Week 11:

Income Tax on
Corporations
Module
9
 Week 11: Income Tax on
Corporations
Learning Objectives:

1. Define the concept of Corporation

2. Classify the Corporate Taxpayers
3. Enumerate the Tax-
exempt Corporation
4. Know the Income Taxes of Corporation
 Week 11: Income Tax on
Corporations
Learning Objectives:

5. Determine Special Corporations,

Special Domestic Corporations,
and Special Nonresident Corporations
6. Identify when to file Corporate ITR
7. Know the condition for the Dissolution
and Reorganization of Corporation
in filing ITR
 Week 11: Income Tax on
Corporations
Normal Corporate Income Tax (NCIT)
It refers to the use of regular domestic
income tax rates on corporate taxable
income which 30%.
Gross sales 1,050,000php
Less: sales returns, allowances and discounts 50,000php

Net sales 1,000,000php

Less: cost of sales/goods manufactured and 400,000php
sold
Gross profit from operation 600,000php
Add: non-operating and other income 100,000php
not subjected to final/capital gains
tax
Gross income 700,000php
Less: allowable itemized business deductions 400,000php

Net taxable income subject to NCIT 300,000php

Multiply NCIT rate 30%

Normal Corporate Income Tax 90,000php
 Week 11: Income Tax on
Corporations
Minimum Corporate Income Tax (MCIT)
Domestic and foreign corporations shall
be taxed with 2% based on gross income
and not on their net taxable income
 Week 11: Income Tax on
Corporations
Optional Gross Income Tax (OGIT)
1. the option to be taxed at 15% of gross
income as defined therein
2. ratio of cost of sales to gross sales
do not exceed 55%.
3. irrevocable for three
consecutive taxable years
Capital
Gains
Tax
Capital gains tax Domestic Resident foreign Nonresident foreign
1. Capital gains on sale of
shares of stock not
traded in the local stock
exchange. Net capital
gains:
 not over P100,000 5% 5% 5%
 excess P100,000
2. Percentage tax on sale of 10% 10% 10%
shares of stock traded in
the local stock exchange. 1/2 of 1% 1/2 of 1% 1/2 of 1%
Based on selling price.
3. Capital gains on sale or
disposition of lands and
or buildings located in 6% of selling price of FMV 6% of selling price of FMV 30% final withholding tax
the Philippines. whichever is higher whichever is higher
4. Net capital gains on
sales or exchange or not taxable
disposition of lands 30% not taxable
and/or buildings located
outside the Philippines
Passive
Income
Tax
Passive Income within Domestic and Nonresident Foreign
Foreign Corporation
1. Interest from depository
bank under 7.5% tax exempt
the
expanded
foreign 20% normal corporate
currency income tax
deposit system.
2. Royalties, yield or 20%
monetary normal corporate
substitutes from income tax
deposits
substitutes, trust funds
and
similar
arrangements.
Special
Corporations
Classifications Applicable Tax

1. Proprietary educational institutions

(except those whose gross 10% of net taxable income
income from unrelated source
exceeds 50% of their total 10% of net taxable income
gross income) Normal corporate income tax
2. Non-profit hospitals
3. Government owned and controlled Tax exempt
corporations
4. Exempt government organizations
(GSIS, SSS, PHIC, PCSO)
 Week 11: Income Tax on
Corporations
Domestic Private Educational Institutions
Domestic private educational institutions
and hospitals which are non-profit shall
pay a tax of 10% on their net taxable
income.
Special Resident
Foreign
Corporation
Classifications Applicable Tax

1. International Carrier 2 ½% of the Philippine

2. Offshore Banking Units gross billings
3. Branch Remittances 10% of gross income
4. Regional Area Headquarters 15% of remittances
5. Regional Tax exempt
Operating 10% of taxable
Headquarters income
 Week 11: Income Tax on
Corporations
International Carrier
• In a continuous and uninterrupted
flight
• In case of transshipment, that portion
of the cost of ticket corresponding to
the leg flown from the Philippines to
the point off transshipment
 Week 11: Income Tax on
Corporations
Offshore Banking Units
These resident foreign corporations are
subjected to a 10% final tax on interest
income derived from foreign currency
loans granted to residents.
 Week 11: Income Tax on
Corporations
Regional Operating Headquarters
These resident foreign corporations are
subjected to a 10% final tax on interest
income derived from foreign currency
loans granted to residents.
Special
Nonresident
Foreign
Corporation
Classifications Applicable Tax – income within

1. Cinematography film owner, 25% of gross income

lessor/director 7 ½% of gross income
2. Lessor of machinery,
equipment, aircraft 4 ½% of gross income
and others
3. Lessor of vessels chartered
by Philippine Nationals
 Week 11: Income Tax on
Corporations
Insurance Companies
required by the law to be made within the
year to reserve funds and the sums other
than dividends paid within the year on
policy and annuity contracts may be
deducted from their gross income
 Week 11: Income Tax on
Corporations
Franchising Companies
When royalties are received in active
pursuit of business, it is subjected to 30%
regular corporate income tax. If royalties
are derived from passive income, these
are generally subjected to final tax.
 Week 11: Income Tax on
Corporations
Corporate Income Tax Returns
The return shall be filed by the president,
vice-president or other principal officers
and shall be sworn to by such officer and
by the treasurer or the assistant
treasurer.
 Week 11: Income Tax on
Corporations
ITR of Corporate Dissolution or Reorganization
A corporation should render a correct ITR
to the BIR Commissioner. The dissolving
or reorganizing corporation shall secure a
certificate of tax clearance from the BIR
which shall be submitted to the SEC.
 Week 11: Income Tax on
Corporations
Taxable Year of Corporation
A corporation shall not change the
accounting period employed without
prior approval from the Commissioner in
accordance with prohibitions of Section
47 of the Tax Code.
 Week 11: Income Tax on
Corporations
Annual Income Tax Return
The corporate annual income tax return
contains the accumulated report of sales,
cost of sales and allowable deductions
from the first quarter to the 4th quarter
during the taxable year.
 Week 11: Income Tax on
Corporations
Improperly Accumulated Earnings Tax
It should be able to prove an immediate
need for the accumulation of the earnings
and profits or the direct correlation of
anticipated needs to such deemed to be
not for the reasonable needs of the
business, and the penalty tax would apply.
 Week 11: Income Tax on
Corporations
Earnings for the Reasonable Needs of the Business
1. Allowance for the increase
2. definite corporate expansion projects
3. building, plants, or
equipment acquisition
4. any loan covenant
5. legal prohibition
6. corporate records
 Week 11: Income Tax on
Corporations
Accumulated Profits beyond Reasonable Needs
1. Investment of substantial earnings and
profits
2. Investment in bonds and other
long- term securities.
3. Accumulation of earnings in
excess of 100% of paid-up
capital
 Week 11: Income Tax on
Corporations
Objective of Improperly Accumulated Earnings Tax
Its objective is to force corporations to
distribute dividends to stockholders in
order that related tax on dividends will be
collected.
 Week 11: Income Tax on
Corporations
Tax Base of Improperly Accumulated Earnings
Tax
For closely-held family corporations
found subject to the tax:
• Income exempt from tax
• Income excluded from gross income
• Income subject to final tax
• NOLCO deducted