Tax 301 – Income Tax

Prepared by: Mark Paul I. Ramos

MODULE 6
Income Taxes for Corporations

INTRODUCTION
In the Philippines, domestic and foreign companies are liable to pay corporate income
tax (CIT). The tax liability for a corporation is determined by its residency status and is based
on the net income it obtains while carrying out its business activity, normally during one
business year.

Beyond Corporate Income Tax, companies should also understand withholding tax
and some other taxes. Business owners who frequently study the country's corporate taxes
and work with their local advisors find it easier to stay compliant and exploit any beneficial
changes, such as rate reductions or incentives.

CORPORATION DEFINED
Section 2 of RA 11232 - the Revised Corporation Code of the Philippines

Section 2 of RA 11232 or the Revised Corporation Code of the Philippines provides

that a Corporation is "an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident
to its existence”.

Section 22 of RA 8424 (the Tax Code) as amended by RA 11534 or the Corporate Recovery
and Tax Incentives for Enterprises (CREATE) Act

The term Corporations shall include:

1. One Person Corporations (OPCs)
2. Partnerships, no matter how created or organized
3. Joint stock companies
4. Joint accounts (cuentas en participacion)
5. Associations
6. Insurance companies

A one-person corporation (OPC) is a corporation with a single stockholder: Provided,

that only a natural person, trust, or an estate may form a one-person corporation.

The term Corporation does not include:

1. General Professional Partnership (GPP). A partnership formed by persons for
the sole purpose of exercising their common profession, no part of the income of
which is derived from engaging in any trade or business.

2. Joint venture or consortium:

▪ Formed for the purpose of undertaking construction
projects pursuant to Presidential Decree (PD) No. 929
(dated 4 May 1976) to assist local contractors in
achieving competitiveness with foreign contractors by
pooling their resources in undertaking big construction
projects.

▪ A joint venture or consortium for engaging in petroleum,

coal, geothermal and other energy operations pursuant
to an operating consortium agreement under a service
contract with the government.

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JOINT VENTURE OR CONSORTIUM

• 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.
• taxable as corporation.
• However, there are two types of tax-exempt joint ventures described in the preceding
topic as provided for under Section 3 of RR 10-2012. A joint venture or consortium
formed for the purpose of undertaking construction projects is not considered as
corporation under Section 22 of the Tax Code provided:
a. The joint venture was formed for the purpose of undertaking a construction
project; and
b. Should involve joining/ pooling of resources by licensed local contracts; that is,
licensed as general contractor by the Philippine Contractors Accreditation
Board (PCAB) of the Department of Trade and Industry (DTI)
c. The local contractors are engaged in construction business; and
d. The Joint Venture itself must likewise be duly licensed as such by the Philippine
Contractors Accreditation Board (PCAB) of the Department of Trade and
Industry (DTI).
• The tax-exempt joint venture shall not include those who are mere suppliers of goods,
services or capital to a construction.
• If not all of the requirements are present, the joint venture or consortium formed for the
purpose of undertaking construction projects shall be considered as taxable
corporations.
• The members of a Joint Venture not taxable as a corporation shall each be responsible
in reporting and paying appropriate income taxes on their respective share to the joint
ventures profit.
• Joint ventures involving foreign contractors may also be treated as a non-taxable
corporation provided:
a. The member foreign contractor is covered by a special licenses as contractor
by the PCAB.
b. The construction project is certified by the appropriate Tendering Agency
(government office) that the project is a foreign financed/ internationally-funded
project and that international bidding is allowed under the Bilateral Agreement
entered into by and between the Philippine Government and the foreign/
international financing institution pursuant to the implementing rules and
regulations of Republic Act No. 4566 otherwise known as Contractor’s License
Law.

JOINT STOCK COMPANIES and JOINT ACCOUNTS

Joint stock companies

• constituted when a group of individuals acting jointly, establish and operate
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 government authority.

Joint accounts (cuentas en participacion)

• constituted when one interests 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. The term “associations” includes all organizations which have
substantially the salient features of a corporation to be taxable as a
“corporation”.

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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 organizations not organized principally for

profits.
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 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
nonstock 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 or inure
to the benefit of any member, organizer, officer or any specific person.
f. business leagues, chambers of commerce, boards 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 leagues or organization not organized for profit but operated exclusively
for the promotion of social welfare;
h. A non-stock and nonprofit educational institutions;
i. government educational institutions;
j. farmers’ or other mutual typhoon or fire insurance companies, mutual ditch or
irrigation companies, mutual or cooperative telephone companies, or like
organizations 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 them the proceeds of sales, less the necessary selling on the basis of the
quantity of produced finished by them.

- Notwithstanding the provision in the preceding paragraphs, 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 tax imposed under the Tax Code.

TAXATION OF ORGANIZATIONS AND CORPORATIONS UNDER SEC 30 OF THE NIRC

OF 1997 (The Tax Code), as amended; RMO 38-2019
The requirements for the grant of tax exemption are specified by the law granting it
and such grant is strictly construed against the taxpayer because an exemption restricts the
collection of taxes necessary for the existence of the government. Thus, a corporation claiming
tax exemption must be able to show clearly that it is organized and operated for the purposes
under Section 30 of the NIRC, and that its income is derived pursuant thereto.

1. Income Tax Exemption, Not Absolute

Income tax exemption covers only the income derived by the corporation in furtherance
of the purposes for which it was organized under Section 30 of the NIRC. Sect. 30 corporations

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are still subject to the corresponding internal revenue taxes imposed under the NIRC on
income derived from any of their properties, real or personal, or any activity conducted for
profit regardless of the disposition thereof (i.e. interest income from bank deposits, gains from
investments, rental income from real or personal properties), which income should be reported
for taxation purposes.

2. Obligations as withholding agent for the Government

The tax exemption granted does not cover withholding taxes on compensation income
of the employees of the corporation, or the withholding tax on income payments to persons
subject to tax pursuant to Section 57 of the NIRC. The corporation or association is therefore
constituted as a withholding agent for the government if it acts as an employer and any of its
employees receives compensation income subject to withholding tax, or if it makes income
payments to individuals or corporations subject to the withholding tax.

3. Liability for VAT

Purchase of goods or properties or services and importation of goods by a corporation
organized and operated as a Section 30 corporation shall be subject to the 12% VAT. If the
corporation is engaged in the sale of goods or services in the course of a business pursuit,
including transactions incidental thereto, its revenues derived therefrom shall be subject to the
12% VAT, in case the gross receipts from such sales exceed P3,000,000, or to Percentage
Tax under Section 116 of the Tax Code, as amended, if gross receipts do not exceed
P3,000,000.

INCOME TAXES OF CORPORATIONS

Generally, there are three (3) types of income tax under the Tax Code. namely; (1)
regular corporate income tax (RCIT), also known as basic income tax, (2) final withholding tax
(FWT) on certain passive incomes, and (3) capital gains tax (CGT). The applicable income
taxes of a corporation, just like the income taxes applicable to individual taxpayers as
discussed in Module 3, also depend on several factors such as the type or classification of the
corporation and the income subject to tax.

TYPES OF CORPORATIONS
Corporations, for tax purposes, are classified as follows:
a) Domestic corporations (DC) - corporations created or organized in
the Philippines or under its laws.
b) Foreign corporations - a corporation which is not domestic, and may
be:
► resident foreign corporations (RFC) - engaged in business in
the Philippines, or
► nonresident foreign corporations (NRFC) - not engaged in
business in the Philippines.
c) Domestic and foreign corporations may also be classified as special
corporations.

INCOME TAX RATE AND BASIS IN COMPUTING THE TAX DUE

The applicable income tax of a corporation depends on the type of the corporation
and the income subject to tax.

Income subject to tax Applicable Income Tax

Normal or Regular Corporate

Regular or ordinary income
Income Tax (RCIT) of 20% or 25%

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Certain passive incomes derived from Final withholding taxes

Philippine sources (Refer to Final Tax Table on Module 3)
Capital gains on sale of shares of non-listed
domestic corporations and sale of real
Capital gains tax
properties located in the Philippines
classified as capital asset

GENERAL CLASSIFICATION AND TAXATION OF CORPORATIONS

A. Domestic corporations – 20% or 25% regular corporate tax on world taxable
income
B. Resident foreign corporations – 25% regular corporate tax on Philippine
taxable income
C. Non-resident foreign corporations – 25% final tax on Philippine gross
income

The CREATE Law reduced the regular corporate income tax from 30% to 25% of
taxable income effective July 1, 2020.

Lower corporate tax for domestic corporations

Under the CREATE Law, domestic corporations are subject to a 20% regular corporate
income tax under the following conditions:
- Asset test – total assets, excluding land on which their office, plant and
equipment are situated, does not exceed P100,000,000; and
- Income test – taxable income does not exceed P5,000,000

Entities with assets not exceeding P100 million are referred to as micro-, small, and
medium-sized enterprises (MSMEs). The domestic corporation must be an MSME by asset
size. The MSMEs must also qualify the income test to avail of the lower corporate tax.

Domestic corporations are mandated to separately account in their Annual Financial

Statements (AFS) the cost of the land on which their office, plant and equipment are situated.
They are prohibited to lump the same in one account or consolidate its costs with other fixed
asset accounts.

ILLUSTRATION A domestic corporation has the following partial detail of the costs and
fair values of its assets in its AFS:
Book value Fair value
Land where the office building stands 30,000,000 35,000,000
Land where equipment warehouse stands 20,000,000 25,000,000
Vacant land (investment property) 10,000,000 12,000,000
Land held for sale (inventory) 30,000,000 40,000,000
House and lots for sale (inventory) 20,000,000 27,000,000
Office building 10,000,000 11,000,000
Factory building 15,000,000 14,000,000
Equipment 10,000,000 9,000,000
Other assets 5,000,000 7,000,000
Total assets 150,000,000 180,000,000

The corporation also have the following analysis of its reported pre-tax income for the
taxable year:

Passive income subject to final taxes 1,000,000

Capital gains subject to capital gains tax 2,000,000
Taxable income subject to regular tax 4,000,000

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Income exempt from income tax 3,000,000

Total pre-tax income 10,000,000

For purposes of the asset test, accounting book values as reflected in the AFS are
considered less the cost of lands used for office, plant and equipment:

Total assets per AFS 150,000,000

Less:
- Land used for the office building 30,000,000
- Land used for the equipment warehouse 20,000,000 50,000,000
Adjusted total assets 100,000,000

For purposes of the income test, the domestic corporation is a MSME since its total
assets do not exceed P100 million. For purposes of the income test, only the taxable income
subject to regular tax (i.e. P4 million) is considered. Since this is less than the P5M threshold,
the corporation is a qualified MSME subject to 20% corporate tax.

SUMMARY OF REGULAR CORPORATE TAX RATES

Domestic Resident foreign

Taxpayer corporation corporation
MSME corporate taxpayers
- With ≤ P5M taxable income 20% 25%
- With > P5M taxable income 25% 25%
Large corporate taxpayers
- With ≤ P5M taxable income 25% 25%
- With > P5M taxable income 25% 25%

ILLUSTRATION A corporation with P100M assets had the following income and
expense for 2023:
Philippines Abroad Total
Gross revenue/receipts 1,800,000 1,200,000 3,000,000
Less: Business expenses 1,200,000 800,000 2,000,000
Net income from operations 600,000 400,000 1,000,000
Add: Interest from deposit 150,000 50,000 200,000
Net income 750,000 450,000 1,200,000

The regular income tax of a domestic corporation shall be computed as follows:

Net income from operations (600,000 + 400,000) 1,000,000
Other income not subject to final tax (interest from abroad) 50,000
Taxable net income 1,050,000
Multiply by: Corporate tax rate 20%
Regular corporate income tax (RCIT) due 210,000

Since foreign corporations are not allowed the lower 20% corporate tax, the regular
income tax of a resident foreign corporation shall be computed as follows:
Taxable net income (Philippines only) 600,000
Multiply by: Corporate tax rate 25%
Regular corporate income tax (RCIT) due 150,000

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A nonresident foreign corporation is not subject to the regular corporate income tax
but to a 25% final tax based on gross income from all sources within. Resident payors shall
withhold the following:
Gross revenues/receipts 1,800,000
Interest income from deposit 150,000
Total gross income within 1,950,000
Multiply by: Final tax rate 25%
Total final tax due 487,500

Note that for purposes of final tax, gross income on the sale of services means
revenues or receipts without deduction for cost of services.

THE REGULAR CORPORATE INCOME TAX

The regular corporate income tax applies to all corporations in general. It covers all
taxable income of corporations that are not subject to final tax or capital gains tax.

Income tax rules on regular corporations

Domestic 20% or 25% Regular Corporate income tax or
corporation subject to the Minimum Corporate Income Tax
Resident 25% Regular Corporate income tax or subject to
corporation the Minimum Corporate income tax

Minimum Corporate Income Tax

The most peculiar feature of corporate income taxation is the Minimum Corporate
Income Tax (MCIT). Corporations are subject to a minimum corporate income tax of 2% of
gross income.

As a minimum tax, the MCIT is payable when:

1. The corporation has zero or negative taxable income
2. MCIT is greater than the regular corporate income tax (RCIT).

Pandemic adjustment and transition rules

During the pandemic, the MCIT is temporarily reduced to 1% of gross income
between July 1, 2020 to June 30, 2023 but will revert back to 2% starting July 1, 2023. MCIT
during transition periods like 2020 and 2023 will be computed by pro-rating the number of
months covered by 1% and those covered by 2%.

Example:
1. Corporations on a fiscal year ending March 31, 2024
April 2023 to June 2023 3/12 x 1% 0.25%
July 2023 to March 2024 9/12 x 2% 1.50%
MCIT Rate to use during transition year 1.75%

2. Corporations on a fiscal year every October 31, 2020

November 2019 to June 2020 8/12 x 2% 1.33%
July 2020 to October 2020 4/12 x 1% 0.33%
MCIT Rate to use during transition year 1.66%

3. Corporations under calendar year

January 2023 to June 2023 6/12 x 1% 0.50%
July 2023 to December 2023 6/12 x 2% 1.00%
MCIT Rate to use during transition year 1.50%

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Scope of MCIT
The MCIT is applicable to every corporation taxable to the regular corporate income
tax (20% or 25%) including non-profit, exempt, and special corporations with respect to their
taxable income subject to regular corporate income tax, but not to their income subject to
special tax rates.

MCIT exempt entities

1. Real Estate Investment Trusts or REIT under RA 9856
2. Domestic or resident corporations subject to special tax rates
a. Proprietary educational institutions, and non-profit hospitals
b. FCDUs and EFCDUs
c. International carriers
d. Firms subject to special income tax such as PEZA and BCDA locators
3. All non-resident foreign corporations

Timing of Imposition of MCIT

MCIT is imposed beginning on the fourth taxable year immediately following the year
in which such corporation commenced its operations, when it is greater than the regular
income tax computed for the taxable year. Simply stated, MCIT applies on the X + 4th year
of operations.

For instance, a corporation which started operations on any day in 2017 will be covered
by MCIT in 2021. The rule is apparently intended to enable the business to obtain competitive
traction before being subjected to MCIT.

MCIT Gross Income under the NIRC

For corporations involved in: “Gross income” means
1. Sale of goods Gross sales less sales returns, discounts,
allowances, and cost of goods sold
2. Sale of services Gross receipts less sales returns, allowances,
discounts, and cost of services

Gross sales – means the total consideration agreed upon by the buyer and the seller
for the sale of goods. Gross sales include cash (collected) sales and account (uncollected)
sales.

Gross receipts – means cash collections for services rendered or to be rendered.

Gross receipts include reimbursements by the client for out-of-pocket expenses incurred by
the service provider.

Cost of goods sold – includes all business expenses directly incurred to produce the
merchandise and to bring them to their present location and use.
a. For a trading or merchandising concern, COGS shall include the invoice cost of the
goods sold, import duties, freight in transporting the goods to the place where the
goods are actually sold, and insurance while the goods are in transit

b. For a manufacturing concern, COGS shall include all costs of production of finished
goods such as raw materials used, direct labor and manufacturing overhead,
freight cost, insurance premiums, and other costs incurred to bring the raw
materials to the factory or warehouse.

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

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b. Cost of facilities directly utilized in providing the service such as depreciation or

rental of equipment used and cost of supplies.

In the case of banks, cost of services shall include interest expense.

It is submitted that the “gross income” referred to by NIRC is the gross income from
operations.

MCIT Gross income under the regulations

RR 12-2007 included all other items of taxable income not subjected to final tax and
capital gains tax as part of gross income.

While this may be questioned as an improper introduction of legislation, it is an

established rule in taxation that revenue regulations and rulings are presumed valid
interpretations of the law unless challenged and reversed before the courts.

Thus, MCIT shall be computed as 2% of the total gross income subject to regular
income tax. Needless to say, the MCIT concept of gross income is the same with the OSD
concept of gross income.

ILLUSTRATION
1. MCIT of a trading concern
A corporate taxpayer subject to MCIT reported the following for 2024:
Gross sales 1,000,000.00
Sales discounts and allowances for defects 30,000.00
Sales returned by customers 20,000.00
Interest income from bank deposits 20,000.00
Rental income from vacant premises 60,000.00
Inventory at the start of the year 220,000.00
Gross purchases of merchandise 700,000.00
Net freight on purchases during the year 25,000.00
Purchase discounts and allowances on defective merchandise 40,000.00
Purchases returned to suppliers 50,000.00
Inventory at the end of the year 160,000.00

The cost of goods sold shall be computed as follows:

Beginning inventory 220,000.00
Add: Net Purchases
Gross Purchases 700,000.00
Add: Freight in 25,000.00
Less: Purchase discounts and allowances (40,000.00)
Purchase returns (50,000.00) 635,000.00
Total goods available for sale 855,000.00
Less: Ending inventory (160,000.00)
Cost of goods sold 695,000.00

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The minimum corporate income tax shall be computed as follows:

Gross sales 1,000,000.00
Less: Sales discounts and allowances 30,000.00
Sales returns 20,000.00 50,000.00
Net sales 950,000.00
Less: Cost of goods sold 695,000.00
Gross income from operations 255,000.00
Add: Other taxable income not subject to final tax
Rental income from vacant premises 60,000.00
Total gross income 315,000.00
Multiply by: MCIT Rate 2%
Minimum Corporate Income Tax (MCIT) 6,300.00

Note: the interest income from banks is excluded in total gross income because it is
subject to final tax.

2. MCIT of a manufacturing concern

A foreign corporation had the following data in 2023, its fourth year of operation:
Sales, net of discounts and allowances 2,400,000.00
Gain on sale of machineries 100,000.00
Dividend income from domestic corporations 20,000.00
Material purchased 980,000.00
Conversion costs incurred:
Direct labor used 350,000.00
Factory overhead 280,000.00

Physical counts conducted at the start and end of the year revealed the following
balances in inventory:
1-Jan 31-Dec
Raw materials 120,000.00 180,000.00
Work-in-process 230,000.00 170,000.00
Finished goods 130,000.00 160,000.00

The cost of goods sold shall be determined as follows:

Raw materials, beginning 120,000.00
Net purchases of materials 980,000.00
Less: Raw materials, end (180,000.00)
Raw materials used 920,000.00
Add: Conversion costs
Direct labor 350,000.00
Factory overhead 280,000.00 630,000.00
Total manufacturing costs incurred 1,550,000.00
Add: Work in process, beginning 230,000.00
Total manufacturing costs placed into process 1,780,000.00
Less: Work in process, end (170,000.00)
Cost of goods manufactured or finished 1,610,000.00
Add: Finished goods, beginning 130,000.00
Total cost of goods available for sale 1,740,000.00
Less: Finished goods, end (160,000.00)
Cost of goods sold 1,580,000.00
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The minimum corporate income tax shall be computed as follows:

Sales, net of discounts and allowances 2,400,000.00
Less: Cost of goods dold 1,580,000.00
Gross income from operations 820,000.00
Add: Other taxable income not subject to final tax
Gain on sale of machineries 100,000.00
Total gross income 920,000.00
Multiply by: MCIT rate 1.50%
Minimum Corporate Income Tax (MCIT) 13,800.00

Note: The dividend income from a domestic corporation is excluded in total gross
income because it is exempt from tax.

3. MCIT of a service provider

Lacoste Corporation provides consultancy services to various clients. It reported the
following in 2024, its fifth year of operation:
Collections and billings
Collections on services rendered net of discounts 3,200,000.00
Uncollected bills for services rendered 800,000.00
Advanced collections for services to be provided 600,000.00
Client reimbursements for out-of-pocket expenses incurred by consulting staff 400,000.00
Client reimbursements for client expenses paid or advanced by Lacoste 150,000.00
Royalties from a software developed by Lacoste 30,000.00

Expenses
Salaries of consulting staff 1,600,000.00
Salaries of administrative employees 700,000.00
Office rent and utilities expense 420,000.00
Office depreciation expense 50,000.00
Office supplies expense 35,000.00
Interest expense 20,000.00
Insurance expense 40,000.00
Local tax expense 14,000.00

The gross receipts of Lacoste shall be determined as follows:

Net collections on services rendered 3,200,000.00
Collections on services to be provided (advances) 600,000.00
Reimbursement for firm's out-of-pocket costs 400,000.00
Gross receipts 4,200,000.00

The direct costs of services of Lacoste shall be as follows:

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Consulting salaries expense 1,600,000.00

Office rent and utilities expense 420,000.00
Office depreciation expense 50,000.00
Office supplies expense 35,000.00
Direct cost of services 2,105,000.00

The minimum corporate income tax shall be computed as follows:

Gross receipts 4,200,000.00
Less: Cost of services 2,105,000.00
Gross income from operations 2,095,000.00
Add: Other taxable income not subject to final tax -
Total gross income 2,095,000.00
Multiply by: MCIT rate 2.00%
Minimum Corporate Income Tax (MCIT) 41,900.00

MCIT AND RCIT: BASIC APPLICATION

ILLUSTRATION 1 A big corporate taxpayer started operations in 2021. It had the following
results of operations in 2024 and 2025:
2021
2024 2022
2025
Total gross income 2,100,000.00 4,000,000.00
Dividend income - domestic - 50,000.00
Business expenses (2,600,000.00) (3,400,000.00)
Net income (Net loss) (500,000.00) 650,000.00

The MCIT will commence in 2025 (i.e. 2021 + 4). Since there is no MCIT yet in 2024, the tax
payable for 2024 is nil.

The 2025 income tax due of the corporation shall be determined as:
Total gross income 4,000,000.00
Less: Itemized deductions
Ordinary allowable deductions 3,400,000.00
NOLCO - 2024 500,000.00 3,900,000.00
Taxable net income 100,000.00
Multiply by: Corporate income tax rate 25%
Regular corporate income tax - 2025 25,000.00

Total gross income 4,000,000.00

Multiply by: MCIT rate 2%
Minimum corporate income tax - 2025 80,000.00

The P80,000 MCIT is the income tax due in 2025. Note that the dividend income is exempt
from tax. NOLCO is net operating loss carry over.

ILLUSTRATION 2 A corporation which started operations in 2019 reported the following:

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2021
2023 2022
2024
Total gross income 3,000,000.00 3,200,000.00
Less: Regular allowable deductions (1,600,000.00) (2,800,000.00)
Special allowable deductions (400,000.00) (500,000.00)
Taxable net income 1,000,000.00 (100,000.00)

The RCIT and MCIT are as follows:

2023 2024
RCIT (25% of taxable net income) 250,000.00 -
MCIT (1.5% or 2% of gross income) 45,000.00 64,000.00
Income Tax Due (whichever is higher) 250,000.00 64,000.00

ANNUAL RCIT AND MCIT: INTEGRATIVE ILLUSTRATION

ILLUSTRATION 1 La-View Corp, a MSME, reported the following on its fifth year of
operations:
Sales, net of 1% withholding tax 4,950,000.00
Cost of sales 2,000,000.00
Interest from deposit, net of tax 75,000.00
Gain on sale of domestic stocks directly to buyer 150,000.00
Casual rent income, net of 5% creditable withholding tax 95,000.00
Interest income from advances to employees 50,000.00
Business expenses 3,100,000.00
Estimated quarterly tax payments 10,000.00

The regular income tax and minimum corporate income tax shall be computed as follows:
Sales (4,950,000/99%) 5,000,000.00
Less: Cost of sales (2,000,000.00)
Gross income from operations 3,000,000.00
Add: Other gross income not subject to final tax
Casual rent income (95,000/95%) 100,000.00
Interest from employee advances 50,000.00 150,000.00
Total gross income 3,150,000.00

Total gross income 3,150,000.00

Less: Regular allowable deductions (3,100,000.00)
Taxable net income 50,000.00
Multiply by: Corporate income tax rate 20%
Regular corporate income tax 10,000.00

Total gross income 3,150,000.00

Multiply by: MCIT rate (transition period) 1.50%
Minimum corporate income tax 47,250.00

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The income tax payable of La-View Corp. shall be computed as follows:

Income tax due - MCIT (higher) 47,250.00
Less: Tax credits
Creditable withholding tax withheld on gross income
Sales (1% of P5,000,000) 50,000.00
Rent income (5% of P100,000) 5,000.00
Total creditable withholding tax 55,000.00
Estimated quarterly tax payments 10,000.00 65,000.00
Income tax payable/(refund) (17,750.00)

ILLUSTRATION 2 PC Repair, a MSME business partnership providing computer repair

services, reported the following on its sixth year of operation:
Service fees, net of P100,000 withholding tax 1,900,000.00
Salaries of staff, supplies, and other direct costs 1,000,000.00
Interest from bank deposits, net 50,000.00
Gain on sale of land classified as capital asset 400,000.00
Gain on sale of used equipment 150,000.00
Administrative business expenses 500,000.00
Estimated quarterly income tax payments 25,000.00

The RCIT and MCIT are computed as follows:

Service fees (1,900,000 +100,000) 2,000,000.00

Less: Direct costs (1,000,000.00)
Gross income from operations 1,000,000.00
Add: Other gross income subject to final tax
Ordinary gain on sale of equipment 150,000.00
Total gross income 1,150,000.00
Less: Regular allowable deductions (500,000.00)
Taxable net income 650,000.00
Multiply by: Corporate income tax rate 20%
Regular corporate income tax 130,000.00

Total gross income 1,150,000.00

Multiply by: MCIT rate (transition period) 1.50%
Minimum corporate income tax 17,250.00

The income tax due and payable of PC Repair shall be computed as follows:
Income tax due (higher) 130,000.00
Less: Tax credits
Withholding tax on gross income 100,000.00
Quarterly income tax payments 25,000.00 (125,000.00)
Income tax payable 5,000.00

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EXCESS MCIT CARRY OVER

The excess of the MCIT over RCIT in any year is a tax credit that is deductible against
any RCIT tax due in the immediately succeeding three years.

Excess MCIT Carry-over Rules

• Excess MCIT can be used only as a tax credit against RCIT tax due in any of the
three subsequent years. Excess MCIT cannot be deducted against MCIT tax due.
• Credit for the excess MCIT from prior years can be taken up to the full amount of
RCIT tax due in the next three years. This means that the income tax payable when
credit is made can get below the amount of MCIT for that year.
• When there are several excess MCITs from prior years, tax crediting shall be made
in a first in-first out basis.
• Unused excess MCIT at the end of three-year period shall expire and can no longer
be used.

ILLUSTRATION 1 Excess MCIT – Basic Application

A corporation had the following MCIT and RCIT data since 2018:
2018 2019 2020 2021
MCIT 80,000.00 95,000.00 20,000.00 60,000.00
RCIT 20,000.00 85,000.00 40,000.00 80,000.00
Income tax due 80,000.00 95,000.00 40,000.00 80,000.00

MCIT Excess (MCIT less RCIT) 60,000.00 10,000.00

Required: Compute for the income tax payable, ignoring the effects of tax credits.

Solution:
In 2018, the income tax payable is P80,000 MCIT. The Excess P60,000 is a tax credit referred
as Excess MCIT-2018 and is valid until 2021.

In 2019, the income tax payable is P95,000 MCIT. The P10,000 Excess MCIT referred to as
Excess MCIT – 2019, is valid until 2022. No tax credit shall be made since Excess MCIT
cannot be credited against MCIT tax due.

In 2020, the income tax payable is zero.

2018 2019 2020
Excess MCIT prior year 60,000.00 10,000.00
Income tax due 40,000.00
Tax credit (40,000.00) (40,000.00)
Remaining excess MCIT 20,000.00 10,000.00 -

Note that full credit against the available RCIT tax due is taken. Since there are two Excess
MCITs, first in-first out crediting is employed.

In 2021, the income tax payable is P50,000.

2018 2019 2021
Adjusted excess MCIT 20,000.00 10,000.00
RCIT tax due 80,000.00
Tax credit (20,000.00) (10,000.00) (30,000.00)
Remaining excess MCIT - - 50,000.00

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ILLUSTRATION 2: Expired Excess MCIT

Iligan Inc., became subject to MCIT in 2017. MCIT and RCIT data through the years were:
2017 2018 2019 2020 2021
MCIT 400.00 620.00 200.00 350.00 350.00
RCIT - 500.00 300.00 200.00 400.00
Income tax due 400.00 620.00 300.00 350.00 400.00

Excess MCIT 400.00 120.00 - 150.00 -

Required: Compute the income tax payable in each year.

Solution:
The income tax payable in each year is computed as follows (answers are in bold font):
2017 2018 2019 2020 2021
Income tax due (higher) 400.00 620.00 300.00 350.00 400.00

Excess MCIT 400.00 120.00 150.00

MCIT application (300.00) (300.00)
Remaining excess MCIT 100.00 120.00
MCIT application *expired for (120.00) (150.00) (270.00)
year 2021

Income tax payable 400.00 620.00 0 350.00 130.00

ILLUSTRATION 3: NOLCO and MCIT

A small corporate enterprise which became subject to MCIT in 2021 had the following
statement of income in 2021 and 2022:
2021 2022
Gross income 300,000.00 500,000.00
Business expenses 420,000.00 250,000.00
Net income (120,000.00) 250,000.00

Required: Compute the income tax payable in each year.

Solution:
2021 2022
Total gross income 300,000.00 500,000.00
Less: Allowable deductions (420,000.00) (250,000.00)
Net Income/(NOLCO) (120,000.00) 250,000.00
Less: NOLCO (2021) application (120,000.00)
Taxable income (120,000.00) 130,000.00

RCIT (Taxable income x 20%) 26,000.00

MCIT (Gross income x 1%) 3,000.00 5,000.00

Income tax due (higher) 3,000.00 26,000.00

Excess MCIT 3,000.00 -

*MCIT Rate is 1% because the period is year 2021 and 2022.

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2021 2022
Income tax due 3,000.00 26,000.00
Less: Excess MCIT - 2021 (3,000.00)
Income tax payable 3,000.00 23,000.00

Recall that net operating loss carried over (NOLCO) is a deduction over 3 years after
its incurrence, except NOLCO between July 1, 2020 to June 23, 2023 which will be carried
over five years. Excess MCIT is creditable over a 3-year period.

QUARTERLY FILING OF INCOME TAX RETURN

Corporations shall file their quarterly income tax returns for the first three quarters of
the year due on or before 60 days from the end of each quarter. The annual income tax return
shall be filed and paid on or before the 15th day of the fourth month following the close of the
taxable year.

ILLUSTRATION Henry Inc., a large scale enterprise, had the following quarterly gross
income and deductions in million pesos for year 2022:
(in millions) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Gross income 200 250 220 280
Itemized deductions 100 130 120 140
Withholding tax 22 20 18 31

The quarterly estimated tax payable in million pesos shall be computed as follows:
(in millions) 1st Qtr 2nd Qtr 3rd Qtr Annual
Gross income 200 250 220 280
Less: Itemized Deductions 100 130 120 140
Net income, this quarter 100 120 100 140
Net income, prior quarters 100 220 320
Taxable income 100 220 320 460
Multiply by RCIT rate 25% 25% 25% 25%
Income tax due 25 55 80 115
Less: Tax credits
1st Qtr CWT 22 22 22 22
2nd Qtr CWT 20 20 20
3rd Qtr CWT 18 18
4th Qtr CWT 31
1st Qtr Tax Payment 3 3 3
2nd Qtr Tax Payment 10 10
3rd Qtr Tax Payment 7
Total Tax credits 22 45 73 111
Income tax payable 3 10 7 4

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Quarterly MCIT
Binorongan Inc., had the following quarterly RCIT and MCIT during 2021:
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
RCIT 80,000.00 50,000.00 80,000.00 60,000.00 270,000.00
MCIT 50,000.00 100,000.00 40,000.00 120,000.00 310,000.00
Excess MCIT prior year 10,000.00
Creditable withholding tax 20,000.00 12,000.00 10,000.00 20,000.00 62,000.00
Excess withholding tax prior year 30,000.00

The cumulative balances of RCIT, MCIT, and prior quarter CWTs shall first be determined.
1st Qtr 2nd Qtr 3rd Qtr Annual
Income tax due 80,000.00 150,000.00 210,000.00 310,000.00
Less: Tax credits
MCIT - prior year 10,000.00 10,000.00
Excess CWT - prior year 30,000.00 30,000.00 30,000.00 30,000.00
1st Qtr CWT 20,000.00 20,000.00 20,000.00 20,000.00
2nd Qtr CWT 12,000.00 12,000.00 12,000.00
3rd Qtr CWT 10,000.00 10,000.00
4th Qtr CWT 20,000.00
1st Qtr Tax Payment 20,000.00 20,000.00 20,000.00
2nd Qtr Tax Payment 68,000.00 68,000.00
3rd Qtr Tax Payment 40,000.00
Total Tax credits 60,000.00 82,000.00 170,000.00 220,000.00
Income tax payable 20,000.00 68,000.00 40,000.00 90,000.00

RELIEF FROM THE MINIMUM CORPORATE INCOME TAX

Upon recommendation of the Commissioner of Internal Revenue, the Secretary of
Finance may suspend the imposition of MCIT upon submission of proof that the corporation
sustained losses on account if:
1. Prolonged labor dispute
2. Force majeure
3. Legitimate business reverses

REPORTING FOR CORPORATIONS SUBJECT TO REGULAR TAX

Regular corporations, domestic or resident foreign, may choose either itemized
deductions or optional standard deductions in reporting their income using BIR Form 1702RT.
If they also derive income subject to special tax rates, they shall report their income using BIR
Form 1702MX.

SCHEDULES OF EFFECTIVITY OF NEW TAX RATES

Regular CIT Minimum CIT

Domestic Corporations Rate Effectivity Rate Effectivity
July 1, 2020 to
Domestic corporation, in 1%
25% July 1, 2020 June 30, 2023
general
2% July 1, 2023
July 1, 2020 to
MSME with ≤ P5M taxable 1%
20% July 1, 2020 June 30, 2023
income
2% July 1, 2023

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Special CIT Minimum CIT

July 1, 2020 to
Proprietary Educational 1%
June 30, 2023 Not applicable
Institutions and Hospitals
10% July 1, 2023

Regular CIT Minimum CIT

Foreign Corporations Rate Effectivity Rate Effectivity
July 1, 2020 to
1%
Resident foreign corporations 25% July 1, 2020 June 30, 2023
2% July 1, 2023
Upon effectivity of
Upon effectivity of
1% CREATE Law until
Offshore banking units 25% CREATE Law (April
June 30, 2023
11, 2021)
2% July 1, 2023
January 1, 2022 to
Regional Operating 1%
25% January 1, 2022 June 30, 2023
Headquarters
2% July 1, 2023
Special CIT Minimum CIT
Non-resident foreign
25% January 1, 2021 Not applicable
corporations

TRANSITIONAL TREATMENT FOR CORPORATE TAXES

Be it for purposes of the RCIT, SCIT, or MCIT, RR 5-2021 employed the pro-rata
treatment in implementing transition to the new tax rates under the CREATE Law.

ILLUSTRATION 1 A domestic corporate enterprise had the following data in 2020, its
fourth taxable calendar year of operation:
Sales 2,500,000.00
Cost of sales (1,000,000.00)
Gross income from operations 1,500,000.00
Add: Other gross income not subject to final tax 300,000.00
Total gross income 1,800,000.00
Less: Allowable deductions (1,600,000.00)
Taxable income 200,000.00

Distribution of transition months:

Months covered by NIRC 6 (January to June 2020)
Months covered by CREATE 6 (July to December 2020)

The RCIT shall be computed as follows:

Tax due - NIRC (200,000 x 6/12 x 30%) 30,000.00
Tax due - CREATE (200.000 x 6/12 x 25%) 25,000.00
Tax due - RCIT 55,000.00

The MCIT shall be computed as follows:

MCIT - NIRC (1,800,000 x 6/12 x 2%) 18,000.00
MCIT - CREATE (1,800.000 x 6/12 x 1%) 9,000.00
Tax due - MCIT 27,000.00

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Alternately, RCIT can be computed using the transitory RCIT rate: (6/12 x 30%) + (6/12
x 25%) = 27.50%.
Taxable Income 200,000.00
Multiply by: Transitory RCIT rate 27.50%
Tax due - RCIT 55,000.00

Alternately, MCIT can be computed using the transitory MCIT rate: (6/12 x 2%) + (6/12
x 1%) = 1.50%.
Total Gross Income subject to MCIT 1,800,000.00
Multiply by: Transitory MCIT rate 1.50%
Tax due - MCIT 27,000.00

The income tax due is still, whichever is higher of the computed RCIT and MCIT, in
this case, P55,000.

ILLUSTRATION 2 Assume the following information for a corporate taxpayer:

Type of enterprise Large domestic enterprise
Type of accounting period Fiscal year
Current taxable year Fourth year ending April 30, 2021
Gross income P3,000,000
Taxable income P100,000

Distribution of transition months:

Months covered by NIRC 2 (May to June 2020)
Months covered by CREATE 10 (July 2020 to April 30, 2021)

The RCIT shall be computed as follows:

Tax due - NIRC (100,000 x 2/12 x 30%) 5,000
Tax due - CREATE (100,000 x 10/12 x 25%) 20,833
Tax due - RCIT 25,833

The MCIT shall be computed as follows:

MCIT - NIRC (3,000,000 x 2/12 x 2%) 10,000
MCIT - CREATE (3,000,000 x 10/12 x 1%) 25,000
Tax due - MCIT 35,000

The income tax due for this illustration is P35,000 (higher). The transitory rates are: RCIT –
25.83%; MCIT – 1.17%.

THE IMPROPERLY ACCUMULATED EARNINGS TAX

Upon effectivity of the CREATE Law on April 11, 2021, the Improperly Accumulated
Earnings Tax (IAET), previously imposed on undistributed earnings of domestic corporation
without valid reasons for such retention is repealed by CREATE Law. The same shall no
longer be imposed for all taxable years ending after April 11, 2021.

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BRANCH PROFIT REMITTANCE TAX

Any profit remitted by a branch to its head office abroad shall be subject to a tax of
15% based on the total profits applied or earmarked for remittance without any deduction
for the tax component thereof.

The 15% branch profit remittance tax is a final tax which is required to be withheld at
source by the branch of a foreign corporation.

Interest, dividends, rents, royalties, remuneration for technical services, salaries,

wages, premiums, annuities, emoluments or other fixed or determinable annual, periodic, or
casual gains, profits, income, and capital gains received by a foreign corporation during each
taxable year from all sources within the Philippines shall not be treated as branch profit unless
the same are effectively connected with the conduct of the taxpayer’s trade of business in the
Philippines.

The term “effectively connected with the conduct of the taxpayer’s trade, or business”
does not necessarily mean that the income must be derived from the actual operation of the
taxpayer-corporation’s trade or business, it is sufficient that the income arises from the
business activity in which the corporation is engaged (RMC 55-80).

The income should be an active income or an income from sources that are effectively
connected with the conduct of the taxpayer’s trade or business of the resident foreign
corporation to be subjected to the branch profit remittance tax. Passive investment income
and gains are excluded.

Scope of the Branch Profit Remittance Tax

The tax covers the remittance of all resident foreign corporations including ROHQs of
multinational companies, FCDUs, or OBUs of foreign banks, and international carriers, except
PEZA-registered entities.

ILLUSTRATION 1 A large scale resident foreign enterprise engaged in wholesale of

imported goods had the following profit statement for 2022:
Gross income from sale of goods 5,000,000.00
Interest income, net of final tax 80,000.00
Domestic dividends 120,000.00
Less: Operating expenses 2,500,000.00
Corporate income tax 625,000.00 (3,125,000.00)
Net profit 2,075,000.00

Required: Assuming that the corporation earmarked the entire profits for remittance abroad,
compute the branch profit remittance tax.

Net profit 2,075,000.00

Less: Investment income
Interest income 80,000.00
Dividend income 120,000.00 (200,000.00)
Taxable profit 1,875,000.00
Multiply by: portion remitted 100%
Actual profit remittance 1,875,000.00
Multiply by: Branch profit remittance tax rate 15%
Branch profit remittance tax due 281,250.00

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ILLUSTRATION 2 A branch of a foreign corporation engaged in servicing reported the

following income statement in 2021:
Service fees 4,000,000.00
Gain on sale of fully depreciated properties 400,000.00
Dividend income 50,000.00
Capital gain on the sale of stocks, net of tax 90,000.00
Less: Business expenses (3,600,000.00)
Profits before income tax 940,000.00
Less: income tax due - RCIT (200,000.00)
Net profits 740,000.00

The branch earmarked 40% of the entire profits for remittance to the home office abroad. The
branch profit remittance tax shall be determined as follows:
Net profit 740,000.00
Less: Investment income
Dividend income 50,000.00
Capital gain on the sale of stocks 90,000.00 (140,000.00)
Taxable profit 600,000.00
Multiply by: portion remitted 40%
Actual profit remittance 240,000.00
Multiply by: Branch profit remittance tax rate 15%
Branch profit remittance tax due 36,000.00

SPECIAL CORPORATIONS
Certain corporations are subject to a special tax treatments or preferential tax rates
lower than 25% regular corporate income tax. These are generally referred to as “special
corporations.”

Sub-classification of Corporate Income Taxpayers

A. Domestic corporations
a. Exempt domestic corporations
i. Exempt non-profit corporations under the NIRC
ii. Government agencies and instrumentalities
iii. Certain government-owned and controlled corporations
iv. Cooperatives
b. Special domestic corporations
i. Proprietary educational institutions and non-profit hospitals
ii. Foreign currency deposit units (FCDUs) and Expanded FCDUs
iii. PEZA or BOI-registered enterprises
c. Regular domestic corporations

B. Resident foreign corporations

a. Special resident foreign corporations
i. Expanded FCDUs
ii. Regional Area Headquarters and Regional Operating Headquarters
of Multinational Companies
iii. International Carriers
iv. PEZA or BOI-registered enterprises
b. Regular resident foreign corporations

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C. Non-resident foreign corporations

a. Special non-resident foreign corporations
i. Non-resident cinematographic film owner, lessor or distributor
ii. Non-resident lessor of vessels, chartered by Philippine nationals
iii. Non-resident owner or lessor of aircraft, machineries, and other
equipment
b. Regular non-resident foreign corporations

INCOME TAX COMPUTATION FOR EXEMPT CORPORATIONS

Qualification of Tax Exemption
Income tax exemption relates only to income from related activities. Income from
activities unrelated to the purposes for which an exempt corporation is organized and income
from activities conducted for profit including income from properties are taxable regardless of
the disposition made of such income.

The Classification Rule

Since exemption applies only to income from related activities, the income of exempt
corporations are classified into income from related activities and income from unrelated
activities. The income from unrelated activities is subjected to regular income tax.

ILLUSTRATION 1 Bahay Kalinga, a social welfare charitable non-profit corporation,

reported the following statement of income and expenses:
Related Unrelated
activites activities Total
Gross receipts 1,200,000.00 800,000.00 2,000,000.00
Less: Cost of services (400,000.00) (400,000.00) (800,000.00)
Gross income 800,000.00 400,000.00 1,200,000.00
Less: Expenses (400,000.00) (150,000.00) (550,000.00)
Net surplus 400,000.00 250,000.00 650,000.00

The income tax due of the corporation shall be:

Net income or surplus from unrelated activities 250,000.00
Multiply by: Corporate tax rate 25%
Regular corporate income tax 62,500.00

Requisites for exemption of non-stock, non-profit corporations

1. It must be a non-stock corporation or association organized and operated
exclusively for religious, charitable, scientific, athletic, or cultural purposes or for
rehabilitation of veterans.
2. It should meet the following test:
a. Organizational test – its constitutive documents exclusively limits its
purposes to one or more of the following: religious, charitable, scientific,
athletic, or cultural purposes or for rehabilitation of veterans
b. Operational test – The regular activities of the regular corporation or
association must be exclusively devoted to the accomplishment of the
aforementioned purposes. A corporation fails this test if a substantial part
of its operations is considered “activities conducted for profit.”
3. All net income or assets of the corporation or association must be devoted to its
purposes and no part of its net income or asset accrues to or benefits any member
or specific person.
4. It must not be a branch of a foreign non-stock, non-profit corporation.

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A non-profit organization is still allowed to engage in activities conducted for profit

without losing its tax exemption but the consequence is being subject to tax only on income
conducted for profit, regardless of the disposition made of such income.

Exception to the Classification Rule: Non-profit educational institution

Under the Constitution, all revenues and assets of non-stock non-profit purposes shall
be exempt from taxes and duties. Hence, the income from unrelated operations of these
institutions is still exempt from income tax if used for educational purposes.

ILLUSTRATION 1
Sutherland University, a non-profit educational institution, collected P4,000,000 school fees
and assessments from its students. It also earned P200,000 from the rent of its properties and
realized P400,000 in the sale of its properties.

Sutherland University utilized the P200,000 rentals to fund an undergraduate scholarship

program and invested the P400,000 for the retirement benefits of university directors.

- In this case, the P4M is an income from related activities. The P200,000 rentals
and P400,000 gain on sale of properties are income from unrelated activities.
The P4M income is exempt. The P200,000, even if arising from unrelated
activities, is still exempt because it is diverted to an educational purpose. The
P400,000 is subject to regular income tax because it is not used for an
educational purpose.

Certificate of Tax Exemption Ruling

Non-profit corporations or associations must secure a Tax Exemption Ruling from the
BIR to enjoy the tax exemption. The ruling shall be valid for a period of 3 years unless sooner
revoked or cancelled.

The Tax Exemption Ruling shall be deemed revoked on the date there are material
changes in the character, purpose, or method of operation of the corporation or association
which are inconsistent with the basis of the income tax exemption. In addition, it shall be
revoked also on the basis of non-renewal of the tax exemption ruling or non-revalidation of
previously issued rulings. Failure to file an income tax return shall also result in the loss of the
tax exempt status.

Government agencies and instrumentalities

Government agencies and instrumentalities such as departments and bureaus are
inherently non-profit because their public service functions; hence they are exempt from
income tax.

However, the income of government agencies and instrumentalities from unrelated

activities or from their properties is subject to income tax.

Government-Owned and Controlled Corporations (GOCCs)

GOCCs are generally proprietary or commercial in nature and are subject to the regular
corporate income tax except the following exempt GOCCs:
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health and Insurance Corporation (PHIC)
4. Home Development Mutual Fund (HDMF) – RA 11534
5. Local Water Districts – RA 10026
- PCSO was removed from the NIRC list by the effectivity of TRAIN Law on
January 1, 2018.

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ALLOCATION OF COMMON EXPENSES OF EXEMPT CORPORATIONS

Expenses of an exempt corporation that are not directly traceable to either related or
unrelated activities are allocated based on gross income.

ILLUSTRATION A non-profit entity presented the following analysis of its net surplus:
Related Unrelated
activites activities Total
Gross receipts 1,200,000.00 800,000.00 2,000,000.00
Less: Cost of services (400,000.00) (400,000.00) (800,000.00)
Gross income 800,000.00 400,000.00 1,200,000.00
Less: Direct Expenses (280,000.00) (70,000.00) (350,000.00)
Common Expenses (180,000.00)
Net surplus 670,000.00

The taxable income from unrelated activities will be computed as follows:

Gross income from unrelated activities 400,000.00
Less:
Direct expenses 70,000.00
Allocated common expenses
(P400k/(P400/+P800k)) x P180K 60,000.00 (130,000.00)
Taxable net income 270,000.00

Note: This common expense allocation procedure is also applicable to corporations

with income subject to special tax regimes or to preferential rates.

Reporting Requirements for Exempt Corporations

Exempt corporations with no taxable income shall file BIR Form 1702EX using itemized
deductions only. If they are not delinquent in filing their return or have no violations on
withholding taxes, they will not pay any tax. The information furnished by BIR Form 1702EX
is essential to the BIR’s tax mapping effort and a test of compliance of the corporation to the
withholding tax regulations on income payments.

Exempt corporations with taxable income subject to regular tax shall file BIR Form
1702RT. If they also earn income subject to special tax rates, they must file BIR Form 1702MX.

SPECIAL DOMESTIC CORPORATIONS

PRIVATE EDUCATIONAL INSTITUTION and NON-PROFIT HOSPITAL

Private or proprietary educational institution and non-profit hospitals are subject to 10%
tax on world taxable income subject to the pre-dominance test.

To alleviate the impact of the pandemic, the 10% tax rate is temporarily lowered to 1%
starting July 1, 2020 to June 30, 2023. The same shall revert back to 10% effective July 1,
2023.

What is a private or proprietary educational institution?

A proprietary educational institution is any private school maintained and administered
by private individuals or groups with an issued permit to operate from any of the following:
1. Department of Education (DepEd)
2. Commission on Higher Education (CHED)
3. Technical Education and Skills Development Authority (TESDA)

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The Predominance Test

If the gross income from unrelated trade, business or other activity exceeds 50% of
the total gross income derived by such educational institutions or hospitals from all sources,
the 25% regular corporate income tax applies.

Unrelated trade, business or activity

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 from its primary purpose or function.

ILLUSTRATION 1 A private educational institution reported the following during the year
2021:
Related Unrelated
Activities Activities Total
Gross receipts 1,100,000.00 900,000.00 2,000,000.00
Less: Cost of services (400,000.00) (400,000.00) (800,000.00)
Gross income 700,000.00 500,000.00 1,200,000.00
Less: Deductions (400,000.00) (100,000.00) (500,000.00)
Net income 300,000.00 400,000.00 700,000.00

The gross income from related activities (700k/1200k = 58%) passes the
predominance test. The income tax due shall be computed as follows:
Taxable net income 700,000.00
Multiply by: Corporate tax rate 1%
Income tax due 7,000.00

If the presented data is for the calendar year 2023, the income tax due is computed as
follows:
Taxable net income 700,000.00
Multiply by: Corporate tax rate 5.50%
Income tax due 38,500.00

CIT Rate (Jan 1- June 30, 2023) - 1% x 6/12 0.50%

CIT Rate (July 1 - Dec 31, 2023) - 10% x 6/12 5.00%
CIT for transition period 5.50%

ILLUSTRATION 2 A non-profit hospital with more than P200M in total assets, net of cost
of landholdings, reported the following during a year:
Related Unrelated
Activities Activities Total
Gross receipts 1,000,000.00 1,100,000.00 2,100,000.00
Less: Cost of services (500,000.00) (400,000.00) (900,000.00)
Gross income 500,000.00 700,000.00 1,200,000.00
Less: Deductions (100,000.00) (400,000.00) (500,000.00)
Net income 400,000.00 300,000.00 700,000.00

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The gross income failed the pre-dominance test (500k/1200k = 42%), hence the non-
profit hospital shall be taxable as a regular corporation:
Taxable net income 700,000.00
Multiply by: Corporate tax rate 25%
Income tax due 175,000.00

Summary of Tax Rules on Educational Institutions and Hospitals

Owner Educational Institution Hospitals
Private 10% (1%) of taxable income 25% (20%) of taxable income
Non-profit Exempt 10% (1%) of taxable income
Government Exempt Exempt

OFFSHORE BANKING UNITS (OBUS)

“Offshore Banking Unit (OBU)” is a branch, subsidiary or affiliate or a foreign banking
corporation located in an Offshore Financial Center (OFC) which is duly authorized by the
BSP to transact offshore banking business in the Philippines in accordance with the provisions
of P.D. 1034 as implemented by BSP Circular No. 1389. They do foreign-currency banking
transactions primarily with foreign banks, non-residents, other OBUs and corporate and
institutional clients. They can lend to resident importers and exporters as long as the funds
are remitted from abroad through the banking system.

The following are examples of reported OBUs in the Philippines:

1) BNP Paribas with office address at Philamlife Tower, Makati City; and
2) Taiwan Cooperative Bank with office address at Citi Bank Tower, Makati City
3) JP Morgan International Finance, Ltd. (formerly located at Zuellig Building,
Makati City)
- has stopped its operations as an offshore banking unit in the
Philippines. The BSP noted the cessation of operations on February 22,
2018.

OBUs are allowed to provide all traditional banking services to non-residents in any
currency other than Philippine national currency. Banking transactions to residents are limited
and restricted.

❖ Upon effectivity of CREATE Law, OBUs are now treated as regular foreign corporations
subject to 25% regular corporate income tax and other taxes.

ROHQ vs RHQ
Income tax rate of Regional Operating Headquarters (ROHQ) is 10% of net income.
Effective January 1, 2022, ROHQs will be subjected to the 25% regular corporate income tax
pursuant to the CREATE Law. ROHQ is a branch established in the Philippines which is
engaged in any of the following qualifying services:
● General administration and planning
● Business planning, coordination and business development
● Sourcing/ procurement of raw materials and components
● Corporate finance advisory services
● Marketing control and sales promotion
● Training and personnel management
● Logistic services
● Research and development services and project development

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● Technical support and maintenance

● Data processing and communication

Regional or Area Headquarters (RHQ or RAH) is defined in Section 22 (DD) of the Tax
Code as a branch established in the Philippines by a multinational company, which branch
does not earn or derived income from the Philippines and which acts as a supervisory,
communications, and coordinating center for its affiliates, subsidiaries, or branches in the Asia-
Pacific region and other foreign markets. RHQ is a tax exempt entity. However, an RHQ is
constituted as a withholding agent of the government if it acts as an employer and its
employees receive compensation income subject to withholding tax, or if it makes income
payments to individuals or corporations subject to the expanded withholding tax (EWT).

What constitute an RHQ and an ROHQ?

An RHQ is an office whose purpose is to act as an administrative branch of a
multinational company engaged in international trade which principally serves as a
supervision, communications and coordination center for its subsidiaries, branches, or
affiliates in the Asia-Pacific Region and other foreign markets, and which does not earn or
derive income in the Philippines. An ROHQ refers to a foreign business entity which is allowed
to derive income in the Philippines by performing qualifying services to its affiliates,
subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign
markets. Such services are general administration and planning, business planning and
coordination, sourcing and procurement of raw materials and components, corporate
governance advisory services, marketing control and sales promotion, training and personnel
management, logistic services, research and development services and product development,
technical support and maintenance, data processing and communication, and business
development.

INTERNATIONAL CARRIERS
International carriers (resident foreign corporations) are subject to income tax rate of
2.5% on its Gross Philippine Billings (GPB) unless it subject to a preferential rate (a tax rate
lower than 2.5%) or exempt on the basis of applicable tax treaty to which the Philippines is a
signatory or on the basis of reciprocity, such that an international carrier, whose home country
grants income tax exemption to Philippine carriers, shall likewise be exempt from income tax
imposed under the tax code (RA 10378; RR 15-2013).

Reciprocity may be invoked by an international carrier as basis for “Gross Philippine

Billings Tax exemption” when its Home Country grants income tax exemption to Philippine
carriers. The domestic law of the Home Country granting exemption shall cover income taxes
and shall not refer to other types of taxes that may be imposed by the relevant taxing
jurisdiction. The fact that the tax laws of the Home Country provide for exemption from
business tax, such as gross sales tax, in respect of the operations of Philippine carriers shall
not be considered as valid and sufficient basis for exempting an international carrier from
Philippine income tax on account of reciprocity. Reciprocity requires that Philippine carriers
operating in the Home Country of an international carrier are actually enjoying the income tax
exemption.

Gross Philippine Billings of International Air Carriers

In computing for “Gross Philippine Billings” of international air carriers, there shall be
included the total amount of gross revenue derived from passage of persons, excess baggage,
cargo and/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 passage documents.
The gross revenue for passengers whose tickets are sold in the Philippines shall be the actual
amount derived for transportation services, for a first class, business class, or economy class
passage, as the case may be, on its continuous and uninterrupted flight from any port or point
in the Philippines to its final destination in any port or point of a foreign country”, as reflected

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in the remittance area of the tax coupon forming an integral part of the plane ticket. For this
purpose, the Gross Philippine Billings shall be determined by computing the monthly average
net fare of all the tax coupons of plane tickets issued for the month per point of final destination,
per class of passage (i.e., first class, business class, or economy class) and per classification
of passenger (i.e., adult, child or infant), and multiplied by the corresponding total number of
passengers flown for the month as declared in the flight manifest.

The gross revenue for passengers whose tickets sold outside the Philippines, the gross
revenue for passengers for first class, business class or economy class passage, as the case
may be, on a continuous and uninterrupted flight form any port or point in the Philippines to
final destination in any port or point of a foreign country shall be determined using the locally
available net fares applicable to such flight taking into consideration the seasonal fare rate
established at the time of the flight, the class of passage, the classification of passenger, the
date of embarkation, and the place of final destination.

Non-revenue passengers as well as refunded tickets shall not be included in the

computation of Gross Philippine Billings.

Gross Philippine Billings of International Sea Carriers

In computing for “Gross Philippine Billings” of international sea carriers, there shall be
included the total amount of gross revenue whether for passenger, cargo, and/or mail
originating from the Philippines up to final destination, regardless of the place of sale or
payments of the passage or freight documents.

“ORIGINATING FROM THE PHILIPPINES” shall include the following:

a. Where passengers, their excess baggage, cargo and/or mail originally
commence their flight or voyage from any Philippine port to any other port or
point outside the Philippines
b. Chartered flights or voyages of passengers, their excess baggage, cargo
and/or mail originally commencing their flights or voyages from any foreign
port and whose stay in the Philippines is for more than forty-eight (48) hours
prior to embarkation, save in cases where the flight of the airplane belonging
to the same airline company or the voyage of the vessel belonging to the
same international sea carrier failed to depart within 48 hours by reason of
force majeure;
c. Chartered flights of passengers, their excess baggage, cargo and/or mail
originally commencing their flights or voyages from any Philippine port to any
foreign port; and
d. 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
owned by the same airline company or vessel owned by the same
international sea carrier, the flight or voyage from the Philippines to any
foreign port shall not be considered originating from the Philippines, unless
the time intervening between arrival and departure of said passenger, his
excess baggage, cargo and/or mail from the Philippines exceeds 48 hours,
except, however, when the failure to depart within 48 hours is due to reasons
beyond his control, such as, when the only next available flight or voyage
leaves beyond 48 hours or by force majeure. Provided, however, that if the
second aircraft belongs to a different airline company, or the second vessel
belongs to a different international sea carrier, the flight or voyage from the
Philippines to any foreign port shall be considered originating from the
Philippines regardless of the intervening period between the arrival and
departure from the Philippines by said passenger, his excess baggage, cargo
and/or mail.

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Passage documents or tickets revalidated, exchanged and/or endorsed to another on-

line international airline shall be included in the taxable base of the carrying airline and shall
be subject to GPB tax if the passenger is lifted/boarded on an aircraft from any port or point in
the Philippines towards a foreign destination.

The gross revenue on excess baggage which originated from any port or point in the
Philippines and destined for any part of a foreign country shall be computed based on the
actual revenue derived, as appearing on the official receipt or any similar document for the
said transaction.

The gross revenue for freight or cargo and mail shall be determined based on the
revenue realized from the carriage thereof.
❖ The amount realized for freight or cargo shall be based on the amount appearing
on the airway bill after deducting the amount of discounts granted, which shall be
validated using the following:
a. Monthly cargo sales reports generated by the IATA Cargo Accounts
Settlement System (IATA CASS) for airway bills issued through cargo
agents; or
b. Monthly reports prepared by the airline themselves or by their general
sales agents for direct issues made.
❖ The amount realized for mail shall, on the other hand, be determined based on the
amount reflected in the cargo manifest of the carrier

Return trip and transshipment

In case of the passenger’s passage documents or flights from any port or point in the
Philippines and back, that portion of revenue pertaining to the return trip to the Philippines
shall not be included as part of GPB.

In case of a flight that originates from the Philippines, but transshipment of passenger,
excess baggage, cargo and/or mail takes place elsewhere in another aircraft belonging to a
different airline company, the GPB shall be determined based on that portion of the revenue
corresponding to the leg flown from any point in the Philippines to the point of transshipment.

In cases where a flight is interrupted by force majeure resulting in the transshipment

of the passengers, their excess baggage, freight, cargo and/or mail to another airplane
operated by another airline company and transshipment takes place in another country, the
GPB shall be determined based on that portion of flight from the Philippines up to the point of
said transshipment.

RATIONALIZATION OF TAXES ON INTERNATIONAL CARRIERS

The policy behind the rationalization of taxes on international carriers as provided for
in RA 10378 and RR 15-2013 is to improve the competitiveness of the Philippine Tourism
Industry by encouraging more international carriers to maintain flight and shipping operations
in the country and by the eventual reduction of international plane and ship fares. There are
intended to facilitate the movement of goods and services and to attract more foreign tourists
and investments.

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Applicable Income Tax of Common Carriers (Summary)

Common Carrier ORDINARY INCOME PASSIVE CAPITAL
INCOME* GAINS**
Domestic Common Carriers (Higher): 25% RCIT or 1% MCIT FWT CGT
(local companies)

International Carriers (RFCs) GR: 2.5% GPB; or FWT CGT

Preferential % or Exempt on the basis

of a treaty or reciprocity

SPECIAL CORPORATIONS (NON-RESIDENT FOREIGN CORPORATIONS)

Under the Tax Code, certain corporations are subject to lower tax rates on their regular
income instead of the normal or regular corporate tax of 25%. These corporations are
classified as special corporations. However, certain passive incomes and capital gains on sale
of shares of closely held domestic corporations and real properties situated in the Philippines
are still subject to applicable final withholding taxes and capital gains tax, as the case may be.

NONRESIDENT FOREIGN CORPORATIONS

● Nonresident owner or lessor of vessel 4.5%
● Nonresident cinematographic film owner, lessor 25%
or distributor
● Nonresident lessor of aircraft, machinery and 7.5%
other equipment

A differentiation:
Lease or charter of:
Lessor Other
Cinema films Vessels Aircraft
equipment
Domestic 25% WTI 25% WTI 25% WTI 25% WTI
Resident foreign 25% PTI 2.5% GPB 2.5% GPB 25% PTI
Non-resident
25% PGI 4.5% PGI 7.5% PGI 7.5% PGI
foreign
WTI – World taxable income; PTI – Philippine taxable income; PGI – Philippine Gross income; GPB – Gross
Philippine billings

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CLASSIFICATION (GROUPINGS) of Taxpayers under RA 11976 or the EASE OF PAYING

TAXES ACT (EOPTA)
Under RA 11976, paragraph "B" of Section 21 of the Tax Code was "added" as follows:
Section 21 (b): Classification of Taxpayers. - For purposes of responsive tax
administration, taxpayers shall be classified as follows:

Group** Gross Sales***

Micro Less than P3M
Small P3M to less than P20M
Medium P20M too less than P1B
Large P1B and above

**These categories shall apply to all types of taxpayers (individuals, estates, trusts,
corporations, partnership, joint ventures, etc.).
***Gross Sales under these categories shall refer to:
- Total sales revenue, net of vat, if applicable, during the taxable year, without
any other deductions; and
- Business income, excluding compensation income earned under employer-
employee relationship, passive income under Sections 24, 25, 27 and 28, and
income excluded under Section 32(B), all of the Tax Code, as amended.
Business income shall include income from the conduct of trade or business or
the exercise of a profession.

PURPOSE of GROUPING Taxpayers as Micro, Small, Medium and Large:

1. For purposes of responsive tax administration.
2. Provide certain tax concessions to Micro and Small taxpayers, such as the following
civil penalties and other concessions:
- Reduced surcharge rate to 10% surcharge;
- Reduced interest rate to 6% interest;
- Reduced to P500 the penalty for failure to file certain information returns;
- Reduced compromise penalty rate to 50% on violations invoicing/printing of
invoices)
- Income Tax Return (ITR) was reduced to two (2) pages only

NOTE:
- Civil penalties and interest are discussed Tax Remedies.
- Micro and small taxpayers are still required to withhold taxes as mandated by
law and regulations (exemption from withholding tax obligation was vetoed by
the President).

FILING OF INCOME TAX RETURNS (ITR) AND PAYMENT OF TAX DUE (RR 4-2024)
The filing of income tax return shall be made by the President, Vice- President or other
principal officers in behalf the company. The return shall be sworn to by the above officer and
by the Treasurer or Assistant Treasurer Declaration of quarterly corporate income tax on a
cumulative basis is required.

Under RA 11976 or the EOPTA, the filing of tax returns shall be done electronically in
any of the available electronic platforms However, in case of unavailability of the electronic
platforms, manual filing of tax returns may be allowed. For tax payments, the same shall be
made either electronically in any of the available electronic platforms or manually to any
Authorized Agent Banks (AABs) and Revenue Collection Officers (RCOs).

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1. PLACE OR VENUE OF FILING TAX RETURN AND PAYMENT OF THE TAX DUE:

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2. MODE OF FILING RETURN AND PAYMENT OF THE TAX DUE (RR 4-2024)

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3. DUE DATE OF FILING THE RETURN AND PAYMENT OF THE TAX DUE
• Quarterly return - On or before the 60th day following the close of the taxable quarter
[applicable for the first three (3) quarters of the year]

• Annual return - On or before the 15th day of the 4th month following the end of the
taxable year (i.e. April 15 for corporations using calendar year period)

The tax so computed shall be decreased by the amount of tax previously paid or
assessed during the preceding quarters. Final Adjustment Return covers the total taxable
income for the preceding calendar/fiscal year filed on or before 15 th day of the 4th month
following the close of the taxable year (April 15 of the following year using calendar period).

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 pay the
balance of tax still due, or carry over the excess credit, or be credited or refunded with the
excess amount paid. In case the corporation is entitled to a 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. Once the option to carry-over has been
made, such option shall be considered irrevocable for hat taxable period.

ELECTRONIC FILING AND PAYMENT SYSTEM (EFPS)

To provide taxpayers a more efficient manner of filing tax returns and payment of tax
dues, the Bureau of Internal Revenue (BIR) introduced Electronic Filing and Payment System
(EFPS) in 2001 under RR 9-2001.

RR 9-2001 defines EFPS as the system developed and maintained by the BIR for
electronically filing tax returns, including attachments, if any, and paying taxes due thereon,
specifically through the internet. Upon filing, a "Filing Reference Number" is issued by the
EFPS as a control number to acknowledge that a tax return, including attachments, has been
successfully filed electronically. This shall serve as evidence of filing and the date of filing of
the return. Upon payment of the tax due to an Authorized Agent Bank (AAB) under EFPS, the
AAB shall issue “Acknowledgement Number" as a control number to the BIR to confirm that
tax payment has been credited to the account of the government or recognized as revenue
(internal revenue tax collection) by the Bureau of Treasury. Likewise, a "Confirmation Number"
shall be issued by the AAB as a control number to the taxpayer and BIR to acknowledge that
the taxpayer's account has been successfully debited electronically in payment of his tax
liability. This shall serve as evidence of the fact of payment of the taxpayer's liability to the
extent of the amount reflected in the Confirmation Number, and the date of payment by the
taxpayer.

EFPS Authorized Agent Banks refers to a BIR authorized agent bank (AAB) that has
passed the accreditation criteria for EFPS AAB such as being an internet- ready bank,
indorsed by Bureau of Treasury for EFPS accreditation, certified by the Information Systems
Group of the BIR that the applicant bank's system is acceptable and compatible with the EFPS
of the BIR. EFPS is open to all taxpayers who wish to make use of the system. It was initially
introduced to the taxpayers under the Large Taxpayers Service. However, the BIR has seen
the need to identify taxpayers who will be mandated to use the system, such as those required
under RR 1-2013 and RR 4-2023 as follows:
a. Large Taxpayers duly notified by the BIR, as amended
b. Top 20,000 Private Corporations Taxpayers duly notified by the BIR, as amended
c. Top 5,000 Individual Taxpayers duly notified by the BIR (RR 6-2009)

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d. Corporations with Paid-Up Capital Stock of P10 Million and above (RR No. 10-
2007)
e. Procuring Government Agencies with respect to withholding of at and Percentage
Taxes (RR 3-2005)
f. Taxpayer Account Management Program (TAMP) Taxpayers (RR No. 10- T. 2014)
g. Accredited Importer and Prospective Importer required to secure the BIR-ICC 9. &
BIR-BCC (RR No. 10-2014)
h. National Government Agencies (NGAs) (RR 1-2013)
i. Insurance companies and Stock brokers (RMC No. 71-2004)
j. All Licensed Local Contractors (RR No. 10-2012) Enterprises Enjoying Fiscal
Incentives (such as PEZA and BOI registered business enterprises (RR No. 1-
2010)
k. Enterprises Enjoying Fiscal Incentives (PEZA, BOI, Various Zone Authorities, Etc.)
(RR No. 1-2010)
• Philippine Economic Zone Authority (PEZA)
• Board of Investments (BOI)
• Various zone authorities
• Cagayan Special Economic Zone Authority
• Export Development Council
• Tourism Infrastructure and Enterprise Zone Authority; and
• PHIVIDEC Industrial Authority.

USE OF ELECTRONIC BIR FORMS

The eBIR Forms, as provided in RR 6-2014 and RMC 61-2012, as amended was
developed to provide taxpayers particularly the non-eFPS filers with accessible and
convenient service, through easy preparation of tax returns. eBIR Forms will and accuracy in
the filing of tax returns improve the BIR's tax return data capture and storage thereby
enhancing efficiency and accuracy in the filing of tax returns.

eBIR Forms refer to the two (2) types of electronic services provided by the BIR relative
to the preparation, generation and submission of tax returns, which are the:
• eBIR Forms System for Online Filing; and
• eBIR Forms Package to fill-out forms offline

The "eBIR Forms" Package can be downloaded through the BIR website or a copy of
the software package may be requested from the taxpayer's registered RDO particularly in the
designated BIR e-Lounge.

eBIRForms Software Package" (also known as Offline eBlR Forms Package) is a tax
preparation software that allows the taxpayer and Accredited Tax Agent (ATA) to accomplish
or fill-up tax forms offline. It is an alternative mode of preparing tax returns which deviates from
the conventional manual process of filing-up tax returns on pre-printed forms that is highly
susceptible to human error. Taxpayers/ATAs can directly encode data, validate, edit, save,
delete, view and print the tax returns. The form package has automatic computations and has
the capability to validate information inputted by the taxpayers/ATAs.

"Online eBIRForms System" is a filing infrastructure that accepts tax returns submitted
online and automatically computes penalties for tax returns submitted beyond due date. The
System creates secured user accounts thru enrollment for use of the online System, and
allows ATAs to file on behalf of their clients. The System also has a facility for Tax Software
Providers (TSPs) to test and certify the data generated by their tax preparation software
(certification is by form). It is capable of accepting returns data filed using certified TSP's tax
preparation software.

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Coverage of Taxpayers Required to File Returns through Electronic Bureau of Internal

Revenue Forms (eBIR Forms) under RR 4-2023.

Section 4 of RR 4-2023 dated May 4, 2023 provides that only non-eFPS filers are
covered by the regulation specifically:
a. Accredited Tax Agents/Practitioners and all its client-taxpayers
b. Accredited Printers of Principal and Supplementary Receipts/Invoices
c. One-Time-Transaction (ONETT) taxpayers who are classified as real estate
dealers/developers; those who are considered as habitually engaged in the sale of real
property and regular taxpayers already covered by eBIR Forms. Thus taxpayers who
are filing BIR Form No. 1706, 1707, 1800, 1801, and 2000-OT (For BIR Form No. 1706
only) are excluded in the mandatory coverage from using eBIR Forms;
d. Those who shall file a "No Payment Return"
e. Government-owned or controlled corporations (GOCCs):
f. Local government units (LGUs) including Barangays: and
g. Cooperatives registered with the National Electrification Administration (NEA) and
Local Water Utilities Administration (LWUA)

Reference:

Tabag, E.D., Garcia, E.J.R., (2024 Edition), Income taxation

Banggawan, R. B. (2023-2024 Edition), Income Taxation Laws, Principles and Applications

Bureau of Internal Revenue, https://www.bir.gov.ph/index.php/tax-information/income-

tax.html

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