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VI.

TAX ON CORPORATIONS: BASES AND RATES consecutive taxable years during which the corporation
is qualified under the scheme.
A. Corporations
Taxable Income For purposes of this Section, the term 'gross income'
derived from business shall be equivalent to gross sales
SEC. 27. Rates of Income tax on Domestic less sales returns, discounts and allowances and cost of
Corporations. - goods sold"Cost of goods sold" shall include all business
(A) In General. - Except as otherwise provided in this expenses directly incurred to produce the merchandise
Code, an income tax of thirty-five percent (35%) is to bring them to their present location and use.
hereby imposed upon the taxable income derived
during each taxable year from all sources within and For a trading or merchandising concern, "cost of goods"
without the Philippines by every corporation, as sold shall include the invoice cost of the goods sold,
defined in Section 22(B) of this Code and taxable under plus import duties, freight in transporting the goods to
this Title as a corporation, organized in, or existing the place where the goods are actually sold, including
under the laws of the Philippines: Provided, That insurance while the goods are in transit.
effective January 1, 1998, the rate of income tax shall
be thirty-four percent (34%); effective January 1, 1999, For a manufacturing concern, "cost of goods manufactured
the rate shall be thirty-three percent (33%); and and sold" shall include all costs of production of finished
effective January 1, 2000 and thereafter, the rate shall goods, such as raw materials used, direct labor and
be thirty-two percent (32%). manufacturing overhead, freight cost, insurance
premiums and other costs incurred to bring the raw
In the case of corporations adopting the fiscal-year materials to the factory or warehouse.
accounting period, the taxable income shall be In the case of taxpayers engaged in the sale of service,
computed without regard to the specific date when 'gross income' means gross receipts less sales returns,
specific sales, purchases and other transactions occur. allowances and discounts.

Their income and expenses for the fiscal year shall be Passive Income
deemed to have been earned and spent equally for each Interest, Royalties
month of the period.
SEC. 27. Rates of Income tax on Domestic
The reduced corporate income tax rates shall be Corporations. -
applied on the amount computed by multiplying the (D) Rates of Tax on Certain Passive Incomes. -
number of months covered by the new rates within the (1) Interest from Deposits and Yield or any other Monetary
fiscal year by the taxable income of the corporation for Benefit from Deposit Substitutes and from Trust Funds and
the period, divided by twelve Provided, further, That the Similar Arrangements, and Royalties - A final tax at the rate
President, upon the recommendation of the Secretary of twenty percent (20%) is hereby imposed upon the
of Finance, may effective January 1, 2000, allow amount of interest on currency bank deposit and yield
corporations the option to be taxed at fifteen percent or any other monetary benefit from deposit substitutes
(15%) of gross income as defined herein, after the and from trust funds and similar arrangements received
following conditions have been satisfied: by domestic corporations, and royalties, derived from
(1) A tax effort ratio of twenty percent (20%) of Gross sources within the Philippines: Provided, however, That
National Product (GNP); interest income derived by a domestic corporation
(2) A ratio of forty percent (40%) of income tax from a depository bank under the expanded foreign
collection to total tax revenues; currency deposit system shall be subject to a final
(3) A VAT tax effort of four percent (4%) of GNP; income tax at the rate of seven and one-half percent (7
and 1/2%) of such interest income.
(4) A 0.9 percent (0.9%) ratio of the Consolidated
Public Sector Financial Position (CPSFP) to GNP. (2) Capital Gains from the Sale of Shares of Stock Not Traded
in the Stock Exchange. - A final tax at the rates prescribed
The option to be taxed based on gross income shall be below shall be imposed on net capital gains realized
available only to firms whose ratio of cost of sales to during the taxable year from the sale, exchange or other
gross sales or receipts from all sources does not exceed disposition of shares of stock in a domestic corporation
fifty-five percent (55%). except shares sold or disposed of through the stock
exchange:
The election of the gross income tax option by the
corporation shall be irrevocable for three (3) Not over P100,000………….5%
Amount in excess of P100,000…………….10%

of such persons. the rate shall under the expanded system shall be exempt from be thirty-two percent (32%). 27.A final tax at the rates to be taxed at fifteen percent (15%) on gross income prescribed below shall be imposed on net capital gains under the same conditions. Corporations.000…………. Amount in excess of P100. 2000 and thereafter. ."Gross Philippine Billings" refers to the of fair market value as determined in accordance with amount of gross revenue derived from carriage of Section 6(E) of this Code. or other disposition of shares of stock in a domestic corporation except shares sold or disposed of through (2) Minimum Corporate Income Tax on Resident the stock exchange: Foreign Corporations. .. . however.000…………….An international carrier presumed to have been realized on the sale. excess baggage. - (4) Intercorporate Dividends. 27. and corporations. the taxable income shall be computed without regard to the specific date when SEC. as prescribed Not over P100. 28. Capital Gains The reduced corporate income tax rates shall be applied on the amount computed by multiplying the SEC. exchange (A). whichever is higher. . cargo and mail originating lands and/or buildings.10% under the same conditions. Disposition of Lands and/or Buildings. 1998. fiscal year by the taxable income of the corporation for (D) Rates of Tax on Certain Passive Incomes. .A minimum corporate income tax of two percent (2%) of gross income. Rates of Income Tax on Foreign bank under the expanded foreign currency deposit Corporations. from the Philippines in a continuous and uninterrupted flight.A final tax of six percent (6%) is hereby imposed on the gain (3) International Carrier. That effective January 1. That a (2) Capital Gains from the Sale of Shares of Stock Not resident foreign corporation shall be granted the option Traded in the Stock Exchange. Exchange or Subsection. from transactions with depository banks effective January 1. . effective January 1. or existing banks under the expanded foreign currency deposit under the laws of any foreign country. Rates of Income tax on Domestic sales. Rates of Income tax on Domestic number of months covered by the new rates within the Corporations.5% under Section 27 (E) of this Code. . the rate shall be thirty-three percent (33%). - system from foreign currency transactions with local commercial banks.Dividends received by a Their income and expenses for the fiscal year shall be domestic corporation from another domestic deemed to have been earned and spent equally for each corporation shall not be subject to tax. . Any income of nonresidents. rate of ten percent (10%) of such income. Resident Foreign Corporations place of payment of the ticket or passage document: . month of the period. . the rate of income tax shall be thirty-four percent (34%).Income derived by a depository SEC. that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign (1) In General. irrespective of the place of sale or issue and the B. based on the gross selling price Carrier. including interest income from foreign or business within the Philippines. shall be subject to a final income tax at the year from all sources within the Philippines: Provided. purchases and other transactions occur. a corporation organized. divided by twelveProvided. on a resident foreign corporation taxable under paragraph (1) of this (5) Capital Gains Realized from the Sale. authorized. shall be subject to currency loans granted by such depository banks under an income tax equivalent to thirty-five percent (35%) of said expanded foreign currency deposit system to the taxable income derived in the preceding taxable residents. . whether individuals or 1999. income tax. exchange doing business in the Philippines shall pay a tax of two or disposition of lands and/or buildings which are not and one-half percent (2 1/2%) on its "Gross Philippine actually used in the business of a corporation and are Billings" as defined hereunder: (a) International Air treated as capital assets. . Taxable Income (3) Tax on Income Derived under the Expanded Foreign Currency Deposit System.Except as otherwise provided in this currency depository system units and other depository Code. the period. shall be imposed. including branches of foreign banks (A) Tax on Resident Foreign Corporations. In the case of corporations adopting the fiscal-year Dividends accounting period. as provided in Section 27 realized during the taxable year from the sale. engaged in trade system.

10% (6) Regional or Area Headquarters and Regional (d) Intercorporate Dividends. . subject to tax under this Title. including interest banking units shall be exempt from income tax.The provisions of any law seven and one-half percent (7 1/2%) of such interest to the contrary notwithstanding. resident foreign corporation from a domestic (a) Regional or area headquarters as defined in Section corporation liable to tax under this Code shall not be 22(DD) shall not be subject to income tax. exchange or other disposition of shares of profits. shall be subject to a final remitted by a branch to its head office shall be subject income tax at the rate of ten percent (10%) of such to a tax of fifteen (15%) which shall be based on the income. cargo or the rate of twenty percent (20%) of such interest: mail originating from the Philippines up to final Provided.Any profit deposit system to residents. income and capital gains received by a foreign stock in a domestic corporation except shares sold or corporation during each taxable year from all sources disposed of through the stock exchange: within the Philippines shall not be treated as branch profits unless the same are effectively connected with Not over P100. shall be subject to a final income tax at the deposit system from foreign currency transactions with rate of ten percent (10%) of such income. that interests. sale. On any amount in excess of P100. dividends. That interest income derived by a destination. but transshipment of passenger takes place Foreign Corporation.Dividends received by a Operating Headquarters of Multinational Companies. periodic or casual gains. income derived by income. That tickets revalidated. including any interest income Currency Deposit System . plane in a port or point in the Philippines: Provided.000…………. . rents.… 5% the conduct of its trade or business in the Philippines.000…….Interest from any currency bank deposit and the point of transshipment shall form part of Gross yield or any other monetary benefit from deposit Philippine Billings. royalties. emoluments or other fixed capital gains realized during the taxable year from the or determinable annual. offshore banking units authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with (b) Income Derived under the Expanded Foreign offshore banking units. . however.(a) Interest from Deposits and at any port outside the Philippines on another airline. under the expanded foreign currency deposit system shall be subject to a final income tax at the rate of (4) Offshore Banking Units . The tax shall be collected and paid in the same manner as provided in Sections 57 and 58 of this Code: (c) Capital Gains from Sale of Shares of Stock Not provided. . prescribed below is hereby imposed upon the net wages premiums.Income derived by a derived from foreign currency loans granted to depository bank under the expanded foreign currency residents. further. exchanged and/or (b) Regional operating headquarters as defined in indorsed to another international airline form part of Section 22(EE) shall pay a tax of ten percent (10%) of the Gross Philippine Billings if the passenger boards a their taxable income. from transactions with depository banks Philippine Economic Zone Authority). from transactions with said offshore currency deposit system units.Provided. Trust Funds and Similar Arrangements and corresponding to the leg flown from the Philippines to Royalties . Yield or any other Monetary Benefit from Deposit only the aliquot portion of the cost of the ticket Substitutes. . Branch Profit Remittance Tax . regardless of the place of sale or payments resident foreign corporation from a depository bank of the passage or freight documents. local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Any income of nonresidents.A final tax at the rates including remuneration for technical services. annuities. barter. Traded in the Stock Exchange. . whether individuals or Pilipinas (BSP) to transact business with foreign corporations. salaries. That for a flight which originates from the (7) Tax on Certain Incomes Received by a Resident Philippines. income from foreign currency loans granted by such depository banks under said expanded foreign currency (5) Tax on Branch Profits Remittances. whether individuals or (except those activities which are registered with the corporations. under the expanded system shall be exempt from income tax. substitutes and from trust funds and similar arrangements and royalties derived from sources within (b) International Shipping. total profits applied or earmarked for remittance without any deduction for the tax component thereof Any income of nonresidents."Gross Philippine Billings" the Philippines shall be subject to a final income tax at means gross revenue whether for passenger.

shall be subject to a final resident foreign corporation from a domestic . total profits applied or earmarked for remittance without any deduction for the tax component thereof Dividends (except those activities which are registered with the Philippine Economic Zone Authority). income. Yield or any other Monetary Benefit from Deposit including remuneration for technical services. . periodic or casual gains. .. Rates of Income Tax on Foreign Corporations. - The tax shall be collected and paid in the same manner (7) Tax on Certain Incomes Received by a Resident as provided in Sections 57 and 58 of this Code: Foreign Corporation. 28. whether individuals or (5) Tax on Branch Profits Remittances. Trust Funds and Similar Arrangements and shall be subject to a final income tax at the rate of Royalties .SEC. - the rate of twenty percent (20%) of such interest: (7) Tax on Certain Incomes Received by a Resident Provided. that interests. . rents. emoluments or other fixed Royalties .(a) Interest from Deposits and resident foreign corporation from a domestic Yield or any other Monetary Benefit from Deposit corporation liable to tax under this Code shall not be Substitutes. 28. That interest income derived by a Foreign Corporation. 28. . income from foreign currency loans granted by such depository banks under said expanded foreign currency (d) Intercorporate Dividends. Substitutes. - (7) Tax on Certain Incomes Received by a Resident (d) Intercorporate Dividends. from transactions with depository banks remitted by a branch to its head office shall be subject under the expanded system shall be exempt from to a tax of fifteen (15%) which shall be based on the income tax. . however. royalties. . Rates of Income Tax on Foreign the Philippines shall be subject to a final income tax at Corporations. . dividends. Any income of nonresidents. (A) Tax on Resident Foreign Corporations. SEC. Provided. annuities. 28.(a) Interest from Deposits and provided. That interest income derived by a deposit system from foreign currency transactions with resident foreign corporation from a depository bank local commercial banks including branches of foreign under the expanded foreign currency deposit system banks that may be authorized by the Bangko Sentral ng shall be subject to a final income tax at the rate of Pilipinas (BSP) to transact business with foreign seven and one-half percent (7 1/2%) of such interest currency deposit system units. including interest income.Interest from any currency bank deposit and or determinable annual. Rates of Income Tax on Foreign income.Dividends received by a deposit system to residents. income and capital gains received by a foreign substitutes and from trust funds and similar corporation during each taxable year from all sources arrangements and royalties derived from sources within within the Philippines shall not be treated as branch the Philippines shall be subject to a final income tax at profits unless the same are effectively connected with the rate of twenty percent (20%) of such interest: the conduct of its trade or business in the Philippines.Interest from any currency bank deposit and yield or any other monetary benefit from deposit Capital Gains substitutes and from trust funds and similar arrangements and royalties derived from sources within SEC. however.Income derived by a the rate of twenty percent (20%) of such interest: depository bank under the expanded foreign currency Provided.Dividends received by a Foreign Corporation. Trust Funds and Similar Arrangements and wages premiums.(a) Interest from Deposits and resident foreign corporation from a depository bank Yield or any other Monetary Benefit from Deposit under the expanded foreign currency deposit system Substitutes. That interest income derived by a resident foreign corporation from a depository bank Passive Income: under the expanded foreign currency deposit system Interest shall be subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest SEC. salaries. Royalties . Rates of Income Tax on Foreign income tax at the rate of ten percent (10%) of such Corporations. substitutes and from trust funds and similar arrangements and royalties derived from sources within (b) Income Derived under the Expanded Foreign the Philippines shall be subject to a final income tax at Currency Deposit System . yield or any other monetary benefit from deposit profits. Corporations.Interest from any currency bank deposit and seven and one-half percent (7 1/2%) of such interest yield or any other monetary benefit from deposit income.Any profit corporations. however. . Trust Funds and Similar Arrangements and subject to tax under this Title.

. . 28.000…………. Special Corporations two percent (32%). rents. and seventeen disposed of through the stock exchange: percent (17%) thereafter.5% four percent (34%). . at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends . 28. - foreign corporation not engaged in trade or business in (5) Tax on Certain Incomes Received by a Nonresident the Philippines shall pay a tax equal to thirty-five Foreign Corporation. barter.Except as otherwise provided in this Code.corporation liable to tax under this Code shall not be received from a domestic corporation.A final tax at the rates Philippines. . .000………… 10% shall be thirty-three percent (33%).000…………. the rate On any amount in excess of P100. Traded in the Stock Exchange. prescribed below is hereby imposed upon the net salaries. business or other activity A final withholding tax at the rate of twenty percent exceeds fifty percent (50%) of the total gross income (20%) is hereby imposed on the amount of interest on derived by such educational institutions or hospitals foreign loans contracted on or after August 1.(a) Interest on Foreign Loans. . business or other activity. thirty-four percent (34%) in On any amount in excess of P100. Dividends For purposes of this Subsection. which shall be subject to tax under this Title. emoluments or other fixed or determinable sale. that if the gross Foreign Corporation. . 1986. - percent (35%) of the gross income received during (c) Capital Gains from Sale of Shares of Stock not each taxable year from all sources within the Traded in the Stock Exchange. 1999. - Interest (B) Proprietary Educational Institutions and Hospitals. . (10%) on their taxable income except those covered by (5) Tax on Certain Incomes Received by a Nonresident Subsection (D) hereof: Provided. 28. nineteen percent (19%) for stock in a domestic corporation except shares sold or 1998. barter. capital gains realized during the taxable year from the annuities. Rates of Income Tax on Foreign which are nonprofit shall pay a tax of ten percent Corporations. Rates of Income Tax on Foreign General. D.… 5% percent (35%) in 1997.. or and capital gains.000……. income from unrelated trade. and. from all sources. the rate shall be thirty. subject to the condition that the country in (c) Capital Gains from Sale of Shares of Stock Not which the nonresident foreign corporation is domiciled.A final tax at the rates shall allow a credit against the tax due from the prescribed below is hereby imposed upon the net nonresident foreign corporation taxes deemed to have capital gains realized during the taxable year from the been paid in the Philippines equivalent to twenty sale. and thirty-three percent (33%) in 1999. exchange or other disposition of shares of annual. exchange or other disposition of shares of percent (20%) for 1997. business or other activity' means any trade. Rates of Income Tax on Foreign trade. which represents the difference between the regular income tax of thirty-five Not over P100.(1) In SEC. the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income.10% 1998. 2000 and thereafter. effective January 1. 27. such as interests. profits and income. except capital gains subject to tax disposed of through the stock exchange: under subparagraphs (C) and (d): Provided. except shares sold. periodic or casual gains. the conduct of which is not (5) Tax on Certain Incomes Received by a Nonresident substantially related to the exercise or performance by Foreign Corporation such educational institution or hospital of its primary (b) Intercorporate Dividends . Rates of Income Tax on Foreign Capital Gains Corporations. premiums (except reinsurance premiums). Corporations.Proprietary educational institutions and hospitals SEC. That effective 1. the rate of income tax shall be thirty. Not over P100. dividends.A final withholding tax purpose or function. 28. the term 'unrelated SEC. SEC. Rates of Income tax on Domestic Passive Income: Corporations. collected and paid as provided in Section 57 (A) of this Code. 1998. royalties. Non-Resident Foreign Corporations and the fifteen percent (15%) tax on dividends as Taxable Income provided in this subparagraph. stock in a domestic corporation. - (B) Tax on Nonresident Foreign Corporation. . SEC. eighteen percent (18%) for 1999. effective January 1. and thirty-two percent (32%) thereafter on corporations c. a Corporations.

or the Commission on Higher Education place of payment of the ticket or passage document: (CHED). further. Machineries and Other Equipment Sec.The provisions of any law manner provided by law. (C) Government-owned or Controlled-Corporations. indorsed to another international airline form part of in accordance with existing laws and regulations. irrespective of the place of sale or issue and the (DECS). income derived by offshore banking units authorized by the Bangko Proprietary educational institutions. . when applied to a doing business in the Philippines shall pay a tax of two corporation. agencies. . the Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided. Non-resident Cinematographic Film Owner. or activity. 1987 Constitution All revenues and assets of non-stock. Lessor.A "Proprietary educational institution" is any private amount of gross revenue derived from carriage of school maintained and administered by private persons. cargo and mail originating individuals or groups with an issued permit to operate from the Philippines in a continuous and uninterrupted from the Department of Education. derived from foreign currency loans granted to including restrictions on dividends and provisions for residents. notwithstanding."Gross Philippine Billings" refers to the (E) The term "nonresident citizen" means: . the Philippine Charity Sweepstakes Office (b) International Shipping. SEC. the Philippine Health Insurance Corporation (PHIC). all corporations. may likewise be entitled to such offshore banking units. including any interest income exemptions. That for a flight which originates from the Agencies or Instrumentalities . 28.The provisions of Philippines. Upon the dissolution or SEC. Rates of Income Tax on Foreign cessation of the corporate existence of such Corporations. rate of ten percent (10%) of such income. . excess baggage. but transshipment of passenger takes place existing special or general laws to the contrary at any port outside the Philippines on another airline. to the contrary notwithstanding. shall pay such rate of tax mail originating from the Philippines up to final upon their taxable income as are imposed by this destination. subject to the limitations provided by law."Gross Philippine Billings" (PCSO) and the Philippine Amusement and Gaming means gross revenue whether for passenger. or the Technical Education and Skills Provided. non-profit Foreign Currency Deposit Units/Offshore educational institutions used actually. Art. That tickets revalidated. . or Distributor RA 9294 [See Annex A] International Carriers Regional or Area Headquarters and Regional Operating Headquarters SEC.An international carrier (D) The term "foreign". cargo or Corporation (PAGCOR). regardless of the place of sale or payments Section upon corporations or associations engaged in s of the passage or freight documents.When used in this Title: (3) International Carrier. Non-resident Owner of Vessels Private Educational Institutions and Non- profit Hospitals Non-resident Lessor of Aircraft . Culture and Sports flight. except the Government Service the point of transshipment shall form part of Gross Insurance System (GSIS). XIV. and Banking Units exclusively for educational purposes shall be exempt from taxes and duties. exchanged and/or Development Authority (TESDA). - institutions. as the case may be. the Social Security System Philippine Billings. similar business. 4(3). or only the aliquot portion of the cost of the ticket instrumentalities owned or controlled by the corresponding to the leg flown from the Philippines to Government. (SSS). 22 Definitions . whether individuals or Institution corporations. from transactions with said offshore banking units shall be exempt from income tax. directly. 28. including those Sentral ng Pilipinas (BSP) to transact business with cooperatively owned. means a corporation which is not and one-half percent (2 1/2%) on its "Gross Philippine domestic cralaw Billings" as defined hereunder: (a) International Air Carrier. shall be subject to a final income tax at the reinvestment. Non-profit-non-stock Educational Any income of nonresidents. industry. Rates of Income Tax on Foreign Corporations. their assets shall be disposed of in the (4) Offshore Banking Units .

(b) Regional operating headquarters as defined in (2) A citizen of the Philippines who leaves the Section 22(EE) shall pay a tax of ten percent (10%) of Philippines during the taxable year to reside abroad. . either as an immigrant or for employment on a permanent basis. or because of force majeure. . PEZA and BOI Registered thereat requires him to be physically present abroad Enterprises most of the time during the taxable year. promulgate. development services and product development. - in the Philippines. beginning on the fourth taxable year immediately purpose of this Section. Minimum Corporate Income Tax at any time during the taxable year to reside permanently in the Philippines shall likewise be treated SEC. Rates of Income Tax on Foreign shall define the terms and conditions under which he Corporations. business planning and coordination. minimum corporate income tax on any corporation corporate finance advisory services. upon recommendation of the Commissioner. . subsidiaries. the necessary rules and regulation that SEC. marketing control which suffers losses on account of prolonged labor and sales promotion. as defined herein.Any coordinating center for their affiliates. their taxable income. Petroleum Service Contractor and Subcontractor (3) A citizen of the Philippines who works and derives income from abroad and whose employment BCDA. data processing and The Secretary of Finance is hereby authorized to communications.The Secretary of Finance planning. – income tax in a meritorious case. of this Section shall be carried forward and credited against the normal income tax for the three (3) (EE) The term "regional operating headquarters" shall immediately succeeding taxable years. Rates of Income tax on Domestic as a nonresident citizen for the taxable year in which he Corporations. Omnibus Investment Code [See Annex B] (4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines E. mean a branch established in the Philippines by multinational companies which are engaged in any of (3) Relief from the Minimum Corporate Income Tax the following services: general administration and Under Certain Conditions. not earn or derive income from the Philippines and which act as supervisory. 27. following the year in which such corporation commenced its business operations. reside therein. 28. is Philippines to reside permanently abroad or to return hereby imposed on a corporation taxable under this to and reside in the Philippines as the case may be for Title. (6) Regional or Area Headquarters and Regional (1) A citizen of the Philippines who establishes to Operating Headquarters of Multinational Companies. training and personnel dispute. when the (DD) The term "regional or area headquarters" shall minimum income tax is greater than the tax computed mean a branch established in the Philippines by under Subsection (A) of this Section for the taxable multinational companies and which headquarters do year. sourcing is hereby authorized to suspend the imposition of the and procurement of raw materials and components. (1) Imposition of Tax . or because of management. communications and (2) Carry Forward of Excess Minimum Tax. - arrives in the Philippines with respect to his income (E) Minimum Corporate Income Tax on Domestic derived from sources abroad until the date of his arrival Corporations. may suspend the imposition of the minimum corporate (A) Tax on Resident Foreign Corporations. - the satisfaction of the Commissioner the fact of his (a) Regional or area headquarters as defined in Section physical presence abroad with a definite intention to 22(DD) shall not be subject to income tax. or excess of the minimum corporate income tax over the branches in the Asia-Pacific Region and other foreign normal income tax as computed under Subsection (A) markets. technical support and maintenance. and business development.A minimum corporate (5) The taxpayer shall submit proof to the income tax of two percent (2%0 of the gross income as Commissioner to show his intention of leaving the of the end of the taxable year. logistic services. . research and legitimate business reverses.

The fact that facilities directly utilized in providing the service such the earnings or profits of a corporation are permitted as depreciation or rental of equipment used and cost of to accumulate beyond the reasonable needs of the supplies: Provided. (3) Income subject to final tax. 1997. . and (4) The amount of net operating loss carry-over F. corporation taxable under paragraph (1) of this (2) Income excluded from gross income. freight (a) Publicly-held corporations. Rates of Income Tax on Foreign shall prove to the contrary. "cost of goods avoiding the income tax with respect to its shareholders sold' shall include the invoice cost of the goods sold.For purposes of percent (10%) of the improperly accumulated taxable applying the minimum corporate income tax provided income. consultants and specialists directly rendering the service and (B) cost of (2) Evidence Determinative of Purpose. Subsection. cralaw under Subsection (E) hereof. shall be imposed.For (2) Minimum Corporate Income Tax on Resident purposes of this Section. however. the improperly accumulated income . 29. such as raw materials used. insurance while the goods are in transit. an improperly accumulated earnings tax equal to ten In the case of corporations adopting the fiscal year accounting period.In addition to other taxes imposed by basis. the term 'gross income' shall mean gross sales less sales returns. SEC. . the term 'improperly Foreign Corporations. 'gross income' means gross receipts less sales returns. discounts and cost of services"Cost of Prima Facie Evidence. direct labor and manufacturing overhead.The improperly accumulated earnings For a manufacturing concern. Impropely Accumulated Earnings Tax deducted. cost of "goods tax as provided for under this Section shall not apply manufactured and sold" shall include all costs of to:. (2) Income tax paid for the taxable yearProvided. on a resident foreign (1) Income exempt from tax. tax imposed in the preceding Section shall apply to every corporation formed or availed for the purpose of For a trading or merchandising concern.. discounts and (B) Tax on Corporations Subject to Improperly allowances and cost of goods sold"Cost of goods sold' Accumulated Earnings Tax. or the shareholders of any other corporation. however. by the clear preponderance of evidence. intermediaries. Imposition of Improperly Accumulated (1) Dividends actually or constructively paid. 28. by plus import duties. employee benefits of personnel. there is hereby imposed for each taxable year apply on improperly accumulated income as of on the improperly accumulated taxable income of each December 31. the accumulated earnings under tax shall not this Title.The improperly accumulated earnings location and use. That for corporations using the calendar year (A) In General. corporation described in Subsection B hereof. .A minimum corporate income accumulated taxable income' means taxable income' tax of two percent (2%) of gross income. freight in transporting the goods to permitting earnings and profits to accumulate instead the place where the goods are actually sold including of being divided or distributed. - shall include all business expenses directly incurred to produce the merchandise to bring them to their present (1) In General . . production of finished goods. the tax upon its shareholders or members unless the corporation.(1) allowances. . Corporations. under the same conditions. (D) Improperly Accumulated Taxable Income . cost. And reduced by the sum of: SEC.the fact that any corporation is services" shall mean all direct costs and expenses a mere holding company or investment company shall necessarily incurred to provide the services required by be prima facie evidence of a purpose to avoid the tax the customers and clients including (A) salaries and upon its shareholders or members. - (A) Tax on Resident Foreign Corporations. and (c) Insurance companies. That in the case of banks. In the case of taxpayers engaged in the sale of service. . business shall be determinative of the purpose to avoid "cost of services" shall include interest expense. (4) Gross Income Defined . and Earnings Tax . (2) Exceptions . (C) Evidence of Purpose to Avoid Income Tax. as prescribed adjusted by: under Section 27 (E) of this Code. insurance premiums and other costs incurred to (b) Banks and other nonbank financial bring the raw materials to the factory or warehouse.

(5) Interest on loan at less than market rate to the extent of the difference between the market rate and (E) Reasonable Needs of the Business . taking into account the effective January 1.The provisions of Section 39(B) notwithstanding. including pacto de retro sales and other forms of (1) Housing. (7) Expenses for foreign travel. the term 'reasonable needs of the (6) Membership fees. thirty-three percent (33%) effective January 1. G. 1999. sixty-seven percent (67%) necessary to carry out efficiently and fairly the effective January 1.For purposes actual rate granted. business or profession of the hospitalization benefit plans. (D). of fiscal year 1997-1998. 33. That fringe benefit furnished to employees or profession of the employer. including estates and (2) Expense account. percent (34%) effective January 1. classified as capital assets. . . peculiar nature and special need of the trade. or other disposition of real property as. 1998.A final tax of thirty-four what the law allows.(1) In Subsections (B). That the tax liability. ORDINARY ASSETS AND CAPITAL ASSETS imposed thereat: Provided. upon recommendation of the value of the fringe benefit by sixty-six percent (66%) Commissioner. from sales or other dispositions of real property to the . Special Treatment of Fringe Benefit. convenience or advantage of the employer). and thirty-two (C) Fringe Benefits Not Taxable. 2000 and thereafter. the following:. The grossed-up monetary value of the fringe benefit The Secretary of Finance is hereby authorized to shall be determined by dividing the actual monetary promulgate. conditional sales. on gains (3) Vehicle of any kind. . whether an individual or a corporation (2) Contributions of the employer for the benefit of (unless the fringe benefit is required by the nature of. dues and other expenses borne business' includes the reasonably anticipated needs of by the employer for the employee in social and athletic the business.For purposes of this on the gross selling price or current fair market value as Section. (D) and (E) of Section 25 shall be taxed at the applicable rates VII. business however. employer. by individuals. or when the fringe benefit is for the (3) Benefits given to the rank and file employees.The following fringe percent (32%) effective January 1. of this Section. further. insurance and or necessary to the trade. and taxable under Subsections (B). but not limited to. located in the Philippines. whichever is higher. and The tax herein imposed is payable by the employer (4) De minimis benefits as defined in the rules and which tax shall be paid in the same manner as provided regulations to be promulgated by the Secretary of for under Section 57 (A) of this Code. Capital Asset v. clubs or other similar organizations. shall be reckoned. and SEC. and sixty-eight percent (68%) provisions of this Section. Finance. as of the end (4) Household personnel. . 1998.not subject to this tax. whether granted under a collective bargaining agreement or not. PERA (9) Educational assistance to the employee or his dependents.. 2000 and thereafter: Provided. Income Tax Rates - and the applicable rates of income tax under (D) Capital Gains from Sale of Real Property. if any. . determined in accordance with Section 6(E) of this service or other benefit furnished or granted in cash or Code. and (E) of Section 25. (C). 24. De Minis Benefits. exchange. Ordinary Asset dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) SEC. benefits are not taxable under this Section: is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (1) fringe benefits which are authorized and (except rank and file employees as defined herein) by exempted from tax under special laws. 1999. the employee to retirement. the employer. cralaw General. (C). Fringe Benefit Tax. upon recommendation of the Commissioner. (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of (A) Imposition of Tax. a final tax of six percent (6%) based (B) Fringe Benefit defined. trusts: Provided. RATA. such as maid. (8) Holiday and vacation expenses. ACA. driver and of the month comprising the twelve (12)-month period others. the term "fringe benefit" means any good. That the grossed - Up value of the fringe benefit shall be determined by A. such rules and regulations as are effective January 1. is hereby imposed upon in kind by an employer to an individual employee capital gains presumed to have been realized from the (except rank and file employees as defined herein) such sale.

As used value. . if such property was acquired by purchase. Capital Gains and Losses. Treatment of Sale or Exchange of Ordinary the date of acquisition. - date of sale or disposition through a prescribed return of his intention to avail of the tax exemption herein (A) Computation of Gain or Loss. or (5) The basis as defined property held by the taxpayer (whether or not in paragraph (C)(5) of this Section. an adequate consideration in money or money's worth.The provisions of paragraph (1) of this taxpayer. and the loss shall of the proceeds of sale or disposition. depreciation provided in Subsection (F) of Section 34. means the excess of the losses from sales or exchanges That the historical cost or adjusted basis of the real of capital assets over the gains from such sales or property sold or disposed shall be carried over to the exchanges. the proceeds of which is fully utilized in of capital assets over the losses from such sales or acquiring or constructing a new principal residence exchanges.The basis of property shall thereon. the gross selling price or fair market of property shall be the sum of money received plus value at the time of sale. or disposition shall be subject to capital gains tax. or property used in the trade or business. .chanrobles virtual law library .The term "net capital loss" gains tax imposed under this Subsection: Provided. . of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the .The term "net capital gain" disposition of their principal residence by natural means the excess of the gains from sales or exchanges persons.government or any of its political subdivisions or taxable year. Revenue Regulations No. That the said tax sale or other disposition of property shall be the excess exemption can only be availed of once every ten (10) of the amount realized therefrom over the basis or years: Provided. Treatment of Sale or Exchange of Capital hands of the donor or the last preceding owner by Assets which are not Real Property whom it was not acquired by gift. 39. or property held by the taxpayer primarily agencies or to government-owned or controlled for sale to customers in the ordinary course of his trade corporations shall be determined either under Section or business. be - Secs. or (3) If the property was acquired by gift. still further. property at the time of the gift then. at the option of the of a character which is subject to the allowance for taxpayer. the basis shall be such fair market (A) Definitions. or real property used in trade or business of the (2) Exception . new principal residence built or acquired: Provided. Determination of Amount and notified by the taxpayer within thirty (30) days from the Recognition of Gain or Loss. capital gains presumed to have been realized from the sale or (2) Net Capital Gain. the portion of be the excess of the basis or adjusted basis for the gain presumed to have been realized from the sale determining loss over the amount realized. bears to the gross selling price in order to determine the taxable portion and the tax prescribed under (B) Basis for Determining Gain or Loss from Sale or paragraph (1) of this Subsection shall be imposed Disposition of Property.The gain from the mentioned: Provided. 40. the basis of such property is the amount paid by the (1) Capital Assets. That the Commissioner shall have been duly SEC. finally. the basis shall be the same as if it would be in the C. . Subsection to the contrary notwithstanding. . shall be exempt from the capital (3) Net Capital Loss. if the same was acquired by Assets inheritance. that if there is no full utilization adjusted basis for determining gain. within eighteen (18) calendar months from the date of sale or disposition. except that if such basis is greater than the fair market value of the SEC. for the purpose of determining loss. or (4) If the property was acquired for less than in this Title . but does not acquired in a transaction where gain or loss is not include stock in trade of the taxpayer or other property recognized under paragraph (C)(2) of this Section. or (2) The fair market price or value as of B. 1913. further. whichever is higher.The term "capital assets" means transferee for the property. 2 [See (1) The cost thereof in the case of property acquired on Annex C] or after March 1. if the property was connected with his trade or business). 132-135. . shall be the fair market value of the property (other than multiplied by a fraction which the unutilized amount money) received. The amount realized from the sale or other disposition For this purpose. 24 (A) or under this Subsection.

persons. That the property received as property. which is a party to the merger or would be permitted to be received without the consolidation. solely for stock or the exchange from being within the exceptions. and shall not prevent securities in such corporation. That as to the shareholder. an individual. That stocks issued for services shall not be considered (5) Basis . and (2) the fair market value above exceptions. exchanges property solely for stock in a foregoing exceptions. subject to a liability. then (i) if the corporation receiving gain recognized to the transferor on the transfer. and increased by (a) the security holder or a corporation receives not only stock amount treated as dividend of the shareholder and (b) or securities permitted to be received without the the amount of any gain that was recognized on the recognition of gain or loss. - gain to the corporation shall be recognized from the exchange. but also money and/or exchange: Provided. securities in such corporation. decreased (a) If. further. in connection with the exchange described in the above exceptions. the entire amount of the gain or loss. but not the loss. the property. gains control of said corporation: Provided. of the gain stock or securities. a party to the merger or consolidation. solely for the stock of another exchange assumes a liability of the taxpayer. which is a party to a merger or connection with the exchanges described in the consolidation. the transferor corporation receives (b) The basis of the property transferred in the hands not only stock permitted to be received without the of the transferee shall be the same as it would be in the recognition of gain or loss but also money and/or hands of the transferor increased by the amount of the other property. received by the transferor upon the exchange specified in the above exception shall be the same as the basis of (3) Exchange Not Solely in Kind. a shareholder. if any. or (b) A shareholder exchanges stock in recognition of the gain if it were the sole consideration. but not the loss to the corporation shall be property. there shall acquisition (in the amount of the liability) shall. the remainder. . upon the sale or exchange or gain. (b) If. in A corporation. not exceeding four (4) not a capital asset. the as herein provided. a corporation. or exchange of a capital asset or of property which is alone or together with others. no (6) Definitions. .No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation . which is a party to the merger or and as part of the consideration. stock or securities exchanged. another party to the consolidation. from the taxpayer property. a of the other property received. be treated as money the gain recognized not in excess of his proportionate received by the transferor on the exchange: Provided.(a) (4) Assumption of Liability. That if the transferor receives several kinds of corporation. if any. then or (c) A security holder of a corporation. That if as part of the consideration of the money and fair market value of such other to the transferor. share of the undistributed earnings and profits of the finally.(a) If the taxpayer. or acquires corporation also a party to the merger or consolidation. but (ii) if the corporation receiving such (a) The term "securities" means bonds and debentures other property and/or money does not distribute it in but not "notes" of whatever class or duration.(1) General Rule. the gain. such money and/or other property distributes it in pursuance of the plan of merger or consolidation. authorized to allocate the basis among the several classes of stocks or securities. . . liability of the transferor or acquires form the latter if the money and/or other property received has the property subject to a liability. the Commissioner is hereby recognized shall be treated as a capital gain. such assumption or effect of a distribution of a taxable dividend. which is not distributed. . in connection with an exchange described in the by (1) the money received. shall be "boot" shall have as basis its fair market value: recognized but in an amount not in excess of the sum Provided. receives stock or securities which corporation. (b) If the amount of the liabilities assumed plus the amount of the liabilities to which the property is No gain or loss shall also be recognized if property is subject exceed the total of the adjusted basis of the transferred to a corporation by a person in exchange property transferred pursuant to such exchange. which is a such assumption or acquisition shall not be treated as party to the merger or consolidation. shall be recognized. (2) Exception. as the recognized but in an amount not in excess of the sum case may be. exchanges his money and/or other property.Except pursuance of the plan of merger or consolidation. then for stock or unit of participation in such a corporation such excess shall be considered as a gain from the sale of which as a result of such exchange said person. the transferee of property assumes a property received: Provided. as the case may be. . of such money and the fair market value of such other property so received.(C) Exchange of Property. for be taxed as dividend to the shareholder an amount of purposes of this paragraph.(a) The basis of the stock or securities as issued in return for property. if any.

000.000 .. 5% D.500+25% of the excess over P140. That for a transaction to be regarded as a Individual Resident Alien of the Philippines. upon consultation with competent appraisers both from the private and public Over P250. and at least fifty-one percent (51%) of the total voting (c) On the taxable income defined in Section 31 of this power of all classes of stocks entitled to vote. the top marginal rate shall be thirty-three percent (33%) and (1) the fair market value as determined by the effective January 1. further.500+15% SEC. derived for each taxable exists. the said rate shall be thirty- Commissioner. determine the fair market value of real P50. Code. in this Section.000. That in other than income subject to tax under Subsections (B).000 Presumed Gain Over P30. P2. when used in this Section. 24. (2) the fair market value as shown in the schedule of (b) The term "merger" or "consolidation". sources within the Philippines by an individual citizen of the Philippines who is residing outside of the (c) The term "control"..000.. (b) On the taxable income finally . authorized to divide the Philippines into different P22. is hereby authorized to issue rules Philippines by an individual alien who is a resident of and regulations for the purpose "substantially all" and the Philippines...000. shall Philippines including overseas contract workers mean ownership of stocks in a corporation possessing referred to in Subsection(C) of Section 23 hereof. when used values of the Provincial and City Assessors.000+30% of the excess over P250. (C) and (D) of this Section. Income Tax Rates - by one corporation of all or substantially all the properties of another corporation solely for stock: (A) Rates of Income Tax on Individual Citizen and Provided.000 but not over P140. Power of the Commissioner to Make of the excess over P30. 6. Philippines residing therein..000 zones or areas and shall. it must be undertaken for a bona fide business (1) An income tax is hereby imposed: (a) On the purpose and not solely for the purpose of escaping the taxable income defined in Section 31 of this Code. (C) and (D) of property of the transferor. 2000. over P500.. whichever is the higher of: Provided.000+34% of the excess For purposes of computing any internal revenue tax. burden of taxation: Provided. or two percent (32%) . P125.. derived for (d) The Secretary of Finance. P500+10% Assets which are Real Property Capital Tax on of the excess over P10. for the proper implementation of this Section.000 but not over P500.000 but not over P30. each and every step of the transaction shall be year from all sources within and without the considered and the whole transaction or series of Philippines be every individual citizen of the transaction shall be treated as a single unit: Provided. 1999. or (ii) the acquisition SEC. sectors. That effective January 1. upon recommendation of each taxable year from all sources within the the Commissioner. the term 'property' shall be this Section. . P8. other than income subject to tax under Subsections (b). derived for each taxable year from all taken to include the cash assets of the transferor. The tax shall be computed in accordance with and at Net Capital Gain and Net Capital Loss the rates established in the following schedule: Holding Period Not over P10.. Treatment of Sale or Exchange of Capital Over P10.The Commissioner is hereby Over P140. other than income transferred constitutes a substantial portion of the subject to tax under Subsections (B).000 assessments and Prescribe additional Requirements for Tax Administration and Over P70..500+20% of the excess over P70.000 properties located in each zone or area.000 but not over P250.000. determining whether a bona fide business purpose (C) and (D) of this Section. merger or consolidation within the purview of this Section. That in determining whether the property defined in Section 31 of this Code..000 in 1998. the value of the property shall be. Enforcement.000 but not over P70.. shall be understood to mean: (i) the ordinary merger or consolidation.000 (E) Authority of the Commissioner to Prescribe Real Property Values .000. Over P500..

classified as capital assets. subject to the provision of Section 51 (D) hereof. if any. at the option of the taxpayer. whichever is higher. . on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24 (A) or under this Subsection. . For married individuals. (D) Capital Gains from Sale of Real Property. That the tax liability. including pacto de retro sales and other forms of conditional sales.The provisions of Section 39(B) notwithstanding. That if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses.(1) In General. or other disposition of real property located in the Philippines. a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code. exchange. Foreclosure Sales of Real Property Redemption Period . shall compute separately their individual income tax based on their respective total taxable income: Provided. including estates and trusts: Provided. the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. is hereby imposed upon capital gains presumed to have been realized from the sale. E. by individuals. the husband and wife.