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Notes in Tax on Corporations

I. Classification of corporate taxpayers

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

II. Income subject to tax and type of tax

a. Taxable Income - Normal Tax (NIT)

- Gross Income Tax (GIT)
- Minimum Corporate Income Tax (MCIT)
b. Passive Income - Final Tax (FT)
c. Capital Gain - Capital Gain Tax (CGT)

III. Domestic Corporation and applicable income taxes

(A) For taxable Income

Type of Tax Tax Base Tax Rate

a. Normal Tax Taxable Income 30%
b. Gross Income Tax Gross Income 15%
c. Minimum Corporate Income Gross Income 2%
tax

(B) For Passive Income

a. Interest on currency bank deposit 20%

b. Royalties 20%
c. Interest income derived by a domestic
corporation from a depository bank
under the expanded foreign currency
7%
deposit system
d. Dividends received by a domestic
corporation from another domestic
corporation Exempt

Notes:
1. Passive income shall include income derived from sources within the
Philippines.
2. Income derived by a depository bank under the expanded foreign
currency deposit system from foreign currency loans granted by such
depository banks under said expanded foreign currency deposit
system to residents are subject to final income tax at the rate of 10%.

Any income of non-residents whether individuals or corporations, from

transactions with depository banks under the expanded system is
exempt from income tax.

(C) For Capital Gain

a. Capital Gain from sale of shares of stock not traded in the stock
exchange
Not over P100, 000 5%
On any amount in excess of P100, 000 10%

b. Capital Gain from Sale of Real Property

6% of gross selling price or the fair market value, whichever is

higher.

(D)Special Rules for special corporations

Taxpayer Tax Base Rate

a. Proprietary Educational Taxable Income 10%
institution
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b. Hospitals which are non-profit Taxable Income 10%

c. Government owned and (See notes) (See notes)
controlled corporations

Notes:
1. If the gross income from unrelated trade, business or other activity of
a proprietary educational institution or non-profit hospital exceeds 50%
of the total gross income derived by such educational institutions or
hospitals from all sources, the tax prescribed on ordinary corporations
shall be imposed on the entire taxable income.

The term unrelated trade or 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 or its primary purpose or function.

2. Government owned or controlled corporations are subject to the same

tax imposed on ordinary corporations engaged in similar business or
industry.

The following government owned or controlled corporations are

exempt from income tax:
a. Government Service Insurance System (GSIS)
b. Social Security System (SSS)
c. Philippine Health Insurance Corporation (PHIC)
d. Philippine Charity Sweepstakes Office (PCSO)

IV. Resident foreign corporation and applicable income taxes

(A) For taxable income

Type of Tax Tax Base Tax Rate

a. Normal Tax Taxable Income 30%
b. Gross Income Tax Gross Income 15%
c. Minimum Corporate Income Gross Income 2%
tax

Notes:
1. Taxable income shall include income derived from sources within.
2. Rules on GIT applicable to domestic corporations are also applicable to
resident foreign corporations.
3. Rules on MCIT applicable to domestic corporations are also applicable
to resident foreign corporations.
4. Branch profit remittance tax. Any profit remitted by a branch to its
head office shall be subjected to a tax of 15% which shall be based on
the total profits applied or earmarked for remittance without any
deduction for the tax component thereof.

Interests, dividends, rents, royalties, including remuneration for

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

(B) For Passive Income

a. Interest on currency bank deposit 20%

b. Royalties 20%
c. Interest income derived by a domestic
corporation from a depository bank
under the expanded foreign currency
7%
deposit system
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d. Dividends received by a domestic

corporation from another domestic
corporation Exempt

Notes:
3. Passive income shall include income derived from sources within the
Philippines.
4. Income derived by a depository bank under the expanded foreign
currency deposit system from foreign currency loans granted by such
depository banks under said expanded foreign currency deposit
system to residents are subject to final income tax at the rate of 10%.

Any income of non-residents whether individuals or corporations, from

transactions with depository banks under the expanded system is
exempt from income tax.

(C) For Capital Gain

a. Capital Gain from sale of shares of stock not traded in the stock
exchange
Not over P100, 000 5%
On any amount in excess of P100, 000 10%

b. Capital Gain from Sale of Real Property

6% of gross selling price or the fair market value, whichever is

higher.

(D)Special rules for special corporations

Taxpayer Tax Base Rate

a. International carrier doing business Gross 2%
in the Philippines Philippine
Billings
b. Regional or area headquarters of Exempt Exempt
Multinational Companies
c. Regional operating headquarters of Taxable Income 10%
Multinational Companies

V. Non-resident foreign corporation and applicable income taxes

(A) For Taxable Income

Taxable Income Tax Base Tax Rate

Interests, dividends, rents, royalties.
Salaries, premiums (except reinsurance
premiums), annuities, emoluments or
other fixed or determinable annual
periodic or casual gains, profits and Gross Income 30%
income and capital gains, except
capital gains subject to CGT

Notes:
1. Taxable income shall include income derived from sources within.
2. Rules on GIT applicable to domestic corporations are not applicable
to non-resident foreign corporations.

Rules on MCIT applicable to domestic corporations are not

applicable to non-resident foreign corporations

(B) For passive income

a. Interest on foreign loans 20%

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b. Dividends received from a domestic 15%

corporation

Note: Passive income shall include income derived from sources within the
Philippines.

(C) For Capital Gain

a. Capita Gain from sale of shares of stock not traded in the stock
exchange
Not over P100, 000 5%
On any amount in excess of P100, 000 10%

b. Capital Gain from Sale of Real Property

6% of gross selling price or the fair market value, whichever is higher

(D)Special Rules for special corporations

Taxpayer Tax Base Rate

a. Non-resident Cinematographic Film Owner,
Lessor or Distributor Gross Income 25%
b. Non-resident Owner or Lessor of Vessels Gross rental,
Chartered by Philippine Nationals lease or 4%
charter fees
c. Non-resident owner or lessor or aircraft, Gross rental 7%
machineries and other equipment fees

VI. Improperly accumulated earnings tax (IAE Tax)

Improperly accumulated taxable income 10%

Notes:
1. Improperly accumulated taxable income is computed using the following
formula:

Taxable xx
Income
Add:
Income exempt from tax xx
Income excluded from gross Income xx
Income subject to final tax xx
Amount of net operating loss carry over xx
deducted
Less:
Dividends actually or constructively xx
paid
Income tax paid for the taxable year xx
Amount reserved for the reasonable
needs of the business emanating from
the covered years taxable income xx
(Revenue regulation)
Improperly accumulated Income xx

2. Improperly accumulated earnings tax shall be imposed on every

corporation formed or availed for the purpose of avoiding income tax with
respect to its shareholders or the shareholders of any other corporation by
permitting earnings and profits to accumulate instead of being divided or
distributed.
3. The fact that the earnings or profits of a corporation are permitted to
accumulate beyond the reasonable needs of the business shall be
determined of the purpose to avoid the tax upon its shareholders or
members unless the corporation proves to the contrary.
4. The term reasonable needs of the business means reasonably
anticipated needs of the business.
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5. The fact that any corporation is a mere holding company or investment

company shall be a prima facie evidence of a purpose to avoid the tax
upon its shareholders or members.
6. The Improperly Accumulated Earnings Tax does not apply to the following
corporations:
a. Banks and other non-bank financial intermediaries.
b. Insurance companies.
c. Publicly-held corporations
d. Taxable partnerships.
e. General Professional partnerships.
f. Non-taxable joint ventures
g. Enterprise duly registered with the Philippine Economic Zone
Authority (PEZA) under R.A. 7961 and enterprises registered
pursuant to the Bases Conversion and Development Act of 1992
under R.S. 7227.

***Nothing Follows***