Domestic Corporation

subject to Special Tax

─ Group 2 ─
 “
Domestic Corporation

▹ Incorporated under the Philippines

Laws

▹ Generally taxed on their incomes

from all sources within and outside
the Philippines

▹ At present, taxed at 30% of their

taxable income.

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EXAMPLE: RUBY Corporation, a domestic corporation, has
the following data for the year 2017
Gross Income, Philippines 1,000,000
Gross Income, USA 500,000
Gross Income, Japan 500,000
Expenses, Philippines 300,000
Expenses, USA 200,000
Expenses, Japan 100,000
Other Income: 3

Dividend from San Miguel Corp. 70,000

Dividend from Ford Motors, USA 120,000
Gain, sale of San Miguel Shares directly to the buyer 150,000
Royalties, Philippines 50,000
Royalties, USA 100,000
Interest from trade receivables 60,000
Rent, land in USA 250,000
Other rent income within the Philippines 100,000
Prize, contest in Manila 200,000
Compute the income tax due of Gem Corporation.
Gross Income, Philippines 1,000,000
Gross Income, USA 500,000
Gross Income, Japan 500,000
Total Gross Business Income 2,000,000
Add: Other Income
Dividend from Ford Motors, USA 120,000
Royalties, USA 100,000
Interest from trade receivables 60,000
4
Rent, land in USA 250,000
Other rent income within the Philippines 100,000
Total Gross Income 2,630,000
Less: Deductions
Expenses, Philippines (300,000)
Expenses, USA (200,000)
Expenses, Japan (100,000) Passive incomes
Net Taxable Income 2,030,000 earned in the
Philippines are taxed
Multipied: 30%
on their respective final
Income Tax Due 609,000 taxes.
Rates of Income
Tax on Domestic
Corporation
General Rule: Income tax of 30% is imposed upon the
taxable income derived during each taxable year.
Exception:
The President, upon the recommendation of the Secretary
of Finance, may allow corporations the option be taxed at
15% of gross income as defined herein, after the following
conditions have been satisfied:
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a. A tax effort ratio of 20% of Gross National Product
(GNP);
b. A ratio of 40% of income tax collection to total tax
revenues;
c. A VAT tax effort of 4% of GNP; and
d. A 0.9% ratio of the Consolidated Public Sector
Financial Position (CPSFP) to GNP.
Rates of Income Tax on Domestic Corporation

▹ The option to be taxed based on gross income shall be

available only to firms whose ratio of cost of sales or
receipts does not exceed 55%.

▹ The election of the gross income tax option by the

corporation shall be irrevocable for 3 consecutive
taxable years during w/ the corporation is qualified under
the scheme.
Rates of Tax on
Certain Passive
Incomes
1. Interest from Deposits and Yield or any other Monetary
Benefit from Deposit Substitutes and from Trust Funds and
Similar Agreements, and Royalties

• Final tax at the rate of 20% imposed upon the amount of

interest on currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust
funds and similar agreements, and royalties received by a
domestic corporations.

• Provided, however, the interest income derived by a 9

domestic corporation from a depository bank shall be
subject to a final income tax at the rate of 15% of such
interest income.

2. Capital Gains from the Sale of Shares of Stock Not Traded

in the Stock Exchange

• Final tax rate of 15% imposed on net capital gains realized

during the taxable year from the sale, exchange, or other
disposition of shares of stock in a domestic corporation
3. Tax on Income Derived under the Expanded Foreign Deposit
System

• Shall be exempt from all taxes

• Provided, however, that the interest income from foreign

currency loans granted by such depository banks under said
expanded systems to residents shall be subject to a final
tax at the rate of 10%.

2. Inter-corporate Dividends 10

• Dividends received by a domestic corporation from

another domestic corporation shall not be subject to tax.

3. Capital Gains Realized from the Sale, Exchange, or

Disposition of Lands and/or Buildings

• Final tax of 6% is imposed on the gain which are not

actually used in the business of a corporation and are
treated as capital assets based on gross selling price or
FMV, whichever is higher.
THANKS!
Any questions?
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