax return and the final adjustment return shall
be filed with

a) the authorized agent bank located within the territorial

jurisdiction of the Revenue District Office where taxpayer is
registered66 or
b) Revenue District Officer or Collection Agent or duly authorized
Treasurer of the city or municipality having jurisdiction over the
location of the principal office of the corporation filing the return
or place where its main books of accounts and other data from
which the return is prepared are kept.

3. When There is An Overpayment in the Final Adjusted

Return (Annual Return)

The corporation has the following options:

1. For the overpayment to be refunded; or

2. For a Tax Credit Certificate to be issued; or
3. For the overpayment to be carried over as a tax credit against
income tax liabilities for the quarters of the succeeding taxable
years (default choice).67

4. Filing an Amended Return

 A return may be modified, changed, or amended within (3) years
from the date such return is filed, provided no notice for audit or
investigation of such return has, in the meantime, been actually
served upon the corporate taxpayer.

Summary of Changes in the Corporate Income Tax Rates under R.A.

No.
11534 (CREATE)

REGULAR TAX MCIT

RATES
Rate Effectivity Rate Effectivity
DCs:
DCs, in general 25% July 1, 2020 1% July 1, 2020 to
June 30, 2023

2% July 1, 2023

DCs with net taxable income 20% July 1, 2020 1% July 1, 2020 to
≤ ₱5 Million AND total assets June 30, 2023
≤ ₱100 Million (excluding
land on which the office, 2% July 1, 2023
plant, equipment are situated)

Proprietary educational 1% July 1, 2020 to

institutions and hospitals June 30, 2023 Not Applicable
which are non-profit
10% July 1, 2023

REGULAR TAX MCIT

RATES
Foreign Corporations: Rate Effectivity Rate Effectivity
RFC, in general 25% July 1, 2020 1% July 1, 2020 to
June 30, 2023

2% July 1, 2023

OBUs 25% Upon effectivity 1% April 11, 2021

of CREATE to June 30, 2023
(April 11, 2021)
2% July 1, 2023
 ROHQs 25% January 1, 2022 1% January 1, 2022
to June 30, 2023

2% July 1, 2023

NRFCs 25% January 1, 2021 Not Applicable

Expanded Withholding Rates:

CORPORATE PAYEES EWT Rate

(1) Professionals (Lawyers, CPAs, Engineers, etc.)

- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(2) Professional Entertainers such as, but not limited to actors, singers,
lyricists, composers, emcees
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(3) Professional Athletes including basketball players, pelotaris, and
jockeys
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(4) Directors and Producers involved in movies, stage, radio, television,
and musical productions
- If gross income
- If gross of payee
income for the
of payee exceeds year did not exceed ₱720,000
current₱720,000 10% 15%
(14)
- If gross income of payee exceeds ₱720,000
Income Payments made by Credit Card Companies 15% 0.5%
(5) (15)
Management and Technical
Income Payments madeConsultants
by the Government and government-owned
and controlled
- If gross corporations
income of payee (GOCCs)
for the current year did not exceed ₱720,000 10%
- If gross income
- To its local/resident exceeds ₱720,000
of payee suppliers of goods other than those covered by 15%
1%
(6) Business otherandratesBookkeeping
of withholding Agents
tax and Agencies
- If gross income
- To its of payee suppliers
local/resident for the current year did
of services notthan
other exceed
those₱720,000
covered by 10%
2%
- If gross
other income
rates of of payee exceeds
withholding tax ₱720,000 15%
(7) (16)
Insurance
Income Agents and Insurance
Payments made by Top Adjusters
Withholding Agents70, 71
- If gross income
- To their of payee forsuppliers
local/resident the current year did
of goods notthan
other exceed ₱720,000
those covered by 10%
1%
- If gross
other income
rates of of payee exceeds
withholding tax ₱720,000 15%
(8) Other Recipients of Talent Fees
- To their local/resident suppliers of services other than those covered by 2%
- If gross
other income
rates of of payee for the
withholding tax current year did not exceed ₱720,000 10%
(17) Commissions,
- If gross income ofRebates, ₱720,000
Discounts
payee exceeds and Other Similar Considerations 15%
(9) Rentals: Paid/Granted to Independent
On gross rental or lease for and/or Exclusive
the continued Sales
use or possession of
Representatives and Marketing Agents and Sub-Agents
personal property in excess of Ten Thousand Pesos (₱10,000) annually, of
Companies, including Multi-Level Marketing
and real property used in business which the payor or obligor has notCompanies
5%
taken -title or is income
If gross not taking title to,for
of payee orthe
in which
currentheyear
hasdid
no equity; poles,
not exceed ₱720,000 10%
satellites, transmission facilities and billboards.
- If gross income of payee exceeds ₱720,000 15%
(10) (18)
Cinematographic
Payments by film rentals,
Pre-Need and othertopayments
Companies to resident
Funeral Parlors 5% 1%
corporate
(19) Tolling cinematographic film owners, lessors, or distributors.
Fees Paid to Refineries 5%
(11) (20)
Income Income Payments
payments Madecontractors
to certain To Suppliers of Agricultural Products in 2% 1%
(12) GrossExcess of Cumulative
commissions Amount
or service ₱300,000insurance,
fees ofofcustoms, Within the Same Taxable
stock,
Year
immigration and commercial brokers; fees of agents of professional
entertainers
(21) Income and real estate
Payments service practitioners
on Purchases of Minerals,(RESPs)
Mineral (i.e. real and
Products, 5%
estateQuarry
consultants, real estate
Resources, such as appraisers, and real
but not limited estate brokers)
to silver, gold, marble,
granite,
- If gross gravel,
income sand,for
of payee boulders, andyear
the current otherdidmineral products
not exceed except
₱720,000 10%
purchases by the Bangko Sentral ng Pilipinas
- If gross income of payee exceeds ₱720,000 15%
(13) Professional fees paid to Medical Practitioners (includes doctors of
medicine, doctors of veterinary science, and dentists) by hospitals
and clinics or paid directly by Health Maintenance Organizations
(22) Income Payments on Purchases of Minerals, Mineral Products, and 1%
Quarry Resources by the Bangko Sentral ng Pilipinas from Gold
Miners/Suppliers under P.D. No. 1899, as amended by R.A. No.
7076
(23) On Gross Amount of Refund Given by MERALCO to Customers 15%
with Active Contracts as Classified by MERALCO

(24) On Gross Amount of Interest on the Refund of Meter Deposit 10%

Whether Paid Directly to the Customers or Applied Against the
Customer's Billings of Residential and General Service Customers
Whose Monthly Electricity Consumption Exceeds 200 KWH as
Classified by MERALCO
(25) On Gross Amount of Interest on the Refund of Meter Deposit
Whether Paid Directly to the Customers or Applied Against the
Customer's Billings of Non-Residential Customers Whose Monthly 15%
Electricity Consumption Exceeds 200 KWH as Classified by
MERALCO
(26) On Gross Amount of Interest on the Refund of Meter Deposit
Whether Paid Directly to the Customers or Applied Against the
Customer's Billings of Residential and General Service Customers 10%
Whose Monthly Electricity Consumption Exceeds 200 KWH as
Classified by Other Electric Distribution Utilities (DUs)
(27) On Gross Amount of Interest on the Refund of Meter Deposit
Whether Paid Directly to the Customers or Applied Against the
Customer's Billings of Non-Residential Customers Whose Monthly 15%
Electricity Consumption Exceeds 200 KWH as Classified by Other
Electric Distribution Utilities (DUs)
(28) Income Payments Made by Political Parties and Candidates of 5%
Local and National Elections on all their Purchases of Goods and
Services Related to Campaign Expenditures, and Income Payments
made by Individuals or Juridical Persons for their Purchases of
Goods and Services Intended to be Given as Campaign
Contributions to Political Parties and Candidates

(29) Income Payments Received by Real Estate Investment Trusts 1%

(REITs)
(30) Interest Income Derived from any Debt Instrument Not Within the 15%
Coverage of Deposit Substitutes and Rev. Reg. No. 14-2012.
(31) Income Payments on Locally Produced Raw Sugar 1%

(32) Income Payments made by JVs/consortiums

- To their local/resident suppliers of goods 1%
- To their local/resident suppliers of services 2%

(33) Distributive share of co-venturers/members in the net income 15%

of a JV/consortium not taxable as a corporation