TAXATION OF

CORPORATIONS
 CORPORATION

Sec 2 of B.P. 68 defines corporation as an

artificial being created by law, having the
right of succession and the powers,
attributes and properties expressly
authorized by law or incident to its
existence.
 CORPORATION

It includes not only corporation but also:

1. Partnership, no matter how created or
formed
2. Joint-stock companies
3. Joint accounts (cuentas en participation)
4. Association, or insurance companies
 CORPORATION

But does not include

1. General professional partnership

2. Joint venture or consortium formed for the

purpose of undertaking construction projects
or engaging in petroleum, coal, geothermal
and other energy operations pursuant to an
operating or consortium agreement under
service contract with the government
CLASSIFICATION OF CORPORATION

1. Domestic Corporation – a corporation created or

organized in the Philippines
2. Foreign Corporation – a corporation organized,
authorized or existing under any laws other than the
Philippine law. Foreign corporation may either be:
a. Resident foreign – engaged in trade or business
within the Philippines or having an office or place
of business therein
b. Non-resident foreign – not engaged in trade or
business in the Philippines
TAXABILITY OF CORPORATIONS

CORPORATION INCOME INCOME TAX

WITHIN WITHOUT BASE
1. Domestic Taxable Taxable Taxable
Income
2. Resident Taxable Not Taxable
foreign Taxable Income
3. Non-resident Taxable Not Gross
foreign Taxable Income
PASSIVE INCOME SUBJECT TO FINAL TAX

The following income within of a domestic and/or resident foreign

corporation shall be subject to twenty percent (20%) final tax
1. Interest on Philippine currency bank deposit
2. Yield of any other monetary benefit from deposit substitute
3. Yield from trust funds and similar arrangements
4. Royalties

The interest income derived by a domestic or resident foreign

corporation from a depository bank under the expanded foreign
currency deposit system shall be subject to a final tax rate of 15%
(Domestic Corporation ) and 7 ½% (Resident Foreign Corporation)
of such interest income.
If the interest income is received by a non-resident foreign
corporation, the same is exempt from income tax.
Case 4-1
Katya Corporation had the following data in 2014:
Gross income, Philippines P 600,000
Gross income, U.S.A. 500,000
Expenses, Philippines 300,000
Expenses, U.S.A. 300,000
Interest from time deposit 10,000
Interest on money market placement,
net of tax 21,000
REQUIRED: Compute the income tax due and the final taxes
payable if Katya Corporation is a :
a. Domestic Corporation
b. Resident foreign corporation
c. Non-resident foreign corporation
 MINIMUM CORPORATE INCOME TAX

Imposition of the tax

1. The tax applies only to domestic and resident foreign
corporations.
2. The tax rate to be imposed is 2% of gross income.
3. The computation and the payment shall apply at the
time of filing the quarterly corporation income tax
4. The effectivity shall commence on the 4th taxable year
immedietaly following the year in which such
corporation commenced its business operation.
 MINIMUM CORPORATE INCOME TAX

Imposition of the tax (continuation)

5. This tax shall be imposed whenever the corporation has

zero or negative taxable income or whenever the MCIT is
greater than the Normal Income Tax (NIT) due from such
corporation.
6. The term gross income for purposes of computing MCIT
includes other items of gross income realized or earned by
the taxpayer during the taxable period which are subject
to normal corporate income tax. Thus, it excludes income
exempt from income tax and income subject to final
withholding tax.
CARRY FORWARD OF EXCESS MCIT

Any excess of the MCIT over the Normal

Income Tax (NIT) shall be carried forward on
an annual basis and credited against the
Normal Income Tax for the three (3)
immediately succeeding taxable years.
 Case 4-2

Jelly Corporation which was organized on October 20,

2009 has the following data:

2012 2013 2014 2015

SALES 1,600,000 2,200,000 3,500,000 2,900,000
COST OF SALES 1,100,000 1,200,000 2,300,000 1,940,000
DEDUCTIONS 495,000 990,000 1,150,000 800,000

REQUIRED: Compute the income tax payable in 2012,

2013, 2014 and 2015
QUARTERLY COMPUTATION AND
PAYMENT OF MCIT

In the filing of the quarterly income tax return

for the taxable quarter, the computation of
the MCIT shall be done on a cumulative
basis covering not only the current taxable
year but also the previous taxable quarters of
the same taxable year.
 Case 4-3
Marlon Corporation had the following data during the year:
QUARTER NIT MCIT Taxes Excess Excess
Withheld MCIT W/tax
taxes prior
prior year
year
1st 50,000 40,000 10,000 15,000 5,000
2nd 60,000 125,000 15,000
3rd 125,000 50,000
REQUIRED: Compute the income20,000
tax payable in 2012,
4th
100,000
2013, 2014 and 2015 50,000 17,500
TOTAL 335,000 265,000 62,500

REQUIRED: Compute the quarterly income tax and the

annual income tax payable by the corporation.
RELIEF FROM MCIT
The secretary of Finance is authorized to suspend
the imposition of the minimum corporate income
tax on any corporation which suffers losses on
account of:

1. Prolonged labor dispute

2. Force majeure
3. Legitimate business reverses
EXCEPTIONS TO MCIT
MCIT shall not be imposed upon any of the following
1. Proprietary educational institutions subject to tax at 10% of
their taxable income
2. Hospitals which are nonprofit subject to tax at 10% of their
taxable income
3. Depository bank under the expanded currency deposit
system
4. Offshore banking units (OBUs) subject to final tax of 10%
5. International carriers subject to tax at 2.5% of Gross
Philippine Billings
6. Regional operating headquarters subject to tax at 10% of
their taxable income
7. Firms that are under a special tax regime such as those in
accordance with the PEZA law and Bases Conversion
Development Authority
SPECIAL CORPORATIONS
A. Domestic Corporations
1. Proprietary educational institutions and hospitals
2. Government owned and controlled corporations
B. Resident Foreign Corporation
1. International Carrier
2. Offshore banking units
3. Branch profit remittance
4. Regional or area headquarters and Regional
Operating Headquarters of Multinational
Companies
SPECIAL CORPORATIONS
C. Non-resident Foreign Corporations
1. Nonresident Cinematographic Film Owner, Lessor
or Distributor
2. Nonresident Owner/Lessor of Vessels Chartered
by Philippine Nationals
3. Nonresident Owner or Lessor of Aircraft,
Machineries and other Equipment
Proprietary educational institutions
and hospitals
Proprietary educational institutions and hospitals
which are non-profit, shall pay a tax of ten
percent (10%) of their taxable income

However, if the gross income from unrelated

trade or business or other activity exceeds fifty
percent (50%) of the total gross income
derived by such educational institutions and
hospitals from all sources, the tax shall be based
on the usual tax rates imposed on corporations
(predominance test), that is 30%.
Proprietary educational institutions
and hospitals
In addition to expenses allowable as deductions, a
private educational institution, may at its option
elect either:

1. To deduct expenditures otherwise considered as

capital outlay or depreciable assets incurred
during the taxable year for the expansion of
school facilities.
2. To deduct allowance for depreciation thereof
GOCCs
All GOCCs, agencies and instrumentalities, shall be subject
to income tax on income from business industry or activity
similarly taxable in the hands of private enterprises,
except the following:

a. Social Security Services (SSS)

b. Government Service Insurance System (GSIS)
c. Philippine Health Insurance Corporation
d. Philippine Charity Sweepstakes Office (PCSO)
e. Local Water Districts (LWD) (RA 10026)
International Carrier
International Carrier doing business in the Philippines
shall pay a tax of 2.5% on its Gross Philippine
Billings.

Gross Philippine Billings – refer to the amount of

gross revenue derived from the carriage of persons,
excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place
of payment of the ticket or passage document.
Offshore Banking Units
A final withholding tax of 10% based on the gross
amount thereof shall be imposed on income derived
by offshore banking units authorized with local
commercial banks and branches of foreign banks that
may be authorized by the BSP to transact business
with OBUs including interest income derived from
foreign currency loans granted to residents.
Branch Profit Remittance
A final withholding tax of 15% of any profit remitted
by the Philippine Branch of a foreign corporation to
its head office based on the total profits applied or
earmarked for remittance without any deduction for
the tax component thereof, except those registered
with the following:
1. Philippine Economic Zone Authority (PEZA)
2. Subic Bay Metropolitan Authority (SBMA)
3. Clark Development Authority (CDA)
4. Other companies within the special economic zones
Regional or area headquarters and Regional
Operating Headquarters of Multinational Companies

1. Regional or area headquarters shall

not be subject to income tax
2. Regional operating headquarters
shall pay a tax of 10% of their
taxable income
SPECIAL CORPORATIONS
C. Non-resident Foreign Corporations
1. Nonresident Cinematographic Film Owner, Lessor or
Distributor – 25% o its gross income from all sources
within the Philippines
2. Nonresident Owner/Lessor of Vessels Chartered by
Philippine Nationals – 4.5% of gross rentals, lease or
charter fees from leases or charters to Filipino
Citizens or corporation, as approved by the
Maritime Industry Authority (MIA)
3. Nonresident Owner or Lessor of Aircraft, Machineries
and other Equipment – 7.5% of gross rentals or fees