CORPORATION OUTLINE

 Which Corporaion is taxable?

 Which Corporation is tax-exempt
 How does a Corporation taxed?
 What is MCIT?
 When will MCIT be available?
 What is the treatment for excess of MCIT?
 How to account MCIT quarterly?
 Which Corporation are exempt from MCIT?
 What is the requisites for Optional 15% rate
 What are the final taxes in in Corporation?
 What is the capital gains tax in Corporation?
 What are the rules for special Corporation?
 What are the rules for the expenditures of private educational institutions?
 What are the rules for the expenditures of non-profit hospitals?
 What are the rules for international carriers?
 What is included in the Gross Philippine Billings?
 What is OBU?
 What are the rules for ROHQ and RHQ?
 What is improperly accumulated tax?
 What is the manner of filling income tax returns of Corporation

Which Corporation is taxable?

CORPORATION RCIT Tax base MCIT GIT Tax base Sources

Domestic corp 30% N.I 2% 15% G.I WORLD income

Resident foreign corp 30% N.I 2% 15% G.I PH only

Non-resident foreign corp 30% G.I NA NA NA PH only

How to compute their income tax due?

Gross income
ADD : Other income not subject to final tax
Less : Allowable deductions
Equals : Net income
Multiply by : Tax rate

Which Corporations are TAX-EXEMPT?

 Corporations Info

Non-profit, non-stock corporations

GSIS,SSS,PHIC, Local water districts All other GOCC is taxable as CORP

Tax-exempt joint venture For construction projects

Non-profit corps

Bank without capital stocks Non-profit

Non-stock operated exclusively for religious, No benefit derived therein must be

charitable, scientific, athletic or cultural purposes distributed to it's members

Gov't educational institutions

Orgs with pure local character and who collect fees Example:
for the sole purpose of meeting it's expenses  Farmers
 Typhoon and fire insurance
companies
 Irrigation company
 Telephone company

Org organized as a sales agent for the purpose of The proceeds of sale is returned.
marketing the products

An org operating exclusively for the benefit of its

members.

Cemetary company

NOTA BENE:

Income from UNRELATED ACTIVITIES and COMMERCIAL IN NATURE, is subject to RCIT.

What is MCIT?

 An option of DCA and NRFC to be taxed by 2% on their GROSS income

 Could only be applied In the 4th year of operations of the corp

When is MCIT be applicable?

 Zero taxable income
 Negative taxable income
  MCIT > RCIT

NOTE:
 Taxable income is the NET INCOME.
 The gross income shall not include income exempt from tax and those subject to
final tax
Where is MCIT not applicable?
 Intenational carrier
 Obu
 ROH
 Peza registered firms
 Corp is exempt from income tax by virtue of tax holidays.

What is the rule for the excess MCIT?

Gen. Rule:

Excess of MCIT over the RCIT shall be carried forward to the next 3 succeeding years
provided that the RCIT > MCIT during that particular year.

Two or more excess MCIT shall be deducted in FIFO method

Strategy in computation:
1. Determine first the year the business commenced. You need to make sure that it already
passee the 4th year of operations.
2. Compute for the net income.
3. Multiply the N.I by 30%, 2% . Whichever is higher will be the income tax.
4. When MCIT > RCIT, MCIT will be used V.V.
5. Excess of MCIT over the RCIT shall be carried forward to the next 3 succeeding years
provided that the RCIT > MCIT during that particular year.
6. After the lapse of 3 years, excess MCIT will be deemed as zero. No carrying forward is
done.

What is the treatment of excess MCIT per quarter?

 MCIT AND RCIT shall be compared as well.

 TAX CREDITS QUARTERLY:
o Withholding tax last yr.
o Withholding tax prev yr.
o The tax paid last quarter
o The MCIT from the PREVIOUS YEAR (if RCIT is the base)

Example of Quarter table:

Given:
Tax withheld
INFO 1ST Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Q:. 160,000
2ndQ: 90,000
3rd Q : 120,000
4th Q : 105,000
MCIT 240,000 750,000 300,000 300,000

Excess MCIT (Prev. Year)

RCIT 300,000 360,000 750,000 600,000 90,000

Excess Withholdinh
(Prev. yr. )
30,000

Strategy:
Note : ANG EXCESS MCIT AY NAKIKI-CARRY OVER LANG SA NEXT PROCEEDING
YEARS. HINDI EVERY QUARTER.

MCIT 240 990 1290 1590

RCIT 300 660 1410 2010

MCIT VS. RCIT 300* 990 1410* 2010*

LESS : TAX CREDITS 60 150 270 375

Tax withheld (this quarter); cumulative

Tax withheld 30 30 30 30
(last year)

MCIT (last year) 90 0 90 90

Tax paid 120 810 1020 1515

(This quarter)

Less: 0 120 810 1020

Tax paid
(Prev. Quarter)
 Income tax payable 120 690 210 495

What are the criteria for the suspension of imposition of MCIT?

 Losses on account of prolonged labor disputes (for more than 6 months)
 Force majeure
 Legitimate business reverses (to search)

Which corporation is excempted from MCIT?

a. Special Corporation
b. Domestic Corp engage in FCDU on the income of FOREIGN CURRENCY
TRANSACTIONS
c. International carriers
d. OBUS
e. ROHQ
f. Peza
g. BCDA

What is the requisites to avail OCIT (15% on GROSS INCOME) ?

 Tax effort of 20% of GNP

 Ratio of 40% tax collection of total tax revenue
 A vat effort of 4% GNP
 0.9. ratio : Consolidated public sectir financial position to GNP
 Ratio of cost sales/gross sales from all sources do not exceed 55%.

The election shall be irrevocable for 3 years.

The FINAL TAX AND CAPITAL GAINS TAX IN CORPORATION:

PASSIVE INCOME SUBJECT TO FINAL TAX

Passive income DC RC NRFC

Interest (any currency bank deposit) 20 20 30

Monetary benefit from deposit substitutes 20 20 30

Monetary benfit from trust funds 20 20 30

Royalties 20 20 30
 Interest income from depository bank under FCDU 15 7.5 E

Intercorporate divudends fr. domcorp E E 15/30

Special rules:
Income derived by DEPOSITARY BANK under FCDU:

Fr. foreign transactions w/ non residents, OBU, Local comm banks : EXCEMPTED

From Foreign currency loans granted to RESIDENTS other than OBUS And commercial
banks. : 10%

CAPITAL GAINS SUBJECT TO CGT

Capital Gains Tax base DC RFC NRFC

Stocks sold Net Gain 15% First 100,000: First 100,000:

5% 5%
Excess of 100k: Excess of 100k:
10% 10%

Real property sold SP or FV (higher) 6% NA NA

How is income of co-venturers in a joint venture be subject to tax?

JOINT VENTURE SHARE IN INCOME INDIVIDUAL

Co-Venturer

TAXABLE (Dividend) Dividend income : EXEMPT Dividends : final tax

TAX-EXEMPT (taxable INCOME : added to taxable Income : added to taxable

income) income income

What is the rule for Branch Profit Remittance?

 Applicable to foreign corps
  Any profit remitted by branch to its head office shall be subject to 15% final tax on total
profits (w/o deduction for the tax component)
 The total profits shall exclude activities registered in PEZA.

What are the rules for SPECIAL Corporations?

 They will be taxed at a lower tax rate only in their taxable income.
 CGT and FWT are still the same.
 They could avail a lower preferential rate or none at all, based on treaty or reciprocity


Rules for Special Corporations

Corporations Tax Rate Rules Other Rules

base

Private Net 10% Exemption: Capital

educational income If income from unrelated activities expenditures:
institutions (World exceeds 50% of the total gross
income) income, it will be subject 30% CIT on
its net taxable income. a.Expensed
outright
-all expenses
Unrelated income/total income is deducted
outright

Government and non-stock non profit

educ institution is excempted. b.Capitalized
-only the
deprcn
expense is
deducted

Private Non-profit Net 10% Unrelated activities is above 50%

hospitaks income of related activities it will be
(For subject o 30% rate.
profit
activities)

International Gross Ph 2.5% Ph carrier : Ph - Ph is taxable 30% Outbound

carriers Billings on it's world income. flights:
From Ph -
other country
 Gross Ph billings:
amount of gross revenue derivee
from tge customers, cargos and Inbound
mails originating from Ph (in a flights
continuous and uninterrupted To Ph
flight)
There's no
Revalidated, exchange, endorsed consideration
TICKETS: for the place
Taxable to the carrying airline. of payment.

Exclusion in Ph billings: 48 hours rule

Non-revenue passengers of transients:
Refunded tickets The
temporary
stay in Ph
TRANSHIPMENTS/INTERRUPTED which
FLIGHTS OR VOYAGES exceeds 48
hours
shall form part
Once originate from Ph and of GBP;
transhipment takes place outside the continued by
Ph on another airline : the same
Aliquot portion of the cost of the airline,
ticket part of the GPB is taxable only. excepts those
which caused
by force
majeure.

But if the flight

was continued
by another
airline
company
(even if not
exceeds
48hrs shall be
part of GPB)

Cinematographic GROSS 25% FINAL TAX

film - owner, INCOM
lessor or
distributor

Non-resident GROSS 4.5% Only to: FINAL TAX

lessor of vessels INCOME Rental,lease or charter fees
 Non-resident GROSS 7.5% Only to: FINAL TAX
owner of aircraft, INCOME Rental,lease or charter fees
machineries and
equipments

ROHQ NET 10% Regional Operating Head Quarters

INCOME

Regional Headquarters is EXEMPT

TAX RULES ON FCDS

OBUS/FCDU Other residents Non-resident

Loans and Receivables Exempt Final tax Exempt

Deposits Exempt Final tax Exempt

Trading gains Exempt Regular tax Exempt

Consultancy fees Basic tax Basic tax Basic tax

Rent income Basic tax Basic tax Basic tax

*THE TOTAL FINAL TAX WILL BE WITHHELD BY PH RESIDENT BORROWERS.

*THE INCONE OF REGULAR BANKING UNIT IS SUBJECT TO 30% RCIT.
*THIS IS ONLY TAXABLE TO RESIDENTS EXCLUDING OBUS AND LOCAL COMMERCIAL
BANKS.
*Interest from loans by regular bank unit is taxable.

Prima Facie instances of IMPROPER ACCUMULATION OF EARNINGS:

 Investment of substantial profit in unrelated business or stocks or securities of unrelated
business.
 Investment in bonds and other long term security.
 Accumulation of earnings in excess of 100% paid up capital.

Entities presumed IMPROPERLY ACCUMULATED EARNINGS: (HIC)

 Investment companies
 Holding companies
 Closely held Corporation
FILLING OF RETURNS

EVERY CORPORATION subject to tax shall render in duplicate a true and accurate quarterly
return except NRFC.

Manual filling :
The filling must be made not later than 60 days from the close of each first quarter.

First quarter : 15th day of the 5th month

Last filling : 15th day of the 4th month

Income tax paid abroad is regarded as tax credits.