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Corp Tax

This document defines key terms related to corporations under Philippine tax law. It discusses that a corporation is an artificial being created by operation of law. It must comply with reporting requirements and is distinct from partnerships. The document also classifies corporations as domestic or foreign and resident or non-resident. It provides the tax rates applied to different types of corporations and discusses changes introduced by recent tax laws. Special provisions for minimum corporate income tax, excess payments, and certain exempt entities are also summarized.

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Master GT
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37 views4 pages

Corp Tax

This document defines key terms related to corporations under Philippine tax law. It discusses that a corporation is an artificial being created by operation of law. It must comply with reporting requirements and is distinct from partnerships. The document also classifies corporations as domestic or foreign and resident or non-resident. It provides the tax rates applied to different types of corporations and discusses changes introduced by recent tax laws. Special provisions for minimum corporate income tax, excess payments, and certain exempt entities are also summarized.

Uploaded by

Master GT
Copyright
© © All Rights Reserved
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Corporation

 Artificial being
 Operation of law
o Must comply with the reportorial requirements
o Different from Creation by Law
 Created by the law itself
o Private Corporation
 Right of succession and the powers, attributes and properties expressly authorized by law or
incident to its existence
 Issuance of Articles of incorporation = Birth of the corporation
 Must be registered in the SEC
 For income tax purpose, the term “ Corporation” shall include:
1. One-person Corporation
2. Partnership, no matter how created or organized
 Not Included: General Professional Partnership
 Contractual agreement of two or more properties contracting themselves to
contribute money or property
 Created by the consent of the partners
3. Joint Stock Companies
4. Joint Accounts (cuentas en participacion)
5. Associations or Insurance Companies
 Does not include:
1. General Professional Partnership
 A partnership formed by persons for the sole purpose of exercising their
common profession, no part of the net income of which is derived from
engaging in any trade or business.
2. Joint Venture or consortium:
 formed for the purpose of undertaking construction projects
 Law on statutory construction
o Service Contract: Exempt from tax when transacting with the
Government and Private Corporation
 for engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service contract
with the government
 Law on statutory construction
o Service Contract: Exempt from tax when transacting with the
Government, BUT NOT if transaction with Private Corporation

Classification of Corporations
1. Domestic Corporation
o Created or organized in the Philippines.
2. Foreign Corporation
o corporation, which is not domestic, and it may be a resident and non-resident
corporations.
 Resident Corporation
 Foreign Corporation engaged in business in the Philippines.
 Non-resident Corporation
 Foreign Corporation not engaged in business in the Philippines but
deriving income from the Philippines.
 Branch
Tax Base and Tax Rate

25% from 30% Due to CREATE Law Income


July 1, 2020 Within Without
Domestic Corporation Yes Yes Taxable income x 30% = Normal income tax

Resident Foreign Corporation Yes No Taxable income x 30% = Normal income tax
Non-resident foreign Corporation Yes No Gross income x 30% = Final tax
Taxable partnerships, joint ventures, etc Yes Yes Taxable income x 30% = Normal income tax

CREATE/TRAIN LAW CHANGES


2019 July 1 2020 2021 2022
DC 30% 27.5% 27.5% 27.5%
RFC 30% 27.5% 27.5% 27.5%
NRC 30% 30% 25% 25%
ROHQ 10% 10% 10% 25%

ROHQ: Regional Operation Headquarters


o Extension of Foreign corporations

PPIE: Proprietary/Private educational institution and non-profit hospital


o 30% - income from unrelated business exceeds 50% (pre-dominance test)
o 10% - income from unrelated business 50% and below

Minimum Corporate Income Tax


o Penalty Tax
o Based on GROSS INCOME
o Applies at the 4th year of the corporation after registration from the BIR
o Excess in MCIT is applicable for the next 3 succeeding years
o Applicable to domestic corp and resident foreign corp

2019 2020 2021 2022 June 1, 2023 2024 onwards


DC 2% 1.5% 1% 1% 1.5% 2%
RFC 2% 1.5% 1% 1% 1.5% 2%
ROHQ 2% 2% 2% 1% 1.5% 2%
OBU 2% 2% 1% 1% 1% 2%

OBU: Offshore banking Units


 Domestic corp = taxed within and without
o Unless special corp or under special tax regine
o if tax exempt entity but incurs income from purpose not registered, then taxable.
 Resident foreign corp = within only
o Unless special corp or under special tax regine
 any domestic corporations and resident foreign corporations beginning on the fourth (4th)
taxable year.
 The MCIT shall be imposed whenever:
1. The corporation has zero taxable income
2. The corporation has negative taxable income
3. Whenever the amount of MCIT is greater than the RCIT due from such corporation. MCIT is
always computed and compared to RCIT starting on the fourth year of operations. The
higher amount should be the tax due from the taxable year.
 MCIT is imposed only on domestic corporations that are subject to regular corporate tax. Hence
it is not imposed in the following:
1. Proprietary educational institution and non-profit hospitals as they are subject to ten
percent (10%) on their taxable income.
2. Foreign Currency Deposit Units (FCDU) as their income from foreign currency transactions
with local commercial banks and foreign banks and their interest income from foreign
currency loans granted to residents of the Philippines are subject to final tax at ten percent
(10%) of such income.
3. Firms that are taxed under a special income tax regime such as those in accordance with the
Philippine Economic Zone Authority Law and the Bases Conversion Development Act.
4. "International carrier" as they are subject to a tax of two and one-half percent (2 ½%) of
their Gross Philippine Billings
5. Offshore Banking Units (OBUs) as their income from foreign currency transactions with local
commercial bank and foreign banks and interest income from currency loans granted to
residents of the Philippines are subject to a final income tax of ten percent (10%) of gross
income.
6. Regional operating headquarters since they are subject to a ten- percent (10%) of their
taxable income.

Relief from MCIT

The Secretary of Finance is authorized to suspend the imposition of minimum corporate income
tax on any corporation due to:

1. Substantial losses from a prolonged labor dispute


 means losses arising from a strike staged by the employees which lasted for
more than 6 months within a taxable period, and which has caused the temporary
shutdown of business operations.
2. Force majeure
 means a cause due to an irresistible force as by “Act of God” like lightning, earthquake,
storm, flood, and the life.
3. Legitimate business reverses
 shall include substantial losses sustained due to fire, robbery, theft, or embezzlement,
or for other economic reason as determined by the Secretary of Finance

Excess MCIT Paid

 Any amount paid as excess MCIT shall be recorded in the corporation’s book as an asset under
account title “Deferred Charges-MCIT”.
 This asset account shall be carried forward and may be credited against the NIT due for a
period not exceeding 3 taxable years immediately succeeding the taxable year/s in which
the same has been paid.
 Any amount of the excess MCIT which has not or cannot be credited against the NIT due for the
reglementary period shall lose its credibility.
Tax Base and Tax Rates of Special Domestic Corporations

Special Domestic Corporations Tax Base Tax Rate


Proprietary/Private educational Taxable income – World 10% - income from unrelated
institution and non-profit business 50% and below
hospital
30% - income from unrelated
business exceeds 50% (pre-
dominance test)
Government owned or Taxable income – World Same as those imposed upon
controlled corporations, corporation or association
agencies, or instrumentalities engaged in similar business, or
activity.

Corporate Taxpayers
 Does not include corporations itself

General Professional Partnership


 Exempted from taxes as a corporation
 Distributed to the partners

IAET
 Tax in the event the retained earnings of the corporation is excessive
 One year period to declare the cash dividends
 Deadline: January 15
 Remedy: declare dividends

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