TAXATION ON NON-INDIVIDUAL

TAXPAYERS
Republic Act (RA) No. 11534,
otherwise known as the Corporate
Recovery and Tax Incentives for
Enterprises (CREATE)
 Corporations

• It shall include partnerships no matter how

created or organized, joint-stock
companies, joint accounts, associations or
insurance companies.
 Corporations DOES NOT
INCLUDE:
• General professional partnerships
• 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 a service contract with
the Government
Rates of Tax FOR CORPORATION

• Domestic corporations and partnerships

but not including general professional
partnerships are subject to a tax equal to
20%/25% upon the taxable income
received during each taxable year from all
sources within or without the Philippines;
• Resident foreign corporations to a tax
equal also to 25% upon taxable income
derived in the preceding taxable year but
only from sources within the Philippines;
• Non-resident foreign corporations to a tax
equal to 25% of gross income received
during each taxable year from all sources
within the Philippines
• Subject to Final Tax
 Special Rates of Tax For Some
CORPORATION

• Proprietary educational institutions and

non-stock not for-profit hospitals are
liable to a tax of only 1% of their taxable
income;
Rates of Tax FOR CORPORATION

• Domestic and resident foreign

corporations like individual taxpayers are
subject to a final tax on certain passive
incomes;
Rates of Tax FOR CORPORATION

• On the fourth year immediately following

the year in which they commenced their
business operations, a minimum
corporate income tax (MCIT) of 1% of
their gross income when said tax is
greater than the normal income tax;
• Normal Income Tax for a Corp. is 25%
 Final Tax for Some Non-Resident Foreign
CORPORATION
• Lower rates of tax (Subject to Final Tax;
BIR Form 0619F/1601FQ) are paid by the
following non-resident foreign
corporations:
– a) owners, lessors or distributors of cinematographic
films – 25% of gross income
– b) owners or lessors of vessels chartered by
Philippine Nationals – 4.5% of gross rentals or
charter fees
– c) owners or lessors of aircraft, machineries and other
equipment – 7.5% of gross rentals or fees
Rates of Tax FOR CORPORATION
• An improperly accumulated earnings tax
equal to 10% of the improperly
accumulated earnings tax equal to 10% of
the improperly accumulated taxable
income is imposed on every corporation
formed or availed of for the purpose of
avoiding the income tax with respect to its
stockholders of any other corporation by
permitting earnings and profits to
accumulate instead of being divided or
distributed; BIR Form 1704
 IMPROPERLY ACCUMULATED
INCOME EARNINGS TAX
 A domestic corporation that has an improper accumulation of
profits is subject to an improperly accumulated earnings tax
(IAET) at 10% of the improper accumulation of the year.

 The tax formula begins with the taxable income of the year to
which shall be added 1) income exempt from income tax, 2)
income subject to the capital gains tax, 3) income subject to
the final tax on passive income, and 4) the NOLCO;

 and from which shall be deducted 1) the income taxes of the

year (CGT,FT,NT or MCIT), 2) expenses which were not
deductible from the gross income in arriving at the taxable
income, 3) dividend declared during the year, and 4) any
accumulation out of the year’s income which is required for
legitimate business purposes.
 Corporations not subject to Improperly
Accumulated Earnings Tax (IAET)

• a. Banks and other non-bank financial

intermediaries
• b. Insurance companies
• c. Publicly-held corporations
• d. Taxable partnerships
• e. Enterprises duly registered with the Philippine
Economic Zone Authority (PEZA) under
RA#7916 and enterprises registered pursuant to
the Bases Convention and Development Act of
1992 under RA#7227
 Deductions from Corporate
Income

• ITEMIZED DEDUCTIONS
• OPTIONAL STANDARD DEDUCTIONS
ITEMIZED DEDUCTIONS
Ordinary and necessary business
expenses including research or
development expenditures
• NIRC provides that expenses are
considered “ordinary and necessary if they
are directly attributable to development,
management, operation, and or conduct of
the trade or business of the taxpayer or in
the exercise of the taxpayer’s profession.
 Interests (paid on
indebtedness)
• The amount of interest paid or incurred within
the taxable year on indebtedness in connection
with the taxpayer profession, trade or business
shall be allowed as deduction from gross
income. Provided however, that the taxpayer’s
otherwise allowable deduction for interest
expense shall be reduced by an amount equal to
the following percentage of the interest income
subject to final tax: 33%
20 % beginning January 1,
2009.
 Taxes (except certain taxes
like income tax)
• All taxes are deductible except Income
tax, Estate tax, Energy tax, Special
Assessment, Value Added Tax,
Amnesty tax, 10% penalty tax on undue
accountabilities of profit and penalty
(25% surcharge, 50% surcharge
compensation payment.
• Local Taxes
 Losses (not compensated for by
insurance or other forms of
indemnity)
• Requisites for the deductibility of a loss:
• 1. The loss must be incurred in trade, profession, or
business of the taxpayer, or any transaction entered into
for profit.
• 2. It must be actually sustained within the taxable year.
• 3. It must be evidenced by a closed and completed
transaction.
• 4. It must be compensated for by insurance or other form
of indemnity.
• 5. The taxpayer has filed a sworn declaration of loss
within 45 days after the date of the occurrence of
casualty or robbery, theft or embezzlement.
• Net Operating Loss Carry Over (NOLCO)
– a business enterprise for any taxable
year immediately preceding the current
taxable year which had not been
previously offset as deduction from gross
income shall be carried over as a
deduction from gross income for the next
three (3) consecutive years immediately
following the year of such loss.
 Bad debts (actually
ascertained to be worthless)
• Requisites for deductibility of bad debts:
• 1. There must be an existing indebtedness
due to the taxpayer which must be valid
and legally demandable.
• 2. The same must be connected with the
taxpayer’s trade, business or practice of
profession.
• 3. The same must not be sustained in
transaction entered into between related
parties.
 Depreciation of property
• Requisites for deductibility of depreciation:
• The allowance for depreciation must be
reasonable.
• It must be for property used in trade or
business.
• It must be charged off during the taxable
year.
• A statement on the allowance must be
attached to the return.
 Depletion of natural resources

• Depletion is the exhaustion of natural

resources like mines and oil and gas wells
as a result of production or severance
from such mines or wells.
 Charitable and other
contributions
• Corporations or association to whom
contributions or gifts may be made or paid
and claimed as deduction, the amount of
which is subject to limitations.
• The limitation is 5% for corporations, of
the taxable income derived from trade,
business or profession.
 Research and development
expenditures
• Methods of treating research and development
• 1. Currently deductible as ordinary and necessary expense
– *Research or development expenditures paid or incurred by a
taxpayer during the taxable year in connection with his trade,
business or profession and are not chargeable to capital account
and may be deducted as expenses.
• 2. Treatment as deferred expenses
– *Deferred expenses are allowable as deduction ratably over a
period of no less than 60 consecutive months beginning with the
month in which the taxpayer first realizes benefits from the
expenditures.
Pension trust contributions of an employer for the
payment of reasonable pensions to his employees

• Requisites for deductibility of pension expense:

• 1. Employer must have established a pension plan.
• 2. Pension plan must be reasonable or actuarially sound.
• 3. Funded by the employee.
• 4. Amount contributed by the employer must not be subject to
his control.
• 5. Payment has not been allowable as deduction.
• 6. Apportioned over a period of ten (10) consecutive years
beginning with the year in which the transfer in payment was
made.
 OSD for corporation
• Ex. A retailer of goods, a corporation whose accounting method is under the
accrual basis has a gross sales of P1,000,000 with a cost of sales amounting to
P800,000.
• Gross Sales P1,000,000
• Less: Cost of Goods Sold 800,000
• Basis of the OSD P200,000
• X OSD rate .40
• OSD Amount P80,000

• Taxable Income:
• Gross Sales P1,000,000
• Less: Cost of Goods Sold 800,000
• Gross Income P200,000
• Less: OSD 80,000
• Net Income P120,000
 IMPORTANT REMINDER:

• A TAXPAYER MAY AVAIL OF 40%

OPTIONAL STANDARD DEDUCTION
(OSD) IN LIEU OF ITEMIZED
DEDUCTIONS.
 IMPORTANT REMINDER:

• OSD CAN BE AVAILED OF BY A

DOMESTIC CORPORATION AND A
RESIDENT FOREIGN CORPORATION.
• SO A NON-RESIDENT FOREIGN
CORPORATION IS NOT ALLOWED TO
CLAIM OSD.
 General Partnerships

• General Professional Partnerships

• General Co-Partnerships
 General Professional
Partnerships
• They are those formed by persons for the
sole purpose of exercising their common
professions no part of the income of
which is derived from engaging in any
trade or business.
 General Professional
Partnerships
• They are not subject to income tax but the
partners are liable for income tax in their
separate and individual capacities on their
respective distributive shares in the net
income of the partnership.
OSD for general professional
partnerships and the partners
• A general professional partnership
(GPP) and the partners comprising
such partnership may avail of the
OSD only once, either by the GPP
or the partners comprising the
partnership.
 General Co-Partnerships

• General partnerships other than general

professional partnerships organized for the
purpose of engaging in trade or business.
• The taxable income declared by the partnership
for a taxable year which is subject to corporate
income tax after deducting such tax shall be
deemed to have been actually or constructively
received by the partners in the same taxable
year whether actually distributed or not.
 General Co-Partnerships

• The taxable income declared by the

partnership for a taxable year which is
subject to corporate income tax of 25%
after deducting such tax shall be deemed
to have been actually or constructively
received by the partners in the same
taxable year whether actually distributed
or not.
 PROPRIETARY EDUCATIONAL
INSTITUTIONS

• Proprietary educational institutions shall

pay a tax of ten percent (1%) on their
income. Provided that if the gross income
from unrelated trade, business or other
activity is fifty percent (50%) of the total
gross income derived by such, educational
tax should be 25% on the net income.
 PROPRIETARY
EDUCATIONAL INSTITUTIONS
• A proprietary educational institution is any
private school maintained and
administered by private individuals or
groups with an issued permit to operate
from DEPED, CHED, and TESDA.
 Income from School Activities

 Tuition Fee
 Medical and Dental Fee
 Registration Fee
 Proceeds from School Uniform
 Laboratory Fee
 Proceeds from Yearbook
 Entrance Fee
 Retreat Fee
 Identification Card Fee
 Canteen Operation
 Comprehensive Examination Fee
 School Bus Operation
 Internet Fee
 Bookstore Operation
 Practicum Fee
 Dormitory Operation
 Internship Fee
 Proceeds from Fieldtrip
 Graduation Fee
 Other Related Income
 Unrelated School Activities’
Income
 1. Lease of Properties
 2. Lease of Gym, Auditorium, Football Field
 3. Printing Press Operation
 4. Parking Fee
 5. Consultancy Fee
 6. Commission from Group Life and Accident Insurance
Policies
 7. Sales of Stickers, Gifts, Souvenirs
 8. Donations
 9. Investment in Shares of Stocks
 10. Money market Placements
 11. Catering Services
 12. Other Unrelated Income
Minimum Corporate Income Tax
MCIT
• Minimum corporate income tax (MCIT)
on gross income, beginning in the
fourth taxable year following the year of
commencement of business
operations.
• MCIT is imposed where the CIT at 25%
is less than 1% MCIT on gross income.
Is the Minimum Corporate Income Tax
(MCIT) an addition to the regular or normal
income tax?
• No, the MCIT is not an additional tax. An MCIT of 1% of
the gross income as of the end of taxable year (whether
calendar or fiscal year, depending on the accounting
period employed) is imposed on a corporation taxable
under Title II of the Tax Code, as amended, beginning
on the 4th taxable year immediately following the taxable
year in which such corporation commenced its business
operations when the MCIT is greater than the regular
income tax. The MCIT is compared with the regular
income tax, which is due from a corporation. If the
regular income is higher than the MCIT, then the
corporation does not pay the MCIT but the amount of the
regular income tax.
 Who are covered by MCIT?
• The MCIT covers domestic and resident foreign corporations
which are subject to the regular income tax. The term “regular
income tax” refers to the regular income tax rates under the
Tax Code. Thus, corporations which are subject to a special
corporate tax or to preferential rates under special laws do not
fall within the coverage of the MCIT.
• For corporations whose operations or activities are partly
covered by the regular income tax and partly covered by the
preferential rate under special law, the MCIT shall apply the
regular income tax rate on its operations not covered by the tax
incentives. Newly established corporations or firms which are
on their first 3 years of operations are not covered by the MCIT.
 The Minimum Corporate Income Tax shall
not be imposed upon any of the following:

• Domestic corporations operating as proprietary

educational institutions
• Domestic corporations engaged in hospital operations
which are non profit subject to tax at one (1%) on their
taxable income
• Corporations engaged in business as depository banks
under expanded foreign currency deposit system
• Firms that are taxed under a special income tax regime
such as those in the PEZA law and the Bases
Convention Development Act
 When does a corporation start
to be covered by the MCIT?
• A corporation starts to be covered by the
MCIT on the 4th year following the year of
the commencement of its business
operations. The period of reckoning which
is the start of its business operations is the
year when the corporation was registered
with the BIR. This rule will apply
regardless of whether the corporation is
using the calendar year or fiscal year as its
taxable year.
• The computation and the payment of
MCIT shall likewise apply at the time of
filing the quarterly corporate income tax.
• Thus, in the computation of the tax due for
the taxable quarter, if the computed
quarterly MCIT is higher than the quarterly
normal income tax, the tax due to be paid
for such taxable quarter at the time of filing
the quarterly corporate income tax return
shall be the MCIT which is (1%) of the
gross income as of the end of the taxable
quarter.
• Assume the following data for HAYAHAY
Corp for the current year:
Gross Income Philippines P975,000
Expenses Philippines 750,000
Gross Income, Malaysia 770,000
Expenses Malaysia 630,000

• Income tax due assuming:

• Domestic Corporation
• Resident Foreign Corp
• Non Residents For Corp
 Solution
• DC
(975,000+770,000-750,000-630,000)*20%
Answer: 69,000
• RFC
(975,000-750,000)*25%
Answer: 56,250
• NRFC
975,000*25%
Answer: 243,750
• Assume the following data for HAYAHAY
Corp for the 4th year of business
operation:
Gross Income Philippines P975,000
Expenses Philippines 950,000
Gross Income, Malaysia 700,000
Expenses Malaysia 720,000

• Income tax due assuming:

• Domestic Corporation
• Resident Foreign Corp.
• Non Residents For. Corp.
 Solution
• DC
NIT (975,000+770,000-750,000-630,000)*20%
=69,000 Higher
MCIT (975,000+770,000)*1% = 17,450
• RFC
NIT (975,000-750,000)*25% = 56,250 Higher
MCIT= 975,000*1% = 9,750
Answer:
• NRFC
975,000*25% = 243,750
Carry Forward of Excess Minimum
Corporate Income Tax

• Any excess of the minimum corporate

income tax over the normal income tax
shall be carried forward and credited
against the normal income tax for the
three (3) succeeding taxable years.
How would the MCIT be recorded
for accounting purposes?
• Any amount paid as excess minimum
corporate income tax should be recorded
in the corporation’s books as an asset
under account title “Deferred Charges-
MCIT”
 Excess MCIT or MCIT Carry-
over
• The records of a domestic corp which
commenced operation in 2013 show:
2018 2019 2020
Gross 10,000,000 12,000,000 14,000,000
income
Allowable (9,500,000) 12,200,000 12,800,000
deductions
Net income 500,000 (200,000) 1,200,000
(loss)

Determine the following:

1. Income tax payable for 2018
2. Income tax payable for 2019
3. Income tax payable for 2020
 Solution
• 2018
NIT 500,000*20%= 100,000
MCIT 10,000,000*1% = 100,000
SAME – No excess MCIT
• 2019
NIT = Zero since Operating Loss of (200,000)
MCIT = 12,000,000*1% = 120,000 Higher
Excess MCIT = P120,000 to be Deferred
• 2020
NIT = (1,200,000 – 200,000 Nolco)*20%=200,000
MCIT = 14,000,000*1%=140,000
Income Tax Due: 200,000
(120,000) Excess MCIT Carry-over 2019
(80,000) Excess MCIT Carry-over 20,000
P200,000 - 120,000= P80,000 income Tax Due
P-0-
Balance of Excess MCIT to be carryover until 2023 is P60,000
 Filing of Corporate Income Tax Return

• When to file – A
corporation may employ
either a calendar year or
fiscal year as a basis for
filing its annual income
tax return.
• BIR Form 1702 - Annual Income Tax
Return (For Corporations and
Partnerships)
• Deadline: Final Adjustment Return or Annual Income Tax Return - On or
before the 15th day of the fourth month following the close of the taxpayer’s
taxable year

• BIR Form 1702Q - Quarterly Income Tax

Return (For Corporations and
Partnerships)
• Deadline: Corporate Quarterly Declaration or Quarterly Income Tax
Return - On or before the 60th day following the close of each of the
quarters of the taxable year
 Filing of Corporate Income Tax Return

• Where to file – Except as Commissioner

otherwise permits, the quarterly income tax
declaration and the final adjustment return shall
be filed with an authorized or Accredited Agent
Bank (AAB) or with the Revenue District Officer,
Revenue Collection Officer or duly authorized
treasurer of the city or municipality having
jurisdiction over the location of the principal
office of the corporation filing the return or place
where the main books of accounts and other
data from which the return as prepared are kept.
 Modes of and Procedure
for Payment of Internal
Revenue Taxes
(Aside from EFPS-Electronic Filing
Payment System)
 Modes of payment to AABs
(Authorized Agent Banks)
• Over the counter cash payment – refers
to the payment of tax liabilities to
authorized agent bank in the currencies
that are legal tender in the Philippines.
• Bank Debit System – refers
to the system whereby a
taxpayer through a bank debit
memo authorizes withdrawals
from his existing bank
accounts for payment of tax
liabilities.
• Check – refers to a bill of exchange or order
instrument drawn on a bank payable on
demand.
• *The taxpayer shall indicate in the space
provided for “PAY TO THE ORDER OF” the
following data:
– a) collecting bank or the bank where the
payment is to be coursed
– b) FAO (For the Account Of) Bureau of Internal
Revenue as payee; and under the “ACCOUNT
NAME”, the taxpayer identification number (TIN)
 Corporation returns
• 4 pages in paper form or electronic form
– Corporate profile and information
– Gross sales, receipts or income
– Allowable deductions
– Taxable income
– Income tax due and payable
• Corporations, companies,
partnerships or persons whose gross
annual sales, earnings, receipts or
output exceed P3,000,000 shall have
their book of accounts audited and
examined yearly by independent
CPA.
• BIR only but SEC?…
QUESTIONS???