LEARNING ADVANCEMENT REVIEW CENTER

RM 413 DONA AMPARO BUILDING ESPANA BOULEVARD CORNER G. TOLENTINO ST.

SAMPALOC, MANILA
TAX 7.0
(BATCH 4)
CONTACT # (02) 244 6342 / 0915 537 1189 / 0943 595 5364

TAXATION
GARCIA/ CO/ WONG
TAX 7.0- CORPORATE INCOME TAX
A. Corporation and Other Terms Defined

1. Corporation
For income tax purposes, the term “Corporation” shall include partnership, no matter how created or organized,
joint stock companies, joint accounts (cuentas en participacion), associations, or insurance companies.

The term “corporation” also includes mutual fund companies, regional operating headquarters of multinational
corporation and joint accounts.

NOT INCLUDE in the term Corporation:

1. General professional partnership
2. Joint venture or consortium formed for the purpose of undertaking construction projects
3. Joint venture or consortium engaged in petroleum, coal, geothermal and other energy operations pursuant to
an operating or consortium agreement under a service contract with the government

2. General Professional Partnership

A partnership formed by persons for the sole purpose of exercising their common profession, no part of the net
income of which is derived from engaging in any trade or business.

3. Joint Venture
Joint venture is a commercial undertaking by two or more persons, differing from a partnership in that it relates to
the disposition of a single lot of goods or the completion of a single project.

4. Joint Stock Companies

Joint stock companies - are constituted when a group of individuals, acting jointly, establish and operate a business
enterprise under an artificial name, with an invested capital divided into transferable shares, an elected board of
directors, and other corporate characteristics, but operating without formal governmental authority.

5. Joint Accounts (cuentas en participacion)

Joint accounts are constituted when one interest himself in the business of another by contributing capital thereto,
and sharing in the profits or losses in the proportion agreed upon. They are not subject to any formality and may be
privately contracted orally or in writing.

6. Associations
The term association includes all organizations which have substantially the salient features of a corporation to be
taxable as corporation.

B. Classification of Corporations

1. Domestic Corporation – is one created or organized in the Philippines.

2. Foreign Corporation – is a corporation which is not domestic, and it may be a resident and non-resident
corporations.
 Resident Corporation – is a foreign corporation engaged in business in the Philippines.
 Non-resident Corporation – is a foreign corporation not engaged in business in the Philippines but deriving
income from the Philippines.

C. Tax Base and Tax Rate

  Income  
  Within Without
a. Domestic Corporation Yes Yes Taxable income x 25%* = Normal income tax
b. Resident foreign Corporation Yes No Taxable income x 25%* = Normal income tax
c. Non-resident foreign Corporation Yes No Gross income x 25%* = Final withhholding tax

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*Reduced corporate income tax: The CREATE Act lowers the corporate income tax rate from 30% to 25% beginning 1 July 2020.
Where the corporation’s net income does not exceed PHP 5 million and its total assets do not exceed PHP 100 million (excluding land
where the business is situated), the tax rate shall be 20%. For nonresident foreign corporations, the tax rate shall be 25% beginning 1
January 2021.

The CREATE Act was previously known as the Corporate Income Tax and Incentives Reform Act (CITIRA) bill. The law will
become effective on 11 April 2021.

D. Format of Computation (Annual Income Tax Return)

Sales/Revenues/Receipts/Fees xxx
Less: Cost of sales/services   (xxx)
Gross income from operations xxx
Add: Non-operating and taxable other income   xxx
Total gross income xxx
Less: Deductions (xxx)
Taxable income   xxx
Regular corporate income tax (taxable income x 25%) xxx
Minimum corporate income tax (gross income x 1%) xxx
Tax due (whichever is higher)   xxx
Less: Unexpired excess of prior year's MCIT over normal income tax rate xxx
Balance
Add: Tax due to the BIR on transactions under special rate   xxx
Aggregated income tax due xxx
Less: Tax credits/payments
Prior year's excess credit other than MCIT xxx
Tax payments for the first three quarters xxx
Creditable tax withheld for the first three quarters xxx
Creditable tax withheld for the fourth quarter xxx
Foreign tax credits, if applicable xxx
Tax paid in return previously filed, if this is an amended return xxx (xxx)
Tax payable (overpayment)   xxx/(xxx)

E. Optional Standard Deductions for Corporations (OSD) (RR No. 16-2008 as amended by RR No. 2-2010)

Determination of the amount of OSD for:

1. DOMESTIC corporation and RESIDENT FOREIGN corporation

a. In the case of corporate taxpayers, the OSD allowed shall be in amount not exceeding forty percent (40%) of
their gross income

b. “Gross income” shall mean the gross sales less sales returns, discount and allowances and cost of goods sold.
c. The items of gross income under Section 32 (A) of the Tax Code, as amended, which are required to be
declared in the income tax return of the taxpayer for the taxable year are part of gross income against which
the OSD may be deducted in arriving at taxable income. Passive income which have been subjected to a final
tax at source shall not form part of the gross income for purposes of computing the forty percent (40%)
optional standard deduction.

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Exercise:

1. Below are the results of operations for year 2021 of E-Ligan Corporation:

Philippines USA
Sales P5,000,000 P2,500,000
Cost of sales 3,000,000 500,000
Other non-operating income 1,000,000 1,000,000
Business expenses 600,000 250,000
Unallocated other business expenses (P300,000)
Income taxes paid for the previous quarters 500,000

Required: Compute the tax payable assuming the above corporation is a:

a. Domestic corporation
b. Resident foreign corporation
c. Non-resident foreign corporation

F. Special Corporations
1. Kinds of special corporation
a. Special domestic corporation
b. Special resident foreign corporation
c. Special non-resident foreign corporation

G. Tax Base and Tax Rates of Special Domestic Corporations

Special domestic corporations Tax Base Tax Rate
1. Proprietary/Private educational institution Taxable income – 1%* - if income from unrelated business
and non-profit hospital World activities is 50% and below
25% - if income from unrelated business
activities exceeds 50% (pre-dominance test)
2. Government owned or controlled Taxable income – Same as those imposed upon corporation or
corporations, agencies or instrumentalities World association engaged in similar business, or
activity.

*Proprietary educational Institutions and hospitals: The applicable income tax rate for proprietary educational institutions and
hospitals shall be 1% (previously 10%) imposed on their taxable income beginning 1 July 2020 until 30 June 2023.

H. Special Domestic Corporations Explained

1. Proprietary Educational Institution

a. Summary of Tax Rules on Educational and Hospitals

Owner Educational institution Hospitals
Private 1% or 25% 1% or 25%
Non stock Non-profit Exempt or (1% / 25%) Exempt or (1% / 25%)
Government Exempt Exempt

Any private school maintained and administered by private individuals or private groups with an issued permit to
operate from the Department of Educational Culture and Sports (DECS) or the Commission of Higher Education
(CHED) or the Technical Education and Skills Authority (TESDA)
Examples of related income (RMC 4-2013)

1. Income from tuition fees and miscellaneous school fees

2. Income from hospital where medical graduates are trained for residency
3. Income from canteen situated within the school campus
4. Income from bookstore situated within the school campus
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2) Unrelated business Activity

The term unrelated trade, business, or other activity means any trade, business or other activity, the conduct of
which is not substantially related to the exercise or performance by such educational institution or hospital of its
primary purpose or function (Section 27 B of the NIRC)

c) Treatment of capital outlays for expansion of school facilities

Capital outlays for expansion of school facilities may either be:
a. Deducted as expenditures or
b. Depreciated over the estimated life

d) Non-stock-non-profit hospital
A nonstock non-profit hospital that is operated for charitable and social welfare is exempt from income tax
under Section 30 (E) and (G) of the Tax Code.

The nonstock-non-profit hospital must satisfy the following requisites in order to be entitled to the exemption from
income tax:
1. It is a nonstock corporation.
2. It is operated exclusively for charitable purposes.
3. 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.

e). Government and Non-stock non-profit education institution

All revenue of non-stock, non-profit educational institutions used actually, directly and exclusively for educational
purposes shall be exempt from taxes. Likewise, government educational institutions, universities and colleges
are not subject to income tax.

2. Government-Owned or -Controlled Corporation (GOCC)

a. Definition
Any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government of the Republic of the Philippines directly
or through its instrumentalities either wholly or where applicable as in the case of stock corporations, to the extent
of at least a majority of its outstanding capital stock.

b. Tax-exempt government-owned or controlled operations

The following are tax-exempt government-owned or controlled corporations:
1) Government Service Insurance System (GSIS)
2) Social Security System (SSS)
3) Philippine Health Insurance Corporation (PHIC)
4) Philippine Charity Sweepstakes Office (PCSO) – TRAIN Law – Subject to a corporate tax of 30%
CREATE Law 25%
5) Local Water Districts (R.A. No. 10026)

Exercises:
1. The Savior University, a private educational institution, provided the following income and expenses for the year 2021 :
Tuition fee P14,000,000
Miscellaneous fee 6,000,000
Sales (School canteen) 700,000
Revenue (School dormitory located outside the school campus) 300,000
Non-educational income:
Rent income, net of CWT 4,940,000
Sale of scrap materials 60,000
Interest income from currency deposits 200,000
Cost and expenses:
Cost of sales and services (School canteen) 400,000
Cost of services (School dormitory) 240,000
Operating expenses on school operations 2,000,000
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Cost of classroom constructions 500,000

The operating expenses do not yet include the cost of capital expenditures. The fixed assets are estimated to be useful
for 10 years but the university opted that cost of expansion of school facilities be expensed outright.

Required:
a. What would be the 2021 income tax still due and payable per ITR of Savior University (Capital outlays for
expansion of school facilities deducted as expenditures)?
b. What would be the 2021 income tax still due and payable per ITR of Savior University (Capital outlays for
expansion of school facilities are depreciated over the estimated life)?

I. Special Resident Foreign Corporations

1. International carrier
2. Offshore banking units
3. Remitting Branches of Resident Foreign Corporation (except on activities registered with PEZA)
4. Regional or Area Headquarters of Multinational Companies
5. Regional Operating Headquarters of Multinational Companies

J. Tax Base and Tax Rate of International Carriers

Special Resident Foreign Tax Base Tax Rate

Corporation
1. International carrier Gross Philippine Billings 2.5% or (may also be subject to a
preferential income tax rate
Exclusion in Gross Philippine (lower 2.5%) or exempt from
Billings: income tax based on a tax treaty
1. Non-revenue passengers – those or reciprocity (RA10378 and RR
passengers qualifying under the 15-2013)
free mileage programs of the air
carriers.
2. Refunded tickets

Gross Philippine Billings for international air carrier

Gross Philippine Billings (for international air carrier) refers to the amount of gross revenue derived from carriage of
persons, excess baggage, cargo or 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.

Gross Philippine Billings for International shipping

Gross Philippine Billings (for international shipping) means gross revenue whether for passenger, cargo, or mail
originating from the Philippines up to final destination, regardless of the place of sale or payment of the passage or
freight documents.

Rule on transshipments or interrupted flights or voyages

For flight which originates from the Philippines, but transshipment of passenger takes place at any port outside the
Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown from the
Philippines to the point of transshipment shall form part of Gross Philippine Billings.

The “48-hour” rule on transient passengers

Same International Flights or voyages of passengers, mails or excess baggage commencing from foreign
Carrier countries which will be interconnected for continuance of flight or voyage to a
foreign destination by the same international carrier shall not be considered
originating from the Philippines if the actual departure is made within 48 hours from
embarkation in the country, except only when delayed by force majeure. As such,
the portion of the ticket pertaining to the outgoing flight or voyage shall be excluded
from the Gross Philippine Billings.

Notes: Fares for transient passengers staying herein for more than 48 hours are
included in Gross Philippine Billings.

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Another International If continuation of the flight or voyage to a foreign destination is made by another
Carrier airline company or international sea carriers, the cost of the outgoing flight or
voyage shall be included in Gross Philippine Billing of the airline or carrier
regardless of the intervening period of time between the arrival and departure from
the Philippines.

Foreign currency translation

In the computation of the Gross Philippine Billings, tickets in foreign currencies are translated at whichever is higher
of the following conversion rate:
1. Monthly average Airline Rate in the Bank Settlement Plan (BSP) Monthly sales report
2. Bankers Association of the Philippines (BAP) rate

Treatment of income Other Than Income from International Transport

The other income of international carriers other than from international transport is subject to the appropriate type of
income tax. Active income such as demurrage fees, which are in the nature of a rent for the use of property of the
carrier in the Philippines, detention fees and other charges relating to outbound and inbound cargoes as charges for the
use of property or rendition of services are subject to the regular corporate tax.

Off-line international carriers

Off-line international carriers are those without flights or voyage starting from or passing through any point in the
Philippines (i.e. no landing rights). The branch or sales agent in the Philippines of off-line international carriers which
sells passage documents for compensation or commission to cover off-line flights or voyages of its head office or other
airline or sea carriers covering flight or voyages originating from Philippine ports or off-line flights or voyages is
subject to the regular corporate income tax.

Exercises:
1. (Adapted): Singapore Airlines is an international carrier with flying rights (starting from or passing through any point
in the Philippines) and landing rights is doing business in the Philippines. It provided you the following data:
Foreign
Countries
Gross ticket sales - Passengers:
Manila to Korea flight (Tickets sold in the Philippines) P5,000,000
Korea to Manila flight (Tickets sold in the Philippines and paid in Korea) 2,000,000
Manila to Korea flight (Tickets sold in Korea and issued in the Philippines) 3,000,000
Gross ticket sales - Cargoes 2,000,000
Manila to Korea flight (Cargo fees and passage document paid and issued in the Philippines) 1,000,000
Korea to Manila flight (Cargo fees and passage document paid and issued in Korea) 1,000,000

Value of fares on non-revenue passenger (Outbound flights) *150,000

Fares cancelled and refunded (Outbound flights) 200,000
Value of fares on non-revenue passenger (Inbound flights) 50,000
Fares cancelled and refunded (Inbound flights) 50,000

Singapore Airlines also earned a gross rental income of P1,000,000 (gross of CWT of 5%) from unutilized spaces.
Operating expenses were P2,800,000 of which P300,000 is an expense related to the gross rental income.
Required:
a. How much was the total Philippine income tax due?
b. Assuming subject to a preferential income tax rate of 1.5% based on a tax treaty, how much was the Philippine
income tax due?
c. How much is the VAT or percentage tax due if any?

K. Offshore Banking Unit

1. Definition of terms
a. 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. (PD 1035)

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b. Offshore banking unit – shall mean a branch subsidiary or affiliate of a foreign banking corporation which is duly
authorized by the Central Bank of the Philippines to transact offshore banking business in the
Philippines. (PD1035)

2. Distinction:
OBU – is a division of foreign bank which is authorized to conduct foreign currency denominated transactions.

FCDU – is a division of a domestic corporation bank. (Limited to short term foreign currency transactions)

EFCDU – may be a division of a domestic bank or a resident foreign bank to conduct banking under the expanded
foreign currency deposit system. (Allowed to both short term and long term foreign currency
denominated transactions)

2. Offshore banking units Tax Base Tax Rate

a. Income derived from:
1. Foreign currency transaction with Income exempt from tax
non-residents
2. Foreign currency transactions with
local commercial banks
3. Foreign currency transactions with
branches of foreign banks authorized
by the BSP
4. Foreign currency transactions with
OBUs in the Philippines

b. Interest income from foreign currency

loans granted to residents other than 10% FWT*(CREATE Law 25%)
OBUs or local commercial bank

c. Any income of non-resident Exempt

(individual or corporation) from OBUS

*This preferential tax treatment of OBUs, however, has been removed by the CREATE Law and in Revenue Regulation No. 5-2021
issued on 8 April 2021, the Bureau of Internal Revenue notes that OBUs will be taxed as resident foreign corporations (at 25%) upon
the effectivity of the CREATE Law.

L. Tax on Branch Profit Remittance

1. Tax base and tax rate
Tax on branch profit Tax Base Tax Rate
remittance (except on
activities registered with
PEZA)
Total profits applied or earmarked for 15%
remittance without deduction for the
tax component

2. Differentiation of foreign profit remittance:

Remitting entity to its head office Tax Rate
Branch of resident foreign corporation 15% of branch remittance
Subsidiary of a foreign corporation-through dividend declaration 25% final tax, 15% if the tax sparing
rule applies
Branch of domestic corporation Not subject to tax

To be effectively connected it is not necessary that the income be derived from the actual operation of the
branch’s trade or business. It is sufficient that the income arises from business activity in which the branch is
engaged.

Remittance from prior year earnings is still taxable. The NIRC used the phrase “any profit remitted” without

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limiting the same to current year profit remittance. The branch profit remittance tax therefore applies to remittance
of prior year earnings.
This tax only applies to a RFC which is a branch of a NRFC.

The taxable income event is not the generation of income but the remittance of income to the head office.
Therefore, BPRT can be imposed together with other income taxes applicable on direct duplicate taxation.

Profit Remittance PXXX

Rate 15% Final Tax
BPRT PXXX

EXCEPTION: (Not Treated as Branch Profit)

Profits from activities which are registered with the Philippine Economic Zone Authority;
a) Interest
b) Dividends
c) Rents
d) Royalties
e) Remuneration from technical services
f) Salaries, wages, premiums, annuities, emoluments
g) Other fixed or determinable annual, periodic or casual gains, income and capital gains

If the above enumerated incomes are effectively connected with the conduct of its trade or business in the
Philippines, they will be treated as branch profits subject to BPRT upon remittance.

 For purposes of branch profit remittance, income items which are not effectively connected with the conduct of
its trade or business in the Philippines are not considered branch profits.

Petroleum subcontractor is not exempted from 15% BPRT

According to the BIR, while a foreign subcontractor providing maintenance and engineering services to a service
contractor engaged in petroleum operation is entitled to the 8% preferential final withholding tax (instead of the
30% regular tax) in lieu of any and all taxes, it is not exempt from the 15% BPRT. The 8% final tax in lieu of any
and all taxes as provided under PD No. 1354 applies only to a subcontractor’s gross income derived from contracts
with a service contractor engaged in petroleum operations in the Philippines. On the other hand, the BPRT is a tax
on profit realized for remittance abroad. (BIR Ruling No. 122-2015 dated 17 April 2015)

Exercise:
During year 2018, Abbott Laboratories, branch of a foreign company doing business in the Philippines, reported the
following income and expense within as follows:
Gross income P100,000,000
Less: Operating expenses ___60,000,000
Net taxable income P 40,000,000
Less: Income tax (P40,000,000x30%) ___12,000,000
Net income after tax P 28,000,000
Add: Dividend income from Pharma Co. (domestic) ____7,000,000
Total net income P 35,000,000

In year 200B, Abbott earmarked for remittance to its head office in North Carolina, USA some of its income as
follows:
Operating net income after tax P24,000,000
Dividend income from Pharma Co. ___7,000,000
Total branch profit remittance P31,000,000

Required:
1. How much is the branch profit remittance tax and the total amount to be remitted after tax?
2. Assuming all activities registered with PEZA. How much is the tax on the branch profit remittances, if any?

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M. Regional or Area Headquarters

Regional or area headquarters is a branch established in the Philippines by multinational companies and which
headquarters do not earn or derive income from Philippines and which act as supervisory, communications and
coordinating center for their aff iliates, subsidiaries or branches in the Asia Pacific Region
and other foreign markets.
Tax base Tax rate
Exempt from tax -

N. Regional Operating Headquarters

Regional operating headquarters is a branch established in the Philippines by multinational companies which are engaged
in different services (e.g. general administration and planning, business planning and coordination, marketing control a nd
sales promotion, etc.)
Tax base Tax rate
Taxable income 25%

*Regional operating headquarters (ROHQ): ROHQs shall be subject to the regular corporate income tax beginning January 1,
2022.

O. Special Non-Resident Foreign Corporation

1. Kinds of Special Nonresident Foreign Corporation

a. Cinematographic Film Owner, Lessor, or Distributor
b. Owner of Lessor of Vessels Chartered by Philippine Nationals
c. Owner of Lessor of Aircraft, Machineries, and Other Equipment

Cinematographic film includes motion picture films, films, tapes, discs and such other similar or related products
(RR 6-2001).

TAX
KINDS TAX BASE RATES
Cinematographic
FOLD* Gross Income from Philippine Sources 25%
Lessor or Owner of Gross Rentals, lease or charter fees from leases or charters to Filipino Citizen or
Vessels** Corporations as approved by Maritime Industry Authority 4.5%
Owner or Lessor of
AMO*** Gross Rentals or fees derived within the Philippines 7.5%

*Film, Owner, Lessor or Distributor

**LOVe chartered by Philippine Nationals
***Owner or Lessor of Aircraft, Machineries, and Other Equipment

Differentiation:
Lessor Lease or charter of
Cinema films Vessels Aircraft Other equipments
Domestic 25% world 25% world taxable 25% world taxable 25% world taxable income
taxable income income
income
Resident 25% 2.5% Gross 2.5% Gross 25% Philippine taxable
foreign Philippine Philippine Billings Philippine Billings income
gross income OR OR
Preferential rate Preferential rate
Non-resident 25% 4.5% Philippine 7.5% Philippine 7.5% Philippine gross rental,
foreign Philippine gross rental, lease gross rental, or fees or fees (Philippine Gross
gross income or charter fees (Philippine Gross Income)
(Philippine Gross Income)
Income)

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Note: The Gross Income is gross receipts less the direct cost of services while the Gross Philippine Billings relates
to gross receipts.

Exercise:
Luka Corporation has the following data for calendar year 2020:
Gross income, Philippines P 15,000,000
Gross income,USA 10,500,000
Expenses, Philippines 5,000,000
Expenses,USA 2,500,000

Compute the final withholding Philippine income tax, assuming the corporation is a:
a. non-resident cinematographic film owner, lessor or distributor?
b. non-resident owner or lessor of vessels chartered by Philippine nationals?
c. non-resident owner or lessor of aircraft, machineries and other equipment?
d. Non-resident owner or lessor of vessels chartered by Japanese nationals?

P. Tax Exempt Corporations –

Under section 30 of the Tax Code, the following organizations shall not be taxed in respect to income received by them
as such:
(A) Labor, agricultural or horticultural organization not organized principally for profit;
(B) Mutual savings bank not having a capital stock represented by shares, and cooperative bank 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 mutual aid association or a nonstock 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 nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock 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 inures
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 stock-holder, or individual;
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
(H) A nonstock and non-profit educational institution;
(I) Government educational institution;
(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.

Note: Notwithstanding the provisions in Section 30, the income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from any of their activities conducted for profit
regardless of the disposition made of such income, shall be subject to corporation tax.

Exercises:
1. A corporation has the following income and expenses for the year 20X 1:
Sales P4,000,000
Cost and expenses 3,000,000
Required: Compute the normal income tax, assuming the corporation is:
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Philippine Charity Sweepstakes Office (PCSO)
5. Local Water District

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Q. Income Tax Rates

Domestic Resident Foreign Non-resident Foreign
Corporation Corporation Corporation
1. In general Sec. 27 (A) Domestic Sec. 28 (A) (1) Resident FC Sec. 28 (B) (1) Non-resident
FC
Tax rate 25% 25% 25%
Tax base Net income within and Net income within Gross income within
without
2. Optional corporate Sec. 27 (A) Domestic
Sec. 28 (A) (1) Resident FC Sec. 28 (B) (1) Non-resident
tax FC
Tax rate 15% 15% -
Tax base Gross income Gross income -
3. Capital gains from sale of shares of stock not traded in the local stock exchange
Tax base Net capital gain Net capital gain Net capital gain
Tax rate TRAIN Law 15% CREATE Law 15%* CREATE Law 15%*
*Capital gains tax (CGT): The CGT from the sale of shares of stock not traded in the stock exchange shall be 15% for both resident and nonresident foreign Copr.

Capital gains realized Capital asset – on Not applicable

from sale or exchange or gross selling price or CGT on sale or disposition of real properties is not applicable,
disposition of land fair market value since foreign corporations cannot own properties in the
and/or building whichever is higher - Philippines.
6% final tax Not applicable
Sale, barter, transfer TRAIN Law 15% CREATE Law 15%* CREATE Law 15%*
and/or assignment of
shares of stock of
publicly-listed
companies not compliant
with mandatory
minimum public
ownership (10% of the
publicly-listed
companies’ issued and
outstanding shares,
exclusive of any treasury
shares) (RR No. 16-2012)
4. On certain passive income derived from Philippine sources
a. Interest in any currency 20% final tax 20% final tax 25% final tax
bank deposit
b. Yield or any monetary 20% final tax 20% final tax 25% final tax
benefit from deposit
substitute, trust funds
and similar
arrangement
c. Royalties 20% final tax 20% final tax 25% final tax
d. Interest income derived TRAIN Law 15% CREATE Law 15%* Exempt
from depository bank
under expanded
foreign currency
deposit system

5. Income derived under expanded foreign currency deposit system by depository banks
a. From foreign currency Exempt from all taxes Exempt from all taxes except Exempt
transactions with non- except net income net income from transactions
residents, OBUs in the from transactions specified by Sec. Of Finance
Philippines, local specified by Sec. Of
commercial bank Finance
including branches of

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Domestic Resident Foreign Non-resident Foreign

Corporation Corporation Corporation
foreign banks
b. From foreign currency 25% 25% Exempt
loans granted to
residents other than
OBUs in the
Philippines and other
depository bank
6. Inter-corporate dividends received from domestic corporation
a. Inter-corporate Not subject to tax Not subject to tax *15% or 25%
dividends received * if the country where the
from domestic NRFC is domiciled allows a
corporation credit for taxes deemed paid
in the Philippines equivalent
to 15% (known as tax
sparing), the tax rate is 15%,
otherwise, 25% (without tax
sparing)

15%- if received from

domestic corporation
25% - if NRFC does not
allow a tax credit or received
from foreign corporation
7. Interest on foreign Not applicable Not applicable 20% final tax
loans contracted on
or after Aug. 1, 1986
8. Minimum corporate 2% of gross income 2% of gross income within Not applicable
income tax within and without

Offshore Banking Units – a branch, subsidiary or affiliate or a foreign baking corporation authorized by the Bangko
Sentral ng Pilipinas (BSP) to transact offshore banking business in the Philippines as a separate accounting unit.

Foreign currency deposit unit – an accounting unit or department in a local bank or in an existing local branch of a
foreign bank, authorized by the BSP to operate under the expanded foreign currency deposit system.

R. Summary of applicable income tax on the regular income of corporations:

Corporate Income Tax Rates on Regular Income
DC RFC NRFC
1. NCIT
Tax Rate 25% Net income 25% Net income 25% Gross income (Final tax)
Basis Within and without Within only Within only
MCIT*** 1% Gross income – 1% Gross income – Not applicable
Within and without Within only
OR
2. GIT (Optional)
Tax Rate 15% 15% Not applicable
Basis Gross income –Within Gross income – Within
and without only

*** Starting on the 4th year of operations immediately following the taxable year in which such corporation commenced
its business. The tax due is the higher between the NIT and MCIT

Exercises:
1. Star Corporation has the following capital asset transactions 200A:
a. Sold 12,000 investment in common shares of stock not traded in the local stock exchange for P1,600,000. The
cost per stock in P110 per share.
b. Sold 5,000 investment in preferred stock traded in the local stock exchange for P1,800,000. The cost per stock is
P300.
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c. Sold land located in Japan for P3,000,000. The related cost and expenses on sale of land amounted to P2,500,000.
d. Sold land located in the Philippines for P1,000,000. The cost of land is P900,000 with a fair market value of
P1,200,000.
Star Corporation’s taxes payable (income tax and percentage tax) on sales of capital assets assuming the taxpayer is a:
1. Domestic corporation (DC).
2. Resident foreign corporation (RFC).
3. Non-resident foreign corporation (NRFC).

Answer

1. Domestic Corporation:
a. Not traded in local exchange:
Selling price P1,600,000
Cost (P110 x 12,000 shares) 1,320,000
Capital gain P 280,000

Tax on P100,000 x 5% P 5,000

Tax on excess (P280,000 – P100,000) x 10% 18,000 P 23,000

b. Traded in local exchange (P1,800,000 x .005) 9,000

c. Sale of land abroad (P3,000,000 – P2,500,000) x 30% 150,000

d. Sale of land – Philippines (P1,200,000 x 6%) 72,000
P254,000
2. Resident Foreign Corporation
a. P 23,000
b. 9,000
c.
d. (P1,200,000 -900,000) x 30% normal tax or MCIT(note 90,000
subject to 6% cwtax) P122,000
Total

3. Nonresident Foreign Corporation

a. P 23,000
b. 9,000
c.
d. (P1,200,000 – P900,000) x 30% 90,000
Total P122,000

2. A Philippine Commercial Bank has been authorized to operate a Foreign Currency Deposit Unit by the BSP and
had the following revenue and expenses:
(a) Dividend income from Magnolia, a domestic corporation at P1,000,000.
(b) Interest income on US dollar loans from resident borrowers at $3,000. ($1.00 = P50.00)
(c) Interest on Philippine peso loans from borrowers at P2,000,000.
(d) Operating expenses of P900,000.

1. What is the total amount of final income taxes of Philippine Commercial Bank?
2. What is the total amount of normal corporate income tax of Philippine Commercial Bank?
1.
Dividend income - (PCB and Magnolia are both domestic corporations) Exempt
Interest income on US dollar loans ($3,000 x 10% x P50) P15,000

2.
Interest on Philippine peso loans P2,000,000
Operating expenses ( 900,000)
Taxable income P1,100,000
Multiplied by normal corporate tax 30%
Income tax due P 330,000

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S. OPTIONAL CORPORATE INCOME TAX

1. Gross Income Tax (GIT)/ Optional Corporate Income Tax (also known as 15% gross income tax)
The President, upon the recommendation of the Secretary of Finance may, effective January 1, 2000, allow
corporation to be subjected to optional corporate tax.

Allow only to Domestic Corporations and Resident Foreign Corporation the option to be taxed on gross income,
as follows:
 15% tax rate (based on the gross income)
 Irrevocable for 3 consecutive years during which the corporation is qualified under the scheme.
Sales xxx

Sales return and allowance (xxx)

Sales discount (xxx) xxx

Cost of sales/Cost of direct services (xxx)

Gross income from operation xxx

Other income xxx

Gross income xxx

Gross income tax rate 15%

Income tax due

Less: Taxes withheld (xxx)

Tax paid - previous quarters (xxx)

Foreign tax credits (xxx)

Income tax payable   xxx

2. Conditions shall have to be satisfied in the allowance of optional corporate tax:

a. A tax effort ratio of 20% of GNP
b. A ratio of 40% of income tax collection of total tax revenue
c. A VAT tax effort of 4% of GNP
d. A 0.9% ratio of Consolidated Public Sector Financial Position to GNP
e. Available only to firms whose ratio of cost of sales to gross sales or receipts from all sources does not exceed 55%

T. Minimum Corporate Income Tax (MCIT)

1. Corporate subject to MCIT

a. Domestic corporation
b. Resident foreign corporation

2. Corporations not subject to MCIT

a. Domestic corporations:
1) Proprietary educational institution subject to 1% tax
2) Non-profit hospital subject to 1% tax
3) Domestic corporation engaged in business as a depository bank under EFCDS
b. Special Resident foreign corporations:
1) International carriers
2) Offshore banking units (OBUs)
3) Regional operating headquarters (ROHQs)
c. Firms taxed under a special income tax regime (PEZA Law and the Bases Conversion Development
Act)
d. Non-resident foreign corporation

3. Tax based and tax rate

The tax rate is 1%* based on:
1) Gross income within and without – Domestic Corporation
2) Gross income within – Resident Foreign Corporation

*Minimum corporate income tax (MCIT): The MCIT shall be imposed at the rate of 1% (previously 2%) beginning 1
July 2020 until 30 June 2023.

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4. Gross income defined (RR 12-2007)

1) For the purpose of the MCIT, the term “gross income” means gross sales less sales returns, discounts, and
allowances and cost of goods sold, in case of sale of goods, or gross revenue less sales returns, discount
and allowances and cost of services/direct cost, in the case of sale of services.
2) The term “gross income” will also include all items of gross income enumerated under Sec. 32 (A) of the
Tax Code, as amended, except income exempt from income tax and income subject to final withholding
tax.

Amount of Tax for Seller of Goods:

Gross Sales PXXX
Sales Returns and Allowances and
Discounts (XXX)
Cost of Goods Sold (XXX)
Gross income from operation XXX
Other income XXX
Gross Income PXXX
Rate 2%
MCIT PXXX

Cost of Goods Sold (CGS):

1. Trader or Merchandiser:
Invoice Cost PXXX
Import Duties XXX
Freight XXX
Insurance XXX
COS PXXX

2. Manufacturer:
Raw Materials Used PXXX
Direct Labor XXX
Manufacturing Overhead XXX
Freight Cost XXX
Insurance Premiums XXX
Other Costs* XXX
Cost of Goods Manufactured and Sold PXXX

NOTE*: Other costs must be incurred in bringing the raw materials to the factory or warehouse.

Amount of Tax for Seller of Services:

Gross Receipts PXXX
Sales Discounts (XXX)
Cost of Services (XXX)
Gross Income from operation XXX
Other income XXX
Gross Income PXXX
Rate 2%
MCIT PXXX

Cost of Services (COS) in General:

Salaries and employee benefits of personnel,
consultants and specialists directly rendering
the services. PXXX
Cost of facilities directly utilized in providing
the service such as depreciation or rental of
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equipment used and cost of supplies. XXX

Other direct cost and expenses necessarily incurred
to provide the services XXX
COS PXXX

NOTE: In case of BANKS, other than the items enumerated above, it shall also include Interest expense.

5. MCIT imposed on the 4th taxable year

The tax is imposed beginning on the fourth taxable year immediately following the year in which such corporation
commenced its business operation.

Simply stated, MCIT applies on the X+4th year of operations. For instance, a corporation which started operations
at any day in 20X2 will be covered by MCIT in 20X6.

6. Tax due
The tax due is the higher between the minimum corporate income tax and normal or regular corporate income tax.

7. Quarterly computation of MCIT (RR 12-2007)

1) The computation and the payment of MCIT, shall likewise apply at the time of filing of the quarterly corporate
income tax.
2) In the computation of the tax due for the taxable quarter, if the computed quarterly MCIT is higher than the
quarterly normal income tax, the tax due to be paid for such taxable quarter at the time of filing the quarterly
corporate income tax return shall be the MCIT.
3) In the payment of the quarterly MCIT (MCIT is greater than normal corporate income tax), excess MCIT from
the previous taxable year/s shall not be allowed to be credited.
4) Any excess of the minimum corporate income tax, payments under the normal income and the MCIT paid in the
previous taxable quarter/s are allowed to be applied against the quarterly MCIT due.

8. Excess MCIT as carry forward

Any excess of the minimum corporate income tax over the normal corporate income tax shall be carried forward and
credited against the normal income tax for the three succeeding taxable years.

9. Suspension of imposition of MCIT

The secretary of finance is authorized to suspend the imposition of MCIT on any corporation, which suffers losses
on account of:
1) Prolonged labor disputes
2) Force majeure
3) Legitimate business reverses

Exercise:

1. ABC Corporation under fiscal year starting July 1, 2021 and ending June 30,2022 computed normal income tax and
MCIT, and creditable income taxes withheld from first quarter to fourth quarter including excess MCIT and excess
withholding taxes from prior years are as follows:
First Q Second Q Third Q Fourth Q
Normal income tax P100,000 P120,000 P250,000 P200,000
Minimum corporate income 80,000 250,000 100,000 100,000
tax
Taxes withheld 20,000 30,000 40,000 35,000
Additional information: Excess MCIT, prior year, P30,000; Excess withholding tax prior year, P10,000; Date of
registration with BIR July 1,2016.

Required:
1. Compute the income tax payable for the first three (3) quarters and the year end and the due dates.
2. What is the BIR Form Return to be filed?
3. When is the last day for the filing of income tax return?

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1702 Q 1702
First Second Third Fourth
NIT 100,000 220,000 470,000 670,000
MCIT 80,000 330,000 430,000 530,000
Higher 100,000 330,000 470,000 670,000
Less: Excess WTAX prior (10,000) (10,000) (10,000) (10,000)
Tax withheld
first (20,000) (20,000) (20,000) (20,000)
second (30,000) (30,000) (30,000)
Third (40,000) (40,000)
Fourth (35,000)
Excess MCIT prior Year (30,000) (30,000) (30,000)
Quarterly payment
first (40,000) (40,000) (40,000)
second (230,000) (230,000)
Third       (70,000)
Income tax payable 40,000 230,000 70,000 165,000

Deadline' Nov. 29, 20x4 Mar. 1, 20x5 May 30, 20x5 Oct. 15, 20x5

Exercises:

a. The following information are presented to you by a taxpayer wh o seeks your assistance in computing the correct
taxes:
DC RFC NRFC
Interest from Philippine peso bank
Yield from deposit substitute in the Philippines
Interest from bank deposit in Chase J.P Morgan Bank, USA
Prizes (P90,000), Philippines
Prizes (P10,000), Philippines
Interest from Philippines depository bank under EFCDS
Interest income from long term deposit, Philippines
Dividend from domestic corporation
Dividend from foreign corporation

Required: Based on the above data identify the final tax rate on passive income assuming the taxpayer is:
1. Domestic corporation
2. Resident foreign corporation
3. Non-resident foreign corporation

DC RFC NRFC

Interest from Philippine peso bank 20 20 30

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Yield from deposit substitute in the Philippines 20 20 30

Interest from bank deposit in Chase J.P Morgan Bank, REGULA EXEMPT EXEMPT
R
USA

Prizes (P90,000), Philippines REGULA REGULA 30

R R

Prizes (P10,000), Philippines REGULA REGULA 30

R R

Winnings (P90,000), Philippines REGULA REGULA 30

R R

Winnings (P10,000), Philippines REGULA REGULA 30

R R

Royalty – all kinds 20 20 30

Interest from Philippines depository bank under EFCDS 7.5 7.5 EXEMPT

Interest income from long term deposit, Philippines REGULA REGULA 30

R R

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Dividend from domestic corporation EXEMPT EXEMPT 15 / 30

Dividend from foreign corporation REGULA - -

R

b. (Domestic Corporation) ABC Corporation was created in accordance with Philippine Laws. During the calendar year
2021, it has the following data on income and expenses:
Philippines USA
Gross income (Gross sales, P15,000,000- Phils) (Gross sales P10,000,000 P5,000,000
P8,000,000 – USA)
Business expenses 2,000,000 1,500,000
Interest income from bank deposit 300,000 100,000
Dividend from a domestic corporation 150,000
Interest income from domestic depository bank under EFCDS 120,000
Prizes 200,000
Rent income from equipment, gross of applicable withholding tax 1,000,000
Payment, first three (3) quarters 500,000
Required:
1. How much is the Philippine income tax payable?
2. How much is the total final withholding tax?
3. How much is the Philippine income tax payable using OSD?
4. Assuming the above corporation is a foreign corporation engaged in trade or business in the Philippines, how
much is the Philippine income tax payable?
5. Disregard certain information which are not applicable and assuming the corporation is not engaged in business in
the Philippines, how much is the final withholding taxes in the Philippines?
1 9,200,000
3,600,000
12,800,000
x 30% 3,840,000
Less CTAX (50,000)
Quarterly (500,000)
Tax payable 3,290,000

2 Interest bank 300,000 20% 60,000

EFCD 120,000 7.5% 9,000
69,000

3 Gross income 10,000,000 5,000,000 15,000,000

Interest bank 100,000 100,000
Prizes 200,000 200,000
Rent income 1,000,000   1,000,000
16,300,000.00

OSD (6,520,000)
9,780,000
x 30% 2,934,000
Less CTAX (50,000)
Quarterly (500,000)
Tax payable 2,384,000

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4 Phils
Gross income 10,000,000
Business expenses (2,000,000)
Interest bank
Prizes 200,000
Rent income 1,000,000  
9,200,000
x 30% 2,760,000
Less CTAX (50,000)
Quarterly (500,000)
Tax payable 2,210,000
Final tax
5 gross income 10,000,000 30%
interest bank 300,000 30%
dividend dc 150,000 30% or 15%
EFCDS 120,000 zero percent
Prizes 200,000 30%
Rent 1,000,000 30%

c. (Final Tax and Capital Gain Tax) A Corporation has the following income:
Interest income derived from depository bank under Expanded Foreign Currency Deposit
System (EFCDS) P100,000
Capital gain from sale of shares of stock not traded in the local stock exchange 200,000
Dividend from a domestic corporation 300,000
Dividend from a foreign corporation 400,000
Stock dividend 100,000
Required:
1. How much is the final tax on the passive income and the capital gain tax, assuming the corporation is a domestic
corporation?
2. How much is the final tax on the passive income and the capital gain tax, assuming the corporation is a resident
foreign corporation?
3. How much is the final tax on the passive income and the capital gain tax, assuming the corporation is a non-
resident foreign corporation?

U. Improperly Accumulated Earnings Tax (For Closely Held Corporations)

*IAET: The provision on IAET, imposed at the rate of 10% of the improperly accumulated taxable income imposed for
permitting earnings and profits to accumulate instead of being divided or distributed, has been repealed.

V. Corporate Returns
1. Filing of quarterly and final or adjustment return
Every corporation subject to tax shall render, in duplicate a true and accurate quarterly return and final or
adjustment return

2. Non-resident foreign corporations

Corporation not engaged in trade or business in the Philippines (NRFC) shall not be required to file income tax
return
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3. Who shall file the corporate return

a. President
b. Vice President
c. Other Principal Officers

Note: The return shall be sworn to by above officer and by the Treasurer or Assistant Treasurer

4. Corporate declarations and returns

Declaration of quarterly corporate income tax
a. On a cumulative basis
b. Required:
1) Manually
2) Electronic Filing and Payment System (EFPS)
3) Electronic BIR forms

5. Manual Filing
Every corporation subject to tax shall render, in duplicate a true and accurate quarterly return and final or
adjustment except corporations not engaged in trade or business in the Philippines (NRFC).

Manual Filing of Quarterly Income Tax Return

Quarterly return 60 days after end of the quarter
Final Adjusted 15th day of the fourth month of following (i.e. April 15 applying calendar
(annual) return year)

 Not later than 60 days from the close of each of the first three quarters of the taxable year, whether calendar or
fiscal year.

Note: The tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding
quarters.

Final adjustment return

a. Covers the total taxable income for the preceding calendar or fiscal year
b. Filed on or before
1) In case corporation uses calendar year - 15th day of April
2) In case corporation uses fiscal year - on or before the 15th day of the 4th month following the close of
the fiscal year

Sum of quarterly payment not equal to the total tax due for the year

If the sum of the quarterly tax payments made during the taxable year is not equal to the total tax due on the entire
taxable income of that year, the corporation shall either:
a. pay the balance of tax still due
b. carry over the excess credit or be credited or refunded with the excess amount paid

Corporation is entitled to tax refund or credit

a. In case the corporation is entitled to tax refund or credit of the excess estimated quarterly income taxes paid, the
excess amount shown on its final adjustment return may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable years

b. Once the option to carry-over has been made, such option shall be considered irrevocable for that taxable period

Time of payment of the income tax

The income tax due shall be paid at the time the declaration or return is filed

Place of filing of return

a. The quarterly income tax declaration and the final adjustment shall be filed with:
1) Authorized agent’s banks
2) Revenue District office

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3) Collection Agent
4) Duly authorized Treasurer of the city or municipality having jurisdiction over the location of the principal
office of the corporation filing the return or placed where the main books of accounts and other data from
which the return is prepared and kept

Filing of Returns under EFPS

For purposes of filing returns under the EFPS, the taxpayers classified under the following business
industries shall be required to file monthly withholding tax returns, except withholding of VAT; monthly
VAT declarations; and monthly percentage tax returns on or before the dates prescribed and presented
below:
Group Monthly Withholding Tax Returns except Monthly VAT declarations and Monthly
Withholding of VAT Percentage Tax Return
Group A 15 days following the end of the month 25 days following end of the month
Group B 14 days following the end of the month 24 days following end of the month
Group C 13 days following the end of the month 23 days following end of the month
Group D 12 days following the end of the month 22 days following end of the month
Group E 11 days following the end of the month 21 days following end of the month

Exercise
1. (Adapted) The following are the data for Leader Corporation for calendar years 2021 and 2022:
Income tax due 2020 P350,000
Less: Tax credits
Quarterly payments for the first three quarters 400,000
Excess tax payments (to be carried over as chosen by the corporation) (P 50,000)

2021 First Q Second Q Third Q Year

Sales, gross of 1 % withholding tax P2,500,000 P3,100,000 P3,500,000 P4,200,000
Cost of sales 1,250,000 1,650,000 1,800,000 2,200,000
Operating expenses 1,050, 000 1,150,000 1,300,000 1,500,000

REQ: Compute the income tax payable using:

a. itemized deductions.
b. Optional Standard Deduction.

END

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