TAX ON DOMESTIC CORPORATIONS

Definition of Domestic Corporations

These are entities organized and constituted under the Corporation Code of the Philippines. Bur
for tax income tax purposes, it includes partnership, no matter how created or organized, joint
stock companies, joint accounts, association, or insurance companies.

The term “corporation” does not include:

(a) A general professional partnership;
(b) A joint venture or consortium formed for the purpose of undertaking construction project;
and
(c) A joint venture or consortium for engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating or consortium agreement under a service
contract with the Government.

Taxation of Corporation
Domestic corporations are subject to any or some of:
(a) Capital gain tax;
(b) Final tax on passive income;
(c) Normal tax;
(d) Minimum corporate income tax (MCIT); and
(e) Improperly accumulated tax (IAET)

Basic Format on Normal Tax

Gross Income (not including capital gains with capital gain tax and passive
income with final tax) PX,XXX.XX

Less: Itemized deductions for expenses and losses

or
Optional Standard Deductions (40% of gross income) X,XXX,XX

Taxable Income PX,XXX.XX

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Tax Due is 30% of taxable income
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Illustrative Problem
Perfect Circle Trading, a domestic corporation, had the following data for the year:

Gross income from business P2,000,000

Business expenses and losses 1,000,000
Capital gain on land sold for P5,000,000 900,000
Interest income on Philippine currency bank deposit 20,000

Requirements: (1) Compute the income tax due if the company avails of the itemized deductions
(2) Compute the income tax due if the company avails of the optional standard
deductions.

Basic Format on Minimum Corporate Income Tax

Gross Income (not including capital gains with capital gain tax and passive
income with final tax) PX,XXX.XX

Multiplied by MCIT rate 2%

Income tax due

PX,XXX.XX
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Illustrative Problem No. 1
B-Square, a domestic corporation, is a service enterprise. In its fourth year of operations, it had
the following data:

Gross revenues P900,000

Discounts and allowances 50,000

Salaries of service personnel 160,000

Depreciation of equipment used in rendering services 10,000
Rental of office 140,000
Supplies used 12,000
Utility expenses 55,000
Repairs 5,000
Other Operating expenses 110,000

Illustrative Problem No. 2

ABC Company had a gross profit from sales of P500,000 and a gain on a sale of an asset of
P100,000. Business expenses were P400,000. How much was the income tax due for the fifth
year of operations?

Illustrative Problem No. 3

ABC Company had a gross profit from sales of P800,000 and a gain on a sale of an asset of
P190,000. Business expenses were P940,000. How much was the income tax due for the fifth
year of operations?

Illustrative Problem No. 4 (Excess MCIT Carry-Forward

Note: Any excess of the MCIT over the normal tax of a year shall be carried forward and
credited against the normal tax for the three years immediately succeeding taxable years. In the
year to which carried forward, the normal tax should be higher than the MCIT for the year.

A domestic corporation had the following data on computation of the normal tax and MCIT for
five years:
Year 4 Year 5 Year 6 Year 7 Year 8
MCIT P80,000 P50,000 P30,000 P40,000 P35,000
Normal Tax 20,000 30,000 40,000 20,000 70,000

Quarterly Tax On corporations

Within sixty (60) days after the end of each of the first three quarters of the year, a corporation
files an income tax return. On or before the 15 th day of the fourth month following the close of
the taxable year, a final or annual income tax returns is filed.

Illustrative Problem
XYZ Company, a domestic corporation, in its fourth year of operations in 2019, had the
following cumulative balances at the end of each quarters, and at the end of the year:
1st Quarter 2nd Quarter 3rd Quarter Year
Gross profit from sales P350,000 P530,000 P190,000 P995,000
Interest on bank deposit 4,000 8,000 12,000 16,000
Capital gain on sale of land 900,000
Capital gain on share of domestic
corporation 150,000 150,000 150,000
Dividends from domestic corporation 10,000 10,000 20,000 20,000
Business expenses 200,000 310,000 380,000 490,000